EMCOR Group, Inc. (EME) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Second Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Mr. Haskel Kwestel with FTI Consulting. You may begin.
Haskel Kwestel: Thank you, Jerome, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company’s 2021 second quarter results, which were reported this morning.
Kevin Matz: Thank you, Haskel, and good morning, everybody. As always, thank you for your interest in EMCOR and welcome to our earnings conference call for the second quarter of 2021. It’s amazing to me that we’re already halfway through the year in fact more so now. For those of you who are accessing the call via the Internet and our website, welcome to you as well and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on slide two. This presentation and certain -- and discussions contain forward-looking statements and may contain certain non-GAAP financial information. Page two describes in detail the 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. Slide three, excuse me, are the executives who are with me to discuss the quarter and six-month results. They are Tony Guzzi, our Chairman, President and Chief Executive Officer; Mark Pompa, Executive Vice President and Chief Financial Officer; and our Executive Vice President and General Counsel, Maxine Mauricio. For call participants not accessing the conference call via the Internet, this presentation including the slides will be archived in our Investor Relations section of our website under Presentation. You can always find us at emcorgroup.com. With that said, please let me turn the call over to Tony. Tony?
Tony Guzzi: Yeah. Thanks, Kevin, and good morning to everybody. And upfront here, I am going to be covering pages four to six. And you take a step back, what a difference a year makes? When we reported our second quarter 2020 numbers, we were in the throes of a pandemic with no clear end in sight. Although, COVID-19 cases in some geographies are rising again. We are in a much more stable environment and have much better visibility with respect to our operations than a year ago. We remain focused on our employee safety as we continue to work in this environment. We had a very strong operating quarter, with revenues of $2.44 billion, operating income of $133 million and earnings per diluted share of $1.78. We maintained strong operating income margins of 5.5% and had revenue growth of 21% overall, with 18% organic revenue growth. It is important to remember that in second quarter 2020 we had several of our key geographic markets either shutdown or partially shutdown.
Mark Pompa: Thank you, Tony, and good morning to everyone participating on our call today. For those accessing this presentation via the webcast we are now on slide seven. Over the next several slides, I will supplement Tony’s opening commentary on EMCOR’s second quarter performance, as well as provide a brief update on our year-to-date results through June 30th.
Tony Guzzi: Hey. Thanks, Mark. And I am going to be on pages 12 to 13. I am going to talk about remaining performance obligations by segment and market sector. I’ll give you a top summary here, they’re at the highest level. However, we have a strong mix. Our bookings were strong for both small and large projects with a book-to-bill of 1.12. And what I am going to do is I am going to intermix comments from what would be page 13 and we’ll talk about some of those sectors we’ve been talking about into my overall RPO commentary. We sort of had a RPO triple-play here with RPOs increasing in three comparable periods. At the year period, that’s versus 2020 for June 2021, June 2020, six-month period 2021 June versus December 2021 and sequentially from March 2021. All five of our business segments have RPO growth for each of these measurement periods. But to be fair, we’ve said this many times, this is not a quarter-to-quarter or month-to-month business. RPO movement is not something we draw sweeping inclusions from month-to-month or quarter-to-quarter. But the reality is with the kind of bookings we had and level we’re at, we feel pretty good about the forward view of our business. And I had a quarter one statement where I talked about the non-res market and I think I talked about it also as we moved through last year that we wouldn’t know what the impact of that second quarter would be until we got to the second quarter. And I think we can now say that we expect growth in the non-residential market. I would guess that growth to sort of be somewhere in the mid-single digits and we’re clearly outperforming that mid single-digit growth. As mentioned, total company RPOs at the end of the second quarter were just over $5.1 billion. They’re up $516 million or 11.2%, when compared to the year ago level of $4.6 billion. They too increased $511 million for the first six months of the year and real important to look at is the organic RPO growth, which increased $409 million or 8.9%. And again, I talked about a book-to-bill well over 1. Our domestic construction segments had RPO growth in the quarter at $301 million since June 30, 2020 and that was both in the Electrical and Mechanical Construction segments. And we’re seeing it being driven by strong overall bookings in data centers, manufacturing, industrial, water and waste water, healthcare and logistical infrastructure work. We also expect strength to continue in our small projects, short-duration work and a lot of that centers are on commercial and manufacturing is where we see that work. Building Services is 13% of total RPOs in the second quarter and increased $202 million, $114 million of that $202 million was organic. Pre-pandemic