Emcor group, inc. reports second quarter 2020 results

Norwalk, conn.--(business wire)--emcor group, inc. (nyse:eme) today reported results for the second quarter ended june 30, 2020. for the second quarter of 2020, we reported a net loss of $83.7 million, or $(1.52) per diluted share, compared to net income of $84.0 million, or $1.49 per diluted share, for the second quarter of 2019. the net loss for the second quarter of 2020 included after-tax goodwill, identifiable intangible asset, and other long-lived asset impairment charges, primarily related to our u.s. industrial services segment. excluding these impairment charges, non-gaap net income for the second quarter of 2020 was $79.2 million, or $1.44 per diluted share. revenues for the second quarter of 2020 totaled $2.01 billion, a decrease of 13.3%, compared to $2.32 billion for the second quarter of 2019. we reported an operating loss for the second quarter of 2020 of $122.6 million, representing an operating margin of (6.1)%, which included pre-tax impairment charges of $232.8 million, compared to operating income of $120.0 million, representing an operating margin of 5.2%, for the second quarter of 2019. excluding such pre-tax impairment charges, non-gaap operating income for the second quarter of 2020 was $110.1 million, representing a non-gaap operating margin of 5.5%. selling, general and administrative expenses for the second quarter of 2020 totaled $205.2 million, or 10.2% of revenues, representing a decrease of $21.1 million compared to selling, general and administrative expenses of $226.2 million, or 9.7% of revenues, for the second quarter of 2019. please see the attached tables for a reconciliation of non-gaap operating income, non-gaap operating margin, non-gaap net income, and non-gaap diluted earnings per share to the comparable gaap measures. the company's income tax rate for the second quarter of 2020 was (32.5)%, which compares to an income tax rate of 28.3% for the second quarter of 2019. remaining performance obligations as of june 30, 2020 were $4.59 billion compared to $4.23 billion as of june 30, 2019. total u.s. remaining performance obligations grew approximately $346 million year-over-year. tony guzzi, chairman, president and chief executive officer of emcor, commented, “we demonstrated excellent execution during these unprecedented times, and our second quarter performance reflects the rapid and decisive implementation of our contingency plans. despite year-over-year revenue declines across each of our segments, we delivered non-gaap operating income of $110.1 million and a strong non-gaap operating margin of 5.5%, underscoring our ability to perform in almost any environment as well as our diligent cost control. our efforts drove record operating cash flow generation of $276.7 million in the first six months of 2020, which represents an increase of over $300 million compared to the same period in 2019. even as we and our customers navigate the uncertainty surrounding the covid-19 pandemic and its impact on the economy, our remaining performance obligations continue to grow, up 8.6% year-over-year and 3.8% sequentially, demonstrating the resiliency of our business and the underlying demand for our services in the marketplace.” mr. guzzi added, “our u.s. construction segments continue to anchor our performance, with operating income growth of 1.4% year-over-year and a robust operating margin of 8.0%, up 100 basis points year-over-year. this was primarily driven by our u.s. mechanical construction segment, which posted operating income growth of 24.1% year-over-year and an impressive operating margin of 8.5%, up 190 basis points year-over-year. additionally, our u.s. electrical construction segment delivered a healthy operating margin of 7.2% despite the significant impact of mandated shutdowns on our revenues in the quarter. led by our mobile mechanical and government services businesses, our u.s. building services segment reported an operating margin of 5.6%, up 30 basis points year-over-year. during the second quarter, we recorded a significant impairment charge primarily related to our u.s. industrial services segment, which is operating in a challenging environment as its customers grapple with the dual impacts of the covid-19 pandemic and ongoing volatility in the oil and gas market. we will continue to leverage our leadership position and take advantage of available opportunities. however, we do not anticipate much improvement in this segment through the remainder of the year. lastly, our u.k. building