Earnings Call Transcript - EME Q2 2024

Operator, Operator

Good morning. My name is Danielle, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Second Quarter 2024 Earnings Conference Call. Please note this call is being recorded. I would now like to turn the call over to Andy Backman, Vice President of Investor Relations. Mr. Backman, you may begin.

Andrew Backman, Vice President of Investor Relations

Thank you, Danielle, and good morning, everyone, and welcome to EMCOR's Second Quarter 2024 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 second quarter. Jason will then review the second quarter numbers in detail before turning it back to Tony to discuss RPOs as well as reviewing our revised 2024 guidance before we open it up for Q&A. Before we begin, as a reminder, this presentation and discussion contain 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. 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 Guzzi, Chairman, President and CEO

Yes. Thanks, Andy, and good morning, and thanks, everyone, for joining our call. I am going to begin my discussion on Page 4. We had an exceptional first half of the year at EMCOR, and our results for the second quarter of 2024 further illustrate our continued momentum and excellent execution in the field. Within the quarter, we set new quarterly records for revenues, operating income, operating margin and diluted earnings per share. We grew revenues by 20.4% to $3.67 billion, achieved a consolidated operating margin of 9.1% and earned $5.25 per diluted share. While revenues increased 17.7% organically, RPOs of $9 billion remained at near record levels, increasing $713 million or 8.6% versus the year-ago period. Our Mechanical and Electrical Construction segments are driving our record performance with organic revenue growth in both the quarter and year-to-date periods of over 33% in our Mechanical Construction segment and 18% in our Electrical Construction segment. We continue to be well positioned in the right geographies and market sectors. We are winning the right mix of work, estimating our opportunities with the appropriate contingency, negotiating our contracts with care, planning with discipline and executing our work with precision and innovation with year-to-date operating margins of 11.8% for Mechanical Construction and 11.5% for Electrical Construction. We continue to perform well in large and growing market sectors with strong demand anchored in favorable markets for which that includes high-tech and traditional manufacturing; network and communications, which includes data centers, institutional and healthcare that are benefiting from long-term secular trends. Our teams are executing with discipline and precision aided by the full range of virtual design and construction tools, we call that VDC. And that also includes BIM, which you've heard me talk about, building information modeling, as well as excellent prefabrication, fill planning, supply chain management and contract negotiation. These teams continue to focus on delivering impressive results for our customers on incredibly sophisticated and fast-paced projects with multiyear building plans. When we target these large sophisticated sites, we typically win 25% to 35% of the time. However, it is always important to remember, and I had said this on many of these calls, after the initial project award, future phases may be released in smaller increments potentially affect the timing and amount we recognize within our RPOs even if the cumulative revenue from these subsequent phases is equivalent to the initial award that we previously had in RPOs. This is partially reflected in the 2% decline in RPOs from the first quarter of 2024. Beyond our Construction segments, our U.S. Building Services segment is executing as we expected. Our Mechanical Services business is operating in high single-digit operating margins and is growing revenues at low double digits. We are experiencing strength in all our Mechanical Service lines, including repair service, service agreements, retrofit HVAC projects and building controls, installations and upgrades. However, as we discussed in our year-end 2023 call, on an annual basis, we have had nearly $300 million in revenue headwinds in our commercial site-based business due to the loss of certain facilities, maintenance contracts are rebid despite strong customer scores on our service delivery. Despite these headwinds, we still delivered quarterly and year-to-date operating margins of 6% and 5% in the U.S. Building Services segment. And revenues grew about as expected by 4.1% year-to-date. Our Industrial Services segment reported its best second quarter post-pandemic. And we saw improved demand for both our shop and field services on both the quarterly and year-to-date basis. Our shops continue to perform well, and the Electrical business within this segment has experienced increased demand, both from traditional upstream and midstream customers as well as for certain renewable fuels projects. Our U.K. business continues to perform as expected and has had some success in building its pipeline and retooling its business development efforts. This segment had solid operating margins at 5.4% in the quarter and 5.3% on a year-to-date basis. We had strong operating cash flow of $412 million on a year-to-date basis, almost double from the year-ago period. As I have said, our RPOs remain at near-record levels at $9.0 billion, and I will discuss that in more detail later, and our prospects remain strong. We successfully closed 4 acquisitions in the quarter for an aggregate upfront purchase price of $173 million net of cash acquired. With that opening, Jason, I'll turn it over to you.