small project demand is active, it’s back is another way of saying that across the country and we also getting more value now because of the indoor air quality and air movement work that we’re doing in addition to the energy efficiency work. Our customers are executing both types of these projects as a result of an expectation of increased energy costs, a desire to reduce their carbon footprint and a strong belief that IAQ solutions will improve their employees’ productivity by improving their ease of mind and their safety. One of the things I’d point out is we are one of the key problem solvers for energy efficiency work and IAQ work, and as you demand more energy efficiency from your facility. We bring concepts from ideas and things that people think about to real projects for owners and tenants. We’re uniquely positioned to help our customers reduce their carbon footprint, achieve cost reduction goals and have better and cleaner buildings. Every time we service, repair or replace an HVAC unit or install or service a new or updated building control systems and this is exactly where Mark told you we were growing in Building Services, we are making facilities, healthcare facilities, factories and office buildings less carbon intense and more efficient. The other thing we’re seeing is the combination of these energy savings projects with more on-site generation, whether it be renewable generation like solar or combined heat and power, which takes waste heat and turns it into either HVAC or power generation. It is important to note that most of our Industrial Services segment field services work would not be in RPOs, as it is executed via time and material contracts. And in that case, we’re seeing strong demand for us to schedule for people as we go from the back half of this year into next year. What we’re seeing across the RPOs is we’re winning at a rate that we believe is much faster than the underlying non-residential market growth and that we have durability to move within these sectors and flexibility and that will continue to benefit us as we move through the remainder of 2021 and into 2022. With that, I am now going to wrap up on pages 15 and 16. As we assess our performance at the half, we are performing very well across our business. And as a result of that performance through the first half of 2021, we’re raising our earnings and revenue guidance for 2021. We will raise our revenue guidance to $9.5 million -- $905 billion in revenues, which exceeds our previous range of $9.2 billion to $9.4 billion in revenues. We will raise our earnings per diluted share guidance from $6.35 to $6.75 to a new range of $6.65 to $7.05. Previously, we had told you that we would know more at the conclusion of the second quarter and with greater visibility that we now have, we can raise our guidance. For us to achieve the middle to the top end of that guidance range, a large percentage of the following must happen. I think most of you know I like to talk about what we control and what we don’t control. We would like to focus on the things we don’t control and prepare contingency plans for those things that we don’t control. So we focus on the things we control and have contingency plans for the things we don’t control. What we control? Well, we like to think we control our cost and we’re known for keeping our cost in check, whether that be direct and indirect labor costs, material costs. We’re pretty good at this and it’s been an operating fundamental here at EMCOR for a long time. We need to continue to have success in navigating the supply chain challenge with respect to pricing and availability. I talked about that earlier in my opening commentary. It’s a challenge. I mean, I’ve listened to a bunch of calls. You listen to more calls. It’s a challenge. We’re positioned well to navigate it. We think we’ll continue navigating it well, but it is a challenge. We also need to continue to be able to find the right labor at the right time. We’ve always been very successful at that. It’s a question you all ask. I’ll answer for you now. We expect to continue to be successful at that. We will always struggle to find HVAC technicians in the summer like everybody else and our op technicians and our operating engineers, we always are looking for, because we’re growing that business pretty healthily right now. And so, those are the two areas, we always look for people. But we have great labor relations at the local level and we expect to be able to man our construction projects with the right people at the right time and the right skill mix. We are an employer of choice. We expect the booking momentum to continue, especially with respect to quick term project work, and for us, that means projects really less than $2.5 million or so. It’s very strong right now. We expect that to continue and that’s what gives us conviction to talk about the underlying strength in the market overall. I am humble enough and our team is humble enough to know that there’s a whole bunch of things we don’t control. We don’t control whether the non-residential market will continue to be strong. We expect it to be. But if it’s not, we will react and have a contingency plan to adapt to that. We don’t control what will happen in industrial services. We know what we see with respect to what people want us to do. But we’ve been doing this long enough to know that that can change. And look, we’re a little shy about being overly optimistic, as what weather has done to us in the Gulf Coast over the last three years. We don’t expect any major COVID disruptions in our business or our geographies. I do expect that there would be increased demand from