EMCOR Group Inc (EME) 2013 Q4 法說會逐字稿

Good morning. My name is Tanisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Fourth Quarter 2013 Finance Conference Call.

(Operator Instructions)

Thank you. Mr. Nathan Elwell, you may begin your conference.

Thank you, Tanisha, and good morning everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the Company's 2013 fourth-quarter and full-year results, which were reported this morning.

I would like to turn the call over to Kevin Matz, Executive Vice President of Shared Services, who will introduce management. Kevin, please go-ahead.

Thank you, Nathan, and good morning everyone.

For those of you guys that listened last quarter, I believe we started the quarter with our fire alarm going off, and we were expecting the fire marshall to come in and probably tell us to muster somewhere else. Well about less than an hour ago, 45 minutes ago, our power went down. A local substation blew up, and so we're on battery backup.

We believe we have enough time to be able to finish the call. We've assembled in a different area, so everything is a little bit out of sorts. But if we do go down, Sheila Patton, my assistant, will come on the phone and we will move to another area. So if we do go down, don't hang up, and we'll be able to get you back in about 15 seconds. So let's muscle on through this.

For those of you who are accessing the call via the internet and our website, welcome, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today.

Please go to slide 2. On slide 2, you'll see the executives with me to discuss the quarter and 12 month results. They are Tony Guzzi, our President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; Mava Heffler, our Vice President of Marketing and Communications; and our Executive Vice President and General Counsel, Sheldon Cammaker.

For call participants not accessing the conference call via the internet, this presentation including the slides will be archived in the Investor Relations section of our website under Presentations. You can find this at EMCORGroup.com.

Before we begin, I want to remind you that this is discussion may contain certain forward-looking statements. Any such statements are based upon 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 include risks and uncertainties that could cause actual results to differ material 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 the companies 2013 Form 10-K, which was issued this morning, and in other reports filed from time to time with the Securities and Exchange Commission.

With that said, let me please turn the call over to Tony. Tony?

Thanks, Kevin, and good morning, and thanks for joining us.

I'll first be covering pages 3 to 5. To be clear, I'll be speaking to pro forma numbers, and to remind everyone that pro forma adjustments are the advects with respect to the closure of our user UK construction business, and the deal costs associated with our acquisition of RepconStrickland.

What I'm going to do is, I'm going to briefly discuss Q4 2013, and then I'm going to let Mark cover the details of our quarter and the year during his section of today's call. What I'm going to do then, is focus the remaining my introductory comments on full-year 2013. At the end, after I do backlog, I'll give you color on guidance for 2014, and that will follow Mark's detailed financial review and my discussion pertaining to backlog.

For Q4 here, let me hit some high points, so not to be redundant with Mark. We had very strong electrical growth in the quarter, and did okay for the year. And we had very good operating margins for the quarter, against some very tough compare. We feel good about where the electrical business is coming out of the quarter.

We had good mechanical operating margins at 6.3%. And we showed the kind of sequential improvement that we told investors that we should see, as you look through the year after the write downs on a DOE job and the manufacturing job that we've discussed throughout the year in the Southeast. Unfortunately, we did have another $1.9 million in Q4 write-downs on these jobs.

The manufacturing job is finished, we're off the job. And the DOE job will have physical -- the installation will be physically complete, which means we'll have it installed here sometime in Q2 of 2014, and will turn over that job somewhere in Q3 2014 here. We believe, on that job, we will be able owed significant money, we've been very conservative in our estimate of recovery.

If you look at the quarter, building services had good margin expansion of 130 basis points. And we had profits up 40% in Q4. If down revenue is up, profit is never a bad thing and shows the portfolio reshaping was done and you're starting to see the results of that here in Q4.

Industrial performed as expected, and again coming off a very difficult compare last year as we've talked about. And RepconStrickland contributed what we expected in the quarter, at a little over $0.04 in the quarter.

The UK construction withdrawal is nearing completion. In fact, we actually lost less there in that construction business in the Q4 this year than last year. We exited several of the long-term contracts, and we expect to have this completely behind us by the end of Q3 2014. Cash generation was strong in the quarter, our book to bill was at 1, and we leave the year with good backlog.

Now I'm going to focus the rest of these introductory comments on the year. Turning to the year, we had a transformational year here at EMCOR. We got five segments of the business, when you include these [scaled back] UK. Four of those segments are [scale] businesses.

Our mechanical and electrical construction business have been market leaders, and we have market-leading franchises in our markets. And the result of that, we have market-leading performance with the folks we have. Our building service business is now at scale, and has improved dramatically over the last two years. We expect that trajectory to continue.