services segment generated an operating margin of 5.7%, up 80 basis points year-over-year, as it continues to execute well across its diversified customer base.” revenues for the first six months of 2020 totaled $4.31 billion, a decrease of 3.8%, compared to $4.48 billion for the first six months of 2019. we reported a net loss for the first six months of 2020 of $8.0 million, or $(0.14) per diluted share, compared to net income of $156.4 million, or $2.77 per diluted share, for the first six months of 2019. excluding the impact of the previously referenced impairment charges recorded in the second quarter of 2020, non-gaap net income for the first six months of 2020 was $154.9 million, or $2.78 per diluted share. for the first six months of 2020, we reported an operating loss of $16.6 million, representing an operating margin of (0.4)%, compared to operating income of $222.3 million, representing an operating margin of 5.0%, for the first six months of 2019. excluding the previously referenced $232.8 million non-cash impairment charge recorded in the second quarter, non-gaap operating income for the first six months of 2020 was $216.1 million, representing a non-gaap operating margin of 5.0%. sg&a totaled $432.2 million, or 10.0% of revenues, for the first six months of 2020 compared to $432.4 million, or 9.6% of revenues, for the first six months of 2019. please see the attached tables for a reconciliation of non-gaap operating income, non-gaap operating margin, non-gaap net income and non-gaap diluted earnings per share to the comparable gaap measures. based on year-to-date performance, current operating conditions and visibility into the remainder of the year, emcor expects full-year 2020 revenues to be between $8.6 billion and $8.7 billion, and full-year 2020 non-gaap diluted earnings per share in the range of $5.00 to $5.50. mr. guzzi concluded, “i would like to thank the entire emcor team for their hard work as we navigate the impacts of covid-19 and continue to safely and effectively serve our customers in this environment. during the quarter, we remained focused on the elements of our business in our control, protecting the health and safety of our employees, and adjusting our operations as necessary in a disciplined and process-oriented manner. our guidance for the remainder of the year is contingent on the environment remaining relatively consistent to where we stand today, as well as no widespread shutdowns, such as those that we experienced earlier this year. our growing remaining performance obligations, combined with the actions we’ve taken to improve productivity and streamline our operations, as well as our solid financial position, will allow us to deliver value for our shareholders during this crisis and beyond.” emcor group, inc. is a fortune 500 leader in mechanical and electrical construction services, industrial and energy infrastructure and building services. this press release and other press releases may be viewed at the company’s website at www.emcorgroup.com. emcor routinely posts information that may be important to investors in the “investor relations” section of our website at www.emcorgroup.com. investors and potential investors are encouraged to consult the emcor website regularly for important information about emcor. emcor group's second quarter conference call will be available live via internet broadcast today, monday, august 3, at 10:30 am eastern daylight time. the live call may be accessed through the company's website at www.emcorgroup.com. forward looking statements: this release contains certain forward-looking statements. any such comments speak only as of august 3, 2020 and emcor assumes no obligation to update any such forward-looking statements, unless required by law. these forward-looking statements may include statements regarding anticipated future operating and financial performance, the nature and impact of our remaining performance obligations, our ability to pursue acquisitions, our ability to return capital to shareholders, market opportunities, market growth and customer trends. these forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated (whether expressly or implied) by the forward-looking statements. accordingly, these statements are no guarantee of future performance. such risks and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for emcor’s services, adverse business conditions, availability of adequate levels of surety bonding, increased competition, unfavorable labor productivity, mix of business, the impact of the 2020 