our customers for us to supply vaccinated people and we are advocating that strongly in our business and for our employees. Safety is one of our key corporate values and we think keeping our employees safe is asking them to be vaccinated. We’ve had pretty good success. We need to have better success. We also don’t think the supply chain issues as of today will be more pronounced than they are, they could be. But we do expect them to last for the balance of the year, and clearly, we don’t control everything that goes on with the supply chain. As far as capital allocation, we spent nearly $57 million on acquisitions year-to-date. They were right down the pipe as far as the kind of things that we like to do. We returned $138 million year-to-date on share repurchases as Mark talked about and we also returned $14.2 million in dividends back to our shareholders. We expect to continue to be balanced capital allocators as the year progresses and we have a decent pipeline of acquisitions that we are working on. I will tell you unequivocally right now that one of the strengths of our company is our balance sheet. Our customers look to that balance sheet. That’s one of the reasons we can grow as fast as we can organically and it’s one of the reasons we’ve had so much success on a lot of the quick term work in these large data center projects and healthcare projects because people know that we will have the working capital and the ability to build the team on a very quick basis with the right labor at the right time and have the access to the capital to do that. With all that being said, I am happy to take questions. Jerome, open the line please.
Operator: Your first question comes from the line of Noelle Dilts with Stifel. Your line is open.
Noelle Dilts: Hi, guys. Congrats on another good quarter.
Tony Guzzi: Hello, Noelle.
Noelle Dilts: Good morning. So I was hoping you could just speak to the impact of raw material cost and inflation, I asked about this last quarter. And you talked about really making some major efforts to manage higher costs coming through. So could you just discuss where that stands today and the extent to which you’ve been able to pass higher zero costs onto your customers?
Tony Guzzi: There’s three ways that this gets mitigated, yeah, and how it works, right? The first one is, our longer term projects where we lock in the price especially for major end components or major commodities where we’ve talked to distributors long before today. We’re blessed to have good relationships. And businesses work together. I mean most pricing is protected on those large projects, because we’re going to all work together through this period and we’re all going to work together after this period of inflation. So there’s a portion of our work that’s protected. The next portion of our work is, you look at our composition of our company and you think about how much gets executed in short order, which is less than a year, which marks about two-thirds of what we do? So therefore, we’re re-pricing that work all the time. We know today that we’re in that environment. So there’s two ways we’ll mitigate that. We either lock it in for that 60 days or 90 days where we buy the material or we’ll make it very clear to our customers that this is the component of what we couldn’t buy that may fluctuate and your customers understand that. Now, if we’re on a fixed price contract where they don’t accept it, then we work extra hard to lock in the price. The third component of our work is time and material. Big chunk of the building services work, the small project work may not be time and material, but it’s going to be executed in less than 60 days. It has a lot of the pricing characteristics of time and material work or it actually is time and material work and all of our industrial work which has very low material component, that’s not purchased by the customer is time and material work. Mark, do you have anything to add on that?
Mark Pompa: No. I’ll just edify what Tony said. When you look at our RPO in hand actually 84% is going to be executed in the next 12 months...
Tony Guzzi: Yeah. Little more…
Mark Pompa: So it’s actually more than two-thirds. So, clearly, our supply network has been stable for a long number of years, as you would imagine. EMCOR is a sizeable and important customer for those of us who were in that chain with a valued relationship on both ends and we’re obviously working together to make this as the least painful it can be for all involved.
Tony Guzzi: Yeah. I think, Mark said -- he made a really important statement there and this is the CFO making the statement. We value both sides of that supply chain. So I like other large companies that we deal with at times. We don’t take prepay discounts if we’re not prepaying somebody or early paying somebody. We treat our suppliers the way we expect to be treated. And as a result of that, they tend to treat us fair in times like this. And we also have open communication. You think about a large distributor in a market, we may be, in many cases, their most important customer electrically and mechanically on what they’re distributing. And we’re the most important customer and you treat them right when times are maybe not as good as they were last year, they remember that now, just like we do. I mean, our best customers get our best labor and I think we get the best treatment from a lot of our suppliers, because our subsidiary CEOs deal very professionally with their suppliers at all times. That is how we conduct business. It’s part of our corporate values. It’s part of our code of conduct. It’s how we treat people and it’s how we expect to be treated.
