EMCOR Group Inc (EME) 2011 Q1 法說會逐字稿

Good morning, my name is Tiara, and I will be your conference operator today. At this time, I'd like to welcome everyone to the EMCOR Group First Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the conference call over to Mr. Eric Boyriven of FD. Sir, you may begin.

Thank you, good morning everyone and welcome to the EMCOR Group Conference Call. We're here to discuss the company's 2011 first quarter results, which were reported this morning. I would now like to turn the call over to Kevin Matz, Executive Vice President Shared Services, who will introduce management. Kevin, please go ahead.

Than you, Eric and good morning, everyone. Welcome to EMCOR Group's Earnings Conference Call for the first quarter of 2011. For those of you who are accessing the call via the internet and our Web site, welcome and we hope you have arrived at the beginning of the slide presentation that will accompany our remarks today.

Slide two, is the group with me to discuss our quarter's results. They are Tony Guzzi, our President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; Mava Heffler, Vice President of Marketing and Communications and our Executive Vice President and General Counsel Sheldon Cammaker.

For call participants who are not accessing the call via the internet, this presentation including the slides will be archived in the Investor Relations section of our Web site under Presentations. You can find us at emcorgroup.com.

Before we begin, I want to remind you that this discussion may contain certain forward-looking statements. Any such statements are based on information available to EMCOR's management perception as of this date, and EMCOR assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from 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 services, adverse business conditions, increased competition, mix of business and risks associated with foreign operations. Certain of the risks and factors associated with EMCOR's business are also discussed in the company's 2010 Form 10-K and its 10-Q for the first quarter ended March 31, 2011 that was filed this morning. With that, please let me turn the call over to Tony. Tony?

Thank, Kevin. Everyone should be on page three now, 2011 First Quarter Executive Summary. Let's start with some top end numbers. EPS at $0.36 per share versus $0.32 a share, up 12.5% versus last year. Revenues are up 8.3%, with about 35% of that growth, organic or almost 3% organic growth in the quarter. The rest was from acquisitions largely driven by our Pepper acquisition and Bahnson which was executed first quarter of 2011. Backlog is at $3.57 billion, aided by acquisitions and a book to bill over 1 from the end of the year, which continues our recent trend. So we're off to an okay start, a pretty good start here in 2011.

In our Q4 2010 call, we stated that it was important for us to have a good start in our industrial business, specifically with our refining customers. We had a good Q1 in our refining business, especially as compared to the 2009 and the 2010 first quarters. Our customers executed their turnarounds as planned. Our shops gained the needed repair business, and we had good volume in our call out and embedded contracts.

As I look at the start of the year, we have the following positives; we had good recovery in our refining versus the past two years. Our core service business executed well, especially with mechanical service, the core service operations there, our site-based business and our government service business. Our large project execution and our domestic mechanical and electrical business continues to be outstanding. Our cost control and our reductions continue to give us tailwind and our productivity and safety continues to improve. The first quarter of 2011 marked EMCOR's safest quarter ever. All this together resulted in pretty good Q1 operating margins for EMCOR at this point in the year and the cycle. However, we still remain challenged by tough market for maintenance capital projects for private clients. And you've heard us talk about this small project work. They are spending a little more, but not near enough for us to up sell them in our small project work and add more value to them. When we add more value to them, we gain better margins. And we do this in a more normal market and we have great execution capability, and there's just not enough market out there for that work right now.

Starting off today and then I'll turn it over to Mark here in a minute. We have a focused team. They continue to execute well, and I'm certain, but for the most part, better operating environment than we've had the last two years. And with that, I'll turn it over to Mark.

Thank you, Tony. For those participating via the Web cast, we are now on slide four. I will begin with certain highlights of our first quarter 2011 results before moving to key financial data derived from our consolidated financial statements, which were included in both our press release and Form 10-Q, which Kevin mentioned was filed earlier this morning with the Securities and Exchange Commission.

Consolidated revenues of $1.31 billion in the quarter are up 8.3% from 2010. Organic revenue growth in the quarter is 2.9%. Revenues attributable to businesses acquired of $65.1 million positively impacted our United States and Canada construction services and the United States facility services segments during quarter one. All reporting segments other than Canada reported positive revenue growth during the quarter, inclusive of acquisition contributions. Canadian revenues did decline 40% quarter over quarter due to the reductions in the demand for our services in the industrial sector.

Selling, general and administrative expenses declined $3.1 million within the quarter, despite incremental SG&A from those acquisitions completed both during the first quarter of 2011 and subsequent to the first quarter of last year, March 31, 2010. As a percentage of revenues, SG&A in quarter one is 9.1%, which represents 100 basis point reduction from last year's quarter one percentage of 10.1%. Operating income of $42.3 million represents 3.23% of revenues, and is flat with our 2010 quarter one performance. Please note, that our prior year's quarter was favorably impacted by a $4.5 million gain associated with our disposition of a particular joint venture investment. Our income tax provision for the quarter is reflected at a tax rate of 37.5%, which is less the 2010 quarter one's rate of 44.5%, which was artificially high due to discrete items that occurred in early 2010. We anticipate that our full year 2011 rate will approximate 38%.