Jason Nalbandian, CFO

Thank you, Tony, and good morning, everyone. Over the next several slides, I will review the operating performance of each of our segments as well as some of the key financial data for the second quarter of 2024 as compared to the second quarter of 2023. I'm going to start on Slide 5 with revenues. As Tony mentioned, consolidated revenues were $3.67 billion, an increase of $621.3 million or 20.4% as demand for our services continues to be strong across the majority of the market sectors we serve. Each of our reportable segments experienced year-over-year increases in revenues, and we achieved organic revenue growth of nearly 18%. Looking at each of our segments, revenues of U.S. Electrical Construction were $800 million, an increase of 18%. This segment continues to benefit from increased demand across many market sectors with the most significant revenue growth once again coming from network and communications, which, as a reminder, is predominantly our data center projects. In addition, this segment experienced increases in revenues within the transportation, high-tech manufacturing and manufacturing and industrial market sectors. Revenues for U.S. Mechanical Construction were $1.7 billion, increasing nearly 39%. This segment saw revenue growth across the majority of the market sectors in which we operate and benefited from greater levels of short duration projects and service work. The strongest growth was seen within the high-tech manufacturing market sector largely driven by continued demand for our Mechanical Construction and fire protection services by customers engaged in the design, development and production of semiconductors or electric vehicles and lithium batteries. Beyond high-tech manufacturing, we also saw notable increases within network and communications, institutional, manufacturing and industrial, health care and water and wastewater. Demand within this segment continues to be broad-based. As expected, partially offsetting the growth for both of our Construction segments was a decrease in revenues from the commercial market sector due to either reduced demand across the commercial real estate industry or the completion of various warehousing and distribution projects which were active a year ago. Together, our domestic Construction segments generated revenues of $2.5 billion, an increase of just over 31%. Moving to U.S. Building Services, revenues were $781.1 million, representing a modest increase year-over-year. With revenues increasing $67.2 million or 13%, our Mechanical Services division within this segment continues to benefit from strong demand across its service lines with the most significant growth coming from HVAC projects and retrofits. However, as anticipated and as discussed on prior calls, revenues of the segment were impacted by the nonrenewal of certain contracts within our commercial and government site-based businesses. The loss of these facilities maintenance contracts largely offset the growth within Mechanical Services. Looking at U.S. Industrial Services, revenues were $324 million, increasing just under 11% driven by improved demand across the segment's field services division coupled with greater new build heat exchanger sales within its shop services business. And lastly, U.K. Building Services delivered revenues of $106.6 million, in line with that of the prior year period. If we turn to Slide 6, for the quarter, we reported operating income of $332.8 million or 9.1% of revenues. This compares favorably to operating income of $196.7 million or 6.5% of revenues a year ago. Once again, a more favorable mix of work, exceptional project execution and enhanced productivity due in part to our investments in virtual design construction and prefabrication continue to be key drivers of our improved performance. Looking at our segments, U.S. Electrical Construction reported operating income of $88.6 million, which represents a nearly 75% increase and operating margin of 11.1%, which is a 360 basis point