In building services, we have three market-leading businesses. Mechanical service, commercial site-based services, and government services. Now, with the acquisition of RepconStrickland, we have a scale industrial business. And that segment is on focused on the refinery in petrochemical services.

Our integration is on track at RepconStrickland, and we do know to integrate and drive successful acquisition, integration, and long-term performance. Our performance in our electrical segment for the year was a strong 7.3% operating margins. And we leave the year with good, growing, and balanced backlog.

We're winning here by just executing well, and we're executing well in a tough market. And you take these comments and put them both with the mechanical and the electrical business.

Available margins are better than they were at the depths of the recession. But you have to remember, that non-residential construction was actually down almost 3% last year, and still, it's down substantially in excess of 25% from its peak in 2007.

Mechanical had a but for year. And what but for means, but for the results of the much discussed DOE and manufacturing projects in the Southeast. At EMCOR we don't like but for years.

All those comments that held true for electrical, hold true for mechanical in the market. However, on a pro forma basis, adding back those projects, we exit the year with over 5% operating margins, our mechanical segment remains on track, and 9.8 or 9.9 out for 10 projects are performing well and as expected.

Both our mechanical and electrical segments fought through the sequester also. With slow to no recognition of REA's, schedule slowdowns, and generally slow decision-making on new contract awards.

Switching to the building services segment for the year, we fought headwinds of sequester, and we still improved operating profits 55% on essentially flat volume. How do you improve? Well, mechanical services improved with better technician productivity, better mix, and improved small project selection and execution. The government fought through the sequester, and we still made decent returns, but we had reduced IDIQ awards, slow to no REA request for equitable adjustment approvals, these are slam dunk type things, we should be awarded these, and slow to no decision making on new contract awards.

Our site-based business is really starting to take hold, and integration of USM on the cost side for sure is near completion. Our suite of services allow for improved cost leverage. And more importantly, we attract new customers, get leverage spend with our customers, which means we're selling them more, and we're able to add better talent to our team and provide promotion opportunities for that team, and it's really starting to take hold.

Overall in our building services segment, with maybe the caveat of government, although I do think it will also improve long-term, the arrow was pointed up with more to do. In industrial, we had a transformational year. The bottom line is, we now have an industrial segment with the acquisition of RSI.

When combined with Ohmstede, we have a powerful offering to serve our customers. We have a first-class team, it's committed, and it's here for the long term.

As we know, this business can be a bit lumpy, depending on our specific turnaround schedule and scope. However, we see a good market over the next few years, as utilization rates remain high and US crude production continues to grow from an already much improved level.

We performed well in our traditional Ohmstede Redmond business, with a specially strong performance in Q1 2013. And we continue to expand our suite of services, with almost a full year of operation in our cleaning operation that we invested and built in La Porte. Margins were good; however, we did have some scope reduction in our Q4 work.

With RSI, we believe we also have a market leader, much like Ohmstede. We performed to our revised expectation, as I discussed with our Q4 outlook, and look for performance to gain strength through 2014.

We believe the market conditions are set for success in 2014, with high refinery utilization. But our ultimate success depends on the scope and timing of our turnarounds, and the ability to gain leverage work, and increase our shop utilization also.

Customers have reacted well to the purchase, and our key leadership is excited to be part of the team. Integration is on track; however, you need to go out and win new customers every day, win new work, and grow our share of this good market.

The multi-generational suffering of our UK construction business for EMCOR is rapidly coming to a close. It's actually been well done. We saw the opportunity to accelerate this closure, and not continue with the multi year retrenchment.

It closes a painful chapter in EMCOR's history of low returns, volatile earnings, and painful losses. We had some really good people in that business trying to compete in a market that was not suitable to good returns, and we did not have scale. Our remaining services business, which makes up now the majority of what you see in the UK segment, continues to move forward, and you should expect a $300 million to $350 million revenue business, with 3% to 4% operating margins.

We leave the year with good backlog mix, and I'll cover that it's crew in the right places. We have a stellar balance sheet. We returned over $38 million in cash to shareholders through dividends and stock buybacks in 2013. I like where we are now.

And with that, I'll turn it over to Mark.

Thank you, Tony, and good morning to everyone participating on the call today. For those accessing this presentation via the webcast, we are now on slide 6.

As Tony indicated, I will begin with a detailed discussion of our fourth-quarter 2013 results, before moving to our year-to-date financial results derived from our consolidated financial statements, included in both our earnings release announcement and Form 10-K filed with the Securities and Exchange Commission earlier this morning. So let's get started.

