EMCOR - Earnings Call - Q2 2025

Executive Summary

• EMCOR delivered record Q2 results: revenue $4.30B (+17.4% YoY), diluted EPS $6.72 (+28.0% YoY), operating margin 9.6%, and record RPO of $11.91B (+32.4% YoY), driven by strength in Electrical and Mechanical Construction and robust data center demand.
• Results beat Wall Street consensus: EPS $6.72 vs $5.72*; revenue $4.30B vs $4.11B*, with 7 EPS estimates and 8 revenue estimates; beat catalysts were mix, execution, and VDC/prefab productivity.
• Guidance raised: 2025 revenue narrowed to $16.4–$16.9B and operating margin to 9.0–9.4% (from 8.5–9.2%); non-GAAP EPS lifted to $24.50–$25.75 (from $22.65–$24.00), reflecting sustained margin strength and visibility from RPOs.
• Tactical watch items: industrial services weakness (operating loss in Q2), SG&A up with growth and amortization from Miller Electric; management reiterated discipline on contract mix and capital allocation (buybacks $432M YTD; revolver balance $250M).

What Went Well and What Went Wrong

• What Went Well

  • Record top-line and profitability: “quarterly revenue growth of 17.4% and an exceptional 9.6% operating margin…new records in key financial and operational metrics” (Tony Guzzi).
  • Construction segments outperformed: Electrical revenue +67.5% to $1.34B with 11.8% margin; Mechanical revenue +6% to $1.76B with a record 13.6% margin, aided by data centers and productivity via VDC/BIM/prefab.
  • RPO momentum and sector breadth: RPOs $11.91B with growth across Network & Communications (data centers $3.8B), Healthcare ($1.4B), Manufacturing/Industrial ($1.0B), Institutional ($1.4B), Hospitality/Entertainment (+72% YoY).

• What Went Wrong

  • Industrial Services softness: revenues -13.3% YoY to $281.1M; operating loss of $0.4M due to lower field volumes, unabsorbed overhead, and fewer shop sales.
  • SG&A pressure: Q2 SG&A +$67.4M YoY with $28.9M from acquired companies and +$5.5M amortization; organic increases tied to headcount and incentive comp for higher projected results.
  • High-tech manufacturing RPO down YoY (project progress), though up sequentially (+$126M, ~+15%) on a phase-two semiconductor award (> $100M) signaling episodic timing risk.

Transcript

Speaker 3

Good morning. My name is Ranju, and I'll be your conference operator today. At this time, I would like to welcome everyone to EMCOR Group's Second Quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers prepare remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your questions, please press the pound keys. I will now turn the call over to Andy Backman, Vice President of Investor Relations. Mr. Backman, you may begin.

Speaker 2

Thank you, Ranju, and good morning, everyone, and welcome to EMCOR's Second Quarter 2025 earnings conference call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcorgroup.com. With me today are Tony Guzzi, our Chairman, President, and Chief Executive Officer; Jason Nalbandian, EMCOR's Chief Financial Officer; and Maureen Mauricio, Executive Vice President, Chief Administrative Officer, and General Counsel. For today's call, Tony will provide comments on our second quarter and discuss our RPOs. Jason will then review the second quarter and our numbers before turning it back to Tony to discuss our guidance before we open it up for Q&A. Before we begin, as a reminder, this presentation and discussion contain certain forward-looking statements and may contain certain non-GAAP financial information.

Slide two of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission. With that, let me turn the call over to Tony. Tony.

Speaker 0

Yeah, thanks, Andy. Good morning, and welcome to our Second Quarter 2025 earnings call. I'll be speaking to Page Four. What I'm going to cover up front here are some of the financial highlights for the second quarter. I'm going to provide some commentary on what has gone well through the first half of the year. Jason is going to cover the quarterly financials in detail. We had an excellent second quarter and first half of 2025. In the second quarter, we earned $6.72 in diluted EPS, and we generated revenues of $4.3 billion. That represents a quarterly record and a 17.4% increase from the prior year period. We achieved exceptional operating margins of 9.6% and had operating cash flow of $194 million.

We exited the second quarter with very strong remaining RPOs, or remaining performance obligations, a record of $11.9 billion, which represents an increase of $2.9 billion year over year and $1.8 billion from December of 2024. We continue to be disciplined capital allocators, and for the first six months of 2025, we spent just over $430 million in share repurchases and utilized $887 million for acquisitions. We have a liquid balance sheet that will continue to support our growth and capital allocation strategy. Our performance remains strong, especially in our electrical and mechanical construction segments, both of which continue to earn impressive operating margins while generating growth in their base of business as demonstrated by their RPOs. We have managed our project mix and continue to gain the confidence of our customers across geographies and market sectors.