Noelle Dilts: Okay. Great. That was -- that’s really helpful. Second question is a little bit more granular. But could you just expand upon the trends you’re seeing in industrial services and one of the things we’ve been watching is that with kind of a good operating environment for some of the refiners, strong crack spreads, et cetera, that they might delay some work. Just could you speak to what you’re seeing there and how you’re thinking about the outlook?
Tony Guzzi: I think they may, but they’re not going to delay beyond first quarter of next year. We don’t think and that’s where we’re really seeing what we’re really calling the real inflection. Clearly, we think the comps will be better as you move through the back half of this year for a lot of reasons. But we do think that they’re rebuilding, they’re getting their planning. We know what we’re planning. Again, they’ll be better this year, next year. I don’t think they plan on deferring maintenance forever.
Noelle Dilts: Okay. Thank you.
Operator: And your next question comes from Sean Eastman with KeyBanc Capital Markets. Your line is open.
Sean Eastman: Hi, gentlemen.
Tony Guzzi: Good morning, Sean.
Mark Pompa: Good morning.
Sean Eastman: Good morning. Good morning. Thanks for taking my questions.
Tony Guzzi: Good morning.
Sean Eastman: So, book-to-bill above 1 times two quarters in a row now. I am just curious how you would characterize the kind of velocity there since the start of the year. Has bid activity continued to build momentum through the first half? And maybe put another way, would you expect to book more work in the second half than you did in the first half?
Tony Guzzi: I am always cautious to think of that especially thinking of the kind of booking we had in the first half.
Sean Eastman: Yeah.
Tony Guzzi: But I think you’ve heard me say this before, Sean. Every decision of size that we’re involved with is a binary decision. What scopes to find, we don’t get -- it’s not like an OEM that gets a share of the market typically. So we won the project or we didn’t win the project. We won more than we thought we were going to win in the first half of the year and we won the right kind of work. Could that happen again in the second half of the year with more velocity? Sure it could. I don’t necessarily think overall activity is necessarily stronger than we thought it was going to be. We’re winning more of the right work and the kind of work we won than we thought in a typical year. Mark?
Mark Pompa: Yeah. Sean, the only thing I would add to Tony’s comment is that and we’re also seeing people making decisions now, right? Clearly, in the back half of 2020, there was a lot in front of us, a lot in front of our customers and most people hit the pause button for the obvious reasons. We’re seeing more conviction in decision making certainly through the first six months of 2021. I mean we’re cautiously optimistic that that trend is going to continue as we move through the rest of the year.
Tony Guzzi: Yeah. I think one of the wild cards is supply chain.
Sean Eastman: Yeah.
Tony Guzzi: I think there were more conviction around the supply chain right now. I think booking activity would even be stronger. I think there’s two things that are sort of holding back things right now. One on the supply chain issues, which are real and I think they center on two things. One is resumption of capacity, right? Capacity is coming back online both in the U.S. and overseas. And the second thing is availability of labor. We talk to our suppliers. They’re figuring out the first part I think now, getting the materials, and really steel mills have started coming and that’s the one I think prices should start coming down and it really hasn’t in a substantial way yet. But the real one is labor. It’s very difficult to hire labor, just come in and re-staff a lot of the plants. So, therefore, they’re not operating at the capacity they would like to operate at. And I’ll give you a real example, right? When we talk to some of our suppliers, the way you typically hire in the manufacturing environment, although we don’t really do that, but the way you typically hire in a manufacturing environment, you would typically bring people in either seasonally or for a 60-day trial period. That 60-day trial period would typically be through a temp agency and really what you’re trying to make sure is if the person show up to work, can we train them on the skills and can they pass the drug test? I mean, just to be very straight, that’s what they’re looking for. And then after 60 days people typically would get a pretty substantial raise. So they may have brought them in at $12 or $13 an hour and then raise them to $15, $18 an hour once they became full time. That whole first step isn’t happening right now. And so, as a result, you’re getting more churn in the permanent workforce, if they can find it and venture to say, I think, a big chunk of the manufacturing capacity that we draw from is probably still yet somewhere between 6% and 10% understaffed versus where they would like to be.