Consolidated revenues of $1.66 billion in the quarter are up 3.2% from 2012. Revenues attributable to businesses acquired of $90.4 million, positively impacted our US industrial services and US mechanical construction services segments during quarter 4. Excluding the impact of businesses acquired, the fourth-quarter revenues declined organically $39.3 million or 2.4%.

Domestic and electrical construction revenues increased 17.9%. Domestic mechanical construction revenues decreased less than 1%. The US building services revenues decreased 7%, and US industrial services revenues increased 62.6%, while our UK segment revenues declined 28.7%.

The substantial revenue growth within the domestic electrical construction segment can be attributed to increased project activity within the quarter in the commercial and manufacturing institutional healthcare and transportation market sectors, predominately within Western, Northeastern, and mid Atlantic geographies. The revenue decline within the US mechanical construction segment can be attributed to decreased project activities within the institutional healthcare and transportation market sectors, predominately in the same geographies that electrical expanded.

US building services revenues declines within the quarter were due to revenue decreases within both government and commercial site-based services, as a result of reduced levels of indefinite duration and definite quantity project opportunities to sequestration, as well as the strategic reshaping of our commercial site business project portfolio which we have referenced in each of the last three quarters.

The revenue growth within the industrial services segment is attributed to the addition of RepconStrickland, which added $84.4 million to the quarter. Excluding this incremental revenue, the organic decrease was approximately 12% to the 2012's fourth-quarter revenues benefiting from large turnaround and repair activity, and unfortunately our did not replicate in 2013's quarter. Consistent with my last quarterly commentary, the decrease in revenues from our UK segment is the result of our continuing plan to withdraw from their engineering construction activities in which we have made significant progress during 2013.

Please turn to slide 7. Selling, general, and administrative expenses increased $13.6 million within the quarter, inclusive of $12.4 million of incremental SG&A, and including a tangible asset and amortization expense from those acquisitions completed during the year. Additionally, $2.5 million of the current quarter increase is due to the large earn out liability reversals that occurred in 2012's fourth-quarter, which is recorded as a reduction of SG&A expense which such reduction in the current year quarter was significantly less. As a percentage of revenues, SG&A in quarter 4 is 9.8%, and excluding the impact of acquisitions within the quarter, our SG&A as a percentage of revenues would be 9.6%.

Operating income of $68.8 million represents 4.1% of revenues, and compares to $78.9 million of operating income of 4.9% of revenues in 2012's fourth quarter. Our US building services segment reported income growth, while US industrial services, US mechanical construction, and US electrical construction segments, and to a lesser extent EMCOR UK are each reporting declines in operating income quarter-over-quarter. Total and tangible asset amortization expense for the quarter is $9.7 million, which is greater than quarter 4 2012 by $2.3 million.

Our US electrical construction services segment operating income decreased $2.7 million or 8.2% over quarter 4 of 2012, with an operating margin of 8.3% or 240 basis points less than last year's 10.7% operating margin. The decrease in operating income in absolute dollars and in margin percentage is due to the favorable settlement of a construction claim of $6.4 million during last year's fourth quarter.

2013's fourth quarter US mechanical construction services segment operating margin of 6.3% represents a $5.8 million decrease from last year's quarter, as a result of an additional $1.9 million of losses attributable to the two projects in the Southeastern United States that we sited during our second and third quarter earnings calls. And Tony mentioned, obviously, just a few moments ago, as well as the impact of gross profit recognized in the fourth quarter of last year on a substantial completion of a large manufacturing project. Although not as significant as the last two quarters, this quarter's negative impact from the referenced lost projects nonetheless masks that the mechanical segment's Q4 operating margin is the highest level reported in 2013.

Our US building services segment operating income increased $4 million or almost 39.5% over 2012's fourth quarter, with a quarterly operating margin of 3.3%. Their mechanical services and commercial site-based services operations were able to offset the headwinds experienced within our government services division that comprised the remainder of this segment.

US industrial services is reporting a $2 million decrease in operating income quarter-over-quarter, with a corresponding margin reduction of 590 basis points. The most significant factor behind this quarter's performance is the tough comparable to 2012's fourth-quarter, which I also discussed during last quarter's call, due to three large non-recurring turnaround and repair projects not being replicated in 2013. RepconStrickland generated operating income of $4 million, which was approximately in line with our revised 2013 expectations communicated during the third-quarter earnings conference call.

Our UK segment reverted to a losses during the fourth-quarter, which was a disappointment, with approximately $5 million of losses generated within their engineering and construction division for the quarter. We have put a lot of contract risks behind us during 2013, and look forward to the completion of the strategic initiative during 2014. Our fourth quarter operating income included $2.1 million of restructuring expenses, all of which is UK related.

