EMCOR Group, Inc.

Good morning. My name is Chuck and I'll be your conference operator today. At this time, I would like to welcome everyone to the NCORE Group Third Quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers prepare remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. I would now like to turn the call over to Mr. Andy Backman, Vice President of Investor Relations. Mr. Backman, you may begin.

Thank you, Chuck, and good morning, everyone, and welcome to NCORE's Third 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 results today. The 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 NCORE'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 Third Quarter. Jason will then review the Third Quarter numbers 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 contain certain non-GAP financial information. Slide two of our presentation describes in detail these forward-looking statements and the non-GAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. And 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 10Q followed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony? Yeah,

thanks much, Andy. And I'll be speaking mainly just page four of this opening. In the Third Quarter of 2024, our team continued to perform exceptionally well and delivered another great quarter. When you compare it to the Third Quarter of 2023, we had record revenues of 3.7 billion, which represents growth of .3% revenue growth. We had record operating income of 363.5 million, which was a .7% increase. And we more than doubled our operating cash flow to $526 million. Our RPOs grew to a record 9.8 billion in the quarter, up 1.15 billion, or .4% from the prior quarter. And we earned diluted earnings per share of 580, compared to $3.57 for the Third Quarter of 2023. Our electrical and mechanical construction segments continued their impressive performance with a combined Third Quarter operating margin of .3% and individual operating margins of .1% and .9% respectively. How this happens is through excellent field leadership. They continue to drive this outstanding execution through relentless attention to detail and constant innovation across the project lifecycle. That begins with project and customer selection, estimating contract structure and negotiation, significant use of VDC, which is virtual design construct. We used to talk about it as BIM. Now we talk about it as a more holistic approach with virtual design construct, which leads to prepadvocation, labor planning and training, commissioning, and finally, all the way through the diligent collection of receivables. Our teams then incorporate these learnings into the next opportunity to make them even more successful and productive for our customers. We do have a continuous improvement and learning culture here at MCOR. And when you couple that great execution with a strong mix of work that includes data centers, semiconductor plants, other high tech and traditional manufacturing, institutional water and wastewater, water and good aftermarket service and project opportunities, including in the commercial sector, then our impressive performance is the end result. We are executing this diverse work and expanding into these resilient sectors with our growth over the last five years occurring through a combination of greenfield expansion, robust training once we do the greenfield expansions, and complementary acquisitions. We do have some of the best leadership at the segment and subsidiary levels, and they work together to share best practices and drive results across our mechanical and electrical trades. The result is this exceptional outcome for our customers, and as a result of that, strong performance for our shareholders. Our building services segment continues to perform as we expected to perform this year with very strong mechanical services performance and an overall operating margin of 7%, despite the previously discussed lost contracts in our site-based businesses. During the third quarter of 2024, our mechanical services business benefited from strong performance across its whole product line and portfolio work, including service maintenance agreements, repair services, HVAC retrofits, and building controls upgrades. Our industrial services segment continues to experience a gradual resumption of normal demand, and we are performing well both in the field and shops, and we are executing a normal fall turnaround season. Our UK business also continues to perform well in a difficult market. We are winning new work, and our poise is to secure additional opportunities with customers that demand a strong technical solution for their facility services. At 9.8 billion, we have a strong base of RPOs to execute, and we have a balance sheet that will enable us to continue to compete, win, and grow in the future. With all that said, I think we can all agree it was a great quarter, exceptional performance by our team, and with that, Jason, I will turn the call over to you, and you will provide more detail on our quarterly results.