improvement. Increased gross profit and gross profit margin were the primary drivers of this quarter's performance. While the most notable increases were experienced within network and communications, this segment additionally benefited from greater gross profit on projects within the transportation, institutional, high-tech manufacturing and manufacturing and industrial market sectors. Operating income for U.S. Mechanical Construction was $213.4 million, an increase of just over 78%. An operating margin of 12.9% expanded by 290 basis points. This segment experienced greater gross profit from the majority of the market sectors in which we operate with the largest increases being generated within high-tech manufacturing, network and communications and commercial. Together, our Construction segments reported an operating margin of 12.3%. Operating income for U.S. Building Services was $46.8 million or 6% of revenues, in line with the year-ago period. Consistent with the revenue performance of the segment, increased gross profit and gross profit margin from our Mechanical Services division was largely offset by reductions within commercial and government site-based due to the headwinds we previously discussed. Moving to Industrial Services, operating income was $12.7 million or 3.9% of revenues, representing a nearly 62% increase in operating income and a 120 basis point improvement in operating margin. In addition to the impact of greater revenues, operating income of this segment benefited from higher gross profit margin primarily within the shop services division due to favorable pricing and greater indirect cost absorption. And lastly, U.K. Building Services reported operating income of $5.8 million or 5.4% of revenues, which is relatively consistent with the year-ago period. Let's now turn to Slide 7. A few highlights on this slide not covered by my previous commentary, starting with gross profit. Due to a combination of the revenue growth we just discussed as well as a 260 basis point increase in gross margin, our gross profit of $684 million has increased by nearly 40%. While our SG&A has increased year-over-year, our SG&A margin for the quarter of 9.6% remains consistent with that of the year-ago period. And finally, diluted earnings per share was $5.25 compared to $2.95, an increase of 78%. Briefly turning to Slide 8. This slide outlines EMCOR's performance for the first 6 months of 2024 and has been included here for your reference. Rather than go through our year-to-date results in detail, I wanted to simply highlight that we've had a tremendous start to the year, setting a number of new company records as we continue to deliver for our customers and shareholders. In a later slide, Tony will outline our updated earnings guidance for 2024. And I mention that now as it is this performance which frames our updated guidance. As you can see on the page, we have earned a year-to-date operating margin of 8.3%. This record margin serves as a key data point within our guidance as the midpoint of such range reflects a full-year operating margin in line with what we have achieved to date. And finally, on Slide 9, as we've previously stated, our balance sheet remains strong and liquid and continues to be a differentiator for us in the market. Further, the size and strength of our balance sheet, coupled with our significant cash generation, leaves us well positioned to fund organic growth, pursue strategic M&A and return capital to shareholders. In addition to the organic growth we have generated thus far, this is evidenced in part by the $173 million we have spent on acquisitions and $149 million we have utilized for share repurchases year-to-date. Although not shown on this slide, operating cash flow for the quarter was approximately $280 million, which represents 84% of operating income. And on a year-to-date basis, we have generated $412 million of operating cash, equivalent to 70% of operating income. With that, I'll turn the call back over to Tony for a discussion on RPOs.

