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spk00: Good morning. My name is Danielle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MCOR Group second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone. keypad. If you would like to withdraw your question, please press star, then two. Please note this call is being recorded. I would now like to turn the call over to Andy Backman, Vice President of Investor Relations. Mr. Backman, you may begin.
spk06: Thank you, Danielle, and good morning, everyone, and welcome to MCOR's second quarter 2024 earnings conference call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the investor relations section of our website at mcoregroup.com. With me today are Tony Guzzi, our Chairman, President, and Chief Executive Officer, Jason Albandian, Senior Vice President and MCOR's Chief Financial Officer, and Maxine Mauricio, Executive Vice President, Chief Administrative Officer, and General Counsel. For today's call, Tony will provide comments on our second quarter. Jason will then review the second quarter numbers in detail before turning it back to Tony to discuss RPOs, as well as reviewing our revised 2024 guidance before we open it up for Q&A. Before we begin, as a reminder, this presentation and discussion contain certain forward-looking statements and may contain certain non-GAAP financial information. Slide two of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Finally, as a reminder, All financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony?
spk01: Yeah, thanks, Andy. And good morning, and thanks, everyone, for joining our call. I am going to begin my discussion on page four. We had an exceptional first half of the year at MCOR, and our results for the second quarter of 2024 further illustrate our continued momentum and excellent execution in the field. Within the quarter, we set new quarterly records for revenues, operating income, operating margin, and diluted earnings per share. We grew revenues by 20.4% to $3.67 billion, achieved a consolidated operating margin of 9.1%, and earned $5.25 per diluted share. While revenues increased 17.7% organically, RPOs of $9 billion remained at near record levels, increasing $713 million, or 8.6% versus the year-ago period. Our mechanical and electrical construction segments are driving our record performance. With organic revenue growth in both the quarter and year-to-date periods of over 33% in our mechanical construction segment, and 18% in our electrical construction segment. We continue to be well positioned in the right geographies and market sectors. We are winning the right mix of work, estimating our opportunities with the appropriate contingency, negotiating our contracts with care, planning with discipline, and executing our work with precision and innovation. With year-to-date operating margins of 11.8% for mechanical construction, and 11.5% for electrical construction. We continue to perform well in large and growing market sectors with strong demand anchored in favorable markets for which us includes high-tech and traditional manufacturing, network and communications, which includes data centers, institutional, and healthcare that are benefiting from long-term secular trends. Our teams are executing with discipline and precision aided by the full range of virtual design and construction tools. We call that VDC, and that also includes BIM, which you've heard me talk about, building information modeling, as well as excellent prefabrication, field planning, supply chain management, and contract negotiation. These teams continue to focus on delivering impressive results for our customers on incredibly sophisticated and fast-paced projects with multi-year building plans. When we target these large, sophisticated sites, we typically win 25% to 35% of the time. However, it is always important to remember, and I have said this on many of these calls, after the initial project award, future phases may be released in smaller increments, potentially affecting the timing and amount we recognize within our RPOs. Even if the cumulative revenue from these subsequent phases is equivalent to the initial award that we had previously had in our RPOs. This is partially reflected in the 2% decline in RPOs from the first quarter of 2024. Beyond our construction segments, our U.S. building service segment is executing as we expected. Our mechanical services business is operating in high single-digit operating margins and is growing revenues at no double digits. We are experiencing strength in all our mechanical service lines, including repair service, service agreements, retrofit HVAC projects, and building controls, installations, and upgrades. However, as we discussed in our year-end 2023 call, on an annual basis, we have had nearly $300 million in revenue headwinds in our commercial site-based business due to the loss of certain facilities maintenance contracts on rebid despite strong customer scores on our service delivery. Despite these headwinds, we still deliver quarterly and year-to-date operating margins of 6%, and 5% in the U.S. building services segment, and revenues grew about as expected by 4.1% year-to-date. Our industrial services segment reported its best second quarter post-pandemic, and we saw improved demand for both our shop and field services on both a quarterly and year-to-date basis. Our shops continue to perform well, and the electrical business within this segment is experiencing increased demand, both from traditional upstream and midstream customers, as well as for certain renewable fuels projects. Our UK business continues to perform as expected and has had some success in building its pipeline and retooling its business development efforts. This segment has solid operating margins at 5.4% in the quarter and 5.3% on a year-to-date basis. We had strong operating cash flow of $412 million on a year-to-date basis, almost double from the year-ago period. As I have said, our RPOs remain at near record levels at $9.0 billion, and I will discuss that in more detail later, and our prospects remain strong. We successfully closed four acquisitions in the quarter for an aggregate upfront purchase price of $173 million, net of cash acquired. These acquisitions bolster our mechanical construction, building services, and our industrial services segment. With that opening, Jason, I'll turn it over to you. Thank you, Tony, and good morning, everyone.