We continue to execute well for our customers in these segments by using VDC, BIM, and prefabrication, coupled with strong planning, excellent labor sourcing and management, and disciplined contract negotiation and oversight. We have the best-filled leadership in the business, and they operate with focus, discipline, and grit. In our electrical construction segment, our integration of Miller Electric remains on track. Our mechanical services business and our building services segment continues to execute well, with good revenue growth and an operating margin in the high single digits. We also executed a successful restructuring in our site-based business in response to past contract losses. This should provide us with a more efficient cost structure as we look to resume growth in the future. Although we had a tough first half in our industrial services segment, we expect both our shop and field businesses to improve as the year progresses.

Lastly, the UK had a great start to the year with growth in revenue, operating margin, and operating income. Overall, I think we are pretty sure that we had a very strong quarter and a very strong first half of 2025. Now I'll ask you to turn to Page Five, and I'm going to talk to RPOs before I turn the call over to Jason. As I previously mentioned, we leave the quarter with diverse, strong RPOs of $11.9 billion. Due to growth in nearly all of the market sectors we serve, our RPOs have increased by 32% year over year and 18% when compared to December of 2024. Excluding acquisitions organically, RPOs have increased 22% year over year and nearly 9% since the end of 2024. Our growth continues to be driven by long-term secular trends across key markets.

RPOs within network and communications, which is where our data center business is, totaled a record $3.8 billion at the end of June. We remain well-positioned in this space, supporting our customers with their build-out of data centers. Healthcare RPOs totaled $1.4 billion, and that builds on an already solid base, and the acquisition of Miller Electric has expanded our opportunities in this sector. That contributed to the RPO growth we've seen thus far in 2025. Manufacturing and industrial RPOs now total $1 billion. In addition to demand driven by customers' onshoring and reshoring initiatives, recent growth in the sector has also benefited from the award of certain food processing projects, as well as a renewable energy project within our industrial services segment. Led by our mechanical construction segment, water and wastewater RPOs totaled $725 million as we continue to be awarded projects throughout Florida.

Additionally, due to a combination of new contract awards and the acquisition of Miller Electric, we saw growth within the institutional sector, where RPOs now total $1.4 billion, and the hospitality and entertainment sector, where RPOs have grown 72% year over year, or 64% from December. Although RPOs within high-tech manufacturing have decreased from June of last year, and I've stated this many times before, we believe in the long-term fundamentals of this sector. We acknowledge and have talked about that the award of these projects can be episodic in nature. On a sequential basis, though, when compared to the end of March, we did experience an increase in high-tech manufacturing RPOs of $126 million, or nearly 15%. This was due in large part to the award of phase two mechanical construction project for our semiconductor customer. With that, I'll turn the call over to you, Jason.

Speaker 1

Thank you, Tony. Good morning, everyone. Beginning on slide six, I'm going to discuss the operating performance for each of our segments, as well as some of the key financial data for the second quarter of 2025 as compared to the second quarter of 2024. As Tony mentioned, consolidated revenues of $4.3 billion set a new quarterly record and represent an increase of $637.5 million, or 17.4%. Revenue growth was led by our construction segments, where we experienced greater demand across the majority of the market sectors we serve. During the quarter, acquisitions generated incremental revenues of $330.3 million, with the most significant contribution from Miller Electric. On an organic basis, revenues grew by 8.4%. If we look at each of our segments, revenues of U.S. electrical construction were a record $1.34 billion, increasing 67.5% due to a combination of strong organic growth and the acquisition of Miller Electric.

This segment generated greater revenues from nearly all market sectors, with the most significant growth being derived from our data center projects within the network and communications sector. Besides data centers, electrical experienced notable growth in healthcare, where our quarterly revenues more than doubled, commercial, as we are starting to see some resumption in tenant fit-out demand, and institutional, driven by increased activity for certain colleges and universities. Revenues in this sector also benefited from higher levels of short-duration projects and service work, in part due to the service capabilities we've added through the Miller Electric acquisition. U.S. mechanical construction quarterly revenues were a record $1.76 billion, up 6%, almost all of which was organic.

Similar to electrical construction, while this segment did experience increased revenues across a number of market sectors, the largest growth during the quarter was generated from network and communications due to greater demand for data center construction projects. Other sectors with the largest incremental growth include manufacturing and industrial, primarily driven by food processing projects, and hospitality and entertainment, given the recent award of certain contracts in the western region of the United States. Partially offsetting the growth of the mechanical construction, were revenue declines within high-tech manufacturing as we near completion of certain semiconductor construction projects, and commercial, largely due to fewer active warehousing and distribution projects for some of our e-commerce customers.

With respect to high-tech manufacturing, and as Tony just mentioned, we did receive a phase two award for one of our semiconductor customers, which is reflected in the sequential increase in our RPOs at the end of the quarter. On a combined basis, our construction segments generated revenues of $3.1 billion, an increase of 26.1%. Turning to U.S. building services, revenues of $793.2 million reflect a 1.6% increase year over year. In line with our expectations as we exited the first quarter, growth in mechanical services has now exceeded the revenue decline within site-based, and we are pleased to see that this segment has turned a corner after four consecutive quarters of organic revenue declines. With respect to the segment's mechanical services division, revenues increased by 6.5% as demand remained robust across each of its service lines. Moving to industrial services, revenues were $281.1 million, a 13.3% decrease.

