Business Wire | Aug 3, 2020 07:30AM EDT

EMCOR Group, Inc. Reports Second Quarter 2020 Results

Aug. 03, 2020

NORWALK, Conn.--(BUSINESS WIRE)--Aug. 03, 2020--EMCOR Group, Inc. (NYSE:EME) today reported results for the second quarter ended June 30, 2020.

For the second quarter of 2020, we reported a net loss of $83.7 million, or $(1.52) per diluted share, compared to net income of $84.0 million, or $1.49 per diluted share, for the second quarter of 2019. The net loss for the second quarter of 2020 included after-tax goodwill, identifiable intangible asset, and other long-lived asset impairment charges, primarily related to our U.S. Industrial Services segment. Excluding these impairment charges, non-GAAP net income for the second quarter of 2020 was $79.2 million, or $1.44 per diluted share. Revenues for the second quarter of 2020 totaled $2.01 billion, a decrease of 13.3%, compared to $2.32 billion for the second quarter of 2019.

We reported an operating loss for the second quarter of 2020 of $122.6 million, representing an operating margin of (6.1)%, which included pre-tax impairment charges of $232.8 million, compared to operating income of $120.0 million, representing an operating margin of 5.2%, for the second quarter of 2019. Excluding such pre-tax impairment charges, non-GAAP operating income for the second quarter of 2020 was $110.1 million, representing a non-GAAP operating margin of 5.5%.

Selling, general and administrative expenses for the second quarter of 2020 totaled $205.2 million, or 10.2% of revenues, representing a decrease of $21.1 million compared to selling, general and administrative expenses of $226.2 million, or 9.7% of revenues, for the second quarter of 2019.

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

The Company's income tax rate for the second quarter of 2020 was (32.5)%, which compares to an income tax rate of 28.3% for the second quarter of 2019.

Remaining performance obligations as of June 30, 2020 were $4.59 billion compared to $4.23 billion as of June 30, 2019. Total U.S. remaining performance obligations grew approximately $346 million year-over-year.

Tony Guzzi, Chairman, President and Chief Executive Officer of EMCOR, commented, "We demonstrated excellent execution during these unprecedented times, and our second quarter performance reflects the rapid and decisive implementation of our contingency plans. Despite year-over-year revenue declines across each of our segments, we delivered non-GAAP operating income of $110.1 million and a strong non-GAAP operating margin of 5.5%, underscoring our ability to perform in almost any environment as well as our diligent cost control. Our efforts drove record operating cash flow generation of $276.7 million in the first six months of 2020, which represents an increase of over $300 million compared to the same period in 2019. Even as we and our customers navigate the uncertainty surrounding the COVID-19 pandemic and its impact on the economy, our remaining performance obligations continue to grow, up 8.6% year-over-year and 3.8% sequentially, demonstrating the resiliency of our business and the underlying demand for our services in the marketplace."

Mr. Guzzi added, "Our U.S. Construction segments continue to anchor our performance, with operating income growth of 1.4% year-over-year and a robust operating margin of 8.0%, up 100 basis points year-over-year. This was primarily driven by our U.S. Mechanical Construction segment, which posted operating income growth of 24.1% year-over-year and an impressive operating margin of 8.5%, up 190 basis points year-over-year. Additionally, our U.S. Electrical Construction segment delivered a healthy operating margin of 7.2% despite the significant impact of mandated shutdowns on our revenues in the quarter. Led by our mobile mechanical and government services businesses, our U.S. Building Services segment reported an operating margin of 5.6%, up 30 basis points year-over-year. During the second quarter, we recorded a significant impairment charge primarily related to our U.S. Industrial Services segment, which is operating in a challenging environment as its customers grapple with the dual impacts of the COVID-19 pandemic and ongoing volatility in the oil and gas market. We will continue to leverage our leadership position and take advantage of available opportunities. However, we do not anticipate much improvement in this segment through the remainder of the year. Lastly, our U.K. Building Services segment generated an operating margin of 5.7%, up 80 basis points year-over-year, as it continues to execute well across its diversified customer base."

