10-QPeriod: Q1 FY2003

EMCOR Group, Inc. Quarterly Report for Q1 Ended Mar 31, 2003

Filed April 24, 2003For Securities:EME

Summary

EMCOR Group, Inc.'s first quarter 2003 report shows a significant increase in revenue, driven primarily by acquisitions made in 2002, including Comfort Systems USA and Consolidated Engineering Services (CES). While revenue grew to $1,061 million from $810.3 million in the prior year's quarter, net income declined to $3.3 million ($0.21 diluted EPS) from $7.3 million ($0.47 diluted EPS) in Q1 2002. This decline in profitability is attributed to increased selling, general, and administrative (SG&A) expenses related to integrating acquisitions, operating losses in the United Kingdom, and reduced income from certain US operations. The company's balance sheet shows a decrease in cash and cash equivalents to $55.9 million from $93.1 million at year-end 2002, accompanied by an increase in borrowings under its working capital credit line to $144.9 million. Despite the decline in net income, the company ended the quarter with a strong contract backlog of $3.1 billion, up from $2.9 billion at the end of 2002, indicating continued demand for its services, particularly in mechanical construction and facilities services.

Key Highlights

  • 1Revenue increased by 31% year-over-year to $1.061 billion, largely due to acquisitions in 2002.
  • 2Net income decreased by 55% to $3.3 million, resulting in diluted EPS of $0.21 compared to $0.47 in the prior year.
  • 3Selling, general, and administrative expenses (SG&A) increased by 42% to $109.2 million, driven by integration costs of acquired businesses.
  • 4Operating income declined by 39% to $7.6 million, impacted by losses in the UK segment and reduced profitability in certain US mechanical and electrical operations.
  • 5Cash and cash equivalents decreased by $37.2 million during the quarter to $55.9 million.
  • 6Borrowings under the working capital credit line increased to $144.9 million from $112.0 million.
  • 7Contract backlog grew to $3.1 billion from $2.9 billion at the end of 2002, showing strong future revenue potential.

Frequently Asked Questions

The substantial revenue growth to $1.061 billion was primarily driven by the inclusion of revenues from companies acquired in 2002, notably Comfort Systems USA and Consolidated Engineering Services (CES). These acquisitions contributed approximately $200.6 million to the year-over-year revenue increase.

The decline in net income to $3.3 million ($0.21 diluted EPS) from $7.3 million ($0.47 diluted EPS) was due to several factors. These include a significant increase in selling, general, and administrative expenses related to integrating the acquired companies, operating losses incurred in the United Kingdom segment, and a decrease in operating income from certain US mechanical and electrical construction operations. The company also experienced a reduction in interest income due to lower cash balances.

EMCOR's liquidity saw a notable decrease, with cash and cash equivalents falling by $37.2 million to $55.9 million. This was partly due to operating cash outflows of $61.3 million. To manage this, the company increased its borrowings under its working capital credit line to $144.9 million. Despite these changes, the company maintained a substantial contract backlog of $3.1 billion, suggesting a positive outlook for future revenue.

The report highlights several risks. Increased SG&A expenses associated with integrating acquisitions are a concern. Operating losses in the United Kingdom segment represent a specific challenge. The company is also subject to litigation, including a significant claim in the UK, which could materially impact its financial position if unfavorable judgments are rendered. Additionally, the company notes that its revenue is sensitive to macroeconomic trends affecting non-residential construction.