Revenues were impacted by lower field services volumes when compared to the prior year, which had benefited from jobs of a larger size, scope growth on certain turnarounds, and the performance of a renewable fuel project. This segment also experienced a reduction in shop services revenues due to fewer new-build heat exchanger sales during the quarter. Lastly, UK building services generated revenues of $134.6 million, an increase of $28 million, or 26.3%. While favorable exchange rate movements did positively impact the segment's revenues by $7.4 million, the majority of its growth was due to greater service revenues, partially as a result of the recent award of a facilities maintenance contract, and increased project activity with existing customers. Let's turn to slide seven. With operating income of $415.2 million, or 9.6% of revenues, our performance established a quarterly record for operating income and a second quarter record for operating margin.

This represents a year-over-year increase in operating income of $82.4 million, or nearly 25%, and a 50 basis point improvement in operating margin. If we look at each of our segments, U.S. electrical construction generated operating income of $157.7 million, which represents a 78% increase. In addition to greater revenues, operating income of this segment benefited from a 70 basis points expansion in operating margin, and the segment earned an operating margin of 11.8%. The segment experienced greater gross profit across the majority of the market sectors in which we operate, with the largest increases generally in tracking with its revenue growth. Largely driven by Miller Electric, operating income of electrical construction included $9.8 million of incremental acquisition contribution, net of $11.4 million of intangible asset amortization. Operating income for U.S.

mechanical construction increased nearly 12% to $238.7 million, and operating margin expanded by 70 basis points, establishing a new quarterly record of 13.6%. Similar to electrical construction, this segment experienced greater profitability across a number of market sectors, with the most significant increase in gross profit being generated from network and communications. Together, our construction segments reported operating margin of 12.8%, which is a 50 basis point improvement year over year. Excellent project execution, enhanced productivity, and a more favorable mix continue to be significant contributors to our success. Operating income for U.S. building services of $50 million grew by 6.8%, and operating margin of 6.3% increased by 30 basis points. Contributing to the improved profitability was a greater percentage of revenues from mechanical services, where we continue to perform well, earning strong returns with notable margin expansion across HVAC projects and retrofits, as well as repair service.

Turning to industrial services, an operating loss of $419,000 compares to operating income of $12.7 million, or 3.9% of revenues a year ago. The decrease in this segment's profitability was primarily due to the reduction in revenues and the mix shift that I previously referenced. In addition to the direct impact of lower revenues, this volume decline also resulted in a greater amount of unabsorbed overhead within the segment. Lastly, UK building services earned operating income of $8.4 million, or 6.3% of revenues. The increased profitability of our UK business resulted from greater gross profit stemming from increased segment revenues and a reduction in SG&A margin due to effective cost management coupled with the leveraging of their overhead. If we move to slide eight, I'll cover a few quarterly highlights not included on the previous slides. Driven by our electrical and mechanical construction segments, as well as our U.S.

building services segment, our gross profit margin has expanded by 70 basis points, with gross profit increasing nearly 22%. Looking next to SG&A, our second quarter expenses increased by $67.4 million, and contributing to that variance was $28.9 million of incremental expenses from acquired companies and $5.5 million of additional amortization expense. Excluding these items, SG&A grew by $32.9 million, largely due to employment costs, given both greater headcount to support our organic growth, as well as increased incentive compensation expense within certain of our segments, given higher projected annual operating results. SG&A margin for the quarter of 9.7% compares to 9.6% a year ago, and as expected, our SG&A margin did decrease from that of this year's first quarter. We continue to expect our full-year SG&A margin to be relatively comparable to that of 2024 when adjusting for the $9.4 million of transaction expenses incurred earlier this year.

Finally, on this page, diluted EPS was $6.72 compared to $5.25, an increase of 28%. If we look briefly at slide nine, this slide summarizes our results for the first six months of 2025 and has been included here for your reference. Rather than go through the page in detail, I want to again highlight that we have had a tremendous start to the year, setting a number of company records as we continue to deliver for our customers and shareholders. In a later slide, Tony Guzzi will outline our updated earnings guidance for 2025. I mention that now as this guidance assumes continued strength in our margins in line with what we've achieved through the first half of the year.

Specifically, at the low end of our guidance, we have assumed a full-year operating margin, which is equal to the 9% we have earned year to date, while the high end assumes operating margins in the back half of the year, which are essentially equivalent to the outstanding 9.6% we achieved this quarter. The implied full-year margin is comparable to the margins we've delivered over the last 12 to 24 months. With that, I'll turn to slide 10 to close on our balance sheet. Our balance sheet remains strong and liquid, and as of June 30, we had cash on hand of $486 million and working capital of just over $782 million. Largely as a result of borrowings outstanding on our revolver, our debt balance was a modest $256.4 million. We had operating cash flow of $193.7 million during the quarter and generated $302.2 million year to date.