Tony Guzzi, Chairman, President and CEO

Thank you, Jason. I will be discussing Pages 10 and 11, starting with Page 10. Here, you'll find a slide I've referenced previously. While the format has changed slightly, it remains similar to what we presented in our new corporate overview this quarter. This slide showcases key market sectors where we are experiencing growth, and it helps us determine how to allocate resources for organic growth. As I explain the RPOs, I recommend placing Slides 10 and 11 side by side to better follow the discussion. In terms of the RPOs, there aren't any major surprises; these reflect trends we've observed over the last eight quarters, and they illustrate how we've structured the business for success. Instead of going into detailed analysis of this slide, I will address our RPOs in relation to the five main trends indicated at the top of the chart. Regarding data centers and connectivity, we continue to experience strong demand for hyperscale data center projects, reported within the network and communications market sector. At the end of the quarter, RPOs in this sector reached a record $1.7 billion, marking an increase of $489 million or nearly 40% year-over-year and 2% sequentially. We believe we are still in the early stages of the overall data center expansion and have effectively positioned ourselves in essential data center locations, having expanded our presence in these markets since 2019. In the area of reshoring and near-shoring, along with our work in high-tech manufacturing, we see overlaps with both the high-tech manufacturing and general manufacturing sectors. In high-tech manufacturing, we recorded RPOs of $1.3 billion at the end of the second quarter, encompassing areas like semiconductors, pharmaceuticals, biotech, life sciences, and the electric vehicle value chain. RPOs in this sector increased by $58 million or 5% compared to last year, affirming our belief in solid long-term fundamentals. As we've noted repeatedly, we anticipate fluctuations in specific project awards, and the nature of project work will vary in amount and contract structure once onsite, particularly for multi-phase and multi-year building programs. In addition to high-tech manufacturing, we maintain a strong foundation in the traditional manufacturing industrial market, totaling $782 million at the quarter's end. Turning to energy efficiency and sustainability, which also relates to short-duration projects, we continue to excel in retrofit projects, particularly in the Mechanical Services division of our U.S. Building Services segment, where we noted over a 9% year-over-year increase in RPOs. Much of this work focuses on retrofitting outdated equipment while enhancing efficiency through building automation upgrades and new HVAC installations. Lastly, in healthcare, we expect ongoing demand, with record RPOs of $1.2 billion at quarter's end, an increase of almost 14% from the previous year. Water and wastewater projects total $602 million, which is up 24% year-over-year. These projects are usually episodic due to their size and complexity, with most being executed in Florida. The institutional sector stands at just over $1.1 billion, nearly 36% growth year-over-year, encompassing schools, universities, and government buildings. They are focusing their spending on projects like research facilities, new classrooms, technology upgrades, and renovations for improved air quality and energy efficiency. Transportation has also seen growth of about 39%, with an increase of $276 million, primarily in infrastructure related to airports. Short-duration projects, closely tied to energy efficiency, involve upgrades to electrical systems, HVAC, technology, and building control systems to create smarter and more efficient environments. Conversely, we observed a decrease in RPOs within the commercial sector, which now totals $1.3 billion. Our exposure in this sector is more focused on distribution and tenant fit-out projects rather than new high-rise construction. In conclusion, total company RPOs at the end of the second quarter were approximately $9 billion, up $713 million or 8.6% year-over-year. We are satisfied with our RPO performance and its composition, especially given the significant revenue growth we experienced in the second quarter, reflecting robust demand for our services. Our pipeline remains strong. Moving on to Page 12, I want to note that due to our strong performance in the first half of the year, we are raising our guidance. We are increasing our revenue guidance to between $14.5 billion and $15 billion, and our earnings per diluted share guidance from $15.50 to a range of $19 to $20. We are witnessing outstanding execution in the field, and our operating margins in the Construction segments are more stable and higher than we had anticipated at the start of the year. We expect these positive trends to persist as we successfully bid for and execute projects in favorable market areas such as network and communications, including data centers, high-tech manufacturing, energy efficiency initiatives, healthcare, and traditional manufacturing. Additionally, we anticipate continued strong performance from our U.S. and U.K. Building Services segments, and we expect the Industrial Services segment to reach its highest level of operation since the pandemic. However, we will continue to face challenges in markets, particularly within our site-based services in the U.S. and U.K. Factors such as higher interest rates, the upcoming presidential election potentially slowing decision-making, supply chain disruptions, rising energy prices, and global conflicts will still pose challenges for us. Yet, we will navigate these issues strategically, as we have in the past. We remain focused on how we serve our commercial real estate and private equity customers, considering that high interest rates and capital scarcity can affect their operations. Finally, I want to express my gratitude to all EMCOR leaders and teammates for their hard work and commitment to serving our customers safely and effectively. We have a talented team at EMCOR, guided by our core values of Mission First and People Always, and we will continue to concentrate on delivering our mission for both our customers and shareholders while ensuring EMCOR remains a great workplace for our employees. With that, Danielle, I am ready to take questions.