ransomware attack, and the impact of the covid-19 pandemic on our revenue and operations, including employees, construction activity, and facilities utilization, and the risk factors associated with emcor’s business discussed in part i, item 1a “risk factors,” of the company’s 2019 form 10-k, in part ii, item 1a “risk factors,” of the company’s quarterly report on form 10-q for the quarterly period ended march 31, 2020, and in other reports filed from time to time with the securities and exchange commission and available at www.sec.gov and www.emcorgroup.com. non-gaap measures: this release also includes certain financial measures that were not prepared in accordance with u.s. generally accepted accounting principles (gaap). reconciliations of those non-gaap financial measures to the most directly comparable gaap financial measures are included in this release. the company uses these non-gaap measures as key performance indicators for the purpose of evaluating performance internally. we also believe that these non-gaap measures provide investors with useful information with respect to our on-going operations. any non-gaap financial measures presented are not, and should not be viewed as, substitutes for financial measures required by gaap, have no standardized meaning prescribed by gaap and may not be comparable to the calculation of similar measures of other companies. in addition, forecast non-gaap diluted earnings per share for full-year 2020 is a forward-looking non-gaap financial measure. the company does not provide a reconciliation of forward-looking non-gaap financial measures to the most directly comparable financial measures calculated and presented in accordance with gaap on a forward-looking basis because it is unable to provide such reconciliations without unreasonable effort, due to the uncertainty and inherent difficulty of predicting the occurrence and the financial impact of items such as impairment charges that impact comparability and the periods in which such items may be recognized. for the same reasons, the company is unable to address the probable significance of the unavailable information, which could be material to future results. emcor group, inc. financial highlights (in thousands, except share and per share information) (unaudited) condensed consolidated statements of operations for the three months ended june 30, for the six months ended june 30, 2020 2019 2020 2019 revenues $ 2,014,021 $ 2,324,202 $ 4,313,853 $ 4,482,930 cost of sales 1,698,735 1,977,822 3,665,506 3,827,796 gross profit 315,286 346,380 648,347 655,134 selling, general and administrative expenses 205,174 226,248 432,171 432,417 restructuring expenses — 173 69 448 impairment loss on goodwill, identifiable intangible assets, and other long-lived assets 232,750 — 232,750 — operating (loss) income (122,638 ) 119,959 (16,643 ) 222,269 net periodic pension (cost) income 718 400 1,460 806 interest expense, net (2,110 ) (3,231 ) (4,598 ) (6,054 ) (loss) income before income taxes (124,030 ) 117,128 (19,781 ) 217,021 income tax (benefit) provision (40,341 ) 33,156 (11,757 ) 60,639 net (loss) income $ (83,689 ) $ 83,972 $ (8,024 ) $ 156,382 basic (loss) earnings per common share $ (1.52 ) $ 1.49 $ (0.14 ) $ 2.78 diluted (loss) earnings per common share $ (1.52 ) $ 1.49 $ (0.14 ) $ 2.77 weighted average shares of common stock outstanding: basic 54,937,038 56,181,864 55,467,799 56,175,219 diluted 54,937,038 56,499,514 55,467,799 56,461,977 dividends declared per common share $ 0.08 $ 0.08 $ 0.16 $ 0.16 emcor group, inc. condensed consolidated balance sheets (in thousands) june 30, 2020 (unaudited) december 31, 2019 assets current assets: cash and cash equivalents $ 481,391 $ 358,818 accounts receivable, net 1,936,442 2,030,813 contract assets 171,389 177,830 inventories 40,590 40,446 prepaid expenses and other 49,268 51,976 total current assets 2,679,080 2,659,883 property, plant and equipment, net 158,453 156,187 operating lease right-of-use assets 240,659 245,471 goodwill 839,772 1,063,911 identifiable intangible assets, net 576,540 611,444 other assets 95,919 93,462 total assets $ 4,590,423 $ 4,830,358 liabilities and equity current liabilities: current maturities of long-term debt and finance lease liabilities $ 10,234 $ 18,092 accounts payable 563,128 665,402 contract liabilities 655,298 623,642 accrued payroll and benefits 317,783 382,573 other accrued expenses and liabilities 209,064 195,757 operating lease liabilities, current 52,705 53,144 total current liabilities 1,808,212 1,938,610 borrowings