10-QPeriod: Q2 FY2016

EMCOR Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 28, 2016For Securities:EME

Summary

EMCOR Group, Inc. reported strong performance for the second quarter and first half of 2016, exceeding prior year periods in key financial metrics. Revenues significantly increased year-over-year, driven by robust growth across most of its domestic operating segments, particularly in mechanical and industrial services. This top-line growth, combined with disciplined cost management and favorable project activity, led to improved operating income and net income attributable to EMCOR Group, Inc. The company also demonstrated positive operating cash flow for the six-month period, a significant improvement from the prior year. The company's strategic acquisitions, notably Ardent Services, L.L.C. and Rabalais Constructors, LLC, contributed positively to revenue growth and segment expansion, particularly in the United States electrical construction and facilities services segment. EMCOR's backlog remains strong, indicating continued demand for its services. While the company faced some project-specific challenges, such as a loss on a transportation project, overall operational execution and financial health appear solid, positioning EMCOR for continued growth.

Financial Highlights

50 data points
Beta

Revenue

$1.93B

14.2% Gross Margin

Net Income

$55.38M

2.9% Net Margin

EPS (Diluted)

$0.90

Total Assets

$3.80B

Cash & Equivalents

$443.02M

Free Cash Flow

$84.95M

Financial Statements
Beta
Revenue$1.93B
Cost of Revenue$1.66B
Gross Profit$274.74M
SG&A Expenses$181.81M
Operating Income$92.29M
Interest Expense$3.12M
Net Income$55.38M
EPS (Basic)$0.91
EPS (Diluted)$0.90
Shares Outstanding (Basic)60.81M
Shares Outstanding (Diluted)61.20M

Key Highlights

  • 1Revenues increased by 17.0% to $1.93 billion for the three months ended June 30, 2016, and by 13.5% to $3.68 billion for the six months ended June 30, 2016, compared to the prior year periods.
  • 2Operating income rose to $92.3 million for Q2 2016 and $147.9 million for H1 2016, representing increases of 18.8% and 11.2% respectively, year-over-year.
  • 3Net income attributable to EMCOR Group, Inc. increased by 18.2% to $55.4 million for Q2 2016 and by 12.7% to $89.7 million for H1 2016.
  • 4Diluted earnings per common share from continuing operations were $0.92 for Q2 2016 and $1.48 for H1 2016, up from $0.74 and $1.26 in the respective prior year periods.
  • 5The company completed the acquisition of Ardent Services, L.L.C. and Rabalais Constructors, LLC for $201.4 million, strengthening its position in electrical construction and services.
  • 6Operating cash flow turned positive, with $47.8 million generated in the first six months of 2016, a significant improvement from the $6.1 million used in the same period of 2015.
  • 7Total backlog at June 30, 2016, stood at $3.81 billion, a slight increase from December 31, 2015, indicating sustained demand for EMCOR's services.

Frequently Asked Questions

Revenue growth was primarily driven by increased activity within EMCOR's domestic construction segments (electrical and mechanical), higher demand for specialty services in its United States industrial services segment, and expanded operations in its United States building services segment. The acquisition of Ardent Services also contributed to revenue growth in the electrical construction segment.

Yes, EMCOR reported a $10.5 million loss on a transportation project in the Northeastern United States within its United States electrical construction and facilities services segment due to productivity issues stemming from unfavorable job-site conditions. The company intends to seek recovery for these costs. This loss negatively impacted both gross profit margin and operating income for that segment.

The acquisition of Ardent Services, completed in April 2016 for $201.4 million, contributed $48.3 million in revenues and $3.9 million in operating income (net of $0.6 million amortization) for the three months ended June 30, 2016. It also added $119.5 million in goodwill and $41.5 million in identifiable intangible assets to the balance sheet.

EMCOR's liquidity appears strong, with $443 million in cash and cash equivalents at June 30, 2016. Net cash from operating activities was positive for the first six months of 2016. The company has a $750 million revolving credit facility and a $350 million term loan, both maturing in November 2018. As of June 30, 2016, $220 million was drawn on the revolving credit facility, and $306.3 million was outstanding on the term loan. Management believes its current cash, borrowing capacity, and expected operating cash flow are sufficient to meet its short-term and foreseeable long-term liquidity needs.