Brent Thielman, Analyst

Tony, maybe just to start, can you talk about the pipeline of potential opportunities you're still seeing in high-tech and sort of manufacturing and industrial, I think just looking for any other evidence, this sequential reduction in RPOs is more likely temporary and timing-related as I think you're ultimately suggesting here.

Tony Guzzi, Chairman, President and CEO

Yes. I mean, look, if you think big picture, right, these are sites that are going to be developed over 10 to 15 years. And so nothing has changed, right? The fabs are moving from Taiwan back to the U.S., so there's near-shoring. There's expanded need for chips because of AI. And all that remains true today just like it did last quarter, the quarter before that, the quarter before that and the quarter before that. We executed at a fairly high burn rate on one of those sites as we hit peak manpower, and we hit peak scope, right? We're at the sweet spot on one of the major sites. And that's a good thing. You could see that in our cash flow, and you can see that in the execution and the drop-through in our mechanical business, especially when you get focused on high tech. So if you go to the semiconductor sector, we're bullish on the sites we're on. We have good line of sight to multiyear projects. But like I've said before, sometimes the multiyear projects now come in different chunks. We're there now. We're working. We're part of the team. We're developing the site. And then sometimes they'll come in, in a different contracting form or they will come back in lump sum. Our job is to make sure we stay as part of that team, execute well, finish the work well, get a commission well and move to the next phase. And most of these sites, the 3 or 4 big ones we're on have 3 or 4 more fabs they're going to build. And it's just not like they jump from one to the other, and everything happens literally. So we feel really good about semiconductors. And nothing's changed in our outlook on pharma and biopharma either. A lot going on. We're in the right places, especially in Research Triangle Park in Indiana and in New Jersey. And these are long-term building programs, again, where you will hit a revenue run rate where we're at now, which is hard to keep up with the RPOs and then again, go back to the contracting mechanism. And reshoring and near-shoring, we show really no change. As far as EVs, I've said this before, we were actually very careful of how we did this. We really led with fire, life safety. The structures are getting built. They're going to continue to get built as they build out a site. The next phase will be equipment and placement. That has slowed down. That was never the biggest part of what we were doing. It was a big part of what we did, like Jason said in the second quarter, but it was never the biggest part of what our high-tech manufacturing exposure has been. And look, I have a personal view. It doesn't really matter whether it's 12%, 15% or 20% or 30%. It's going to be somewhere in there of EV penetration, and then more things will be built. There will be consolidation in that space, and we'll be very careful. We've always been careful how we serve the automotive sector because it is a very episodic-type business. And quite frankly, they're a very difficult customer, and you have to be careful. And then finally, as you go to other near-shoring, we continue to see that as a long-term trend. That trend was happening before COVID. COVID accelerated it, and it continues to be as people look to reshore and expand their supply chains. So that's a long-winded answer to what we're seeing there, but we still are very bullish yet on what's happening in high-tech manufacturing and manufacturing industrial.

Brent Thielman, Analyst

Thank you, Tony. I appreciate that. Regarding the overall profitability of the company, we continue to reach new highs. Tony, could you compare and contrast the bid margins and what customers are willing to pay to bring you in with the simple effective execution in the field? It would be helpful to get your insights on that.

Tony Guzzi, Chairman, President and CEO

Separating these factors is quite challenging because larger projects, which significantly impact our margins, often require collaboration with the customer to align with their budget and devise workable solutions. As a result, discussing pricing becomes complicated. Our productivity, along with our ability to implement virtual design and construction, allows us to engage earlier in the design process. While we do not classify ourselves strictly as design-builders, our upstream engineering assistance helps refine the drawings from the start, minimizing conflicts on-site. Additionally, we focus on creating a comprehensive model that facilitates a seamless workflow and prevents on-site collisions. This Building Information Modeling approach drives a meticulous prefabrication and supply chain management strategy while working closely with our suppliers. I believe that the majority of our success, about three-quarters, stems from productivity, methods, and planning, with only a quarter or less attributed to pricing. There’s simply too much emphasis on productivity, and our close partnerships with customers make it difficult to discuss pricing. Importantly, the competitive landscape in our business remains unchanged, and we are dealing with large, sophisticated customers who know how to leverage competition at the worksite.

