Good morning. My name is Megan and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Second Quarter 2023 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. [Operator Instructions] Mr.

Blake Mueller with FTI Consulting, you may begin..

Thank you, Megan, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2023 second quarter results, which were reported this morning. I would like to turn the call over to Kevin Matz, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead..

Thanks, Blake. Good morning, everyone. Thank you for your interest in EMCOR, as always, and welcome to our earnings conference call for the second quarter of 2023. For those of you who are accessing the call via the Internet and the website, please welcome as well. We are at the beginning of our slide presentation, and we are on slide two.

This presentation and discussion contains 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 the disclosures, in conjunction with our discussion and accompanying slides.

Slide three has the executives who are with me to discuss our results for the quarter and six months. With me are Tony Guzzi, Chairman, President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; and Executive Vice President and General Counsel, Maxine Mauricio.

For participants not accessing the conference call via the Internet, this presentation, including the slides, will be archived in the Investor Relations section of our website under presentations. You can always find us at emcorgroup.com. With that said, please let me turn the call over to Tony.

Tony?.

Thanks, Kevin, and good morning, and thanks for joining our call. I will be speaking to the second quarter results in my opening commentary. Mark is going to cover both the second quarter and year-to-date results. I will be speaking to pages four through six in my opening comments.

We had an extraordinarily strong second quarter, by any measure, at EMCOR. We had revenues of $3.05 billion, which represents 12.5% revenue growth and 11% organic revenue growth. We earned $196.7 million in operating income, and our operating income margin was a strong 6.5%. Diluted earnings per share totaled $2.95.

This performance represents an all-time quarterly record for revenues, operating income, operating income margin and diluted earnings per share.

We generated strong operating cash flow of $300 million in the quarter and grew our remaining performance obligations or RPO sequentially from Q1 by $413 million or 5.2%, and from the year ago period by $1.8 billion or just over 28%. Our business is performing well across nearly all segments and end markets.

Our Electrical and Mechanical Construction segments continue to perform well as evidenced by the strong revenue growth of 20.2% and 12.9%, respectively.

With Mechanical Construction operating income margin of 10% and Electrical Construction operating income margin of 7.5%, the conversion to operating income by these segments, especially Mechanical, are towards the high end of our expectations.

Across the country, we are executing well on some of the most sophisticated projects and markets, such as high-tech manufacturing, which includes semiconductors, the electric vehicle, or EV value chain, biotech, life sciences and pharmaceuticals.

The network and communications sector, which encompasses our data center work and the health care sector, are also performing well. We have industry-leading capabilities in BIM or Building Information Modeling, prefabrication, project planning, labor sourcing, management and training.

We offer a breadth of mechanical capabilities from HVAC, process piping, plumbing, and we're also a fire -- leading fire protection and life safety contractor, and our customers look to us to perform complex installation in the markets I just referenced.

Our segment and subsidiary management teams are leading in an exceptional manner and allocating resources in a thoughtful and pragmatic way, while working towards outstanding outcomes for our customers. We continue to strive to optimize our project mix to produce great financial results.

Our US Building Services segment continues to perform well, and it has a strong mix of work across its service lines. Revenue of this segment grew 12.9% in the quarter, with an operating income margin of 6%.

Demand continues to be strong and persists for our mechanical services, with excellent execution across retrofit projects, building controls and maintenance and repairs.

We are working across a variety of end markets, including traditional commercial markets, but also high-tech manufacturing, institutional and health care customers who remain focused on energy efficiency in indoor air quality, or IAQ upgrades.

We expect to have a strong repair service season because of the heat that has blanket most parts of the country as well as extended lead times for applied equipment. This segment continues to enter into facility maintenance contracts, and there are strong demand for our site-based and rob technician services.

We're also excited about our pending acquisition of ECM. ECM is a bolt-on acquisition that adds capability. ECM will enhance our energy efficiency service offerings and will allow us to offer such services in a more programmatic way to owners looking for multisite and multiyear programs. Welcome to EMCOR, the ECM folks soon.

Our Industrial Services segment continues to improve at a modest pace. We executed a more normal spring turnaround season, and demand for our niche services is robust. Within our shop services, we are beginning to see increased levels of capital spending in the form of greater new build heat exchanger orders.