Sean Eastman: Okay. That’s interesting, Tony. That’s helpful as we think about the swings into the second half. And my second question is, we talk about the non-res market growth and the construction segments are clearly poised to sort of outperform that broader non-res growth. But I wanted to kind of drill down on Building Services. Considering we’ve got some seemingly pretty durable secular drivers there around energy efficiency, IAQ, et cetera, I mean, what’s the growth rate in the services piece of the business, if that makes sense?
Tony Guzzi: Yeah. I mean, so you see what’s going to go on with the project bookings. I mean, they’re a little larger than they typically are, so the timing will be a little longer. So they may go into next year some of them. You’re talking 20% plus organic growth in bookings. Underlying service growth is very strong. It’s high single digits or will be and it should be through the summer. What’s restraining that segment’s growth right now is somewhat what’s going on with the government business right now and it’s nothing that we are terribly worried about, but it’s slow award, slow decision making. Pretty much, Mark and I talk about it, we can pretty much play the playbook based on when the administration is changed and now it even happens at mid-term elections, so depending on what happens with Congress. So that’s what sort of slowing things down. Good growth in commercial site, good growth in repair service, good growth in service agreements, good growth in controls, very strong growth in projects. So you are right to point out and we have a great team that anticipates those needs and did all the training they needed to do to have people ready. But you’re right to point out there are some very good secular trends that we’re benefiting from. Those trends also happen in the Mechanical Construction business, a portion of the revenues, Mark, what 15%, 20% of their revenues...
Mark Pompa: Yeah.
Tony Guzzi: ... is also service and small projects. Do you have anything to add to that?
Mark Pompa: No. Nothing to add.
Tony Guzzi: Okay.
Sean Eastman: Okay. Thanks a lot, gents. I’ll turn it over there.
Tony Guzzi: Thank you.
Mark Pompa: Great.
Operator: And your next question comes from Adam Thalhimer with Thompson Davis. Your line is open.
Adam Thalhimer: Hey. Good morning, guys. Congrats on a great quarter.
Tony Guzzi: Good morning, Adam.
Tony Guzzi: Thank you.
Adam Thalhimer: Can you -- I guess I wanted to ask first on the revenue guidance, because that would imply I would have to bring down the back half a little bit, within the segments where are you possibly seeing a little bit of weakness where I could bring that down?
Tony Guzzi: What -- we don’t do your modeling. So we look at the first half. We’re expecting as good or better second half as the first half. But the wild card being what might happen in Industrial. So I don’t know how you’re thinking about the other parts, but that’s how we’re thinking about the world in general.
Adam Thalhimer: Do you see Industrial revenue being similar to the first half?
Tony Guzzi: I don’t -- I think it should be better. But again we’re cautiously optimistic and with an emphasis on the word cautiously.
Adam Thalhimer: And then, within Building Services, was there any unusual that flowed through in Q2, I know you talked about that mix issue?
Tony Guzzi: No. Nothing unusual.
Adam Thalhimer: No. So $624 million is kind of a decent base for the back half?
Tony Guzzi: 6.4, what?
Adam Thalhimer: No. No. I am sorry. $600 -- the quarterly revenue there was $625 million. I just didn’t know if that...
Tony Guzzi: Yeah. Adam, we don’t do quarterly revenue and operating income guidance, you know that.
Adam Thalhimer: How are clients responding to materials prices?
Tony Guzzi: I think they’re pragmatic, you’re reading it in the newspaper every day. Do they want the project done or not. We’re being straight up with them, right? We tell them what we know. They’re hearing it everywhere. So, their reacting is, I wouldn’t say, it’s shock and disappointment. The same characters, they would never want to pay for it. They don’t want to pay for anything now and the ones that work with us and the ones we’re working with. This is the time for us to be customer selective of where we are.
Adam Thalhimer: And then, Mark, any thoughts on back half cash flow, is it better than the first half?
Mark Pompa: Yeah. I mean, in my commentary, Adam, I specified that we’re expecting full year operating cash flow to be in excess of $300 million. So, obviously, we’re negative $6 million or $7 million through the first half. So you could force that math.
Adam Thalhimer: Got it. And then, Tony, you brought up the acquisition pipeline, can you give a little more color?