Brent Thielman, Analyst

Yes, Tony, my last question is really about the outlook for the rest of 2024. This year has the potential for significant accomplishments. I understand you have the second half to work through from an earnings perspective, and I appreciate your views on how the company can leverage this incredible year, assuming these end market drivers continue in the coming years.

Tony Guzzi, Chairman, President and CEO

I mean I always think about things, right? I think you know, in general, we're very cautious and conservative, right, by nature. And I think that's why we've had this long-term record of success in what is a pretty difficult business. I think about things maybe a little differently, right, in a sense of you got to put the enablers in place to allow growth, and you got to be positioned with the right customers in the right place. And so the question is, are you continuing to expand the geography you can serve and the sites you can serve? Have you opened up the types of things you can do? An example of that is we continue to look for opportunities to expand the geographies we're in. Our acquisition program in the first part of this year and really over the last number of years forever has been a focus on that. But then you got to think about, okay, I built a capability to do this kind of project in this geography with this subsidiary. Are there other people that have the capability to do that, they do projects that are similar and that it's coming to their geography, can we do a lot of peer learning? Can we have people teach them how to do the project planning upfront? Can they come and learn the means and methods? So I don't know what end demand will ever be, right? We try to position ourselves to markets we think are growing. But I do know if you continue to build capability within your workforce, you continue to build capability in the number of markets you can serve. And if you continue to train your leaders the right way and how you treat people and how you lead and how you plan and you do those things right, then long term, you can build on success. And I think that's the playbook we've been following for a while. I think we're in a period now that, obviously, it's accelerated over these past 3 years. But I think a lot of that is investments that we made 5, 10 years ago to continue to build that workforce and build the culture that we have that allows for transparency, that allows for teamwork, that allows for respect and share ideas across our company. And then you couple that with a strong focus on discipline and disciplined execution and then you always keep safety of your workforce and your planning in paramount, I think you get good results. And you position yourself well with key customers, you can grow with them as they expand what they're doing.

Adam Thalhimer, Analyst

Also congrats on a great quarter. Tony, is the headwind you talked about within commercial, is that coming in any different than you anticipated?

Tony Guzzi, Chairman, President and CEO

No, I think we'd say, and Jason, maybe you can elaborate on this and provide some context, it's exactly where we thought it would be. Quite frankly, we might have experienced this decline even if the commercial market was strong because we would have redirected our resources towards some of the high-tech and traditional manufacturing anyway due to the long-term, larger, and more complex projects, which align with our expertise, particularly in fire and life safety. So we would have adjusted our workforce to focus on a more lucrative market regardless. Jason, you have the floor.

Jason Nalbandian, CFO

Tony, I would agree with that. I think right on the commercial side, it is the only market sector where on a quarter-to-date basis, we are down on the Construction side. It's exactly what we expected, both electrically and mechanically. And as Tony said before, we've pivoted ourselves elsewhere where we are seeing growth. And then on commercial, if the question is specific to commercial site based where we've talked about the headwinds there, it's exactly the contracts that we spoke about at the end of December. The revenue decline there is exactly what we anticipated. And Building Services is operating collectively as a segment right where we thought it would be, right, the growth in the quarter being 1% and on a year-to-date basis at 4%.

Adam Thalhimer, Analyst

Okay. And then presumably, you're running pretty flat out. I assume you guys are fully engaged. You're probably having some labor availability issues, if anything. I mean have you guys been turning away work? Or how have you been managing backlog?