spk05: Over the next several slides, I will review the operating performance of each of our segments, as well as some of the key financial data for the second quarter of 2024 as compared to the second quarter of 2023. I'm going to start on slide five with revenues. As Tony mentioned, consolidated revenues were $3.67 billion, an increase of $621.3 million, or 20.4%, as demand for our services continues to be strong across the majority of the market sectors we serve. Each of our reportable segments experienced year-over-year increases in revenues, and we achieved organic revenue growth of nearly 18%. Looking at each of our segments, revenues of U.S. electrical construction were $800 million, an increase of 18%. This segment continues to benefit from increased demand across many market sectors, with the most significant revenue growth once again coming from networking communications, which, as a reminder, is predominantly our data center projects. In addition, this segment experienced increases in revenues within the transportation, high-tech manufacturing, and manufacturing and industrial market sectors. Revenues for U.S. mechanical construction were $1.7 billion, increasing nearly 39%. This segment saw revenue growth across the majority of the market sectors in which we operate and benefited from greater levels of short-duration projects and service work. The strongest growth was seen within the high-tech manufacturing market sector, largely driven by continued demand for our mechanical construction and fire protection services by customers engaged in the design, development, and production of semiconductors or electric vehicles and lithium batteries. Beyond high-tech manufacturing, we also saw notable increases within network and communications, institutional, manufacturing and industrial, healthcare, and water and wastewater. demand within the segment continues to be broad-based. As expected, partially offsetting the growth for both of our construction segments was a decrease in revenues from the commercial market sector due to either reduced demand across the commercial real estate industry or the completion of various warehousing and distribution products, which were active a year ago. Together, our domestic construction segments generated revenues of $2.5 billion, an increase of just over 31%. Moving to U.S. building services, revenues were $781.1 million, representing a modest increase year-over-year. With revenues increasing 67.2 million, or 13%, our mechanical services division within this segment continues to benefit from strong demand across its service lines, with the most significant growth coming from HVAC projects and retrofits. However, as anticipated and as discussed on prior calls, revenues of the segment were impacted by the non-renewal of certain contracts within our commercial and government site-based businesses. The loss of these facilities' maintenance contracts largely offset the growth within mechanical services. Looking at U.S. industrial services, revenues were $324 million, increasing just under 11%, driven by improved demand across the segment's field services division, coupled with greater new-build heat exchanger sales within its shop services business. And lastly, UK Building Services delivered revenues of $106.6 million in line with that of the prior year period. If we turn to slide six, for the quarter, we reported operating income of $332.8 million or 9.1% of revenues. This compares favorably to operating income of $196.7 million or 6.5% of revenues a year ago. Once again, a more favorable mix of work Exceptional project execution and enhanced productivity, due in part to our investments in virtual design construction and prefabrication, continue to be key drivers of our improved performance. Looking at our segments, U.S. electrical construction reported operating income of $88.6 million, which represents a nearly 75% increase and operating margin of 11.1%, which is a 360 basis point improvement. Increased gross profit and gross profit margin were the primary drivers of this quarter's performance. While the most notable increases were experienced within network and communications, this segment additionally benefited from greater gross profit on projects within the transportation, institutional, high-tech manufacturing, and manufacturing and industrial market sectors. Operating income for U.S. mechanical construction was $213.4 million, an increase of just over 78%, an operating margin of 12.9% expanded by 290 basis points. This segment experienced greater gross profit from the majority of the market sectors in which we operate, with the largest increases being generated within high-tech manufacturing, networking communications, and commercial. Together, our construction segments reported an operating margin of 12.3%. Operating income for U.S. building services was $46.8 million, or 6% of revenues, in line with the year-ago period. Consistent with the revenue performance of this segment, increased gross profit and gross profit margin from our mechanical services division was largely offset by reductions within commercial and government site-based due to the headwinds we previously discussed. Moving to industrial services, operating