We continue to wait for the resumption of demand for utility scale solar and are well positioned when the supply chain issues subside. Our UK business performed in a manner consistent with the available market opportunities.

While we saw a reduction in quarterly revenues, the team remains focused on profitability, as evidenced by the consistent year-over-year second quarter operating income margin. Building on its normal base of facility services contract, EMCOR UK.

continues to perform various project work for its customers, much of which is aimed at helping develop and implement multiyear energy reduction programs. Overall, EMCOR continues to have a strong balance sheet that supports our organic growth and the capital investment needed for that growth.

We also have the firepower to add bolt-on acquisitions, like ECM, we hope to close soon, that help us expand our capabilities in support of our customers. With that, Mark, I'm going to turn it over to you..

Cash on hand was just over $503 million, which represents an increase of $46.6 million. Our exceptional operating cash flow was partially offset by cash used for financing activities of $126.4 million, inclusive of just over $105 million for the repurchase of our common stock.

In addition, we've utilized $48.4 million for investing activities in the form of capital expenditures and acquisitions. Resulting primarily from our organic growth during the period, our working capital balance has increased by nearly $152 million.

The $8.3 million increase in goodwill is entirely a result of the five acquisitions completed by us thus far in 2023, while net identified intangible assets have decreased by $19.5 million as the additional intangible assets recognized in connection with such acquisitions were more than offset by $32 million of amortization expense in the first half of the year.

Total debt has remained substantially consistent our stockholders' equity balance has increased by $143.8 million as our net income for the period exceeded our share repurchases and dividend payments.

As a result of our consistent debt balance, coupled with the increase in stockholders' equity, EMCOR's debt to capitalization ratio has reduced to 10.4% from 11.1% at year-end 2022. EMCOR was anticipating a strong 2023 after a record 2022, and our performance to date as well as revised expectations for full year 2023 are validating such expectations.

With my portion of this morning's slide presentation complete, I will now return the call back to Tony..

Thanks, Mark, and I'm going to be on page 12. And what I wanted to do before we jump into the remaining performance obligation's absolute levels, is I wanted to take a step back and talk about what's been driving our exceptional organic growth and our RPO growth over the last two years, and what's been driving profitable organic growth for us.

And if you look at this page, I want to take a step back also and say, if you look at these trends we're talking about on Page 12, they're front and center in the news every day.

They're not only front and center from customers making investments, they're also the focus of government policy, in some cases, to strengthen those sectors for the long term. Secondarily, each one of these sectors require highly skilled labor, very skilled supervision, project managers and engineers that are really at the top of the industry.

And the government incentives, where they're aiding in certain cases, want that kind of workforce on those jobs because it's more productive, it's safer and it's trained. And again, going back to the great supervision point.

So let's talk about each of these in turn, and there's a little bit connectivity between a couple of them, and I'll talk about that. The first one is electrification and the EV, or electric vehicle value chain.

In a lot of ways, that's a whole new industry, right, that's being built in plants, suppliers -- second- and third-tier suppliers, and we're certainly seeing that work in battery plants, which is the raw material.

And we're certainly seeing that work really burgeoning across the country, especially in the mid-central part of the country in Midwest and also the Southeast and a little bit in the Southwest. We are participating on a lot of these efforts, and there's more to come.

And I will say that the pace and timing of actual delivery has been a little slower, but we continue to see the work and book the work, and we're very bullish on the sector. And it's across all of our trades. It's electrical work, mechanical work and fire life safety.

And this is an area where our fire life safety products are in great demand because we can provide a comprehensive solution of not only the wet side, the sprinkler, but also the fire alarm to give these folks that are starting these facilities the assurance that we can deliver these complex systems.

We're also participating in EV charging stations, but we're doing it at scale. So what we're doing is we're bringing in lots of megawatts to supply an EV charging station for a fleet or also our big centralized hub.

We will -- I'm sure, across EMCOR, we're participating in the local installations, but we're not really participating in any significant way in national rollouts of individual passenger car rollouts. Again, we will do some of that work, but the stuff that we like to do is megawatt-driven, high-scale charging stations.

We also believe the electrification also leads to an energy transition. But I think, at EMCOR, we believe more and more every day, it's an energy expansion. So think about all of the things on this page, they all require a lot of energy. And it's going to be a mix of all kinds of energy and all kind of solutions to make that energy cleaner.