Revenues for the first six months of 2020 totaled $4.31 billion, a decrease of 3.8%, compared to $4.48 billion for the first six months of 2019. We reported a net loss for the first six months of 2020 of $8.0 million, or $(0.14) per diluted share, compared to net income of $156.4 million, or $2.77 per diluted share, for the first six months of 2019. Excluding the impact of the previously referenced impairment charges recorded in the second quarter of 2020, non-GAAP net income for the first six months of 2020 was $154.9 million, or $2.78 per diluted share.

For the first six months of 2020, we reported an operating loss of $16.6 million, representing an operating margin of (0.4)%, compared to operating income of $222.3 million, representing an operating margin of 5.0%, for the first six months of 2019. Excluding the previously referenced $232.8 million non-cash impairment charge recorded in the second quarter, non-GAAP operating income for the first six months of 2020 was $216.1 million, representing a non-GAAP operating margin of 5.0%. SG&A totaled $432.2 million, or 10.0% of revenues, for the first six months of 2020 compared to $432.4 million, or 9.6% of revenues, for the first six months of 2019.

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

Based on year-to-date performance, current operating conditions and visibility into the remainder of the year, EMCOR expects full-year 2020 revenues to be between $8.6 billion and $8.7 billion, and full-year 2020 non-GAAP diluted earnings per share in the range of $5.00 to $5.50.

Mr. Guzzi concluded, "I would like to thank the entire EMCOR team for their hard work as we navigate the impacts of COVID-19 and continue to safely and effectively serve our customers in this environment. During the quarter, we remained focused on the elements of our business in our control, protecting the health and safety of our employees, and adjusting our operations as necessary in a disciplined and process-oriented manner. Our guidance for the remainder of the year is contingent on the environment remaining relatively consistent to where we stand today, as well as no widespread shutdowns, such as those that we experienced earlier this year. Our growing remaining performance obligations, combined with the actions we've taken to improve productivity and streamline our operations, as well as our solid financial position, will allow us to deliver value for our shareholders during this crisis and beyond."

EMCOR Group, Inc. is a Fortune 500 leader in mechanical and electrical construction services, industrial and energy infrastructure and building services. This press release and other press releases may be viewed at the Company's website at www.emcorgroup.com. EMCOR routinely posts information that may be important to investors in the "Investor Relations" section of our website at www.emcorgroup.com. Investors and potential investors are encouraged to consult the EMCOR website regularly for important information about EMCOR.

EMCOR Group's second quarter conference call will be available live via internet broadcast today, Monday, August 3, at 10:30 AM Eastern Daylight Time. The live call may be accessed through the Company's website at www.emcorgroup.com.

Forward Looking Statements:

This release contains certain forward-looking statements. Any such comments speak only as of August 3, 2020 and EMCOR assumes no obligation to update any such forward-looking statements, unless required by law. These forward-looking statements may include statements regarding anticipated future operating and financial performance, the nature and impact of our remaining performance obligations, our ability to pursue acquisitions, our ability to return capital to shareholders, market opportunities, market growth and customer trends. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated (whether expressly or implied) by the forward-looking statements. Accordingly, these statements are no guarantee of future performance. Such risks and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for EMCOR's services, adverse business conditions, availability of adequate levels of surety bonding, increased competition, unfavorable labor productivity, mix of business, the impact of the 2020 ransomware attack, and the impact of the COVID-19 pandemic on our revenue and operations, including employees, construction activity, and facilities utilization, and the risk factors associated with EMCOR's business discussed in Part I, Item 1A "Risk Factors," of the Company's 2019 Form 10-K, in Part II, Item 1A "Risk Factors," of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and in other reports filed from time to time with the Securities and Exchange Commission and available at www.sec.gov and www.emcorgroup.com.

Non-GAAP Measures:

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

In addition, forecast non-GAAP diluted earnings per share for full-year 2020 is a forward-looking non-GAAP financial measure. The Company does not provide a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP on a forward-looking basis because it is unable to provide such reconciliations without unreasonable effort, due to the uncertainty and inherent difficulty of predicting the occurrence and the financial impact of items such as impairment charges that impact comparability and the periods in which such items may be recognized. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.