income was $12.7 million, or 3.9% of revenues, representing a nearly 62% increase in operating income and a 120 basis point improvement in operating margin. In addition to the impact of greater revenues, operating income of this segment benefited from higher gross profit margin, primarily within the shop services division, due to favorable pricing and greater indirect cost absorption. And lastly, UK building services reported operating income of $5.8 million, or 5.4% of revenues, which is relatively consistent with the year-ago period. Let's now turn to slide 7. A few highlights on this slide not covered by my previous commentary, starting with gross profit. Due to a combination of the revenue growth we just discussed, as well as a 260 basis point increase in gross margin, our gross profit of $684 million has increased by nearly 40%. While our SG&A has increased year over year, our SG&A margin for the quarter of 9.6% remains consistent with that of the year-ago period. And finally, diluted earnings per share was $5.25 compared to $2.95, an increase of 78%. Briefly turning to slide eight. This slide outlines MCOR's performance for the first six months of 2024 and has been included here for your reference. Rather than go through our year-to-date results in detail, I wanted to simply highlight that we've had a tremendous start to the year, setting a number of new company records as we continue to deliver for our customers and shareholders. In a later slide, Tony will outline our updated earnings guidance for 2024. And I mention that now as it is this performance which frames our updated guidance. As you can see on the page, we have earned a year-to-date operating margin of 8.3%. This record margin serves as a key data point within our guidance as the midpoint of such range reflects a full year operating margin in line with what we have achieved to date. And finally, on slide nine, as we've previously stated, our balance sheet remains strong and liquid and continues to be a differentiator for us in the market. Further, the size and strength of our balance sheet coupled with our significant cash generation leaves us well positioned to fund organic growth pursue strategic M&A, and return capital to shareholders. In addition to the organic growth we have generated thus far, this is evidenced in part by the $173 million we have spent on acquisitions and the $149 million we have utilized for share repurchases year to date. Although not shown on this slide, operating cash flow for the quarter was approximately $280 million, which represents 84% of operating income, and on a year-to-date basis, We've generated $412 million of operating cash, equivalent to 70% of operating income. With that, I'll turn the call back over to Tony for a discussion on RPOs.
spk01: Thanks, Jason. And I'm going to be speaking to pages 10 and 11, and I'm going to start on page 10. On page 10, you'll see a slide I have referenced before. The format's a little different, and it's really the same slide as you will see in our new corporate overview presentation that we launched this quarter. This slide highlights some of the key market sectors where we are seeing growth, and in many ways, this chart informs how we allocate resources to drive organic growth. And as I discuss RPOs, if I were you, I would take size 10 and 11, put them side by side, and you can follow the discussion with more ease. And in the reality, as I discuss these RPOs, there's no earth-shattering news here. These are the trends we've been seeing at least over the last eight quarters, and it's how we've set the business up to succeed. So rather than review this slide in detail, because it is a continuation of what we've talked about, I'm going to discuss our RPOs as they relate to the five key trends outlined on the top of this chart. So if you look at data centers and connectivity, we continue to see strong demand for hyperscale data center work. And we report that in the network and communications market sector. At the end of the quarter, RPOs in the sector were a record 1.7 billion. They're up 489 million, or nearly 40% year over year, and 2% sequentially. We continue to believe that we are not only in the early innings of the overall data center expansion, but that we have successfully positioned ourselves in the key data center geographies, and we expanded our presence in these markets since 2019. Reshoring and nearshoring, coupled with our work in the high-tech manufacturing sector, really cuts across both the high-tech manufacturing sector and the manufacturing industrial sector. In the high-tech manufacturing sector, that's where we had RPOs of $1.3 billion at the end of the second quarter, and that includes semiconductors, pharma, biotech, life sciences, and the electric vehicle value chain. RPOs in this sector were up 58 million, or 5% from the year-ago period. and we continue to believe the long-term fundamentals are solid. As we have stated many times before, we expect ebbs and flows in certain areas of the project award, and as a result, project work within this sector, as awards will happen in different amounts and different contract structures once you become on the site and you're working on a site that has a multi-phase