Tony Guzzi, Chairman, President and CEO

We should consider the business landscape more broadly. These markets are substantial, even during less favorable times. In a company like ours, especially at the subsidiary level, we focus on identifying the best opportunities available for our capabilities and how to allocate our resources effectively. We approach this in two ways: we plan for projects and opportunities with a one- or two-year horizon and also manage ongoing short-term projects to stay active in the market. Our team at EMCOR, especially our subsidiary CEOs with support from segment leadership, excels at resource allocation. I don’t subscribe to the idea that we’re turning away work; instead, we leverage our current team and capabilities to grow. We can increase project volume by enhancing our workforce's skills, including foremen and superintendents, or by taking on larger projects with a longer timeline. I don't perceive a labor shortage in terms of our essential trades; rather, any potential workforce challenges are more about developing our future leaders like foremen, project managers, and estimators. We're committed to continuous development in these areas. Ultimately, it’s about managing the workforce mix effectively in our regions and across EMCOR.

Adam Thalhimer, Analyst

And then, Tony, how do you think about your potential to grow margins from here? I've been looking at EMCOR for about as long as you've been CEO. And I mean it's just amazing the productivity and the margins you guys are generating.

Tony Guzzi, Chairman, President and CEO

Yes, a lot of factors need to align, and they have been coming together. We need to focus on workforce development, technology investments, and sharing best practices. This carries through areas like estimating, mix management, methods, virtual design and construction, BIM, and supply chain management. It's essential to take what we do well and propagate that throughout the company to improve margins. Additionally, this is a challenging industry, and avoiding setbacks is crucial. We've made significant investments in training our team for contract negotiations. In more complex negotiations, we've bolstered our legal capabilities to respond thoughtfully. When issues arise, which they inevitably do, we are equipped to handle disputes with factual evidence and adherence to contracts, leading to better outcomes than we achieved in the past. Furthermore, having strong markets that allow for good absorption and collaboration with customers is key to achieving favorable results. As for margins moving forward, we believe they will remain consistent for the rest of the year, correct, Jason?

Jason Nalbandian, CFO

Yes. If you look at the guidance, really what we've assumed there, and I touched on the midpoint, right, which is if you look at the midpoint of our guidance, we're saying we can repeat in the back half of the year what we've done through the first 6 months of the year. When you look at those, the low end of the guidance, we're essentially saying we believe that at the low end, we can achieve the record margins that we achieved in the back half of last year. And if you look at the high end, we're essentially assuming 30 to 40 basis points above where we're at today.

Alexander Dwyer, Analyst

Can you talk about which geographies in the country you are seeing the highest growth right now? And would there be any other like geographies that you'd call out as being weaker versus stronger right now?

Tony Guzzi, Chairman, President and CEO

It's fairly broad-based in the markets we operate in. However, the real growth is coming from Texas, particularly in high-tech manufacturing and data centers. The Midwest has shown solid performance, driven by the auto industry, data centers, and general construction, along with some cold storage projects. Arizona has also performed very well, as expected. The Mid-Atlantic region has been strong for us too. New York City has been somewhat flat, as our focus there is mainly on aftermarket services. Boston has seen a slight slowdown and is relatively flat compared to five years ago, primarily due to a slowdown in the R&D facilities they were constructing, particularly those lab space hotel concepts. California has been decent, with strong energy retrofit and healthcare work. Oregon and Washington remain robust, especially in relation to data centers. Salt Lake has increased as well, although perhaps not as much as Arizona and some other locations. Overall, the growth is quite broad-based. The Northeast region is relatively flat, but the rest of the country appears to be performing well. Jason?

Jason Nalbandian, CFO

I think you hit on it all, Tony.

Alexander Dwyer, Analyst

Got it. That's super helpful. And then just lastly, with the $800 million of cash on the balance sheet, no debt, how should we be thinking about M&A versus repurchases as we go to the second half of the year? Like should we expect the M&A program to be concentrated more and looking after those high-tech manufacturing and data center end markets? And then is there any change in the M&A pipeline at all?