EMCOR GROUP, INC.

FINANCIAL HIGHLIGHTS

(In thousands, except share and per share information)

(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended For the six months ended June 30, June 30,

2020 2019 2020 2019

Revenues $ 2,014,021 $ 2,324,202 $ 4,313,853 $ 4,482,930

Cost of sales 1,698,735 1,977,822 3,665,506 3,827,796

Gross profit 315,286 346,380 648,347 655,134

Selling,general and 205,174 226,248 432,171 432,417 administrativeexpenses

Restructuring - 173 69 448 expenses

Impairment losson goodwill,identifiableintangible 232,750 - 232,750 - assets, andotherlong-livedassets

Operating (122,638 ) 119,959 (16,643 ) 222,269 (loss) income

Net periodicpension (cost) 718 400 1,460 806 income

Interest (2,110 ) (3,231 ) (4,598 ) (6,054 )expense, net

(Loss) incomebefore income (124,030 ) 117,128 (19,781 ) 217,021 taxes

Income tax(benefit) (40,341 ) 33,156 (11,757 ) 60,639 provision

Net (loss) $ (83,689 ) $ 83,972 $ (8,024 ) $ 156,382 income



Basic (loss)earnings per $ (1.52 ) $ 1.49 $ (0.14 ) $ 2.78 common share



Diluted (loss)earnings per $ (1.52 ) $ 1.49 $ (0.14 ) $ 2.77 common share



Weightedaverage shares of common stockoutstanding:

Basic 54,937,038 56,181,864 55,467,799 56,175,219

Diluted 54,937,038 56,499,514 55,467,799 56,461,977



Dividendsdeclared per $ 0.08 $ 0.08 $ 0.16 $ 0.16 common share



EMCOR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

June 30, 2020 December 31, (Unaudited) 2019

ASSETS

Current assets:

Cash and cash equivalents $ 481,391 $ 358,818

Accounts receivable, net 1,936,442 2,030,813

Contract assets 171,389 177,830

Inventories 40,590 40,446

Prepaid expenses and other 49,268 51,976

Total current assets 2,679,080 2,659,883

Property, plant and equipment, net 158,453 156,187

Operating lease right-of-use assets 240,659 245,471

Goodwill 839,772 1,063,911

Identifiable intangible assets, net 576,540 611,444

Other assets 95,919 93,462

Total assets $ 4,590,423 $ 4,830,358

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt and finance $ 10,234 $ 18,092 lease liabilities

Accounts payable 563,128 665,402

Contract liabilities 655,298 623,642

Accrued payroll and benefits 317,783 382,573

Other accrued expenses and liabilities 209,064 195,757

Operating lease liabilities, current 52,705 53,144

Total current liabilities 1,808,212 1,938,610

Borrowings under revolving credit facility - 50,000

Long-term debt and finance lease liabilities 294,126 244,139

Operating lease liabilities, long-term 204,361 204,950

Other long-term obligations 339,526 334,879

Total liabilities 2,646,225 2,772,578

Equity:

Total EMCOR Group, Inc. stockholders' equity 1,943,622 2,057,134

Noncontrolling interests 576 646

Total equity 1,944,198 2,057,780

Total liabilities and equity $ 4,590,423 $ 4,830,358

EMCOR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2020 and 2019

(In thousands) (Unaudited)

2020 2019

Cash flows - operating activities:

Net (loss) income $ (8,024 ) $ 156,382

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization 23,220 21,391

Amortization of identifiable intangible assets 29,404 23,169

Provision for credit losses 4,957 851

Deferred income taxes (19,942 ) (920 )

Excess tax benefits from share-based compensation (196 ) (593 )

Non-cash expense for impairment of goodwill,identifiable intangible assets, and other 232,750 - long-lived assets

Non-cash share-based compensation expense 5,960 6,225

Other reconciling items 1,064 3,020

Changes in operating assets and liabilities, 7,550 (251,723 )excluding the effect of businesses acquired

Net cash provided by (used in) operating activities 276,743 (42,198 )