And this part of the trends that are driving our growth in RPOs, I think we're in the first couple of innings of. And I think the government incentives that have been put out through the various acts and you've heard us talk about those, will allow that momentum to continue.

It wasn't the advent of what was happening, but it certainly will provide bolstering to those trends continuing. The next part is actually work that we're actively involved in today. And we see that -- and we're still on the front end as these new sites get built out. Let me give you an example, semiconductor manufacturing.

What you read in the paper, a lot of the semiconductor build was happening or planned and it's going to be bolstered by the CHIPS Act. We're participating in a number of ways. We're participating mechanically, and we participate in some markets on the high-purity piping and others.

We do quote in a form -- semi, the dirty side, which is far from dirty, but it's more of the HVAC and process cooling. We do both. And it depends on the capability of our subsidiary in that market and what the best mix of work that we can bring to bear in that market.

We're participating electrically, especially on the low-voltage communication side, and we're participating with fire life safety across multiple plants across the country. When you go to the pharma biotech life sciences R&D, let me take the first two, pharma and biotech.

That's actually coupled with what I'm going to talk about later on reshoring nearshoring. So we're seeing reshoring of the pharma industry to bring resilience to the supply chain, but we're also seeing as new drugs get built, like Ozempic, right, where people need to build capacity to build it up.

And it's in areas where we are well positioned to do the work, and it's across all of our trades, but especially mechanically in fire life safety. The pharma area of RTP, Research Triangle Park, big pharma area, Southern New Jersey, Northeastern Pennsylvania, Indiana and Southern California are all big pharma areas.

And it's areas where we'll have done the work over time. We have the trust of the customers, and we're well positioned to deliver that work for the long term. As you go to the life sciences R&D, that's much more expansive. R&D facilities are happening in commercial conversions.

They're happening in just about every major medical center that we work in, and they're happening also as part of more incubator startup-type companies, where we're helping build out the facilities, and in life sciences is the same thing there.

Again, go to the semiconductor part, we believe that the CHIPS Act will continue to cement those sites as long-term build, and it's a national security issue. So we think that has long-term build.

And when you understand the semiconductor market, once you're on a site and if you're doing good work, you get add-on work on that site to build the next fab, expand the fab, do the process cooling work. The next one, if you go to the right -- upper right, is data centers and connectivity.

Through various calls, a lot of questions have been asked, do we see the data center build slowing down? We said no. And we said, WELL, maybe that's because we're a late cycle." The reality is you got to figure the big data center owners and -- especially the -- both the REITs and the five big ones to build it.

They understood that they were going to need more capacity. And so they secured the land, the facilities and it kept building because of really, what's driving it now is not only the increased need for storage and more cloud computing, which companies like EMCOR, or big companies like us are doing more every day, but also AI.

AI is accelerating more build-out and it's more robust build up. So when we started building data centers 20 years ago, we thought a 5- to 10-megawatt data center was a big data center, which, by the way, 10, 15 megawatts is what a big assembly plant actually uses in the automotive, maybe 20. So think about what you see there.

Now -- then we move to 40, then we moved to 50 to 75. The data centers, hyperscale that we're building now are somewhere between 75 and 125 megawatts of power. Put into perspective, right, you need 5,000 -- you need 1,500 acres and 600,000 panels to generate 200 megawatts. That gives you an idea where you need an LM 8,000 from GE.

You need half of the production of one of those gas turbines to support one data center. So just think of the scale of these data centers, and go back to the first block of why we think it's more of an energy expansion and also an energy transition at the same time. And that is a long-term trend.

We're also going back and remodeling and adding more power to data centers that we built a mere 5 to 7 years ago, and that has just started. So we see a strong data center market. We're contractors, so 2 to 3 years is an outlook for us. But we see a strong data center market for the foreseeable future.

Going to the bottom left in health care, we've always been bullish on health care. A health care system is as complex as any of the three things above, right, a major hospital. Every system comes to bear in an operating room, a patient room, an ICU bed, or a very sophisticated outpatient clinic.

And what the pandemic taught people, we, certainly, participate in helping people make their hospitals more flexible is that's got to be permanent. And so you're seeing more robust patient power build than we've seen in 5, 8 years. And it's also coupled with more sophisticated outpatient facilities.

We really didn't participate previously a lot in outpatient facilities, but with the sophistication level that's come now, we are. And the outpatient -- we've always maintained hospitals, especially the central chiller plants, and they also look for more energy resilience in those places.