We are now on slide 8. This table lays out those items impacting our fourth-quarter results, which we believe should be excluded from EMCOR's reported operating income to provide better comparability. Each of these items have addressed in today's earlier commentaries, and are consistent with last quarter's discussion, and for the sake of completeness are as follows: trailing transaction expenses related to the acquisition of RepconStrickland of $90,000, losses generated by EMCOR UK's engineering construction operations of approximately $5.034 million, and restructuring expenses of $2.066 million pertaining to reductions in work force as a result of our strategic change in the UK. The effect of the aforementioned adjustments amounts to adjusted operating income of approximately $76 million or 4.6% of revenues for the quarter ended December 31, 2013, as compared to $84.4 million or 5.3% of revenues for the corresponding 2012 period.

Our income tax provision for the quarter was reflected at a tax rate of 30.4%, which includes discreet items that positively impacted the rate by approximately 10% within the quarter. The most significant discreet tax item is the impact of the reduction in unrecognized income tax benefits, which results in an income tax benefit of $6.6 million. This is due to the resolution of certain tax exposures that occurred during the quarter.

Cash provided by operations for the fourth quarter was $82 million, which represents a reduction of our cash provided by operations during 2012's fourth quarter. And for the year ended, cash provided by operations is just over $150 million compared to $184.4 million of cash provided by operating activities for the year-to-date 2012 period. Both fourth quarter and annual 2012 reporting periods benefited from the government's deferral of fourth quarter estimated tax payments until February of 2013 of approximately $25 million due to Superstorm Sandy.

Please turn to slide 9. Additional key financial data on this slide not addressed during my highlight summary are as follows. quarter 4 gross profit of $234.1 million represents 14.1% of revenues, which is improved from the comparable 2012 quarter. Despite the impact of those losses disclosed within both the EMCOR UK and US mechanical segments, our fourth quarter gross margin represents 140 basis point improvement over quarter 3.

Total restructuring costs were $2.1 million; and as previously discussed, the entirety of this amount pertains to our United Kingdom operations, diluted earnings per common share of $0.68 for both 2013 and 2012 quarters. On an adjusted basis, reflecting the add back of transaction costs, the losses incurred within our UK construction and engineering operations and associated restructuring costs, diluted earnings per share would be $0.76 for the quarter as compared to $0.75 per diluted share in 2012's fourth quarter. The UK engineering and construction losses in last year's fourth quarter were approximately $700,000 greater than the current quarter.

We are now on slide 10. I will now discuss the results for the annual period beginning with some highlights. Revenues were slightly increased to $6.4 billion from $6.3 billion for 2012, with strong revenue growth within our domestic electrical construction segment and industrial services segment being muted by revenue declines within our domestic mechanical construction, building services, and EMCOR UK segments. Revenues attributable to businesses acquired of $133.4 million, positively impacted our US industrial services and US mechanical construction services segments for the year-to-date period. Excluding the aforementioned acquisition revenues, year-to-date revenues are down 1% organically.

Domestic electrical and construction revenues increased $134.1 million or 11.1%. Domestic and mechanical construction revenues decreased $56.7 million or 2.4%. The US building services annual revenues to decreased less than 1%.

US industrial services 2013 revenues increased $117.6 million, of which the addition of RepconStrickland added $123.6 million resulting in an organic revenue decline of $6 million or 1.5%. Our UK segment revenues declined $111.6 million or 21%, due to our strategic shift, as well as a reduction of small project activity within their building services division year over year.

Please turn to slide 11. SG&A expenses of $591.1 million represent 9.2% of revenues, compared to 8.8% of revenues for the corresponding 2012 period. Approximately $6.1 million of transaction expenses and $21 million of incremental SG&A, inclusive of identifiable intangible asset amortization for businesses acquired are included in of course 2013 year-to-date results.

As a percentage of revenues, SG&A for 2013 is 9.2%. Excluding the impact of acquisitions in 2013 and transaction expenses just mentioned, our SG&A as a percentage of revenues would be 9% for 2013.

Year-to-date operating income is $210.3 million or 3.3% of revenues, which represents a $39.7 million decrease over 2012's annual performance. Our US electrical construction services and US mechanical construction services segment's operating income decreased $2.6 million and $31.5 million respectively over 2012 income levels.

The year over year change in domestic electrical construction is due to a reduction in gross profit from water and wastewater construction projects, while the decrease within domestic mechanical construction is due to the aggregate losses of approximately $24.5 million, attributable to the two projects in the Southeastern United States that we have cited both within this call, as well as in each of the last two quarter's commentary. Additionally, the mechanical segment's 2012 operating income was favorably impacted by the substantial completion of a large manufacturing project.