and multi-year building program. In addition to high-tech manufacturing, we continue to have a healthy base of ours in the traditional manufacturing industrial market sector, and they total $782 million at quarter end. You turn to energy efficiency and sustainability, and that also ties into short-duration projects, which I'll cover in a little bit. We continue to excel with retrofit project work, especially within the mechanical services division of our U.S. building services segment, where we saw a year-over-year increase in RPOs of just over 9%. Much of this work is focused on not only retrofit of aged equipment, but gaining efficiency with implementing a building automation upgrade, coupled with gaining significant efficiency gains with new HVAC equipment. And lastly on this page, healthcare is an area we expect to see continued demand, with record RPOs at the end of the quarter of 1.2 billion, which is up almost 14% from the year-ago period. Water and wastewater, which now totals $602 million, is up 24% year over year. The word of these projects is typically episodic in nature due to the size and scope of the work, and most of our work is predominantly performed in Florida. The institutional sector, which was just over $1.1 billion, up nearly 36% year over year, and that includes work for schools, universities, and local, state, and federal office buildings. And what are they spending on? They're spending on research facilities. enhanced and new classroom space, technology upgrades that spread across the campus, and renovation and retrofits for improved air quality, and a lot of projects to reduce energy consumption. And that's the types of projects that are driving demand in this market sector. Transportation, it grew about 39% for us, up to $276 million. And it's infrastructure awards largely focused around airports. And then short-duration projects, again, go back to my energy efficiency comments. They're very much the same. These are electrical upgrades, HVAC upgrades, technology upgrades where you bring more Wi-Fi in and enhancements, building controls upgrades to make the building more efficient, smarter, cleaner, and productive. And partially offsetting these increases, we experienced an RPO decrease within commercial. RPOs in this sector now total $1.3 billion. And as a reminder, our exposure in this sector is weighted less towards new construction high-rise and office projects, but more towards distribution-type project work and tenant fit-out projects. To conclude my RPO commentary, and as I said earlier, total company RPOs at the end of the second quarter were approximately $9 billion, up $713 million, or 8.6% year-over-year. We are pleased with our performance in RPO. We're pleased with the mix in RPOs. especially considering the strong revenue growth we've had in the second quarter, which reflects a very strong demand for our services. And what you're most worried about, our pipeline remains robust. So now we'll go to page 12, and I'm going to conclude. With the strong first half performance we had, we are going to raise guidance. We're going to raise our revenue guidance to $14.5 to $15 billion, and we're going to increase our earnings per diluted share guidance from $15.50 to $16.50 to $19 to $20 dollars. We are seeing incredible execution in the field, and the operating margins in our construction segments are more resilient and higher than we have experienced in the past or expected at the beginning of the year. We expect these trends to continue with respect to our success in bidding, winning, and executing work in favorable market sectors that I've outlined, such as networking communications to include data centers, high-tech manufacturing, energy efficiency work, healthcare, and traditional manufacturing and industrials. Further, we expect our U.S. and U.K. building services segments continue to perform as outlined in previous calls, and we expect the industrial services segment to perform at its highest level post-pandemic. We will continue to face challenges in markets, especially in our site-based services business in the U.S. and U.K. Macro factors such as higher interest rates, a presidential election which may slow decision-making, supply chain and energy price disruptions, and global conflicts will continue to pose challenges for us, But as we have done in the past, we will continuously plan and execute as best we can to overcome these challenges. Also, we remain diligent in how we serve our commercial real estate and private equity customers as high interest rates and scarcity of capital can impact their businesses. Finally, as I always do, I want to thank all of our MCOR leaders and teammates for their hard work and dedication to serving our customers in a safe and productive way. You know, we have a very talented team here at MCOR, guided by our MCOR values of mission first, people always. and will continue to be focused on executing our mission for our customers and shareholders while keeping MCOR a great place to work for our employees. With that, Danielle, I will take questions.
spk00: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star, then 2. The first question comes from Brent Thielman from DA Davidson. Please go ahead.
