10-QPeriod: Q3 FY2017

EMCOR Group, Inc. Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 26, 2017For Securities:EME

Summary

EMCOR Group, Inc. reported a strong third quarter and year-to-date performance for 2017, exceeding prior records for quarterly operating income, net income, and diluted EPS. Despite a slight dip in overall quarterly revenue, primarily due to challenges in the United States Industrial Services segment impacted by Hurricane Harvey and a reduction in demand for specialty services, the company demonstrated significant operating leverage. This is evidenced by a substantial increase in operating income and operating margin, driven by improved performance across most domestic segments and a recovery of disputed contract costs. Key financial strengths include robust operating cash flow generation and a healthy backlog of $3.96 billion, providing visibility for future revenue. The company also continues to actively manage its capital structure, evidenced by significant share repurchases and dividend payments, supported by a solid liquidity position and a revolving credit facility. EMCOR's strategic acquisitions in 2017 are contributing positively to revenue and operating income, indicating successful integration and synergy realization.

Financial Highlights

51 data points
Beta

Revenue

$1.89B

15.6% Gross Margin

Net Income

$64.60M

3.4% Net Margin

EPS (Diluted)

$1.09

Total Assets

$3.97B

Cash & Equivalents

$480.50M

Free Cash Flow

$135.66M

Financial Statements
Beta
Revenue$1.89B
Cost of Revenue$1.59B
Gross Profit$295.07M
SG&A Expenses$188.98M
Operating Income$106.04M
Interest Expense$3.32M
Net Income$64.60M
EPS (Basic)$1.10
EPS (Diluted)$1.09
Shares Outstanding (Basic)59.06M
Shares Outstanding (Diluted)59.42M

Key Highlights

  • 1Achieved record quarterly operating income ($106.5 million) and net income attributable to EMCOR Group, Inc. ($64.6 million) for Q3 2017.
  • 2Diluted EPS from continuing operations reached a record $1.09 for Q3 2017.
  • 3Consolidated revenues for the nine months ended September 30, 2017, increased to $5.67 billion, up 1.3% from the prior year.
  • 4Gross profit margin improved significantly to 15.6% for Q3 2017 and 14.7% year-to-date, compared to 13.9% and 13.7% respectively in the prior year.
  • 5Operating income increased substantially for the nine months ended September 30, 2017, to $282.1 million, up 20.5% year-over-year.
  • 6Net cash provided by operating activities was strong at $238.3 million for the nine months ended September 30, 2017, a significant increase from $128.9 million in the prior year.
  • 7Backlog remained strong at $3.96 billion as of September 30, 2017, indicating solid future revenue prospects.

Frequently Asked Questions

The increase in operating income and margins was driven by improved operating performance across most domestic segments, particularly in the United States Mechanical Construction and Facilities Services and Electrical Construction and Facilities Services segments. This was further boosted by the recovery of certain contract costs previously disputed on a project completed in 2016. Additionally, the positive impact of recent acquisitions contributed to revenue and operating income growth.

The slight decrease in third-quarter revenues was primarily due to lower demand for specialty services and a reduction in turnaround activities within the United States Industrial Services segment. This segment was also negatively impacted by Hurricane Harvey, which caused deferrals or potential cancellations of scheduled turnaround projects. Additionally, the United States Building Services segment saw revenue decreases due to lost contracts and reduced large project activity in energy services.

EMCOR's liquidity remains strong, with cash and cash equivalents totaling $480.5 million at September 30, 2017. The company has a $900 million revolving credit facility and a $400 million term loan. Net cash provided by operating activities was robust. The company has also been actively repurchasing its common stock and paying dividends, funded by operations. Management believes its current cash, borrowing capacity, and operating cash flow are sufficient for short-term and foreseeable long-term liquidity needs.

The allowance for doubtful accounts increased from $12.3 million at December 31, 2016, to $16.9 million at September 30, 2017. This increase is attributed to a higher provision for doubtful accounts, partially offset by write-offs of previously reserved receivables. This reflects a prudent approach to managing credit risk in the current economic environment, particularly within the United States Building Services segment.