The US building services 2013 operating income increased $23.9 million over 2012 or 55.3%, due to improved performance within their commercial site-based and mechanical services divisions. Our US industrial services operating income increased for 2013 4.1%, inclusive of RepconStrickland's contribution. Excluding the impact of the acquisition, organic operating income within this segment is down approximately $1.5 million, due to the overall annual revenue decline as a result of the non-recurring nature of certain work completed in 2012.

EMCOR UK lost $6 million for 2013, with their engineering and construction operations generating an operating loss of $19 million for the year. This represents a degradation of $13 million from 2012's operating income of $7.1 million.

Our 2013 annual results also include $11.7 million of restructuring expenses, the majority of which pertain to our United Kingdom activities. And lastly on this slide, is the aggregate transaction expenses of $6.1 million related to the acquisition of RepconStrickland that were incurred during 2013.

We are now on slide 12. As previously disclosed on slide 8, this slide reflects the operating income reconciliation for the year from GAAP to non-GAAP earnings, adjusted operating income reflecting the add back of transaction costs, the losses incurred within our UK construction and engineering operations, and associated restructuring costs for both year-to-date periods would be $246.5 million for 2013 as compared to $260.3 million for 2012, which represents a 5.3% decrease year over year.

The actual tax rate for 2013 is 37.8% as compared to 39.4% for the 12 month 2012 period. And as everyone who participates on this call knows, there have been several discrete tax events during the last two quarters, which as a result, has significantly impacted the tax rate both positively and negatively. And for purposes of 2014 planning, I anticipate a normalized income tax rate of approximately 39%.

Please turn to slide 13. Additional financial data on this slide not discussed during the previous slides are as follows. Year-to-date gross profit of $813.1 million is higher than representative 2012 period by $6.7 million, and flat on a gross margin basis at 12.7% of revenues despite negative project activity within EMCOR's UK construction operations and the US mechanical construction segment.

Diluted earnings per common share were $1.82 for the 2013 year ended compared to $2.16 per common share in the corresponding 2012 period. On an adjusted basis reflecting the add back of transaction expenses, losses incurred by EMCOR's UK engineering and construction operations, as well as the restructuring expenses, annual diluted earnings per share for 2013 would be $2.22 as compared to $2.28 per share in 2012.

We are now on slide 14. EMCOR's balance sheet remains sufficiently liquid, as represented by cash in excess of $400 million, which is available to meet current working capital requirements as well as for organic and strategic investment opportunities. The reaction in working capital from year-end 2012 levels was driven by our lower cash balances, as the result of monies to fund our acquisition of RepconStrickland in late July, as well as higher income tax payments made during the year.

Additionally, we utilized $50 million of cash on hand to repay outstanding borrowings under our predecessor revolving credit agreement simultaneously with the execution of our $350 million term loan and amendment and extension of the revolving credit facility until November of 2018. As Tony previously mentioned, the Company also utilized approximately $38 million of cash to fund dividends and share repurchases under our share repurchase program during 2013. Changes in goodwill and identifiable intangible assets between periods are due to the purchase price allocation of the aforementioned acquisitions, with identifiable intangible assets also impacted by the amortization expense reported in 2013.

Total debt has increased from December of 2012, due to the borrowings to facilitate the RepconStrickland closing. However, our debt to capitalization ratio remains modest at approximately 19%.

I'm sure you're thankful that I'm almost done. So with that, I'll return the presentation over to Tony.

Thanks, Mark, and now you can see why I didn't go to the Q4 numbers in the detail. And it would be great to get this pro forma behind us, but the pro forma activity we undertook of closing that UK construction business, was seemingly one of the best things we've done at EMCOR. And those that have been with us a long time understand that, and so it was worth the 8 pages you had to go through.

I'm on page 15 now. And really what I want to do is point out the highlights. You'll see this is a new slide, and it really corresponds to what you'll see in the 10-K for 2013 and 2012. It does it by segment.

So what's the highlight here? Well the highlight is up -- we're up a little bit in backlog for the year. But we're really up a little better than that, because our UK backlog is down about $58 million, which when you add that to the $45 million, we're up about $100 million.

We expected the UK to be done. In fact, if it wasn't done, you'd be a little worried about how successful we've been in the exit of the operations.

Here's the key point on this slide. The electrical and mechanical segment, the electrical is up $160 million, mechanical segment is down $30 million. That's just one or two projects.

Electrical being up and being our most successful business over a long period of time is a good thing, right? The mechanical is basically flat call it. Especially when you're considering the two problem projects, we're probably well in excess of that $30 million.