under revolving credit facility — 50,000 long-term debt and finance lease liabilities 294,126 244,139 operating lease liabilities, long-term 204,361 204,950 other long-term obligations 339,526 334,879 total liabilities 2,646,225 2,772,578 equity: total emcor group, inc. stockholders’ equity 1,943,622 2,057,134 noncontrolling interests 576 646 total equity 1,944,198 2,057,780 total liabilities and equity $ 4,590,423 $ 4,830,358 emcor group, inc. condensed consolidated statements of cash flows for the six months ended june 30, 2020 and 2019 (in thousands) (unaudited) 2020 2019 cash flows - operating activities: net (loss) income $ (8,024 ) $ 156,382 adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: depreciation and amortization 23,220 21,391 amortization of identifiable intangible assets 29,404 23,169 provision for credit losses 4,957 851 deferred income taxes (19,942 ) (920 ) excess tax benefits from share-based compensation (196 ) (593 ) non-cash expense for impairment of goodwill, identifiable intangible assets, and other long-lived assets 232,750 — non-cash share-based compensation expense 5,960 6,225 other reconciling items 1,064 3,020 changes in operating assets and liabilities, excluding the effect of businesses acquired 7,550 (251,723 ) net cash provided by (used in) operating activities 276,743 (42,198 ) cash flows - investing activities: payments for acquisitions of businesses, net of cash acquired (3,194 ) (63,991 ) proceeds from sale or disposal of property, plant and equipment 824 1,326 purchase of property, plant and equipment (25,951 ) (22,455 ) investments in and advances to unconsolidated entities — (794 ) distributions from unconsolidated entities — 84 net cash used in investing activities (28,321 ) (85,830 ) cash flows - financing activities: proceeds from revolving credit facility 200,000 — repayments of revolving credit facility (250,000 ) — proceeds from long-term debt 300,000 — repayments of long-term debt and debt issuance costs (257,549 ) (7,601 ) repayments of finance lease liabilities (2,354 ) (2,151 ) dividends paid to stockholders (8,888 ) (8,967 ) repurchase of common stock (99,048 ) — taxes paid related to net share settlements of equity awards (2,550 ) (3,735 ) issuance of common stock under employee stock purchase plan 3,228 2,969 payments for contingent consideration arrangements (4,070 ) (2,508 ) distributions to noncontrolling interests (70 ) (250 ) net cash used in financing activities (121,301 ) (22,243 ) effect of exchange rate changes on cash, cash equivalents, and restricted cash (4,701 ) (175 ) increase (decrease) in cash, cash equivalents, and restricted cash 122,420 (150,446 ) cash, cash equivalents, and restricted cash at beginning of year (1) 359,920 366,214 cash, cash equivalents, and restricted cash at end of period (2) $ 482,340 $ 215,768 (1) includes $1.1 million and $2.3 million of restricted cash classified as “prepaid expenses and other” in the consolidated balance sheets as of december 31, 2019 and 2018, respectively. (2) includes $0.9 million and $2.4 million of restricted cash classified as “prepaid expenses and other” in the consolidated balance sheets as of june 30, 2020 and 2019, respectively. emcor group, inc. segment information (in thousands) (unaudited) for the three months ended june 30, 2020 2019 revenues from unrelated entities: united states electrical construction and facilities services $ 445,881 $ 569,402 united states mechanical construction and facilities services 790,441 823,086 united states building services 472,416 523,698 united states industrial services 212,166 295,460 total united states operations 1,920,904 2,211,646 united kingdom building services 93,117 112,556 total worldwide operations $ 2,014,021 $ 2,324,202 for the six months ended june 30, 2020 2019 revenues from unrelated entities: united states electrical construction and facilities services $ 971,110 $ 1,097,472 united states mechanical construction and facilities services 1,624,553 1,575,495 united states building services 990,499 1,035,777 united states industrial services 522,197 554,105 total united states operations 4,108,359 4,262,849 united kingdom building services 205,494 220,081 total worldwide operations $ 4,313,853 $ 4,482,930 emcor group, inc. segment information (in thousands) (unaudited) for the three months ended june 30, 2020 2019 operating income (loss): united states electrical construction and facilities services $ 32,184 $ 43,799 united states mechanical construction and facilities services 66,937 53,954 united states building