10-QPeriod: Q2 FY2020

EMCOR Group, Inc. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 3, 2020For Securities:EME

Summary

EMCOR Group, Inc. reported a significant downturn in financial performance for the second quarter and first half of 2020, largely attributable to the economic impacts of the COVID-19 pandemic and a sharp decline in oil prices. Revenues declined by 13.3% year-over-year for the quarter and 4.2% for the first half. Most notably, the company recorded a substantial non-cash impairment charge of $232.8 million, primarily related to goodwill in its United States industrial services segment, leading to an operating loss of $122.6 million for the quarter and a net loss of $83.7 million. Despite these challenges, the company's backlog of remaining performance obligations remained robust at $4.59 billion as of June 30, 2020, indicating future revenue potential, and operating cash flow significantly improved year-over-year.

Financial Highlights

50 data points
Beta

Revenue

$2.01B

15.7% Gross Margin

Net Income

-$83.69M

-4.2% Net Margin

EPS (Diluted)

$-1.52

Total Assets

$4.59B

Cash & Equivalents

$481.39M

Free Cash Flow

$355.56M

Financial Statements
Beta
Revenue$2.01B
Cost of Revenue$1.70B
Gross Profit$315.29M
SG&A Expenses$205.17M
Operating Income-$122.64M
Net Income-$83.69M
EPS (Basic)$-1.52
EPS (Diluted)$-1.52
Shares Outstanding (Basic)54.94M
Shares Outstanding (Diluted)54.94M

Key Highlights

  • 1Revenues decreased by 13.3% to $2.01 billion in Q2 2020 and by 4.2% to $4.31 billion in the first half of 2020 compared to the same periods in 2019.
  • 2A significant non-cash impairment charge of $232.8 million was recorded in Q2 2020, primarily affecting goodwill in the United States industrial services segment due to market volatility in the oil and gas sector.
  • 3The company reported an operating loss of $122.6 million and a net loss of $83.7 million for Q2 2020, a stark contrast to the profit reported in the prior year.
  • 4Despite the downturn, net cash provided by operating activities was $276.7 million for the first half of 2020, a substantial improvement from the $42.2 million used in the prior year period.
  • 5Remaining performance obligations (backlog) stood at $4.59 billion as of June 30, 2020, showing a slight increase from the prior year-end, suggesting future revenue streams.
  • 6The company repurchased approximately $99.0 million of its common stock in the first half of 2020, reflecting a continued commitment to shareholder returns.

Frequently Asked Questions

The primary drivers were the negative macroeconomic impacts of the COVID-19 pandemic, which led to project delays, access restrictions, and reduced labor efficiency, as well as a significant decline in oil prices. These factors disproportionately affected the company's United States industrial services segment, leading to a substantial goodwill impairment charge and an overall operating loss for the quarter.

EMCOR's liquidity remained a focus, with a significant increase in cash from operations for the first half of 2020 compared to the prior year. This improvement was supported by a reduction in tax payments, deferral of payroll taxes due to the CARES Act, and a decrease in payments for business acquisitions. The company also has a substantial revolving credit facility available.

The $232.8 million goodwill impairment charge, predominantly related to the United States industrial services segment, indicates that the carrying value of that segment's assets exceeded its fair value. This was triggered by severe market volatility in the oil and gas industry due to COVID-19 and geopolitical events. While a non-cash charge, it significantly impacted reported earnings and highlights the challenging conditions in that specific business area.

The company's backlog of remaining performance obligations stood at $4.59 billion as of June 30, 2020, up from the previous year-end. This substantial backlog provides visibility into future revenues. However, management acknowledges the ongoing uncertainty related to the duration and impact of the COVID-19 pandemic on customer demand, project execution, and the broader economic environment, which could affect the realization of this backlog.