Thank you, Tony. Over the next several slides, I'll review the operating performance for each of our segments, as well as some of the key financial data for the third quarter of 2024 compared to the third quarter of 2023. I'm going to start here on slide five, which is revenues. As Tony mentioned, consolidated revenues were a quarterly record at 3.7 billion, an increase of 489.3 million, or 15.3 percent. Led by our construction segments, we continue to execute well, and demand remains strong across most of the large and growing sectors that we serve. On an organic basis, revenues grew by 12.6 percent. Looking at our segments, revenues of U.S. electrical construction were 845 million, an increase of 21.2 percent. This segment continues to benefit from increased demand across many market sectors, with the most significant growth coming once again from networking communications due to our data center project demand. This segment additionally experienced notable increases in revenues within high-tech manufacturing, as well as the institutional and manufacturing industrial sectors. In the quarter, revenue growth within manufacturing and industrial was partially driven by the completion of certain battery energy storage projects. U.S. mechanical construction revenues were 1.66 billion, increasing 25 percent. Demand in this segment continues to be broad-based, and we once again saw growth in the majority of the markets in which we operate. While the strongest growth was seen in high-tech manufacturing and networking communications, we also experienced notable increases within institutional and healthcare. The segment additionally benefited from greater levels of service work. As we expected, and consisted with my comments last quarter, partially offsetting the growth for both of our construction segments was a decrease in revenues from the commercial sector, due to either reduced demand across the commercial real estate industry, or the completion of various warehousing and distribution projects, which were active a year ago. Together, our domestic construction segments generated revenues of 2.5 billion, which is an increase of nearly 24 percent. If we look at U.S. building services, revenues were 796.9 million, representing a decrease of 2.5 percent, due to the non-renewal of certain facilities maintenance contracts that we've discussed on prior calls. A nearly $78 million decrease from our commercial and government site-based operations more than offset the continued strength from our mechanical services division, which grew revenues by 57 million in the quarter. There continues to be strong demand for mechanical services, and as Tony mentioned, we experienced growth across each of our service lines, including projects and retrofits, repair service, building automation and controls, and service maintenance. If we move to industrial services, driven by greater demand across their field services division, including turnarounds of a larger size and scope growth on certain projects, revenues were 286.4 million, an increase of 13.6 percent. And lastly, U.K. building services delivered revenues of 106.4 million. While project revenue remains consistent with that of the year ago period, service revenues have declined, resulting in a 4 percent decrease for this segment. Let's turn to slide six. For the quarter, we had operating income of 363.5 million, or 9.8 percent of revenues. Our performance established new quarterly records, both for operating income and operating margin, and compares favorably to operating income of 235 million, or 7.3 percent of revenues a year ago. Once again, if we look at each of our segments, U.S. Electrical reported operating income of 119.1 million, which represents a nearly 89 percent increase. Operating margin was 14.1 percent, which is a 500 basis point improvement. The segment generated increased gross profit and gross profit margin from the majority of the sectors in which we serve. In line with revenues, the most notable increases were experienced within networking communications. However, the segment also benefited from greater gross profit within the institutional, manufacturing, industrial, and high-tech manufacturing sectors. Operating income for U.S. mechanical construction was 214.8 million, an increase of just over 55 percent, and operating margin of 12.9 percent expanded by 250 basis points. Similar to electrical construction, this segment experienced greater gross profit from the majority of the sectors we serve. The largest increases were generated within high-tech manufacturing and networking communications. While our commercial sector revenues have declined, we did experience an increase in gross profit from this sector due to a more favorable mix of work. And together, our construction segments reported operating margin of 13.3 percent. Operating income for U.S. building services was 55.6 million, a slight decline year over year, however, operating margin remained strong at 7 percent in both periods. Consistent with the segment's revenues, increased gross profit and gross profit margin from our mechanical services division was offset by reductions within commercial and government due to the headwinds we previously referenced. Industrial services operating income was 3.3 million, or 1.1 percent of revenues, versus essentially break-even performance a year ago. This improvement was driven by higher gross profit margin from both field and shop services due in part to better pricing and greater