Tony Guzzi, Chairman, President and CEO

Yes. We have a good pipeline. Deals happen when they happen. I would expect right now, I mean, obviously, we're not afraid of doing $0.5 billion or $1 billion deal. But right now, what we're looking at is more of the same of what we did here in the first half of the year, which we're very pleased with. Our M&A execution over the last 5 years has been superb. And those who have known me over a long period of time, I think M&A is very difficult. I think we've been a good B+, A- student for a while here. The size of the deal goes up, the execution risk gets a lot harder. But so far, we've executed well. We have a good pipeline. Jason, I'd turn it over to you. I think we're going to continue to return cash to shareholders, and we're going to continue to grow the company through M&A and organic growth.

Jason Nalbandian, CFO

Yes. I think overall, right, no real change in strategy here. I think we'll continue to be balanced capital allocators. As Tony said, we're pleased with what we did through the first half of the year, right? We generated $412 million of operating cash, but our cash balances remain largely unchanged from the end of 2023. And that's the acquisitions at $173 million, the share repurchases at $149 million, our CapEx and our dividends. And in the back of our slide deck, I think it's Slide 13, we've updated our historical capital allocation here. If you look where we are so far this year, it's weighted 45% to shareholder return and 55% to business reinvestment. And if you look over time, we're closer to 50-50, and we'll continue to strive for that over time. So I think a long-winded way to say the back half of the year should look very similar to the first half.

Tony Guzzi, Chairman, President and CEO

I believe that we shouldn't force mergers and acquisitions. Many of the deals we made in the first half of the year were discussions we started three years ago. Similarly, some of our future initiatives have been in the pipeline for that long. Our priority is ensuring a strong cultural fit. If the culture aligns, we typically engage with companies that share our values and we can see the potential for growth and added capabilities. However, we won't engage in the game of valuation multiples. We're not looking to acquire companies at a higher multiple to create value; that rarely ends well, especially for operating companies like ours that own these businesses long-term and need to ensure they've got the right cultural integration. Our focus remains on the cultural aspects rather than short-term gains. The positive outcomes from our previous M&A activities are evident in our current numbers, reflecting deals made many years ago. We have consistently adhered to this approach, which has generated significant benefits for us. We emphasize the importance of management; if we don't believe in the management's capabilities and character, we won't proceed with the acquisition. Even if it's possible to replace management later, a lack of those qualities can lead to broader issues within the company.

Alexander Dwyer, Analyst

Got it. Okay. Can I squeeze one more in? For the data center build, is it possible to like parse through how much of the data center builds you're working on is just coming from traditional type data center builds we've seen over the past 5 years with the cloud? Or how much is coming from these new AI-type data centers?

Tony Guzzi, Chairman, President and CEO

We wouldn't have that kind of visibility. We just know that it's expanded. The only thing you could parse through is maybe the power requirements have gone up, but they were going up anyway. Ultimately, we'll build a data center. We'll energize the racking. We'll do day 2 work. What's actually going on in there, we don't have a lot of visibility to post once we build it. Even if we're doing some of the maintenance there, we don't have a lot of visibility on what the customers are using for. I thought where you headed the developers versus the 5 or 6 owners to build them, and there, there's really no difference, right? In the end of the day, those people are building them for the 5 or 6 people that would be building the data centers.

Operator, Operator

Mr. Guzzi, we have no further questions. I would like to turn it back to you for closing remarks.

Tony Guzzi, Chairman, President and CEO

Sure. I'm just going to tell you, thank you. I appreciate your interest in EMCOR. And be safe. With that, I'll turn it over to Andy to close us off here.

Andrew Backman, Vice President of Investor Relations

Thanks, Tony. Thanks, Jason and Maxine, and thanks to all of you for joining us today. If you should have any follow-up questions, please do not hesitate to reach out directly. Thank you all again, and have a great day. Danielle, would you please close the call?

Operator, Operator

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