So you're seeing things like combined heat and power and other things, but it's also a great maintenance opportunity for us on the sophisticated outpatient facilities. Reshoring and nearshoring, I'd like to say we were really seeing this trend in the Southeast and Southwest with all the things we talked about above.

But really, we were headed towards building that capability in the Southeast because we believed in reshoring and nearshoring for quite some time. And the supply chains, I would say, got scarily consolidated into one facility.

And for those of us that maybe grew up a little bit manufactured, we knew we should always have two sources of supply at a minimum of two plants. We got into a world where we're bringing all our supply out of one plant, our customers and our suppliers.

And the pandemic and also the tensions with China and the cost in China proved that this wasn't a feasible strategy. So nearshoring or reshoring were happening before the pandemic. It's accelerating. And if you throw the geopolitical concerns on top of it, it's a good long-term trend for us.

But it's a capacity not only expands the capacity is shifting, it's about resilience and it's about automation. And we're seeing that across just about any industry we work in. And finally, one of my favorite things is energy efficiency and sustainability. I personally have been around that almost going on 30 years now.

It's amazing how far we've come in HVAC equipment and controls upgrades, but also our ability to implement those solutions that the manufacturers bring. If you think about efficiency, it's 50% better today than it was a mere 10 to 15 years ago. And we're doing that things with variable speed drives. We're doing that with control systems.

We're doing that with sensors, and that sort of stuff we've been doing for a while. But now customers are also looking for water and waste reduction.

Manufacturing plants are more into how they're managing their compressed air system, all their waste gases and also facilities rationalization and footprint rationalization that's accelerating as people do this reshoring, near shoring and supply chain resilience. They're also looking for energy resilience through alternative energy solutions.

It could be anything from a combined heat and power off of a gas generator that then drives their chillers, to all the way through a solar on site of a megawatt or less, to backup generation that they may only use a few days a year, but they have to be able to have it because they don't trust the grid necessarily on a go-forward basis.

That has had not only -- it's had utility incentives three years. It's had state incentives, and now there's going to be more federal government incentives on top of that. So as you go to page 13, you start to see that's really what's underlying these long-term trends, these trends that are big things is what's driving a lot of ways our RPO growth.

And if you look at our RPO growth, I'm going to talk about some high-level things, and we can talk about strong demand across all these major themes. Our RPO is on page 13. At the end of the second quarter, we're almost $8.3 billion.

That's up a little over $1.8 billion, like I talked about, 28% over the 2022 second quarter for a total of $6.5 billion last year. We had good bookings in the second quarter. We're up $827 million from the year-end period '22 and we're up $413 million from the end of the first quarter. So I'm going to give you some big trends out of those RPOs.

Domestic construction RPO is up 33% versus the year ago period. Building Services RPO is up 14.5% versus the year ago period. Network & Communications, which includes our hyperscale data center work, stands at $1.2 billion, up 52% versus the year ago period.

High-tech manufacturing sector, which includes semiconductors, pharma, biotech, life sciences, R&D in the electric vehicle value chain, are up 160% versus the year ago period, and they now total $1.2 billion. Health care RPO, as I talked about those trends there at the hospitals and outpatient facilities, up 50% versus the year ago period.

Manufacturing and industrial, which points right towards reshoring, near shoring, capacity transition, flexibility expansion, they're up 35% versus the year ago period. So you see those trends manifesting themselves into our RPOs.

Our bid log continues to remain strong, and we continue to see opportunities across these market sectors and other sectors. Other sector activity includes institutionals up 13%, short-duration projects, which includes a lot of the HVC retrofit, project work is up 7%. Reality is that's hit and stasis, right? We're getting used to the lead times.

We're getting used to those extended lead times. That should be more of a book-and-ship business in the future as we deliver the projects that we booked 6 to 12 months ago. Partially offsetting that is a decrease in transportation and water and wastewater RPOs.

They tend to be more episodic in their award, and we have a very good position in water and wastewater in some of the markets that matter most. And you've seen those big awards come in and out of our RPOs there. We do remain balanced in our market participation. We're winning new work in most active on the nonresidential sectors.

And why are we doing that? One is the market is good, but we also have a very good position and we have excellent subsidiary and field leadership and segment leadership. We have the technical expertise.