Tony Guzzi: Yeah. Sure. I mean, we’ve closed some deals here today. We have a couple more that we expect to close here in the near-term. They’re either geographic expansions or product line expansions. And they’ve been different sizes. There are things that can be standalone and help us grow market or they’re very niche things that we attach to existing operations. The pipeline is strong. What we are learning is some companies that thought they were ready to sell, post-pandemic maybe weren’t quite ready to sell. They need six months maybe to get things ready to sell. But again, I think, I pointed out on the slide, we did about $0.5 billion of deal from 2018 till first quarter. There’s no reason for me to believe it won’t be at least that or more as we go through the next three years. As I’ve always said, deals happen when they happen. They’re episodic. I feel better about the acquisition teams we have in place now than I ever have. I feel better about the due diligence we do now than I ever have. Deals might take longer now, right? There’s other things you have to think about. You have to make sure you’re doing good cyber due diligence and the targets clearly know that. You have to make sure you’re doing good due diligence around what you really think happened to their demand in the pandemic and what’s coming back. I think again the people we’re working with to buy know that also. And then, of course, you’ve heard me whine consistently for any number of years now about multiples and private equity multiples. I am not going to do that anymore, because -- for me as a Pittsburgh Steeler fan, it’s sort of like the New England Patriots beat us, they beat us, that’s life. I am not sure they’re beating us in long-term value creation. But all you have to do to win an acquisition is pay more in some cases and that’s usually not the best acquisition for us. The best acquisition for us is some of the terrific people that have become part of our EMCOR team over the last number of years. I can go all the way back to when we bought S.A. Comunale in 2006 and Steve Comunale still proudly runs that company or Shambaugh that came with Comfort Systems and Mark Shambaugh running it and now Paul Meyers is a terrific operator with. And they take pride in what they do and they’re building that business for the long-term and the work that Rob Vincent has done in fire protection or the team that came with R&R Mechanical and how Vincent sold his life’s work to us and he is still in there every day swinging away and part of the team. And those are the best acquisitions for EMCOR. We see no shortage in the pipeline of people who really care about their business, their people and want a fair return on their life’s work, but still want to work. And so I’ll stick to what we do in the long-term value creation we have and not get crazy and try to compete with people that have a different view of the world and use leverage and slides and triangles and all that stuff to explain the business. I’ll stick to what we know how to do.
Adam Thalhimer: Good strategy. Thanks, Tony. Thanks, Mark.
Tony Guzzi: You’re welcome.
Operator: And your next question comes from Brent Thielman with D.A. Davidson. Your line is open.
Tony Guzzi: Good morning, Brent.
Brent Thielman: Hey. Thank you. Hey, good morning. Congrats again...
Tony Guzzi: Thank you.
Brent Thielman: ...on another great quarter. Hey. Tony, I mean, more than 20% growth this quarter, you had some unique circumstances last year, but that’s pretty notable growth. I think one of the things that comes to mind is, all the supply chain logistical pressures that have been brought up, assuming it affects everyone in the industry. And I guess, what I am wondering is, do you think you’re gaining some share in light of that in some of these local geographies, just because you have this more sophisticated platform and so better equipped to manage that?
Tony Guzzi: What I think is we’re winning more projects. I don’t ever think about share. So, yeah, I guess, we’re winning more share. But the way I think about it, are we winning more of the projects that we’re targeting? The answer to that is, yes. And I think we’re winning more of those projects for three reasons. It starts with technical excellence, right? We got the best folks and we can do it safely and we do it right and we’re going to be there to make sure that that product commissions the right way. And then, on the service side, we’re going to bring some of the best technical resources to get buildings back up and running or to get that energy efficiency done, reduce people’s carbon footprint and now bring an IAQ solution in with it, and Mike Bordes, and the team in energy services. Then I think it gets to the people on our segment level, Joe Burns and Dan Fitzgibbons, they’ve invigorated the teams. We had great teams to begin with and they’ve invigorated them to look at this market and look at that which you just said as an opportunity. We are more sophisticated. And we also, people know that we can bring the labor to bear and we can a lot of times get the best labor to bear. We have some of the best foremen and superintendents in the industry. They then interact some of the best labor in the industry. And I would now -- and just follow with what I think is often overlooked. When you’re going to do a data center project that may be a hyperscale project, that’s a 50-megawatt, a 75-megawatt project and you’re going to burn $80 million of cost in nine months or less, you better have the liquidity and balance sheet to do that. And more and more customers are looking at our balance sheet and looking at our liquidity and looking at our ability to execute the other two things. And say, yeah, these guys could make that happen and they manage this business very conservatively and they manage it appropriately for the kind of contractors that they are. And I have great faith that the EMCOR folks will bring it to bear, and I’d add another thing, our folks are working better together through their peer learning and sharing of resources and ideas across our company than any time in my 17 years here.