For the full year, we estimate operating cash flow to be at least equivalent to net income and up to approximately 80% of operating income. During the quarter, we utilized $207.3 million for the repurchase of our common stock, bringing our year-to-date repurchases to $432.2 million. When layering in second quarter acquisitions, we have spent $887.2 million year to date on M&A. As we've said before, our balance sheet, coupled with the cash expected to be generated by our operations, as well as the nearly $980 million of capacity available under our credit facility, leaves us well positioned to continue to deliver on our philosophy of balanced and disciplined capital allocation. With that, I'll turn the call back over to Tony. Thanks, Jason. I'm going to be on pages 11 and 12. Clearly, we've been executing well, and as a result, we will raise our 2025 revenue and earnings guidance.

We now expect to earn between $24.50 to $25.75 in diluted EPS, and we expect revenue of between $16.4 and $16.9 billion. We expect to continue to earn strong operating margins and execute with discipline and efficiency for our customers. Our RPOs demonstrate the momentum and demand in our markets, especially in data centers, traditional and high-tech manufacturing, healthcare, HVAC service, building controls, and retrofit projects. Macroeconomic uncertainty persists, especially around tariffs and trade, but we believe our guidance reflects the potential impact of such uncertainty as we view it today. We will remain disciplined capital allocators bolstered by our strong balance sheet, a healthy pipeline of acquisitions, and robust opportunities to support our organic growth. If you look at page 12 and you look at a 10-year view of the world, you'll see 50/50 balanced capital allocation, and deals happen when they happen.

Finally, I want to close with the most important statement of the call. I want to thank my EMCOR teammates. Thank you for your dedication to our customers and to our company, and thank you for taking care of each other and keeping each other safe. With that, Andrew, I'll take questions. Thank you. We will now begin the question and answer session. To ask a question, you may press Star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Brent Thielman with D.A. Davidson. Please go ahead. Brent? Question. Mr. Thielman, please go ahead.

Hey, Brent, start over. You were muted there. You can start over. Brent? Mr. Thielman, if you have muted your phone, unmute yourself and go ahead with the question. Okay. Let's come back to Brent. Let's go to the next question. Since there is no reply from the line of Mr. Thielman, we'll take the next. The next question comes from the line of Adam Thalhimer with Thompson Davis & Company. Please go ahead. Good morning, guys. Nice quarter. Thanks. Hey, Tony, can you just talk a little bit about bidding at a high level? I'm curious what your expectations are for bookings at a high level in the back half of the year. Yeah. I'm not going to guess at bookings.

We'll continue to win our fair share of the business, and we continue to have repeat business with customers who think we're doing a great job, and we continue to expand our footprint to serve more markets. In our business, it's not a quarter-to-quarter bookings business. It never has been. All the underlying strength we've seen through the first half of the year that we saw through the back half of last year, there's no reason for us to believe that doesn't continue. We're building the first building on a lot of sites that are multi-year build-outs and phases over time. We continue to see the strength in the markets that we've talked about extensively in the call, whether it be manufacturing, high-tech manufacturing, which is a little more episodic, network and communications. The commercial market for us, which is retrofit, continues to chug along.

Healthcare continues to be a strong market. It is really broad-based. If you think about our call, Jason will go through some numbers. We have demonstrated over a long period of time that we will outpace non-res construction. Maybe cover some of those numbers, Jason. I think we've covered some of this in the past, right? If you look at EMCOR over a period of time, let's say five years, we've historically outpaced non-res by 200 basis points organically and probably 250 basis points when you include M&A. I think the more telling story, though, is when you look at our construction segment and even the mechanical services business within building services, over that same five-year period, those segments outpaced non-res by 500 to 600 basis points. We expect the markets to be good, especially where we operate, and we expect to outperform those markets, Adam. Great.

I wanted to ask about the industrial business with the change in administration. Curious if you are seeing any signs of life. The business, again, think about it. A lot of the business is focused downstream. That really hasn't changed. It's more a timing, which you see through the first half this year versus last year. It's a timing of turnarounds. We do expect strengthening through the year. We do see more activity, potentially midstream, which will impact our electrical business within industrial. We also see some work around other energy build-out, especially in the LNG world and other things as the plans come to fruition. I'd say that's the major part you'll see it. Being that we're 70% or so downstream focused, we're dependent on refinery utilization and the turnaround schedule. Got it. Last one for me. In the UK, which caused the strength there? Curious if that's sustainable.

Yeah. I think the biggest thing is increased volume, right? We got a recent award or two on the service side. We had more project activity. When you really look, that's what's driving the revenue growth. When you look at the margin side, it's really just leveraging their overhead in a period of growth. It's been a pretty steady performer, and it's known for technical excellence. It wins those kind of contracts. It's had long-term customer relationships. We've grown it organically, and we've been pretty steady over time, and it's been a very good performer for us. Yep. Nice to see the step-up in revenue there. All right. I'll turn it over. Thank you. Thank you. Next question comes from the line of Brent Thielman, D.A. Davidson. Please go ahead. Hey. Thanks. Good morning. Sorry for that. No problem. Yeah. Hey, Tony.