We have meticulous execution and our ability to work with our customers to achieve unique solutions along the entire design install, retrofit, repair, maintain, service continuum is strengthened every day. Now I'm going to turn to page 14 and 15, which is what most of you really care about.

We're going to raise our diluted EPS guidance from a range of $9.25 to $10 to a range of $10.75 to $11.25. Our revenue guidance will remain unchanged at $12 billion to $12.5 billion. As are reflected in our RPOs, we are winning work in important and strategic market sectors.

We are executing such work with efficiency and precision, and that's really shown by our record operating income margin.

We believe that we will gain SG&A leverage as the year progresses, and we are utilizing our BIM prefabrication, labor management and supply management capabilities with an eye delivering -- to delivering superior results for our customers and growth and results for our shareholders.

The supply chain remains challenging for any engineered or applied products or complex assemblies, but we have learned to mitigate these disruptions.

As the year progresses, we expect some headwinds as our more traditional commercial customers will struggle with higher interest rates, in some cases, reduce building occupancy and potential liquidity issues.

We always know that attracting skilled trade labor and developing trained frontline leadership is both a challenge and an opportunity, and we've always met it. And we believe that we will continue to be, through our subsidiaries, an employer of choice.

We also believe that we are well positioned to navigate these headwinds, and we'll also have our eye on any disruption in the energy markets, and that will cause us to remain vigilant in our pricing and estimating. We're going to continue to be balanced capital allocators.

There remains opportunity within our acquisition pipeline, and we believe that we will continue to add capability, geography and customers that will propel growth through our acquisition program, much like our recent announcement of the signing of ECM that we announced a few weeks ago.

With the uncertainty in the financial markets, we believe our strong balance sheet -- we know, we not just believe that. We know that our strong balance sheet help us win work on large, sophisticated projects as a customer see our financial strength as another reason to choose EMCOR.

I would be remiss if I didn't thank our entire EMCOR team for their dedication and hard work and discipline. We all appreciate all you do every day. And with that, I'll take questions. Megan, I'll turn it over to you, our operator..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Adam Thalhimer with Thompson, Davis. Please go ahead..

Hey, good morning. Congrats on a good quarter and thanks for all the commentary on slide 12, Tony.

I guess the biggest question is, how does that all wrap up into your thoughts on the prospect for continued sequential backlog growth?.

Yes. I mean, look, I've said it a thousand times. It's -- we're in a very good level of RPOs. We have opportunities in front of us. Projects, large awards come in. And because you booked it two weeks after the end of the quarter, it doesn't mean you've lost momentum in your business.

Also, as you're out of site, and that site builds out like a new semiconductor site or some of these EV sites, sometimes the initial award is big. And then you get follow-on work that over a period of 18 months, which is a project less of a lot of these is every bit is big. But they -- because I know you, they tend to let it out in stages.

So what I know is we have good momentum in the business. We're playing to broad themes that are driving our business and driving our sector and the economy. We have something that's very valuable, which is highly skilled technical labor that can execute the most difficult jobs and service the most -- drive service in the toughest situations.

So I guess, in the 19 years I've done this, I've never thought about what sequential RPO or backlog growth looks like. I certainly have joined that we've had a book-to-bill of over 1 for I think 8 or 10 quarters in a row.

I don't see maybe that's slowing down, but the flip side is if it was 0.98, I don't think that means much of anything, to be honest with you..

Great.

And then I hate to ask for guidance within the guidance, but can you give us any help on how you guys see the back half playing out between Q3 and Q4?.

We have. You know what? This is all project timing-related. When a turnaround starts and ends, we've never provided quarterly guidance, and I don't think we're going to start now.

Are we Mark?.

No, we're not..

And then lastly, fire protection.

Can you give us a sense for how accretive that is to mechanical margins?.

Well, it operates at better margins than the base business. Some of that has to do with the material component of those jobs. It has a higher labor component, but it's helping. It's providing a nice cap on it. But you know, it's a tough job, so we've got to execute..

Okay, I'll turn it over. Might hop back in. Thanks so much..

[Operator Instructions].

Hey, Adam. Hop back in if you want..

Sure. Go ahead..

All right..

Okay. Sorry I did want to ask about the shop business. When was the last time the shop business was strong? I can't even remember..

2018, '17, '18..