spk04: Hey, thanks. Good morning. Congrats on a huge quarter here. Thanks, Brent. Tony, maybe just to start, can you talk about maybe the pipeline of potential opportunities you're still seeing in high tech and sort of manufacturing and industrial? I think just looking for any other evidence this this sequential reduction RPOs is more likely temporary and timing-related, as I think you're ultimately suggesting here.
spk01: Yeah, I mean, look, if you think big picture, right, these are sites that are going to be developed over 10 to 15 years. And so nothing's changed, right? The fabs are moving from Taiwan back to the U.S., so there's nearshoring. There's expanded need for chips because of AI. And all that remains true today, just like it did last quarter, the quarter before that, the quarter before that, and the quarter before that. We executed at a fairly high burn rate on one of those sites as we hit peak manpower and we hit peak scope, right? We were at the sweet spot on one of the major sites. And that's a good thing. You can see that in our cash flow. And you can see that in the execution and the drop-through in our mechanical business, especially when you get focused on high-tech. So if you go to the semiconductor sector, we're bullish on the sites we're on. We have a good line of site to multi-year projects. But like I've said before, sometimes the multi-year projects now come in different chunks. We're there now. We're working. We're part of the team. We're developing the site. and then sometimes they'll come in in a different contracting form, or they will come back in lump sum. Our job is to make sure we stay as part of that team, execute well, finish the work well, get it commissioned well, and move to the next phase. Most of these sites, the three or four big ones we're on, have three or four more fabs they're going to build, and it's just not like they jump from one to the other and everything happens literally. So we feel really good about semiconductors. And nothing's changed on our outlook on pharma and biopharma either. There's a lot going on. We're in the right places, especially in Research Triangle Park in Indiana and in New Jersey. And these are long-term building programs, again, where you will hit a revenue run rate where we're at now, which is hard to keep up with the RPOs. And then, again, go back to the contracting mechanism. And reshoring and nearshoring, we see really no change. As far as EVs, I've said this before, we were actually very careful of how we did this. We really led with fire life safety. The structures are getting built. They're going to continue to get built as they build out of site. The next phase will be equipment emplacement. That has slowed down. That was never the biggest part of what we were doing. It was a big part of what we did, like Jason said, in the second quarter, but it was never the biggest part of what our high-tech manufacturing exposure has been. And look, I have a personal view. It doesn't really matter whether it's 12%, 15%, or 20%, or 30%. It's going to be somewhere in there of EV penetration. And then more things will be built. There'll be consolidation in that space, and we'll be very careful. We've always been careful how we serve the automotive sector because it is a very episodic type business. And quite frankly, they're a very difficult customer, and you have to be careful. And then finally, as you go to other nearshoring, we continue to see that as a long-term trend. That trend was happening before COVID. COVID accelerated it, and it continues to be as people look to reshore and expand their supply chains. So that's a long-winded answer to what we're seeing there, but we still are very bullish yet on what's happening in high-tech manufacturing and manufacturing industrial.
spk04: That's helpful, Tim. I appreciate that. And then just in terms of the profitability of the company overall, I mean, continue to attain new highs and Tony just, you could sort of compare and contrast what, what is bid margins, what customers are willing to pay to bring you in versus just, you know, simple, you know, effective execution in the field. It'd be helpful to get your, get your cover there.
spk01: Those things are really hard to separate because again, On these bigger projects, which is really what's driving our margins, most times we are working in a collaborative way with the customer to be able to fit inside their budget and come up with solutions that work with their budget. So it gets really hard to talk about pricing. I think productivity and our ability to do virtual design and construct and enter earlier in the design phase, and we're not design builders necessarily, but upstream to do engineering assist which will then compress the time and get the drawings right to begin with. And then to be able to develop a good model that we can all work from and build and not run into the collisions and things you do on a work site. And then take that BIM plan and drive it to a very thoughtful prefabrication and supply chain management plan and work with our suppliers. I think, you know, my gut, three-quarters of this is coming from productivity and means and methods and planning. and a quarter of it's coming from price or less because there's too much work going on on productivity, and we're too linked with these customers on the build to think it could be price. And let's be clear. Nothing's changed in this business as far as anything we do, there's competition, and these are large, sophisticated customers that know how to drive competition to a site.