This seems to be becoming an even more active M&A environment with some larger public transactions out there lately in either electrical or mechanical. Wanted to get your take on the pipeline of potential targets. Has the market evolved a lot in the last 12 months where seller expectations can still meet your criteria to be an attractive deal here? I'd just love to get your take there. I think it's yes and yes. If you go back to sort of how we think about deals, right, that hasn't changed. We're looking to buy companies of any size that can execute in the field and execute very well. As they become larger or larger acquisitions, we worry then very much about, is there a cultural fit?

If you look at our two largest acquisitions we've done in the last five or six years, Bachelor and Kimball and Miller Electric, both met those criteria, and both were led by teams that were worried about the long-term sustainability of their organizations. Did we fit with their values as much as we worried about them fitting with our values and the ability to grow and have growth capital? How we look at deals hasn't changed. We're always looking to make a fair deal, and that's got to be fair for our shareholders. We also want the seller to feel that they've made a good deal with us because that's how you perform better together going forward. If you think about the current environment, I think you're referencing we did Miller, and Quanta did Cupertino, and then this morning they just did DSI.

Some of the deals have gotten larger, and that's understandable, right? Some of these are closely held businesses. They're getting very large. The owners have all their eggs in one basket. They also want growth capital because they see what we see in the future, right? They see a growing market. They want to be part of that, and they want to continue to provide opportunities for their people while at the same time taking some of the risk off the table but continuing to run their business.

The competitive environment for those, I mean, for me, you wake up in the morning and you say, "Okay, one of your competitors or quasi-competitors potentially bought somebody that is a good company." That's not a bad thing because they know how to run businesses, and we compete with those people today, and nothing's really changed on the playing field today in how things are procured and how that moves. I think it's a combination of optimism towards the future that drives these larger deals. That's great coverage, Tony. I appreciate that. I wanted to ask on the, I mean, you continue to put up really impressive expansion in the mechanical margins, I guess, in particular here. Tony, just wanted to circle back. Is this sort of the same mix in terms of combination of operating leverage versus just getting higher rate?

It'd be helpful to hear what exactly you're leveraging in that group. I think it starts with us, right? You think about the customer set that's driving that mix today. You've heard me say this many times. These are the most sophisticated customers in the world, and they're very demanding. They're not paying one more cent than they need to, and it's up to us to deliver. They're not also having any easier contract terms than they need to, so start there. You have to get to, okay, it's a busy market. Maybe pricing's a little bit better.

I believe most of it's being driven by our means and methods, our ability to gain productivity on a job site, our ability to leverage things like VDC and BIM, which our customers see real value to, and then our ability to turn that into prefabricated solutions, and our ability to have less labor on the job site and more highly skilled labor. It really comes down to also, do you have the best field supervision on the site to be able to drive the best productivity and get the best outcomes and do that in a safe manner to the point where you become a place where labor really wants to work? I think we check the box on all that. If you start with great supervision on a job site, you have a lot of great planning going on. You negotiated the contract the right way.

You're really doing good progress billings and keeping your customer apprised and coming up with solutions how to drive value engineering or productivity. A lot of times, you end up in a good place. I'm going to ask Jason to go through this. Sustainability of margins, we always look at 12, 18, and 24-month averages. I think we're at a level where we think we're pretty good, Jason. I think two things I'd add. One, first, before we talk about margins, is just also the project sizes, right? We've talked about the increasing of project sizes, and you get better utilization, you get better leverage on your indirects. All of that's certainly helping margins as well. When you look at each of our segments, and we say this repeatedly, it's not a quarter-to-quarter business, right?

Mechanical is a record quarterly margin here in the second quarter, but margins will bounce around. I think on a consolidated basis, we've said, "Look at the trailing 12 to 24 months." I think that same logic holds true to the segment level. If you look at mechanical and you look at kind of a rolling 12 to 24 months, that's a good expectation for the margins there. That gets to the sustainability point. If you were seeing outsize and a big falloff, we don't expect to see that. That sort of 12 to 24-month average gives you a picture into how we view sustainability of margins. Understood. I take from your comments just on building services, it sort of feels like we're maybe at an inflection point here when you think about just the financial outlook for the rest of the year.

Is that implying that we're back to kind of a growth business here? I think we're starting to grow again. The comps get easier and more fair, really. You lose a large customer that you did very well with, and then the mix moves more towards mechanical services, which is good for the margins. Okay. Very good. I'll pass it on. Thank you. Question, please. Thank you. Next question comes from the line of Brian Brophy. Please go ahead. Thanks. Good morning, everybody. Congrats on the nice quarter. Just curious what you're seeing from a project pipeline perspective on the pharma manufacturing side. Have you seen any change or acceleration in conversations with customers, just given some of the changing outlook on the tariff discussion in that space? Thanks. Yeah. I think for the most part, our customers started planning. You have to separate it into two things, right?