And how meaningful could that be to that segment?.

It's not nonmeaningful..

And also on my list, I had solar.

When you thought that might gain traction?.

There's probably people better qualified than me to talk about that because of where we are in the chain to deliver those projects. There's a lot of things on the drawing board. There's a lot of land bought. There's a lot of contracts. Purchase power agreement is out there. We had a full book of business. I expected to do 10%, 12% revenue of that segment.

But the reality is, there's not a lot happening there right now. Now the smaller ones are happening. So when we're on a hospital site or a campus site where we're doing the car ports, actually, one of our suppliers is doing that as part of our overall energy program for some of our bigger customers. We can get them there.

When you're talking utility scale solar, and again, I think there's probably people that are better qualified to me to talk about that. We're just not seeing the activity we expected to see this year..

Okay. All right. Thanks guys..

The next question comes from Sean Eastman with KeyBanc Capital Markets. Please go ahead..

Hi, Team. Many compliments. Really fantastic update here. So I wanted to talk a little bit more about the margins, which is really the big upside toggle and the outlook for the year. Obviously, we had a really strong start on margins in the first quarter, but you guys kind of held back from flowing through that really strong start to the year.

And then here we are in 2Q, kind of blowing out margin expectation, and you guys are releasing more of that kind of elevated margin and a juicier guidance update.

So I just wanted to get a sense for what changed in your view? And what's kind of come through stronger to give you more confidence to just guide margins up from here versus last quarter?.

Yes. So I'll take a high-level view, and then I'll turn it over to Mark. I think there's three things that we have more confidence in. One is the mix of our work going forward, and we have pretty good visibility on what we're nearing completion in and what's starting up, at least we think we do at this point in the year.

The second point is the mix of trades. We have a very good mix of trades. We have strong fire life safety demand. Our electrical business is back on track with a great mix of work. In our core mechanical business, mechanical services businesses are all performing well. Coupled with, we see a pretty normal fall turnaround season.

So I think that -- at a high level, that mix of things, and I'll let Mark get into more of the specifics..

Yes, Sean. I think clearly, and not to rehash history, but quarter 1, from a seasonality perspective, tends to be one of our weakest quarters in the year, despite the fact that our Industrial Services segment is executing in the earlier periods of the spring turnaround season.

I think when you look back to where we were exiting last year and certainly, where we were a year ago at this time, and Tony and I both have commented on this multiple times during the call, the revenue mix was good. It certainly wasn't bad, but we certainly had some projects in the mix that were marginal contributors or they were in loss positions.

So I think the term of absence of badness that we've used many times in the past is certainly, relevant or germane to the 2023 periods. And that work other than one project is all cleaned up at this point. So that's a good thing from an activity perspective.

The other thing, and we talked about supply chain many times, and we're certainly not saying that it's great, but it's certainly more normalized as we sit here in late July of 2023 than it certainly was at the midpoint of last year.

So we're seeing flow of equipment from the OEMs, and that's giving us the ability to make sure we're utilizing our labor in the most efficient manner possible, which is driving better margins.

And then specifically, I know I mentioned this in my prepared commentary, in the mechanical -- US Mechanical Construction segment, we did have some favorable project closeout. So back to the earlier caller's point, we only control the start and stop the projects based on our customer's project time line.

To the extent that we execute in the fixed price environment or arena, on a better basis, then we obviously capture that improvement. And ultimately, we recognize it where it's appropriate. We certainly had that phenomenon in the second quarter.

And as we look at the book of business, as we progress to the rest of 2023, we don't see any particular problematic areas other than the fact that we have thousands of active projects out there with, certainly, a very, very large deployed workforce that we need to make sure is executing at an exceptional level as we've demonstrated over a long period of time.

So kind of a long-winded answer. Ultimately, the book of business is very, very strong. We're happy with the labor complement we have on the jobs.

And the operating environment is still not optimal with regards to things that are outside of our control, but we've certainly seen some stabilization, which is giving us a little bit more positive momentum as we look at the outlook for the business..

Right. Bottom line is, we called revenue about right at the beginning of the year, but our margins are 100 basis points higher than -- 125 basis points higher than we thought they were going to be..

Okay. Got it. That's helpful.

And do you think that we're setting tough margin comps here in 2023? Or do you feel like in light of the mix of work in the pipeline, the complexity of projects driving RPOs and the bid pipeline, that there's some differentiation in the marketplace that perhaps we haven't seen before? And we could view this performance we're seeing here as sustainable?.