Cash and operations for the first quarter was $36.4 million, which represents an improvement over the $73.1 million of cash used in operations during 2010's first quarter. As most of you know, our first quarter is historically our weakest cash flow quarter due to our funding of previous year's incentive compensation awards as well as income tax payments.

Please turn to slide five. Additional key financial data on this slide not addressed during my highlights summary are as follows; quarter one gross profit of $163 million represents 12.4% of revenues, which is down $2.1 million from the comparable 2010 quarter. The 2010 gain from disposition of joint venture previously referenced is reflected in last year's gross profit amount. Our $3.1 million quarterly reduction in selling, general and administrative expenses is net of $4.9 million in incremental SG&A, inclusive in tangible amortization related to those businesses acquired as previously mentioned. Restructuring expenses in the period of approximately $1 million were isolated to the United States and were primarily related to workforce reductions at our corporate headquarters. Diluted income per common share for the quarter is $0.36 compared to $0.32 per diluted share a year ago.

We are now on slide six. EMCOR's balance sheet remains strong with sufficient liquidity as represented by $632 million of cash to meet current working capital requirements, as well as for organic and strategic investment opportunities. Changes in goodwill relate to recent acquisition activity, which is also the reason for the associated increase in identifiable and tangible assets. Total debt is essentially unchanged since December 31, 2010, and our debt to capitalization ratio remains low at 11.29%. EMCOR has done a very good job of managing its risks within a difficult environment, and is clearly reflect it in our balance sheet. With that brief over out of the way, I would like to return the presentation to Tony. Tony?

Thank you. You should now be on page seven, titled Backlog. Backlog for the first quarter of 2011 is $3.57 billion. It's our highest level since the first quarter of 2009. Notwithstanding its composition, which reflects the reduction in the private sector backlog and an increase in public and quasi-public work due to the recession, the level is encouraging given our position in this less-than-robust economy. Acquired backlog from our Harry Pepper and Bahnson Holding acquisitions fueled the year-over-year increase of $280 million and organic backlog, excluding these two acquisitions was just about flat, down $46 million from the March 31, 2010 level. For the quarter, organic backlog remained level with 2010's year end giving as organic book to bill of 1.0 for the first quarter and a good start for 2011. However, let's be clear, private sector backlog as defined by the work in the commercial and hospitality sectors specifically remains under pressure. Commercial backlog did grow in the quarter 11%, but is coming from a relatively low base. The hospitality market is slow, and you'll see on the next page we'll talk about the Revel project in Atlantic City, which will be a sprinkler project for us.

The economy is generally moving forward, but our private sector clients are still reluctant to spend capital. I do believe the worst is behind us, and I do think we're clawing our way back in the private sector to have the confidence to spend not only the maintenance, but the growth capital we need which will eventually allow for a broader recovery. I believe, and I don't use the word pent up demand, I believe that there's been much too much run to failure in the private sector and even the public sector, and as you go across that, we will see more maintenance capital come in, and people are realizing that they didn't do the maintenance they needed to over the last two or three years. Hopefully, what we saw in the first quarter in the refining sector is emblematic of what we may see in other sectors as the year progresses, not sure yet. What drives that is building use, factory utilization, utilization of the large process plants like the paper plants, the power plants, the refineries. They all drive not only maintenance capital, but growth capital, and we are seeing signs that some of it's returning, but it's far from robust and we're not out of the woods yet. As predicted, what we did see in the quarter is an increase in our turnaround and seasonal outage work in the refining sector. And if you look at our industrial backlog, the ready segment, we had an increase with our industrial customers to include refining, and we had increases even outside of refining.

We are positioned well for this work, and as still our spring turn around season has about another month to go. So far it has been very good. Time will tell if there are legs for the fall seasons as the refiners have proven that they can turn this on and off through the recession over both 2009 and 2010. [Crack scheds] are encouraging right now, and $100 barrel oil is not and $4 gasoline is not encouraging. What I do know is the refiners are becoming more expert of the mix of crude they use and the more sour crude they use, the better for their economics and long term, the better for our economics.

The institutional backlog stands at $919 million, in part due to our acquisition of both Harry Pepper and portions of Bahnson that pertain to the HVAC and process piping work that they do for the DOE and DOD. With regard to Bahnson, much of their institutional work centers around nuclear and waste [demeliorization] and power generation at large facilities such as Savannah River, Hanford, Washington and Idaho Falls. Additionally, we continue to see overall demand for institutional government work as we said on other calls. Again, much of our work retains energy efficiency, base realignment and other federal projects that to date are not seeing as many funding pressures.