The first part is they've got a bunch of new drugs they're going to build onshore that they've been investing in. I'm not a medical expert. I think they're called GLP-1s and the weight loss drugs. That's been a big part of the story of the places we are, whether it be parts of Indiana, North Carolina, and then somewhat New Jersey. Now you're getting to the second part, which I think they started planning in the middle of last year, is, okay, we got—and it really started as a result of COVID too—of onshoring more manufacturing. That doesn't happen overnight, but that has been ongoing, and I expect that to accelerate. I saw an analyst yesterday say that there hasn't been a lot of farm activity in the U.S., a stock analyst.

I'm watching TV, and I go, "I must be in a different world than they've been because we see a lot of activity, and we've participated in it." Thanks. Yeah, that's really helpful and good to hear. One follow-up on this Phase 2 award on the semi side that you guys mentioned in your opening comments. Is this a small portion of the overall award you're expecting as part of this Phase 2 project, or should we be thinking about additional awards in subsequent quarters as it relates to this? I think this is not a small job. It's $100 million plus, and it's on a second phase. It's the next fab on a site where we're repeating what we did the first phase. It's not a small award. The question, I think, is what happens on other sites.

That's where we'll probably do some initial work, which you probably won't even see because it'll be smaller. An award like this potentially can happen. Thanks. I appreciate it. I'll pass it on. Sure. Next question. Thank you. Next question comes from the line of Justin Hocke. Brett, please go ahead. Oh, great. Thanks for taking my questions here this morning. I just wanted to ask, I guess, obviously, the first half was really strong. 2Q, really strong. I'm just thinking about the guidance raise and kind of the implied second half. Obviously, you don't guide quarterly, but is the guidance raise more a reflection of 2Q coming in stronger than expected and second-half expectations kind of unchanged, or is it a balance of the two?

Obviously, you raised the margin guide, but it sounds like at the low end, it would be kind of assuming it kind of stays at the first-half level. Just trying to understand the emphasis on that front and how you would characterize the guidance. First of all, welcome. We appreciate picking you guys up and having you cover us. We very much look forward to your conference this fall. As far as the guidance, I think you've characterized it right. The lower end is sort of keep going what we're doing, and the higher end sort of takes the higher end of the revenue guidance, puts a higher margin on it. Jason's got a fairly detailed analysis here. He can walk you through, and I'm sure the rest of you will love to hear that too. It'll save you having to do the work.

I think the only thing I would say is I think it is twofold, right? A piece of it is the performance in the second quarter, and a piece of it is our expectations for margin in the back half of the year. If you look now, as I stated, for the back half, we expect margins between 9% to 9.6%, which gets you full year margins of somewhere between 9% and 9.4%. If you just look at that midpoint, which is about 9.2%, and you take into consideration the intangible asset amortization impact from Miller Electric, there's probably another 20 to 30 basis points on top of that if you're really comparing apples to apples to 2024. To answer your question, I think it's a two-part raise. It's taking into consideration what we did in the second quarter and our expectations in the back half, which are good. Yeah.

Okay. Fair enough. I guess my second question. We talked a lot about the pharma bio stuff and the semis. You don't have a ton of exposure to renewables, but it is something that you guys talk about. No. We've—so that allows me to make a broader point, right? First of all, think of who we are. We're contractors, right? We look for two things when we look at how we're going to invest and grow in a resource. The first thing we look at, there's projects that we consider one-off things or maybe a short-term blip. I thought about EVs that way and the hysteria around that. We participated, especially on the fire life safety, but that's not where we made our long-term durable bet. We made it more into other high-tech manufacturing and into data centers.

I do believe there'll still be more batteries, and we'll participate, and we'll do all that. It wasn't where we put—people wanted us to put an outsized part of our resources there, and we didn't buy into it. Secondarily, when you get to specifics around semis or bio life pharma, we're set up well to participate. In your third part about renewables, that has always been something we do. We've built some very successfully, some renewable farms, especially solar. We've done it specifically also with respect to smaller scale, sort of the megawatt or less when they're doing it on-site. We've done that. We've done combined heat and power. That's when one of our customers asks us to get involved or something we have a team that has particular expertise.

It was never something that we did large-scale acquisitions on, and it's never something that we put the majority of the company's resources against. I've always had a simple philosophy: go to durable demand where your customers have their money and aren't counting on somebody else's money to make it a successful project or not. I've always looked at something subsidized as icing on the cake, but one person's subsidies is another person's ability to remove that subsidy. We always look for long-term durable demand, and over a very long time, that has served us well. I think if you take the broadest definition of renewable and you threw everything in there, solar, even some of the EV plants and battery manufacturing that we've done, it's less than 5% of our total revenue. It's not a significant piece of what we do. That's kind of what I thought.