Sean, I've said a long time, I go back to the way Adam asked about backlog or RPO, I think about margins the same way. One quarter doesn't make a trend. We look over four or fivequarters to see a trend. Margins could go up or down. It could be nothing more than starting up jobs, mix of jobs, mix of contracts.

And I said this, I think, last year, after we got out of the first quarter where we had some of the tougher work that was taken pre-pandemic, and we didn't start up the -- especially the data center work we expected to in the Electrical segment. And I said last year, we look at underlying productivity.

We look at the things we're doing to drive productive. You got to remember, as a contractor, we don't get to keep the productivity in a sense that a manufacturing plant does. But what we do get to keep is the ideas, and the idea is that we're driving that productivity. So quarter-to-quarter, they could fluctuate some.

We definitely think, as we're guiding to, we believe we're going to have strong margin performance for the rest of the year. We, obviously, are at all-time level and RPOs. We like the mix of working at RPOs. But hey, we got to go out and execute. We got to have customers that hang in there with us, and we will..

Okay. Got it. And then just kind of going back to your end market drivers commentary, Tony. I mean we look at the RPO disclosure as kind of a leading indicator of demand.

And I wondered if you would say that perhaps there's greater visibility in the model, then we can even really observe in the RPO disclosure, just in light of there being more programmatic and larger multiyear programs.Just kind of more complex infrastructure challenges driving the business that would suggest perhaps you have more of a multiyear type of visibility that isn't fully captured in what we see in RPO? What would you say there?.

Yes. What I think I said while I was going through that page, page 12, I said, as a contractor, we don't try to bring big sweeping conclusions on 5-year outlooks.

But I think what I said is, I didn't know exactly how things would layer in, but that these six things that we were driving our RPOs right now, that we had a pretty good feeling that they were going to continue to drive our business for the next 2 to 3 years.

How that manifests itself is I think exact words I used something like that, how manifests itself quarter-to-quarter. I don't know. But I do know that we're well positioned in some really critical, as you would say, infrastructure type -- not the big I infrastructure, but the small I infrastructure-type sectors that we feel really good about.

But guess what, Sean, we're going to go out and execute every day. And we get graded every day by our customers. We get graded every day. And look, the site might be great for 5 years, but in any one of these sites, they could take a 6-month pause. And we have nothing that we -- there's nothing we could do about that.

And you saw that last year in the data center business, right? Our electrical business has a wonderful position in the data center market. And just about every key geographic market that matters. We have a wonderful position, but we also have competition every day. But coupled with that, we don't necessarily control when things are going to start.

So last year, we thought we were going to start a bunch of work in the first quarter. And what we told everybody, look, it didn't start. That has all kinds of implications, maybe for a little underabsorption of our supervision. Why didn't it start? Well, it mainly didn't start because the switchgear was eight weeks late.

The smart panels were six weeks late. The generators were 5 weeks late. So they are owner procured materials. So instead of starting those jobs, February 1, we started most of those jobs May 1. And we ate the supervision in the meantime because we certainly weren't going to lose our key supervision that we plan on working for us for the next 10 years.

So the trend is great, right? And so I've given questions the last first quarter is just the end of the data center build. And we said, no." And here we are with $1.2 billion in network and communications, RPOs. So the RPO is dual story, but in a lot of ways, it's not a quarter-to-quarter story..

Yes. I think it's notable for you to be talking 2 to 3 years. If you just look at the long-term history of the business for you to be out kind of seeing robust trends out over multiple years, I think, in itself is notable..

Yes. Well, I think it's -- you can't run from success that you've had where you've entrenched yourself into really good positions. But again, our customers can make a decision not to build in a certain way. I think we'll perform. I don't think that's going to be an issue, but they can delay things by a year. They can delay things by six months.

We see none of that today, but we can be talking very different in the first quarter of next year. It doesn't mean it's not a long good term trend. It just means, hey, they took a pause..

Got it. I really appreciate all the insights. I'm going to go see what Brian Lane has to say now..

All right. Thank you..

Bye, guys..

Bye-bye..

Okay. I think that's it. Thank you all and have a safe rest of summer. Pay attention to the heat and drink a lot of water. Be well. Bye..

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