Additionally, our government services group experienced a solid backlog growth in its core service business year over year as we continued to gain share with the General Services Administration and DOD and NASA space support businesses. We continue to penetrate multiple customers across DOD, and I'm happy to say even the Army is finally becoming a bigger part of our portfolio.

As I mentioned at the beginning of the call, things are getting better and hopefully backlog is continued to poise an upward bias in relationship with overall positive economic conditions. Again, we are very dependent upon the pace and timing of the recovery. And as I mentioned on our February call, backlog mix and the pace and timing of that recovery will be a large determinate in our 2011 performance. Again, I said in the opening comments, first quarter was a good start of the year, but there's a lot of things that we'll talk about at the end of this call that will determine where we are in our guidance range.

I'd now like you to turn page eight, while I speak through some -- to give you a flavor of the diversity of the kind of projects that EMCOR's winning. The first one we'll talk about is the crime lab in Denver. It's done by one of our long term and most successful companies, Troutman & Shreve. They'll be installing the mechanical systems for this new state-of-the-art 60,000 square foot facility, and Troutman's work includes the installation of all HVAC, plumbing and also all of the indoor air handling units, which are unique here because of some of the filtering requirements and the particulate, specifically with the labs and the firing range. This will also be a lead-certified building.

In Kansas City, Fagan will be doing the HVAC and sheet metal work. They're a good design, build contractor there on the HVAC side, and they'll be doing at the Kansas Speedway. They'll use 3D CAD and BIM to do the project, and just to give you an idea what happens in these projects, the way we think about them, there will be over 200,000 pounds of sheet metal duct work installed here. It sounds like a lot, but compared to a hopsital job, that's not much. In Atlantic City, New Jersey, S.A. Comunale will be installing the complete fire sprinkler system for the new 650,000 square foot Revel Hotel Casino and Resort. It has a 5,000 seat arena, 20 restaurants, 40 retail shops and a hotel tower. It's likely to be the tallest structure in Atlantic City. It's a fast tracked project, and we need to get it done in the next 10 months. This project was stopped in Atlantic City at the height of the financial crisis. You've read a lot about this in the news. This is EMCOR starting up a project that had previously been stopped.

The next two projects are healthcare projects. One is Mount Sinai in New York City. We're going to be doing the voice, data and security cabling for a 13 floor renovation. And in Houston, Texas where we have Gowan Mechanical, which is a terrific company, they'll be providing the HVAC, plumbing, sheet metal and piping for two research laboratories and a clean room for Methodist Research Institute. It's all part of the Texas Medical Center. And if you go down to the Texas Medical Center you'll always see Gowan folks there. Texas Medical Center has been a terrific client and Gowan has done a terrific service for them.

And in Cambridge, Massachusetts, J.C. Higgins will be providing the new mechanical system for the Sanofi-Aventis 110,000 square foot retrofit, major laboratory renovation, all the mechanical systems. Higgins likes these fast-track jobs and has done a fair amount of the healthcare and healthcare research facilities in the greater Boston area.

And then as you go out to the Pacific coast, two jobs we'll be doing some work at the Port of Long Beach, installing the electrical systems for the Middle Harbor development, all the shore power infrastructure, get the power to the ships, on the land-based cranes. And we'll excavate and install over 260,000 feet of underground concrete conduit, case conduit to the main terminal substation and the ship-to-shore substation.

And finally, up in San Francisco, Mesa Energy Systems will replace the central cooling systems at Westfield. This is an energy efficiency job. As you remember, HVAC typically can be 20% to 40% of the building costs. We'll do the energy efficiency work here, and as you know, we talk about it a lot, EMCOR is well positioned from HVAC to controls to lighting retrofit. We love this space, and we're starting to see some legs back on this space, which is a good long-term growth market.

With that, I'd like you to turn to page nine. This is -- page nine is a repeat basically of what we showed in our February call. And we said we hoped to see in the February call improvement in the refining sector. We did see improvement in the refining sector with the first quarter results. Our markets are pressured, especially the commercial hospitality markets. Again, the commercial market is a great source of small project work we can up sell in a normal market. We're not seeing that in a large degree yet. The balance sheet is still a great source of strength for us, and investment acquisition opportunities are in fact improving.