Cash flows - investing activities:

Payments for acquisitions of businesses, net of (3,194 ) (63,991 )cash acquired

Proceeds from sale or disposal of property, plant 824 1,326 and equipment

Purchase of property, plant and equipment (25,951 ) (22,455 )

Investments in and advances to unconsolidated - (794 )entities

Distributions from unconsolidated entities - 84

Net cash used in investing activities (28,321 ) (85,830 )

Cash flows - financing activities:

Proceeds from revolving credit facility 200,000 -

Repayments of revolving credit facility (250,000 ) -

Proceeds from long-term debt 300,000 -

Repayments of long-term debt and debt issuance (257,549 ) (7,601 )costs

Repayments of finance lease liabilities (2,354 ) (2,151 )

Dividends paid to stockholders (8,888 ) (8,967 )

Repurchase of common stock (99,048 ) -

Taxes paid related to net share settlements of (2,550 ) (3,735 )equity awards

Issuance of common stock under employee stock 3,228 2,969 purchase plan

Payments for contingent consideration arrangements (4,070 ) (2,508 )

Distributions to noncontrolling interests (70 ) (250 )

Net cash used in financing activities (121,301 ) (22,243 )

Effect of exchange rate changes on cash, cash (4,701 ) (175 )equivalents, and restricted cash

Increase (decrease) in cash, cash equivalents, and 122,420 (150,446 )restricted cash

Cash, cash equivalents, and restricted cash at 359,920 366,214 beginning of year ^(1)

Cash, cash equivalents, and restricted cash at end $ 482,340 $ 215,768 of period ^(2)

Includes $1.1 million and $2.3 million of restricted cash classified as(1) "Prepaid expenses and other" in the Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.

Includes $0.9 million and $2.4 million of restricted cash classified as(2) "Prepaid expenses and other" in the Consolidated Balance Sheets as of June 30, 2020 and 2019, respectively.

EMCOR GROUP, INC.

SEGMENT INFORMATION

(In thousands) (Unaudited)

For the three months ended June 30,

2020 2019

Revenues from unrelated entities:

United States electrical construction and $ 445,881 $ 569,402 facilities services

United States mechanical construction and 790,441 823,086 facilities services

United States building services 472,416 523,698

United States industrial services 212,166 295,460

Total United States operations 1,920,904 2,211,646

United Kingdom building services 93,117 112,556

Total worldwide operations $ 2,014,021 $ 2,324,202



For the six months ended June 30,

2020 2019

Revenues from unrelated entities:

United States electrical construction and $ 971,110 $ 1,097,472 facilities services

United States mechanical construction and 1,624,553 1,575,495 facilities services

United States building services 990,499 1,035,777

United States industrial services 522,197 554,105

Total United States operations 4,108,359 4,262,849

United Kingdom building services 205,494 220,081

Total worldwide operations $ 4,313,853 $ 4,482,930



EMCOR GROUP, INC.

SEGMENT INFORMATION

(In thousands) (Unaudited)

For the three months ended June 30,

2020 2019

Operating income (loss):

United States electrical construction and $ 32,184 $ 43,799 facilities services

United States mechanical construction and 66,937 53,954 facilities services

United States building services 26,378 28,001

United States industrial services 2,961 16,012

Total United States operations 128,460 141,766

United Kingdom building services 5,351 5,476

Corporate administration (23,699 ) (27,110 )

Restructuring expenses - (173 )

Impairment loss on goodwill, identifiable (232,750 ) - intangible assets, and other long-lived assets

Total worldwide operations (122,638 ) 119,959

Other corporate items:

Net periodic pension (cost) income 718 400

Interest expense, net (2,110 ) (3,231 )

(Loss) income before income taxes $ (124,030 ) $ 117,128





For the six months ended June 30,

2020 2019

Operating income (loss):

United States electrical construction and $ 76,087 $ 86,750 facilities services

United States mechanical construction and 112,108 94,939 facilities services

United States building services 47,216 55,484

United States industrial services 15,218 25,648

Total United States operations 250,629 262,821

United Kingdom building services 11,115 9,617

Corporate administration (45,568 ) (49,721 )