Brent Thielman: Hey. Tony, do you think that’s applicable to Industrial Services as well, because I know the environment is still not good, but your margins are up a little bit there, it seems like there’s…
Tony Guzzi: You know.
Brent Thielman: … better growth in field services off. I wonder if that’s playing out there, too.
Tony Guzzi: Bad markets prove whether you have a good team or not. We have a great team. They’ve been operate -- they’re operating near breakeven on an operating income basis, generating positive EBITDA. Mark, cash is, okay, right, tough market. I think, yes, the same applies there.
Brent Thielman: Yeah. And I guess, I tended to think of materials at least, historically, and generally, a pass-through for you guys, right or wrong, but most of the costs just lie on the people, right?
Tony Guzzi: Yeah.
Brent Thielman: And so, I guess, what I am asking here, Tony, is how constraining is this rise in materials prices to margins now or potentially into the second half, because if that’s the case, I know your gross profit dollars should grow, but is it really meaningful enough to potentially weigh on margins for new jobs you add?
Tony Guzzi: No. No. It might be a short-term dislocation on one project or two projects. And look, we may choose to do that. Because it’s just like we talk about how our suppliers protect us. On the right projects we would protect our customers. That’s life and we’re not going to blow up our long-term relationship because of that if we think, hey, the customer did everything right here, we need to make this right. That doesn’t typically happen on the large projects, but the smaller stuff we may do that. The second thing is what is constraining is potentially new starts? We haven’t seen that yet. We might. But I’d give you a flip side of the argument that is likely to happen I think. We talked a lot about re-shoring and on-shoring of manufacturing capacity. I think this whole supply chain issue is actually an opportunity for us long-term. The long-term meaning the next two years to five years as more people look at creating flexibility in their factories and making them less labor dependent after what they’ve experienced over the last six months and more things come onshore. The trade relations are getting better with China. The situation is not anymore improved to Mexico. One of the things I know we talk to our customers is, we got collectively in industrial American a bad habit. We always thought about our most important products being dual sourced. At least dual sourced from a facility standpoint. It might be with the same supplier, but the supplier we expected to have dual facilities. We got away from that the last 10 years and we see that coming back pretty substantially right now across the Board.
Brent Thielman: Okay. Maybe the last one and I hate to speculate too much on markets, but I don’t think I realize how fast your healthcare related business is coming back both in Electrical and Mechanical. I guess, I am just curious to your thoughts whether that’s cyclical secular catch-up from last year’s kind of softness. What are your thoughts there?
Tony Guzzi: It’s cyclical secular. Does that make sense?
Brent Thielman: All of the above.
Tony Guzzi: There’s good long-term secular trends but we think it’s going into a pretty good cycle right now.
Brent Thielman: Yeah. Looks sustainable. Okay. All right. Thank you very much.
Tony Guzzi: Thank you. Is that it?
Operator: All right. With no further question at this time, I’ll hand the call back to the company.
Tony Guzzi: Hey. Look, thank you all for listening. We did have a very good quarter. Our folks are doing a lot of the right things and I know I am thankful to be surrounded by such great teammates every day and we’re very aware of how hard the work is in the field. And I have a lot of passion on this subject about how we take care of our people. And I employ anybody that’s listening from EMCOR to everything you can to encourage vaccinations, so we can start to put this pandemic behind us. One of our core values is safety and I look at this as squarely in the middle of that core value. With that, I’ll leave you. Thank you and talk to you over the next couple of months. Bye.
Operator: Ladies and gentlemen, that concludes this conference. Thank you all for joining. You may now disconnect.