I appreciate that perspective. Thanks for letting us cover you guys. We're looking forward to it. Welcome aboard. We look forward to the future. Next question, please. Thank you. Next question comes from the line of Avi Jerosovich with UBS. Please go ahead. Good morning, guys. Congrats on a nice 2Q. You're welcome. We appreciate your cover. Glad to be covering you guys. I just want to circle back to the margin conversation. I know you guys touched on this to some extent, but just when we think of the margins moving in bands, we've now seen, I believe, five quarters where the margins in the combined construction segments was north of 12%. If we extend the range back to 24 months, a decently wider range. Curious how you guys are thinking about the range within the construction segment for the foreseeable future.

I think if you look at a rolling 24 months, rolling 24 months for construction, it's going to get you somewhere between 12.25% to 13.25%. I think that's a decent range on the construction. We might have not been clear. We were looking at a rolling 12, rolling 12, rolling 24. Sorry about that. Okay. Makes sense. In terms of the capacity for your prefabrication capabilities, do you still see opportunity to leverage that to grow your volumes faster than your headcount? Are you working on continuing to expand your capacity there? Yes and yes. We absolutely continue to look for opportunities to expand that. We fabricate, for the most part, for ourselves. 95% is for us. Some will ask us to do a job because we did particularly well somewhere, and there's another skid they want to send to another data center site somewhere where we're not the installer.

Again, that's 5%, 95% are for us. If you look at our CapEx as a percentage of sales, it's relatively the same, but it's more than doubled, and that is almost all into prefabrication assets. It's mainly in the construction business. It's in the fire life safety business, which is in the sprinkler side especially, a big prefabricated business. Even there, we do about 70% of our total volume, and we still source 30%. We'll always do that because some of the smaller jobs, local jobs, it doesn't make sense for us to build fabrication capability. On the electrical, we continue to expand that, probably more aggressively than any right now because we have more sites we're doing data center work at and other large-scale work. Mechanically, we have a couple of really big shops we continue to expand. Again, we're fabricating for ourselves.

Where you see that fabrication really come into play on fire life safety, it's almost every job on the sprinkler side. Where you see it come to play in electrical is on the large jobs. When you're doing a big data center, a big duct bank, if you're doing some of the underground, we're looking for ways every day to take labor off the job and become more efficient and safer. The bigger electrical jobs, data centers, semiconductor plants, pharma plants, have been mechanical even more so, especially as you get to the heavy piping systems, which is especially true for semi plants and manufacturing plants in general, healthcare, and also data centers. You put all that together, the growth in the markets we see is what's driving our prefabrication. You cannot do that prefabrication unless you have very good VDC and BIM capability.

What's really happening in the world today is drawings are getting done to a certain level. We're not usually the engineer of record, but we are finishing for constructability at about 50% to 70%, 60%. We're picking up and getting more involved in the design on these to design for constructability and offer our suggestions to get more value engineering in place, especially on means and methods. That then drives our prefabrication plan for that job. For us, that's very much coordinated with the field and how we do that. Like I said, for us today, it's about 95% for us. Some people call this modular construction. We call it prefabrication. That is helpful. When we think about your bookings this quarter, obviously, that can be somewhat volatile quarter to quarter, and you don't try to fit it into a 90-day window.

As we think about your capacity there and expanding your capacity, how much more do you think you—or is this the limit of what you were comfortable booking? How much more could you have booked with more capacity? There's clearly a lot of momentum in your end market, but you also need to be prudent about the work that you're taking on. I'm just curious to hear how you're balancing that. Yeah. We don't really think about it that way. We look at a market. We look at the jobs. We look at the long-term potential on a site. We've had the ability to attract the labor we need to do the work we're going to. Of course, I've never said that people are throwing work at us, and we're deciding what we want to do. That for us isn't true.

For us, we start with strategically, what are the markets we're going to serve? What's the capacity we're going to build to serve that over time? How do we build supervision to serve that market? We'll find the craft labor because people want to work for us. We've got to build supervision, right? We've got to build the foreman, the project managers, the project engineers. We've got to build the VDC capability. We've gone through this period of significant growth, and we can continue to build that capacity. We think about it site by site, location by location, company by company. I wouldn't say our people are capacity constrained. Every contractor can be capacity constrained if they want to chase the whole market. What I would say is we continue to manage to the right mix that we need to be successful over a very long period of time.

Appreciate the color, and thanks for the time. Thanks, Abby. Next question, please. Thank you. Next question comes from the line of Sam Snyder with North Coast Research. Please go ahead. Hey, guys. Thanks for the question. Just wanted to know, maybe you could remind us—I'm looking at the growth rates between mechanical and electrical. Do you expect that to converge? Maybe you could remind us, for everybody on the call, how that sort of flows from the beginning to an end of a project. Obviously, every project is different, but do you expect the mix to change as projects mature on average? Yeah. You could almost think of every project as having a cycle. Manpower usually starts to peak between 25% to 30% of the job to about 65% of the job. That's obviously when you're earning the most revenue.