spk04: Yep. Tony, I guess my last question really kind of just with respect to considering the outlook for rest of 2024. I mean, this is just a massive year and potential accomplishment. I know you have a second half to work through just from an earnings perspective. And I appreciate your perspectives on how you think the company can build off of this sort of incredible year provided these kind of in-market drivers sustained in the subsequent years?
spk01: I mean, I always think about things, right? I think you know, in general, we're very cautious and conservative, right, by nature. And I think that's why we've had this long-term record of success in what is a pretty difficult business. I think about things maybe a little differently, right, in the sense of you've got to put the enablers in place to allow growth, and you've got to be positioned with the right customers in the right place. And so the question is, are you continuing to expand the geography you can serve and the sites you can serve? Have you opened up the types of things you can do? An example of that is we continue to look for opportunities to expand the geographies we're in. Our acquisition program in the first part of this year, and really over the last number of years, forever, has been a focus on that. But then you've got to think about, okay, I built a capability to do this kind of project in this geography with this subsidiary. Are there other people that have the capability to do that? They do projects that are similar and that it's coming to their geography. Can we do a lot of peer learning? Can we have people teach them how to do the project planning up front? Can they come and learn the means and methods? So, you know, I don't know what end demand will ever be, right? We try to position ourselves to markets we think are growing. But I do know if you continue to build capability within your workforce, you continue to build capability in the number of markets you can serve, and if you continue to train your leaders the right way in how you treat people and how you lead and how you plan and you do those things right, then long-term you can build on success. And I think that's the playbook we've been following for a while. I think we're in a period now that obviously it's accelerated over these past three years, but I think a lot of that is investments that we made you know, five, ten years ago to continue to build that workforce and build the culture that we have that allows for transparency, that allows for teamwork, that allows for respect and share ideas across our company. And then you couple that with a strong focus on discipline and discipline execution, and then you always keep safety of your workforce and your planning at paramount. I think you get good results, and you position yourself well with key customers, you can grow with them as they expand what they're doing.
spk04: Okay. Thanks, Tony. I'll get back to you.
spk00: The next question comes from Adam Thalheimer from Thompson and Davis. Please go ahead.
spk03: Hey, good morning, guys. Also, congrats on a great quarter. Tony, the headwind you talked about within commercial, is that coming in any different than you anticipated?
spk01: No, I think we'd say, and maybe you can elaborate on this and put some context on it, it's exactly where we thought it would be. And quite frankly, we might have had this decline even if the commercial market was strong because we would have pivoted our resources to some of the high-tech manufacturing and traditional manufacturing anyway because it's longer-term, larger projects, more difficult projects, which is right in our wheelhouse, especially on the fire and life safety side. So we would have – not that we have a shortage of workforce, but we would have pivoted some of that workforce to a more lucrative market anyway. Jason, you got it.
spk05: Tony, I would agree with that. I think right on the commercial side, it is the only market sector where on a quarter-day basis we are down on the construction side. It's exactly what we expected both electrically and mechanically. And as Tony said before, we've pivoted ourselves elsewhere where we are seeing growth. And then On commercial, if the question is specific to commercial site-based, where we've talked about the headwinds there, it's exactly the contracts that we spoke about at the end of December. The revenue decline there is exactly what we anticipated, and building services is operating collectively as a segment right where we thought it would be, right? The growth in the quarter being 1% and on a year-to-date basis at 4%. Okay.
spk03: And then, presumably... you're running pretty flat out. I assume your guys are fully engaged. You're probably having some labor availability issues, if anything. I mean, have you guys been turning away work, or how have you been managing backlog?