Together, these two domestic construction segments make up 69% of our total backlog at $2.3 billion. And they're good performers and scale businesses with long-term records of success.

And I'd just like to note, since 2008, this is the highest level we've been at. We're not back to 2008 levels yet, but it's the highest level we've been at since 2008. And that's without much of a recovery yet in the non-residential construction market, especially in 2013.

If you go to the building services segment, it's exactly where we thought it would be. I think most people like revenues flat to down, and profit up, better base to bill from. So when revenues start growing, you're bringing in a better mix of work. That's what this slide really is about. It's about backlog being down $79 million.

So what makes that up? Well we told you we were going through a reshaping of our site-based portfolio. That, in fact, happened. And it was really two to three large contracts. One was not profitable, the other one was marginally profitable. And we said enough, too many resources no focused on right thing. We served our customers great. We saluted, and said loved serving you, let's go serve people that have a better profile for us.

And the government business is down also, but it's a little different story. We have a couple of large contracts that we may or may not win, and we talked about the slow decision-making. The way we do backlog, unless we have the signed agreement on a go forward basis, we don't put that one year of base service agreement in there. That's all we ever put in anyway.

So now that we're month-to-month, because they haven't done a new award or haven't told us we don't have it, we're month-to-month. So all of it's out. That's basically a $30 million or $40 million contract we're waiting to hear on.

And then we're waiting for new awards that we are in very good position to win, and they haven't been awarded. And of course, any significant IDIQ work would go in there. Most of it doesn't, and that's been slowed down.

So again, building services is where we thought. And the good news is, the small project work is up and it's a better mix of work.

If you go to industrial, that's basically our shop work. And that's the new build in the shop work, very little of the repair work. I would call that essentially flat. That's basically the difference in an order, and difference in timing.

We feel good about where that business is, and we think it will be busy through the year. And like I said before, that's more a function of what's coming in on the front end there. And that's more of a capital play this kind of backlog.

So I'd like to go by market sector on page 16. Real simple slide here, and this is the one you've seen from us forever. The positive on this slide is $110 million up in commercial, and that's up to its highest level since Q2 2008, and that seems like ancient history almost 6 years later now, and that's really when the business started to turn down in a significant way.

Now most third-party prognosticators think that non-res construction will be up, some have low single digits, some have mid single digits, some are even higher. We're sort of in the 3% to 5% bandwagon, and I'll talk about that later. But again, it's still below the 2007 peak.

So what this says is, less backlog that we have overall before you got numbers, we've made some acquisitions. But with backlog in the right places, and we feel good about that. And we withstood really the federal government screeching to a halt on new awards, as far as the kind of things we do whether it be maintenance or construction.

So it's well-positioned. We think we have a very good mix right now, and we feel good about where we're going for 2014 and forward.

Now let's go to page 17 and 18, and probably the only reason most of you called into the call. Let's talk about 2014.

We expect our that $2.40 to $2.70 share, exclusive of those costs associated with withdrawal from the UK construction market, right now if we had to put a number on those costs, peg it at about $5 million. We expect to do that on about $6.8 billion in revenue.

Again, I just said the non-residential market that we're planning is expected to grow 3% to 5%. I happen to think it will be a very fairly slow growth environment here in the first half of the year, and then it may pick up from there.

I do believe we will have opportunities in our electrical and mechanical construction businesses. And of course, we don't expect the uncharacteristic losses as we had on those two projects in 2013.

I'd always caution that opportunities in construction are binary. You either win them or you lose them. We usually win our share, and we actually have great success in winning our targeted projects.

If you go to the industrial segment, we should have growth beyond RSI acquisition. And we feel good about where we are, and expect a tough compare on an organic basis in Q1. The bottom line is, we blew it out in Q1 of 2013. In our Ohmstede business, we expect a do well. But again, it's scope and timing, it's a decent turnaround season, so we'll see.

We are definitely winning our share of the market, but a lot of this depends on scope, expansion, and timing. In industrial, we believe it should be a decent year.

Here's what we've learned though in the refinery and petrochemical space. We have learned to be as flexible as a gymnast, as our customers are constantly adjusting scope and timing. Sometimes that creates more opportunity, as what happened in Q3 and Q4 2012, and what happened in Q1 of 2013. Other times, it causes a little bit of short-term pain, because you may have more resources than you need to serve.

But here's what's certain. If you have the right manpower, you have the right technical supervision, you have the right engineers, and you have the right capacity in your shops and your cleaning standards and everything else, you can really do a great job for your customers and you can do well for your shareholders.

We happen to believe we're set up to do all of the above, and we think utilization should remain high in these refineries. Why? Because domestic crude production is high, and there's nowhere else for it to go.