I'd like you to go to page 10, which is the last page of the presentation, 2011 guidance. We're going to keep the guidance at the same point this time of year. It's going to be $5.3 to $5.5 billion in revenue. So we're reiterating that. Operating margin of 3.25% to 4%, and earnings per share of $1.45 to $1.85. You know, where we fall within that range depends on some areas that are in our control and some areas that are not in our control. And we're hoping to be able to put our considerable execution ability to work in an improved market, and we're seeing signs on both sides that's it improving, but it's not a breakout market yet. You know, things that we control, we've got to keep our large project execution on track. We need to gain the ability; the work has to return for us to gain the ability to up sell our customers in the small project work as maintenance spending returns to the market. We know how to sell those projects. We know how to execute those projects. We know how to add value to our customers. What we don't control is our customers' maintenance budget. So part of it we control, part of it we don't control. We need to be able to execute well when and if the heat and weather comes like it did last year. We don't control the weather, but we do control our ability to execute when the weather's favorable to us.

We need to continue to gain productivity by leveraging our reduced cost base. We control 100% of that, and we will continue to execute just like you've seen us execute through this downturn, our productivity and a reduced cost base. And we need the refineries to execute a good turnaround schedule in the fall, like they did in Q1. Again, we control the execution of that turnaround schedule as far as they give us the scope of work and we execute on it. What we don't control is what their schedule will look like and how much capital or maintenance capital they decide to spend. So with that, I'll turn it back over to Tiara and we'll take your questions.

Ladies and gentlemen, if you would like to ask a question, please press star, one on your telephone keypad. Your first response is from Richard Paget with WJB Capital.

Good morning, everyone.

Morning, Richard. How are you?

I'm doing well. Just going back to slide seven, the backlog chart, if I eyeball the various segments, it looks like healthcare backlog is down a little bit from 2010. I just wanted to confirm that since we don't have the exact numbers, and then, wondered if you could give us some commentary what's going on there, given that that's been a relatively good --?

Yes, it still is a good market. It is down. You know, those projects are large and they come in lumpy for the most part. So we're just executing the work a little faster right now than we're replacing the work. We still see a pretty good market out there for healthcare.

Okay, is there any seasonality involved with first quarter versus --?

No.

Okay, so just lumpiness?

Yes.

And then, getting back to the refinery work, when or I know you said they can turn it on and off pretty quickly, but when do you generally get a sense of the fall turnaround schedule, when it's going to be set?

We'll start work -- we've been working with our customers, you know, you work years in advance and then, it narrows in. And so, we have an idea who's going to do what in our customers and who's going to execute the large turnarounds or not. They literally won't firm up their schedules until three to five weeks before the turnaround. That's been their norm over the past 2.5 years, so I'm going to assume that's what they're going to continue doing. You've heard us say before that we'll tell you when it happened when it happened, because over the past, other than this first quarter, four of the last five turnaround seasons, they've been disappointing to just about everybody that was supporting them.

Okay. And then, getting over to Canada, I know you've had some projects run off and then, I think you mentioned there's some others starting up that hasn't really reached 20%. When can we expect a more normalized margin run rate?

Probably back half of the year.

Okay. So we still have a quarter or two to go before you ramp back up.

Yes.

And then, just finally, just wanted to confirm that your government guys are saying that things in Idaho and Savannah River, they're not overly concerned about the budget going or currently, but what about going forward?

Well, I mean, our government business is broader than that. But not overly concerned, but always concerned, right. I mean, we fight for that business every day and we got to prove our value. But some of the things we do actually work to reduce costs for the long term, and I hope they keep that mindset. And one of the things are if they government goes back to the model where they were looking to outsource to more efficient providers like we had seen pre-November, 2008, that's actually good for EMCOR. I'm not sure how much government spending increases have helped us versus hurt us versus the chilling effect of no outsourcing over the last couple of years.

All right, thanks. I'll get back in queue.

Your next response is from the line of Rich Wesolowski with Sidoti & Company.

Thank you, good morning.

Rich, how are you?

Doing pretty well, doing pretty well. You mentioned, Tony, that some of your customers are spending a bit more money. Have you seen any recent changes in the trend for pricing in the traditional small project work?

It's not getting any worse. And part of that could be that some of our better customers have been out with other providers, realized that wasn't a good adventure and now they're coming back to us and realizing that there's part of the reason they had us do the work in the first place is we do it pretty well. We've seen that in some large customers. They're not spending a lot more money, but they're back with us and we can earn appropriate margins. I'd say the pricing is not getting any worse. And for us it's hard to tell whether we're just being smarter about the mix we're chasing versus 18 months ago or it's the result of the market coming back. But maintenance capital is not robust enough yet to sort of having the rising tide lift all boats.

Okay. We know the refining activity, I guess now, from you and other contractors is better than it was a year ago, not as good as it was three years ago. Is the refinery work or the revenue pound for pound also a good deal less profitable than it was a few years ago?

It depends on the mix, Rich. I'd say our repair shop business is doing pretty good. It's clearly -- none of it's what it was three years ago, but everything's relative. That was probably very buoyant to get where we're happy with the profitability, I'd say by and large, other than some of the OEM orders we've seen go out for the fabrication, we're pretty pleased with the refinery margin we've been able to achieve. I think some of it for us might be the specialized nature of some of the work we do.