spk01: Look, let's think about business in general, right? These are massive markets, even when times aren't as bullish as they are now. When you run a company like ours, and you're running it at the subsidiary level, you're always focused on what's the best opportunities in the market I have for the capabilities I have, and how am I going to deploy those resources? And you do it two different ways, right? You think about those that you're going to deploy over a one-year or two-year horizon on a set of projects and opportunities, but you also keep running at the more, you know, routine stuff, the short-duration projects, and you keep that alive in the market. And, you know, we're blessed here at MCOR is our team, our subsidiary CEOs, I would say with the guidance of the segment folks, are masters at thinking about how you take the resource and deploy them in the most effective way possible. You know, you can always say, you know, I've never been one to say, oh, we're turning away all kind of work. We're doing this or that. Because I don't believe that's what we actually do. I think we say this is the team we're playing with. This is what we have. This is how we're building workforce capability. And we're going to grow two ways. Either we can do more projects because we've built more capability with foremen, superintendents, all that, or the size of the project's going up in some cases and that multi-year opportunity and that person can run bigger work over a longer time period. So I don't think we're labor short. We're always looking for great labor. We have great labor. I think, though, that if you have a metering, it's not around the actual labor, you know, the journeymen, the apprentices, and the wiremen, those folks. The labor shortage, if you're going to have any, it's about your workforce development over time, would be in the foremen, the project managers, the project executives, and the skilled estimating resources you have, and we're always developing those. So it very much is a how you're going to manage the mix in your local geography and how we're going to manage the mix across MCOR.
spk03: And then, Tony, how do you think about – your potential to grow margins from here. I've been looking at MCOR for about as long as you've been CEO. And I mean, it's just amazing the productivity and the margins you guys are generating.
spk01: A lot of stuff's got to come together. And it has been coming together. You got to start with, you know, all those things we've talked about, workforce development, investments in technology, best practice sharing, and that goes across from estimating, mix management, means and methods, virtual design and construct, BIM, supply chain management. I mean, you really have to take what you're doing well and spread that through the company, and that's one way to get more. The second thing is, you know, we're in a tough business, and so absence of badness is a big deal. And so we've invested and trained our folks pretty strongly on contract negotiations, and when it's a more difficult negotiation, we've enhanced our legal capability to be able to respond and be thoughtful. And then when we do run into a problem, like not everything's perfect all the time, you know, we're prepared for that dispute with facts and adherence to the contract so we can get a better result than we may have gotten five, eight years ago. And then I think the other thing is you've got to have good markets where you get good absorption in and you're working alongside the customer to get a good result. And, you know, where do margins go from here? I mean, obviously we believe for the rest of the year they're about the same. Right, Jason?
spk05: If you look at the guidance, really what we've assumed there, and I touched on the midpoint, right, which is if you look at the midpoint of our guidance, we're saying we can repeat in the back half of the year what we've done through the first six months of the year. When you look at the low end of the guidance, we're essentially saying we believe that at the low end we can achieve the record margins that we achieved in the back half of last year. And if you look at the high end, we're essentially assuming 30 to 40 basis points above where we're at today. Got it. Okay. Thanks, guys. Thank you.
spk00: The next question comes from Alex Dwyer from KeyBank Capital Markets. Please go ahead.
spk02: Good morning. Thanks for taking my questions. You bet, Alex. Yep. Can you talk about which geographies in the country you are seeing the highest growth right now? And would there be any other geographies that you'd call out as being weaker versus stronger right now?
spk01: You know, it's fairly broad-based in the markets that we're in. But if you go to where the real growth is coming from, I think you'd have to say Texas, specifically around high-tech manufacturing and data centers. I think the Midwest has been fairly strong for us, and that's driven by auto data centers, uh, and just general construction, uh, across the Midwest and even still some cold storage and things like that. I think, uh, Arizona has been very strong for us. Uh, I should expect the mid Atlantic has been very strong for us. New York city sort of flattish. Uh, again, we're mainly an aftermarket company in New York city now, uh, intended fit out company. Uh, uh, I think, uh, You know, Boston has slowed a little bit. It's more flat, but it's up yet from where it was five years ago. But it's slowed a little bit. I mean, you know, some of the R&D facilities they were building have slowed. They were doing that sort of hotel concept around lab space. That's certainly slowed. California has been okay. Energy retrofit work in California has been pretty strong. Some of the healthcare work in California has been pretty strong. You know, Oregon, Washington continues to be strong, especially around data centers. Salt Lake's up. I mean, you know, maybe not as strong as Arizona and other places, but still up. So it's pretty broad-based. I would say sort of the northeast is sort of flattish, again, going back. The rest of the country, I think, is doing pretty well. Jason?
spk05: I think you hit on it all, Tony.
spk01: I'd add Georgia and North Carolina. They're very strong for us right now.