indirect cost absorption. As a reminder, the third quarter is typically a weaker quarter for the segment, accounting for the lower operating margin when compared to the first half of the year. And lastly, U.K. building services reported operating income of 5.5 million, or 5.2 percent of revenues. While project revenues have remained steady in the quarter, the U.K. saw a less favorable mix of work from a margin perspective, notably as their portfolio in the prior year included a greater number of higher margin projects. When compared to projects of a more traditional profile, operating margins have declined in the U.K. by 280 basis points. If we turn to slide seven, just a few highlights on this slide starting with gross profit. Due to a combination of revenue growth, improved mix, excellent project execution, enhanced productivity, and favorable pricing, gross margin has expanded by 290 basis points, and gross profit has increased by 35 percent. Our third quarter SG&A increased by 63 million, which includes 10.2 million of incremental expenses attributable to companies acquired. While our SG&A margin of 10 percent for the quarter has increased by 40 basis points, our SG&A margin for the -to-date period of 9.7 percent remains consistent with that of the prior year. Given the stronger than anticipated performance, a true up of operating company incentive accruals accounts for the quarterly increase in SG&A margin. And finally on this page, diluted earnings per share was $5.80 compared to $3.57, an increase of 62.5 percent. If we briefly turn to slide eight, you can see our performance for the first nine months of 2024. On a -to-date basis, we have grown revenues by 18.1 percent or 16.2 percent organically, and our diluted EPS of $15.21 represents a 72 percent increase from $8.85 a year ago. In a later slide, Tony will outline our updated earnings guidance for 2024. I mention that now as it's our performance for the last two quarters as well as the -to-date period which frames our guidance. If we look at the low end of our guidance range, we've assumed operating margins which are in line with the 8.9 percent we have earned -to-date. At the midpoint, we have assumed fourth quarter operating margins which reflect the average of our second and third quarter performance. And the high end represents what we could achieve if our fourth quarter margins are equal to the record margins we earned in this quarter. And finally, if we look at our balance sheet on slide nine, our balance sheet remains strong and liquid and continues to be a differentiator for us in the market. Although not shown on this slide, operating cash flow for the quarter was approximately 526 million which represents 145 percent of operating income. And on a -to-date basis, we have generated 938 million of operating cash equivalent to 98 percent of operating income. Our significant cash generation leaves us well positioned to continue to fund organic growth, pursue strategic M&A, and return capital to shareholders, all of which we have demonstrated thus far this year. For the first nine months of 2024, we have utilized 189 million on acquisitions and returned $437 million to our shareholders in the form of dividends and share repurchases. During the quarter, we repurchased 256 million of shares, bringing our -to-date total to $405 million. With that, I will turn the call back to Tony for discussion on our RPOs.

Thanks, Jason. And like I said all said, what a great quarter. As I discussed RPOs, I'd like you to take sides 10 and 11 together and we'll put them side by side and we can see the themes driving our business. On slide 10, you can see the key trends in sectors where we are experiencing growth. If you look at data centers and connectivity, we continue to see strong demand for hyperscale data center work, which is included in the network and communication sector. At the end of the quarter, RPOs in this sector were a record 2.1 billion, up 759 million or nearly 55% year over year and almost 25% sequentially. As I've said on prior calls, we believe that we are in the early innings of the overall data center expansion, especially with the addition of AI and that we've successfully positioned ourselves in more data center key geographies over the past five years to serve our customers better. Restoring and near sharing continues to provide opportunities for us in both the high tech manufacturing and traditional manufacturing and industrial sectors. In high tech manufacturing, we have RPOs of 1.3 billion at the end of the third quarter and that includes semiconductor, pharma, biotech, life sciences and the electric vehicle value chain. RPOs in this sector were down 7% from the Euro growth period as we continue to work through a number of high tech manufacturing projects, including the initial fab, the initial fab one of several semiconductor campuses. However, we believe the long term fundamentals here are solid and as we have stated before, we expect ebbs and flows in the award of this work. Many of these project sites are multi-year sites and we are working on or are anticipating to be working on multi-year, multi-phase construction projects for which we will generally only be awarded one phase at any given time or part of the phase at any given time. While we believe we are well positioned for these follow on contracts, they will be released in different amounts, different times and sometimes even under different contract sectors on these multi-year, multi-phase building