10-QPeriod: Q3 FY2007

EMCOR Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2007

Filed October 25, 2007For Securities:EME

Summary

EMCOR Group, Inc. reported strong third-quarter and year-to-date results for 2007, demonstrating significant growth in revenues and operating income compared to the prior year. This performance was driven by a robust non-residential construction market and effective operational management. The company successfully expanded its services and geographic reach through strategic acquisitions, most notably the significant acquisition of FR X Ohmstede Acquisitions Co. ("Ohmstede"), which bolsters its capabilities in the refinery and petrochemical industries. Financially, EMCOR saw substantial increases in revenues across most segments, particularly in United States mechanical construction and facilities services. The company also reported record quarterly revenues and operating income, with improved operating margins. Despite increased interest expense due to new debt financing for acquisitions, overall profitability improved. The company's liquidity remains strong, supported by operating cash flows and an undrawn revolving credit facility, though recent acquisitions have led to a decrease in cash on hand.

Key Highlights

  • 1Revenues increased by 21.1% in Q3 2007 and 17.0% year-to-date compared to the prior year, reaching $1.50 billion and $4.16 billion respectively.
  • 2Operating income significantly improved, up 57.8% in Q3 2007 to $54.9 million and 63.3% year-to-date to $113.7 million.
  • 3The company completed the significant acquisition of FR X Ohmstede Acquisitions Co. ('Ohmstede') for approximately $455.4 million in September 2007, funded by a new $300 million term loan and internal funds, expanding its industrial services offerings.
  • 4Total assets grew by approximately 36% from $2.09 billion at December 31, 2006, to $2.84 billion at September 30, 2007, largely due to acquisitions.
  • 5Goodwill increased substantially from $288 million to $593 million, primarily driven by the Ohmstede acquisition, reflecting significant intangible assets recognized.
  • 6Net income rose 70.0% in Q3 2007 to $38.3 million ($0.57 per diluted share) and 64.7% year-to-date to $76.5 million ($1.15 per diluted share).
  • 7Backlog at September 30, 2007, stood at $4.48 billion, up from $3.40 billion at the same time last year, indicating strong future revenue potential.

Frequently Asked Questions

EMCOR's revenue growth in Q3 2007 was primarily driven by a strong non-residential construction market, increased demand for services in commercial, hospitality, high-tech, and water/wastewater treatment sectors, and the positive impact of recent acquisitions, including the significant acquisition of FR X Ohmstede Acquisitions Co. ('Ohmstede').

The acquisition of Ohmstede, for approximately $455.4 million, significantly increased EMCOR's total assets, particularly goodwill and identifiable intangible assets, which rose substantially. It was financed by a new $300 million term loan, increasing long-term debt, and a portion of internal funds, leading to a decrease in cash and cash equivalents from year-end 2006. This acquisition expanded EMCOR's industrial services capabilities in the refinery and petrochemical industries.

EMCOR's backlog at September 30, 2007, was $4.48 billion, a notable increase from $3.40 billion at September 30, 2006. This strong backlog indicates robust demand for its services, particularly in hospitality, healthcare, high-tech, and industrial construction projects, suggesting positive revenue potential for the coming periods.

EMCOR demonstrated significant profitability improvements. Operating income increased substantially by 57.8% in Q3 2007 and 63.3% year-to-date. Net income also saw strong growth, up 70.0% in Q3 2007 and 64.7% year-to-date, reflecting effective cost management and increased revenues, despite higher interest expenses from recent financing.