It looks like the greatest increase in your backlog for the quarter versus year end 2010 was in institutional. Can you remind us what's in that category aside from school?

Well, not many schools, thankfully, anymore. A lot of higher education, that's where our government business is, both our service agreement base and the work we do for government at multiple levels, federal, state and municipal. Most of ours is federal. It's where our -- the Bahnson acquisition work is, and part of the Pepper work.

Okay. And then lastly, given what we at least would expect to be a gradual increase in the share of private work during the next year, Mark would you say your net overbuild position is close to bottoming out for this cycle?

Yes, I would agree. It's got to be pretty close. So once again, contractual terms are probably not going to be as favorable from our perspective as they've been during the last cycle. So I don't know how long it's going to take for that balance of power to shift. But overall, I would agree with your assessment.

Appreciate it.

You're welcome.

Your next response is from David Wells with Hoffman Research Group.

Good morning, everyone.

Morning, David.

First off, looking at the electrical business, I think operating margin is there improved on a year-over-year basis. Can you buck it out? What was the contract settlement from the uncertainty perspective versus some of the changes in backlog in that business?

We don't get into specific contracts, because there wasn't enough to really move it on the uncertainty side one way or another. It's hard to look at margins quarter to quarter in our business. The way we tend to look at it is what's the trend and how's it looking at this point in the year. So the way I'd answer it is we're happy with where our electrical margins are and we continue to see good performance there.

This question was kind of asked earlier, but if I look at the kind of incremental margins and the facilities side, backing out the benefit last year, is that performance about in line with what you would expect at this point in the cycle?

Yes, I think it was a little less than we would hope for. But there's two -- couple factors going on there. One is we have a particular site-based contract that's a very good contract. We had a little scope expansion where they asked us to manage some things that doesn't come with a lot of profit. It comes with almost no risk. It doesn't come with a lot of profit. So that's in there diluting a little bit. And the second thing is you go back to my comments on small projects, our guys can execute terrific work for private sector clients where they can really get in there and help think about what -- how is the best use of maintenance capital reduce costs, get energy efficiency, get the most bang for your buck. And we do that, we up sell that and we get better margins. There's less opportunity to do that. So we're not getting quite the follow through because of that.

Okay. That's helpful. And then, I guess, this is kind of a broader macro question, but certainly GDP numbers out this morning are softer, I think, than people are looking for, gas prices moving back up, all that's just contributing to the uncertainty that you referenced earlier in the conference call. At what point -- is there a precipitating event where you would see customers reach a point where they have to do some spending again? And what does that look like? Kind of what is that precipitating point or is it more just a you kind of have to bump along at current levels and as systems outright fail, then that's the opportunity?

Like I said in the call, I'm not a great predictor of pent up demand. I've heard some of my counterparts talk about pent up demand and they're now five quarters gone talking about pent up demand. So I won't fall into that trap. I think they way you described it is where we are with some of our customers. I will tell you if they let it get that far, when it gets to the event of a shutdown or a failure, that's better than any pent-up demand could ever be. It's just bad though for the customer, which we hate to see. We would rather service them in an appropriate manner. But you are still seeing a number of people run to failure and really have cut back their maintenance and haven't -- have just dribbled the dollars back in versus put them in a major way, which we think needs to happen.

That's it for me, thanks.

Your next question from Avi Fisher with BMO Capital Markets.

Hey, good morning.

Morning, Avi.

What's going on in Canada? Anything, I mean, is this a new sort of low run rate that we should expect? Should we expect any material contribution from Canada this year?

We -- it's a lumpy business anyway if you look through the history of it. We didn't expect a good half from Canada this year. It's never been terribly material to our results. But you know, we expect it to get back to its norms as we start to back the work. We started some work up. We haven't hit the run rate of it yet when we can recognize enough profit.

It seems like last year you benefited from some CapEx spending in the auto manufacturers. I mean, I reckon that's not happening this year, because of at least because of some supply constraints. I mean, should we expect it to be a contributor this year?

Well, we expect contribution from Canada this year more towards it historical levels, but not at a high point.

Avi, this is Mark. One of the things you have to keep in mind with respect to early 2010 is we were -- we had significant revenues and profits related to that project that we ultimately had to write down in quarters three and four last year.

Right.

So that is a big factor.

And it looks like you didn't have any write downs this quarter.

We didn't.

Not, I mean, not related to that project. I mean, nothing out of the ordinary that any of our subsidiaries may or may not have in any particular quarter.

Okay. And just going down my list, the tax rate was a little bit lower than I expected, you know, not materially, but what should we be expecting for that?