Restructuring expenses (69 ) (448 )

Impairment loss on goodwill, identifiable (232,750 ) - intangible assets, and other long-lived assets

Total worldwide operations (16,643 ) 222,269

Other corporate items:

Net periodic pension (cost) income 1,460 806

Interest expense, net (4,598 ) (6,054 )

(Loss) income before income taxes $ (19,781 ) $ 217,021

EMCOR GROUP, INC.RECONCILIATION OF 2020 AND 2019 NON-GAAP OPERATING INCOME AND NON-GAAP OPERATING MARGIN(In thousands) (Unaudited)

In our press release, we provide non-GAAP operating income and non-GAAP operating margin for the three and six months ended June 30, 2020 and 2019. The following table provides a reconciliation between operating income and operating margin determined on a non-GAAP basis to the most directly comparable GAAP measures for such periods.

For the three months ended For the six months ended June 30, June 30,

2020 2019 2020 2019

GAAP operating (loss) $ (122,638 ) $ 119,959 $ (16,643 ) $ 222,269 income

Impairment loss ongoodwill, identifiableintangible assets, and 232,750 - 232,750 - other long-livedassets

Non-GAAP operatingincome, excludingimpairment loss ongoodwill, identifiable $ 110,112 $ 119,959 $ 216,107 $ 222,269 intangible assets, andother long-livedassets

For the three months ended For the six months ended June 30, June 30,

2020 2019 2020 2019

GAAP operating margin (6.1 ) 5.2 % (0.4 ) 5.0 % % %

Impairment loss ongoodwill, identifiableintangible assets, and 11.6 % - % 5.4 % - %other long-livedassets

Non-GAAP operatingmargin, excludingimpairment loss ongoodwill, identifiable 5.5 % 5.2 % 5.0 % 5.0 %intangible assets, andother long-livedassets

EMCOR GROUP, INC.RECONCILIATION OF 2020 AND 2019 NON-GAAP NET INCOME(In thousands) (Unaudited)

In our press release, we provide non-GAAP net income for the three and six months ended June 30, 2020 and 2019. The following table provides a reconciliation between net income determined on a non-GAAP basis to the most directly comparable GAAP measure for such periods.

For the three months For the six months ended ended June 30, June 30,

2020 2019 2020 2019

GAAP net (loss) income $ (83,689 ) $ 83,972 $ (8,024 ) $ 156,382

Impairment loss ongoodwill, identifiableintangible assets, and 162,885 - 162,885 - other long-lived assets^(1)

Non-GAAP net income,excluding impairmentloss on goodwill, $ 79,196 $ 83,972 $ 154,861 $ 156,382 identifiable intangibleassets, and otherlong-lived assets

(1) Amount is net of tax effect of $69.9 million in the 2020 quarter and year-to-date periods.

EMCOR GROUP, INC.RECONCILIATION OF 2020 AND 2019 NON-GAAP DILUTED EARNINGS PER SHARE(In thousands) (Unaudited)

In our press release, we provide non-GAAP diluted earnings per common share for the three and six months ended June 30, 2020 and 2019. The following table provides a reconciliation between diluted earnings per common share determined on a non-GAAP basis to the most directly comparable GAAP measure for such periods.

For the three months For the six months ended ended June 30, June 30,

2020 2019 2020 2019

GAAP diluted (loss) earnings per $ (1.52 ) $ 1.49 $ (0.14 ) $ 2.77 common share

Impairment loss on goodwill,identifiable intangible assets, 2.95 - 2.93 - and other long-lived assets ^(1)

Non-GAAP diluted earnings percommon share, excludingimpairment loss on goodwill, $ 1.44 $ 1.49 $ 2.78 $ 2.77 identifiable intangible assets,and other long-lived assets

(1) Amount is net of tax effect of $69.9 million in the 2020 quarter and year-to-date periods.

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CONTACT: EMCOR GROUP, INC. R. Kevin Matz Executive Vice President Shared Services (203) 849-7938

CONTACT: FTI Consulting, Inc. Investors: Jamie Baird (212) 850-5659