services 26,378 28,001 united states industrial services 2,961 16,012 total united states operations 128,460 141,766 united kingdom building services 5,351 5,476 corporate administration (23,699 ) (27,110 ) restructuring expenses — (173 ) impairment loss on goodwill, identifiable intangible assets, and other long-lived assets (232,750 ) — total worldwide operations (122,638 ) 119,959 other corporate items: net periodic pension (cost) income 718 400 interest expense, net (2,110 ) (3,231 ) (loss) income before income taxes $ (124,030 ) $ 117,128 for the six months ended june 30, 2020 2019 operating income (loss): united states electrical construction and facilities services $ 76,087 $ 86,750 united states mechanical construction and facilities services 112,108 94,939 united states building services 47,216 55,484 united states industrial services 15,218 25,648 total united states operations 250,629 262,821 united kingdom building services 11,115 9,617 corporate administration (45,568 ) (49,721 ) restructuring expenses (69 ) (448 ) impairment loss on goodwill, identifiable intangible assets, and other long-lived assets (232,750 ) — total worldwide operations (16,643 ) 222,269 other corporate items: net periodic pension (cost) income 1,460 806 interest expense, net (4,598 ) (6,054 ) (loss) income before income taxes $ (19,781 ) $ 217,021 emcor group, inc. reconciliation of 2020 and 2019 non-gaap operating income and non-gaap operating margin (in thousands) (unaudited) in our press release, we provide non-gaap operating income and non-gaap operating margin for the three and six months ended june 30, 2020 and 2019. the following table provides a reconciliation between operating income and operating margin determined on a non-gaap basis to the most directly comparable gaap measures for such periods. for the three months ended june 30, for the six months ended june 30, 2020 2019 2020 2019 gaap operating (loss) income $ (122,638 ) $ 119,959 $ (16,643 ) $ 222,269 impairment loss on goodwill, identifiable intangible assets, and other long-lived assets 232,750 — 232,750 — non-gaap operating income, excluding impairment loss on goodwill, identifiable intangible assets, and other long-lived assets $ 110,112 $ 119,959 $ 216,107 $ 222,269 for the three months ended june 30, for the six months ended june 30, 2020 2019 2020 2019 gaap operating margin (6.1 )% 5.2 % (0.4 )% 5.0 % impairment loss on goodwill, identifiable intangible assets, and other long-lived assets 11.6 % — % 5.4 % — % non-gaap operating margin, excluding impairment loss on goodwill, identifiable intangible assets, and other long-lived assets 5.5 % 5.2 % 5.0 % 5.0 % emcor group, inc. reconciliation of 2020 and 2019 non-gaap net income (in thousands) (unaudited) in our press release, we provide non-gaap net income for the three and six months ended june 30, 2020 and 2019. the following table provides a reconciliation between net income determined on a non-gaap basis to the most directly comparable gaap measure for such periods. for the three months ended june 30, for the six months ended june 30, 2020 2019 2020 2019 gaap net (loss) income $ (83,689 ) $ 83,972 $ (8,024 ) $ 156,382 impairment loss on goodwill, identifiable intangible assets, and other long-lived assets (1) 162,885 — 162,885 — non-gaap net income, excluding impairment loss on goodwill, identifiable intangible assets, and other long-lived assets $ 79,196 $ 83,972 $ 154,861 $ 156,382 (1) amount is net of tax effect of $69.9 million in the 2020 quarter and year-to-date periods. emcor group, inc. reconciliation of 2020 and 2019 non-gaap diluted earnings per share (in thousands) (unaudited) in our press release, we provide non-gaap diluted earnings per common share for the three and six months ended june 30, 2020 and 2019. the following table provides a reconciliation between diluted earnings per common share determined on a non-gaap basis to the most directly comparable gaap measure for such periods. for the three months ended june 30, for the six months ended june 30, 2020 2019 2020 2019 gaap diluted (loss) earnings per common share $ (1.52 ) $ 1.49 $ (0.14 ) $ 2.77 impairment loss on goodwill, identifiable intangible assets, and other long-lived assets (1) 2.95 — 2.93 — non-gaap diluted earnings per common share, excluding impairment loss on goodwill, identifiable intangible assets, and other long-lived assets $ 1.44 $ 1.49 $ 2.78 $ 2.77 (1) amount is net of tax effect of $69.9 million in the 2020 quarter and year-to-date periods.
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