Yes, our expectation for the year, Avi, is to be around 38%. As you know, the rules for doing inter-period tax allocation, you have to deal with discrete events in the quarter that they happened. Once again, first quarter 2010, we had something significant which skewed the rate up over 40%. But you know, we're going to bump around you know, that 37.5% or the low 38s%, but we're going to settle right around 38% when we get to the end of the year.

Did you -- I'm not sure if heard -- I think last quarter you disclosed the backlog acquisition from Harry Pepper. What was the backlog acquisition from Bahnson this year in the quarter?

About 150.

About roughly 150, so in line. SG&A, it looks like in the language from the Q, if I'm reading it right, $4.9 million in costs from acquisitions including a bit of amortization. Is -- obviously, amortization will burn off over time. Is that $4.9 million structural? I mean, does that come down?

Well, you've got the amortization part. Yes, it's structural. It's what it takes to run the business. I mean, the way I look at the number, Avi, is organically, we were really down twice what we were down, because we absorbed the acquisition. So that's a pretty good story, and it was unexpected at that level.

And it looks like, if I'm just looking back historically, I mean, (inaudible) were obviously, including roughly $5 million in acquired costs, obviously, better than I expected. Should we expect, as is last year you were around the $120 million mark except for 4Q when you obviously had some acquisition costs, should we expect the same this year in terms of just hovering around the $120 million, $125 million mark?

Yes, I think the lower part of that is more correct than the higher part of that.

Okay. And just qualitatively speaking, anything different in your confidence this quarter versus last quarter?

No, I think if you go back to what I said, we knew that for us to get off to a good start, we had to have a good performance in our refining business and it had to materialize finally, and it did. For us, you go to where I said how the year could unfold and where we fall within that range, a wild card still is going to be those things I talked about, some of which we control and some of which we don't. But we need a good Q4 or fall term. You know, a lot of it's in Q4 and part in Q3, back half turnaround season.

I mean, I'm just pushing back a little bit. It looks like you had obviously a good quarter in the facility services business. That doesn't really show up in backlog, that just kind of burns through. You had really good backlog. I mean, it was in line with expectations, but it's growing, it's trending in the right direction. So you have all this work that actually doesn't show up in backlog that's benefitting your P&L. You have this work that's growing in backlog that hits your P&L. It seems like you should be more confident.

I would be but for $4 gasoline, over $100 a barrel oil, 1.9% or 1.8% GDP growth in the first quarter. And it's a choppy economy in my view.

So okay, so just general macro concerns?

Yes. I mean, I went through the things we control and we don't control. There's enough things we don't control to temper my enthusiasm a little bit.

All right, thanks for your time.

Thank you, Avi.

The next response is from Adam Thalhimer with BB&C Capital Markets.

Good morning, guys, congrats on a great quarter.

How are you? Thank you.

Thanks.

About competition are you seeing any smaller shops folding up?

What you're starting to see -- what you've seen is a lot of them aren't folding because they went bankrupt, they're folding up because there's no one to buy then and they're done. And they don't see a quick recovery in their local markets and the competition is still pretty robust and it's just not worth it to them anymore, so they're liquidating their businesses. You are starting to see, again I talked about this, how are the markets fought? I mean, the $20 million and above project is still done by very sophisticated guys. Once in awhile someone will wind up there that shouldn't and that will be last time they do it. And so the budgets you're competing against there, we do worry about the impact of commodity prices on construction costs and what that will mean for projects. The mid-range projects, $2 million to $15 million or $20 million, that's still pretty rough, but pricing has firmed. It's not getting a lot worse. People realize you have to actually do these things at positive contribution margin and cash flow. And the small projects I talked about in detail.

Where is the, when you think about M&A, where is the focus for future deals?

We have four or five really nice areas. We like to continue to consolidate and to create value for both the customers and the share owners. We will always look at good electrical and mechanical construction and service companies. We're good at that. There's some markets we'd be in, and they happen when they happen. We have long term discussions with people that eventually materialize or they don't. We would like to continue to build on our industrial presence. We like the refining business. We would like to be a consolidator in that business. We did Olmstead. We followed it right up with the acquisition of Pepper, I mean, not Pepper, Redman, I'm sorry, right after the acquisition of Olmstead. We think we have a really differentiated offering there, and we'd like to bring it more people. And there's other services we'd like to add there. As you go to mechanical service, we'd like to fill out our geography. We don't have much of a presence in Texas other than in Houston with Gowan. We don't have enough of a presence in the mechanical service in the Pacific Northwest or the Rocky Mountain region.

As you go to government, there's capabilities we'd like to add, and we either do that through joint venture acquisition. We've been doing it through joint venture on some of the larger based operating agreements. We did add to our capabilities with the Pepper acquisition. The Navy and the Corps of Engineers have always been good long term EMCOR customers and we thought we could do more for them and we are. That's turned out to be a very good acquisition. You saw the acquisition of Bahnson, which is in our mechanical business. That's an example. It took our skills, a very good management team at Bahnson, and able to take the things EMCOR does, put them together and serve those customers maybe a little better.