Margins trail that typically because you start to figure out what you're actually going to make on the job. Remember, everything we do is based on an estimate, and that estimate becomes more, for better or worse, as the job progresses. Will they converge? Probably not. I mean, they'll have different growth rates in a quarter. Are they both serving the same end market? Yeah, with a little different mix. Electrically is a little more heavily weighted towards data centers. Mechanically, a little more diverse mix of projects. Some of that's just our heritage and where our footprint is. Some of them aren't data center markets where our big mechanical contractors are, and some of them are just getting into that business now. The markets they serve are relatively the same. More of an emphasis right now electrically on data centers. We'll continue to look to expand the mechanical capacity.

Really, because there's so many projects going at any time, it's hard to say there's anything really driving overall on the timing. The one thing I'd add on the data center growth for each, right, is if you look at electrical construction, dollar-wise, growing faster data centers or more growth from data centers dollar-wise, the mechanical is growing at a faster growth rate. That's to the point that Tony made that historically, our electrical business was our data center business. We are starting to see an uptick in demand in mechanical now. Yeah. We have three or four companies that do it mechanically. Fire life safety, everywhere we can do it. Electrically, that's upwards of 8 or 10 that really do it in a significant way. Got it. Thanks. I'll pass it back to the rest of the queue. Appreciate it. Thank you.

The last question comes from the line of Adam Bubes with Goldman Sachs. Please go ahead. Hi. Good morning. I just had a—Hey. Just had a couple on the data center business. Based on last quarter's 10Q and today's results, it looks like your data center business is growing in the very high double-digit growth range organically. It appears that's well above broader data center construction spending in the U.S., which is closer to, call it, 25% up year over year. I'm just wondering what's driving your outsized data center growth versus industry data points in your view, and do you expect that spread is sustainable? I don't know if that sizable spread is sustainable, but I think much like non-RES market, I would expect us over time to outgrow whatever the data center market's growing. That's for a number of reasons. We're in more markets than just about anybody.

We have a lot of customers that really like us. We do great work for them. Some of our folks are the most innovative people, both mechanically and electrically, in how a data center gets built. That's both fire life safety, mechanical, and electrical. We do a great job of VDC and BIM and prefabrication in the data center world, which leads to really good outcomes for our customers. We have a resume in a lot of ways that's second to none. I always go back to these are the most demanding, smart customers that we work with. I take it as a real source of pride, but not so much for me, a source of pride in our people that have become leaders in this market and built our capability. They're good.

I think if you're growing like we are, both mechanically and electrically, and outpacing the market by one and a half to two X, you have to be good because you're working for some of the toughest customers known to man. Great. I understand there's many different moving pieces underpinning margins, but I think all else equal, data center margins are relatively strong. If data centers continue to increase as a percent of your overall revenue, should we expect potential for further total company margin expansion, all else equal? I'd have to say you'd have to add a whole other variable on top of that, and that's contract mix. Certain times we're working a GMP, we're working to a target fee and a target price. Other times we're doing at fixed price. That mix of contract mix, and that can change quarter to quarter by customer.

That can be whether one of the big people we all heard about this morning as they announced, whether it's one of the seven or whether it's one of the colo people building for the seven. The contract mix has a big part to that. Also for us is the timing when we're on a site. Sometimes we'll start on a site and they're going to do a three-year build, four-year build on that data center site. We'll start on that site and we'll work on that site initially. We've started some new sites. We'll initially start as a GMP, and then we'll move to a fixed price. Those changes in mix are happening all the time.

They'll come up with a new design on a site, and we thought we were going to be doing that fixed price, and now they'll go GMP for the next build because they've changed their design. They're managing their risk, but remember, we're always managing our risk too. The only reason data centers may look more profitable is because we spend a lot of time working with our customers on feed to market, and we spend a lot of time working with our customers on what's the appropriate level of risk each of us should be taking. Yeah. Just to echo what Tony Guzzi said, I'd never generalize by sector. I think we earn our margin on every job, and it's just speculation until you know the scope of the job, the contract structure, the geography, what that labor pool looks like, and how much we can prefab.

Just as a point there, as you said, if you look at the growth rate we've seen for data centers this year, it's definitely high double digits, but our guidance for the full year implies the same margins we earned last year. I wouldn't necessarily say that just because you have more of one sector, your margins are going up. It's because the contract mix is so much of that. We're in a learning curve in some of these new sites too because of the labor. Great. Appreciate all the color. Thanks so much. Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Tony Guzzi for closing remarks. Thank you all very much for being part of our call today. Welcome to our new cover analysts. We look forward to a strong second half.

I hope you all stay safe and have a good remainder of the summer. Andy, back to you. Great. Thanks, Tony. Thanks, Jason. Thank you all for joining us today. As always, if you should have any follow-up questions, please do not hesitate to reach out to me directly. Thank you all again and have a great day. Raju, can you please close the call? Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.