spk02: Got it. That's super helpful. And then just lastly, with the $800 million, dollars of cash on the balance sheet, no debt. How should we be thinking about M&A versus repurchases as we go to the second half of the year? Like, should we expect the M&A program to be concentrated more and looking after those high-tech manufacturing and data center end markets? And then is there any change in the M&A pipeline at all?
spk01: Yeah, we have a good pipeline. Deals happen when they happen. I would expect right now, I mean, obviously we're not afraid of doing a, you know, half a billion or billion dollar deal. But right now what we're looking at is more of the same of what we did here in the first half of the year, which we're very pleased with. Our M&A execution over the last five years has been superb. And those that have known me over a long period of time, I think M&A is very difficult. I think we've been a good B plus, A minus student for a while here. The size of the deal goes up, the execution risk gets a lot harder. But so far, we've executed well. We have a good pipeline. I mean, Jason, I'd turn it over to you. I think... I think we're going to continue to return cash to shareholders, and we're going to continue to grow the company through M&A and organic growth.
spk05: I think that overall, right, no real change in strategy here. I think we'll continue to be balanced capital allocators. As Tony said, we're pleased with what we did through the first half of the year, right? We generated $412 million of operating cash, but our cash balance has remained largely unchanged from the end of 2023. And that's the acquisitions. at $173 million, the share repurchases at $149 million, our CapEx and our dividends. In the back of our slide deck, I think it's slide 13, we've updated our historical capital allocation here. If you look where we are so far this year, it's weighted 45% to shareholder return and 55% to business reinvestment. And if you look over time, we're closer to 50-50, and we'll continue to strive for that over time. So I think a long-winded way to say the back half of the year should look very similar to the first half.
spk01: I mean, I think I've always been a proponent you don't force M&A. I think some of the things we did here in the first half of the year We've been talking to those people for three years. Some of the things we'll do a year from now, we've been talking to them for three years. I mean, we are so focused on making sure we have a good cultural fit. We'll get the numbers right. If the cultural fit's right, we're usually talking to a really good company that shares our values. What we won't do, and also it's something we believe we can grow. It's something that adds capability to us. What we won't do is play the multiple game, right? We're not out there trying to say, well, we're at X and we can buy whatever's out there for a much, you know, seven to 10 and therefore we're creating value. That never works out well, especially, maybe it works out well for the PE guys, but I can promise you that doesn't work out well as an operating company because we own them forever and we've got to build the businesses and they've got to culturally fit. So we're much more focused on that than anything else. And you can see that fruits of our M&A work today in our numbers from deals we made 15, 16, 10, 12 years ago and we really haven't wavered from that and it's paid significant dividends for us. We start with management. If we don't believe the management has the skill and character and all the things and the competency that we all think's important, we won't buy the company because even if you can replace management, if those things aren't evident in the company, that bleeds through the entire company and it creates nothing but problems for us.
spk02: Got it, okay. Can I squeeze one more in? Sure. For the data center build, is it possible to like parse through how much of the data center builds you're working on is just coming from traditional type data center builds we've seen over the past five years with the cloud? Or how much is coming from these new AI type data centers?
spk01: We wouldn't have that kind of visibility. We just know that it's expanded. The only thing you could parse through is maybe the power requirements have gone up, but they were going up anyway. Ultimately, we'll build a day center, we'll energize the racking, we'll do day two work. What's actually going on in there, we don't have a lot of visibility to post once we build it. Even if we're doing some of the maintenance there, we don't have a lot of visibility of what the customers are using for it. I thought where you headed the developers versus the five or six owners that build them. And there, there's really no difference, right? In the end of the day, those people are building them for the five or six people that would be building the beta centers.
spk02: Thank you. Appreciate the thoughts. You bet.
spk00: Mr. Guzzi, we have no further questions. I would like to turn it back to you for closing remarks.
spk01: Sure. I'm just going to tell everybody thank you. Appreciate your interest in MCORR. And be safe. And with that, I'll turn it over to Andy to close us off here.
spk06: Thanks, Tony. Thanks, Jason and Maxine. And thanks to all of you for joining us today. If you should have any follow-up questions, please do not hesitate to reach out directly. Thank you all again and have a great day. Danielle, would you please close the call?
spk00: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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