And this raw technician business and the supplier management and the site-based business, as long as we're doing tasks and things that we can really execute well on either through ourselves or suppliers, we want to do. And if we can get more back office capability to really leverage across our mechanical service and site-based business, then we would do that too. So we're always looking, and we got some nice platforms to grow from and we'll continue to do that.

Appreciate that. And then lastly, just looking at the guidance range for the year, hoping maybe you could comment on the thought process behind not at least tightening up the range. I mean, you had a great first quarter, EPS up 12% year over year. I was just doing the math, to do $1.45 you're looking at an EPS decline of 27% for the rest of the year. I mean, is there a realistic scenario where you have that kind of EPS decline in the back half of the year?

We don't typically -- we almost never, at least when I've been here, tightened guidance in the first quarter. You know, our business has a lot of variables we control and some more we don't control. And at this point in the year, we're trying to firm up the ones we control and make sure we execute well on those we control. And the ones we don't control, we have to see how they unfold. I don't know what's going to happen with the weather this summer. I wish I did. But if I knew that we were going to have the kind of summer we had last year, last year we told you it helped us at about a nickel and it did. If that doesn't happen then we've got that ground to make up. I don't know what the refiners are actually going to do with their fourth quarter turnaround schedule. In 2008 we could talk with certainty that we knew that they were going to execute what they thought because that was their behavior pattern at that time. The behavior pattern right now, over the last 2.5 years suggests that's not how they operate today. And at $4 gasoline, I have to be able to pass that cost on. In 2008 we could. Our guys did a terrific job doing it. We'll see how we do that over the next couple months, which is a critical time for us to be able to do that. So there's enough variables for us to think about that I think we need to be conservative at this point of the year yet.

Okay, that's fair. Congrats to you on the quarter.

Thanks.

Your next response is from Alex Rygiel with FBR Capital Markets.

Thank you. Good morning, gentlemen.

Morning, Alex.

Hey Tony, can you remind us from the peak to the trough what kind of decline you witnessed in the refinery revenue?

We were down in excess of 30%, Alex.

And where are we today, kind of on a run-rate basis or where was 1Q relative to one of your prior peak 1Qs in the refinery business? Are we at not 70%, because that would be, obviously, trough, but are we at 75%, 80% of peak?

We're somewhere in there.

And could you help us to sort of understand what the profit margin cyclicality looked like from the peak to the trough and where we might be today? Can you go from being profitable to being a money loser, and now it's at break even or where are we in that cycle?

Yes, let me walk you through it, right. If you remember when we bought it and we put out an 8-K in December of 2007, you saw EBITDA margins high teens. And we knew that we had heavy amortization charges for at least the first 18 months. But the business was still operating, you can do the math, was still operating mid-teens operating margins. We stayed pretty high single digits, low double digit operating margin profitability through the downturn. Our guys did a fantastic job of taking costs out and really focusing on the opportunities where they can make money instead of just taking revenue. That's why the revenues were down to the extent that they were.

Now as the business has come back, we had nice expansion in operating margins here I the first quarter, no where near to what they were in our December, 2007 release, but still pretty good and much better than basic EMCOR. So we never lost money, stayed very profitable and are even more profitable today then we were at the trough.

And as it relates to all the other business that kind of rolls up to the U.S. other category and the facility services business, over the last three years, can you kind of talk about the profile of the margin of the facility services business excluding the refinery work?

Yes, government's been same or better, mechanical service worse. It really had a great run there, '06, 07, '08, first part of '09, still profitable. Core service is still very profitable. It's the small project work where we haven't had the opportunity to really work with our customers on their maintenance capital, we got hit. Site based, more profitable. We restructured the business pretty dramatically to where now it's a nice business, less volume, nice business, different focus. I think that covers it.

And lastly, as it relates to some of the recent awards, it appears that you continue to win a lot of highly technical work that historically has carried a very strong margin. Is that true across all of your new awards this quarter and should we start to feel comfortable that over the last two quarters, the mix of your new awards is improving towards higher margin business?

Yes, I think we continue to the work that's out there, and clearly, the more technical it is in nature and quite frankly, the tougher it is, that reduces the competition. That being said right, the difficulty is we need the fast track commercial work to come back to really feel good about the profit margin in our construction business and our ability to really gain the kind of cost leverage we want to out of our reduced cost structure.

Very helpful, thank you very much, nice quarter.

Thanks.

Your next response is from John Rodgers with D.A. Davidson.

Hi, good morning.

Good morning, John.