In building services, we expect to continue to expand margins. And certainly the weather has helped us here in the first quarter. We continue to increase our customer penetration, but let's be clear, we need to add some quality new customers this year.

We do not expect more headwinds from our government. However, I think our government is incapable of creating any tailwind either.

The UK closure is essentially complete. I talked about the additional $5 million in expenses for the year, and I think Mark's hoping so he doesn't have to go through that soliloquy again, that this will largely be behind us in Q3.

All in all, we do see earnings growth. And if the market recovers faster than we see right now, we have a decent chance of achieving the midpoint or higher in our guidance range.

And really what drives us to the lower end is mostly macro related. The market slows down, there's a big disruption, the refinery guys get jumpy in the fourth quarter turnaround schedule, things slide out into 2015, unseasonably cold, unseasonably warm next December. It takes all those things or a combination of those things to get us to low end, most of which aren't in our control.

What gets you to the midpoint or the higher end of the range. Well, winning some quick term work, sizable quick term work. And we've done that before, many times.

Not having limited schedule or having limited schedule slippage within the industrial business. Basically, doing the scope we expect to do on the turnarounds. Having seasonal temperatures. Having everything just to be the way it's supposed to be, would be fine with us. And winning new customers, and expanding scope with them when we win them.

We need to keep our costs in line. We're really good at that, and we'll continue to be good at that. And of course, we will be as opportunistic as ever in the pursuit of new organic growth.

As far as acquisitions, I think I sound like a broken record when I say this. Deals happen when they happen. We don't set that agenda. We talk to people.

To me, right now, I know that the headlines are that the M&A market is back. I think that's at a high-end of the market. I think that's the mega deals.

The part of the market we're in, which is the mids market, it's a lot -- it seems slow right now. Which is all right by us, as we digest RepconStrickland.

We like to grow by acquisition, and we think we're pretty good at it over the long term. We think any one of our segments have attractive opportunities, both to add niche services, expand our geography, and continue to do consolidating acquisitions. That's the construction, mechanical services, site-based, government services, and industrial services.

Like RepconStrickland and USM, we watched it for a while. And we'll be opportunistic when we can.

And with that, I'll take your questions and turn it back over to Tanisha.

(Operator Instructions)

Your first question comes from the line of Cory Mitchell of DA Davidson

Hello, Cory. How are you?

Good, thanks. My first question relates to the current quarter. I was just curious to hear your thoughts on the weather benefits in the building services?

Well building services is a flush. We're not going to pretend it's not. But to make it a plus though, let's be clear. It's not just say let it know, and let it be cold and things happen.

First of all, you have to be operationally set up to do very complex tasks on the snow side, which is manage thousands of sites. Then you have to have sold the right kinds of contracts. And then you have to have the right performance metrics and validation metrics for the customers. This is actually a high-end service, because it's mission critical.

On our mechanical service part, which is the other part that benefits from the weather. Again, you have to have the technicians that are trained, ready to go, can work in this kind of weather.

Now we do have an offset to the plus, and look, the weather has been a net plus for us here in the first quarter -- is, in the construction business, it works the other way. People can't get to work, there's productivity declines, and we expect to make most of it up. Most of that eats into the continuance that you have on a job, and we'll see how that turns out.

We don't expect to have big difficulties. But on balance, we did better in the quarter, we think, we will do better in the quarter because of the weather.

And then on spring turnaround. How's that shaping out compared to the last season and last year?

I'm always cautious to do talk about this, because I don't prognosticate the market. Some of our competitors like to speak about the whole market, and I'm not sure they actually know the whole market, because none of us do.

Here's what I know. We're busy. We're in the middle of it right now, we have lots of guys working in the field, we have lots of guys in the field working safely, thank God.

What I don't know is how scope will move over the next five weeks, up or down. 200 or 300 guys a week longer on a job or not week on another job, can take an okay turnaround season and turn it into a great turnaround season.

The market overall, is in pretty good shape. Sure things slip, they come forward, they do all that. We had some particularly large turnarounds in the first quarter of last year, we have some this year.

But again, it's a balancing act to cross at all. We do know this, we think the next couple years are pretty strong in the refinery petrochemical space. And the work, you have to be prepared to do it.

And like I said you have to be flexible, and able to serve the customers. Small turnarounds can turn into large turnarounds. Large turnarounds can become medium turnarounds, and it all depends on your customer mix.

Okay. And then one last one, some housekeeping questions.

I'm just curious if this current quarter's interest rate is a good run rate for 2014. And then also, if you could talk a little bit more on your expectations for intangibles in 2014?