Tony, as you talk to your subsidiary companies, in the past couple of cycles, I mean, we've seen different end market drivers, I mean, obviously, hospitality kind of life cycle. I mean, what are you looking at this time around as sort of the big opportunities for EMCOR's construction side of the business?

I mean, I think one of the opportunities are going to be, if we can ever get out of our own way in wanting to go after some of these energy opportunities on the fossils side, because we'll benefit from the ancillary parts of those businesses.

Right.

But clearly, more gas power plants is better for EMCOR than more nuclear power plants. More nuclear power plants have some benefit to us, but really it's about the absorption of labor there for us. More gas power plants where we can be a good mechanical or electrical sub is a good thing for us. I think energy efficiency work, broadly speaking, as that comes back into the market and that we're so well positioned to really do major building retrofit is something we're really good at. I think healthcare will continue to be strong. I think with Pepper we bought ourselves an interesting option and to really the expanded Corps of Engineer work down in the Southeast and the Navy work and especially if the Navy continues to think about how they're going to realign assets. I think that the waste water in general will continue to be a good market as we come out of this. And I look forward to growth in industrial. We have made an effort in industrial, not only with our acquisition of Olmstead, but our acquisition of Redman, our acquisition of PMI and our acquisition of PPM, all of which, even though Olmstead didn't perform like we thought it could in a great cycle, but the way it did perform in a bad cycle was all market related. We feel good about all the industrial assets we have and they're all very good companies with very good positions.

So summing it up, I don't think we need a broad-based commercial recovery. It needs to be a little better to get advantage of that coast structure, but we've positioned ourselves in industrial, in water and waste water in an interesting way as we come out of the cycle.

And maybe it just seems to me, but your share in the industrial market seems relatively smaller than at least versus what it is in commercial.

Yes. It's been something we've been working on, John, and we really want to continue to expand that. Like, I always say, down and out. Out towards the West and down into the Southeast.

Okay. So I mean, is that a good way to think about sort of the acquisition strategy?

Yes.

Okay, okay, great. Thank you.

Once again, for any questions, press star, one. Your next response is from Tahira Afzal with KeyBanc

Good morning, gentlemen, nice quarter.

Good morning, T.

I guess most of my questions have been answered. I guess the one question I had really left is in regards to as I look at your institutional backlog, and really the rest of your backlog as well, can you sort of pull out of that whatever has been funded by the federal government in particular? So is it even possible to really say well, X% of your backlog is federally funded?

No. We could do that maybe offline, T. Kevin and I will have to do some work on that. But better than half of our institutional backlog is related to the federal government in some way.

Got it. And with all the federal sort of flux that is happening right now politically, how is the spending looking, not in terms of just outlook because you are in probably the safer market, but really how the money is getting dispersed given that there have been threats of a shutdown and everything is in a bit of a flux?

Yes, it's slow.

Okay.

It takes some work to get your money. I will tell you, the contracting officers have communicated fairly well through all this flux. I've got to give them credit, actually. And I'll just make a broader point about federal spending, as we've been to some of your conferences and you've heard us on some of the presentations we make at your conferences, this enhanced federal spending and the things that have gone on in the last couple years, I'm not sure it amounted to 1% of EMCOR's sales when all was said and done. But I will tell you, we were lined up to do some fairly substantial outsourcing operating agreements that got taken away from us or were stopped. We were well inside the red zone of being awarded those, and they were nice contracts for us and they were going to save the government a significant amount of money. And when I sort of balance the two, and those were in excess of the 1% of revenue of what it would have meant for us, and the profitability characteristics of those were as good or better than anything we can do on a project. And so I sort of look at this as sort of ;a mixed bag. They may spend less, but maybe they spend wiser and maybe we go back to some of the cost savings that were executing very well. And that that agenda starts going again and that should benefit EMCOR pretty significantly, and if we're starting to see trickles of that at the municipal and state level also.

Got it, okay. Thank you. And I guess Tony, just one last question. You've seen all this talk and everything on the nuclear side where maintenance and safety perhaps are coming to the forefront again, and the NRC is going through a 90 day review period to really see the condition of the existing plants. I know this is a big business you've been eyeing, you've been growing in, any feelers on any outcomes on an uptick on sponsor spending as a consequence or is it too early to say?

I think it's too early. And any work we would get would be downstream. So the Shaws and the people like that will know it before we do. And we're either going to work work that they don't do or be their subcontractor. And Bahnson and even PPM to some extent out of the Southeast will have a window into that because of the relationships with utilities.

Got it. Thank you very much.

Thank you.

And there are no further questions at this time. I'll turn the call back over to management.

Look, I'd like to thank everybody for their interest in EMCOR. We're back at it here in the same quarter and we'll see you some time in July. Thanks.

This does conclude today's conference call. Ladies and gentlemen, we thank you for your participation. You may disconnect at this time.