Sure. With regards to the interest rate, the interest expense in the first fourth quarter is a little higher than a typical. Because when we did our refinancing transaction, we did have one lender exit the syndicate. So we had to accelerate the write-off of debt issuance costs, and that's disclosed in the 10-K.

With regards to the borrowing rate, we're at an all-in rate right now of I think it's $142 million is what we disclosed. I would be very happy if that rate held for the entirety of 2012, of 2014. But for purposes of planning, we're presuming we're going to see a little bit of climb in that rate in the back half of the year.

And with regards to the intangible amortization amounts, those amounts are also disclosed in the 10-K. So for 2014, we're looking at on around $38 million of amortization expense of intangibles as compared to the amount that we recorded this year, which I think was just over $31 million or so.

Great, thanks a lot, guys.

Your next question comes the line of Saagar Parikh with KeyBanc

Hello, Saagar, how are you?

Hello, good morning, and congrats on a pretty good guide guys.

Now, we go make it happen, Saagar.

First off, on your non-res commentary, 3% to 5% growth on the non-residential market for 2014. It seems like it's a little bit better than maybe what you guys were indicating in the last six months in your [helpful] comments. Could you just give us some more color on what's maybe made you guys a little bit more positive on non-res, and when you expect to see that?

Well, it's a couple things. One is, that the increase in our US construction backlog and the increase in the commercial side of our construction backlog. Those two things together make us a little more positive than we might have been six months ago.

I think, look, we look at at least eight or ten different sources of data. Those eight or ten sources of data are all over the place. We look at enough of them, there's some of them we trust, some of them are a little suspect sometimes.

They tend to be all more positive than we are at the low-end there. And so eventually, I think you have to look at some of the trends you see in your own business but also coupled with outside people we're seeing and put the two together and try to make sense of it.

Okay. And then the second question, I know you've said a couple times on the call that in your industrial segment you might have some year-over-year comp issues from larger projects last year. Is there anything else that we should keep in mind in terms of large year-over-year comps just as we forecast out?

No, Saagar, as we go 2014, the comps back to 2013 are better other, than what Tony had mentioned earlier about the turnaround activity in Q1 about 2013. But as far as the mechanical, and electrical, and construction business, there should be nothing unusual other than obviously the losses that we discussed with regards to the mechanical construction segment.

You guys, obviously, to get to the guidance, you -- the projection you have, you've already corrected for that. I would just say this, we've talked about this industrial thing. One is, we're pretty happy with where we are.

We've learned that business can be lumpy. We had about a five-month run from the back half of 2012 into 2013 that shows you what the power of that business can be. We fully expect to repeat that run in the future. It's a one-time event in any given period, but we're certainly set up to be able to do that for customers, and now we have more customers to be able to do that with the acquisition of RepconStrickland.

But we also know, the business can be a bit lumpy. And it works well for us, because we have the underlying business across the rest of EMCOR to be able to handle that working capital need and to handle the ups and downs of that business, which can be our most profitable business at EMCOR.

Okay. Sounds great. Thank you

(Operator Instructions)

Your next question comes the line of Charles Redding of BB&T Capital Markets.

Thanks for taking my call. Just a little bit of a follow-up on snow, I know you mentioned that. Can you give us just a little more color on the business for the first quarter, and anyway to kind of determine and quantify the impact from snow on Q1?

We're not going to do that. We don't give quarterly guidance. Clearly, we expect to do better. And so we don't give quarterly guidance, and [tele-takes] are going to be in about eight weeks anyway.

That's fair. And then I guess just on sequestration, and I appreciate the color there as well. In terms of the outlook safe to assume there's no negative impact in guidance?

Well we don't think it's going to get any worse. We don't have as many outstanding issues with the government, as far as requests for equitable adjustments. So we think we'll grind through those this year, and who knows they may go to 2015. They're not in a hurry to settle things that they directed us to do.

That being said, the DOE projects are coming to a close. The big one that we've had issues with, we have some other ones that are doing quite well.

So, put it all together, like I said in my comments, we don't expect a whole lot more headwind from the government. We could win some new awards that the start up costs could be there, but then we'll get the benefit maybe later in the year or into 2015. But it's sort of status quo I think there, is where we're at, other than new awards

Great. Thank you, Tony

And there are no further questions. I will now turn the call back over to Management for closing remarks.

Everybody, thanks for your interest in EMCOR. We appreciate being able to serve you, and we look to go back out and do it all over again here in 2014 and continue to try to do well by our customers, our share owners, and our employees. Again, thanks for your time this morning, and everybody be safe.

This concludes today's call. You may now disconnect.