programs. In addition to high tech manufacturing, we continue to have a healthy dose base of RPOs within the traditional manufacturing industrial sector which totaled 921 million at the end of the quarter, up nearly 8% year over year and almost 18% sequentially. When you look at energy efficiency and sustainability, we continue to excel with retrofit project work especially within the mechanical services division of our US building services segment where we saw year over year increase in RPOs of 4%. As a reminder, much of this work is focused not only retrofit or replacement of age equipment but also reducing energy consumption by coupling more efficient equipment with a building automation upgrade. And lastly on this page, healthcare is an area where we have excelled and we ended up at the quarter at a record 1.2 billion in RPOs, up over 19% in the year ago period. Now we go to slide 11 and I'll finish this off. Water and wastewater now totaled 729 million, an increase of 21% sequentially and 18% year over year and for those new to the call, this is a market for us which is mainly focused in Florida. RPOs in the institutional sector which includes project work for schools, universities and local and state and federal buildings were up 19% year over year, coming in at a record 1.1 billion. Spending is on research facilities, enhanced in new classroom space, technology upgrades across campuses and renovation and retrofits with a goal of improved air quality and reduced energy consumption drives demand in this sector. Transportation grew over 10% sequentially and 66% year over year to approximately 305 million, driven by the word of certain infrastructure projects and short duration projects which are our small project work and it's across the gamut of work we do from building control upgrades, HVAC upgrades, electrical upgrades, technology enhancements all in the built space. We're trying to make these buildings and campuses more efficient, energy efficient, smarter, cleaner and more productive. They're at 473 million essentially flat year over year. When you partially upset these increases was an expected decline within commercial and again for us that's new construction that's driving that and it's really not high rise in office project but more some of the warehousing and distribution market that has slowed somewhat. RPOs in the commercial sector were 1.4 billion at the end of the third quarter but we do grow 3% sequentially. As I've mentioned earlier, our RPOs are 9.8 billion. They're up .4% or 1.15 billion from a year ago and the question you're going to ask is what do you think? We like the mix, we like the projects and we like the execution although we don't control totally the timing and execution of these projects as those RPOs were a lot. We believe that the value and the type of mix of contract structure of work we have in those RPOs is similar to the work we've been executing over the last six quarters. Now I'm going to close on page 12 and 13. We've obviously performed very well during the first three quarters of 2024 and Jason talked about the record performance we had in the third quarter especially with respect to operating margins. Our momentum has been strong both on revenue growth and operating margin expansion. Our revenues have grown .1% on a year to date basis and our operating margin has expanded 250 basis points to 8.9%. As a result, we're going to raise our diluted earnings per share guidance to $20.50 to $21 and that's from our previous range of 19 to $20 and we expect to earn revenues of at least $14.5 billion. You know, as we move into the year end and look at the future, I always step back and reflect on what is working well and what are the challenges. And what's going well? Well, clearly we are positioned well in a set of growing and diverse sectors that demand excellence and execution especially with respect to large projects. You know, better serve our customers. We've expanded our skills across geographies and sectors and we do that by training people well. We've had green field expansion, complementary acquisitions and we continue to invest heavily in VDC and in our prefab which results in better field execution and improve productivity. Our companies utilize peer learning and share best practices on means and methods to build capabilities and leverage our customer relations better at any time in our company's history. We leverage our corporate staff and segment staff very well to improve outcomes not only on contract negotiations and planning but human resources planning, cyber, IT, financial discipline which includes management, planning, cash collection, marketing, risk management which for us means insurance in this case to gain the benefits of expertise and the learnings that we've had especially over the last five years as we build more and more of these scale products to also leverage our scale to improve outcomes first for our customers and our employees. We have invested in success over many years in leadership development with a focus on our core values of mission first people always and continue to develop our unique M-Core operating system and practices. We always have opportunities to improve and I'll mention a short view. We always need to adjust our product offerings, our project delivery but in this case we continue to need to enhance our ability to serve our customers through geographic expansion and skill transfer. We need to enhance our site based service offerings to focus further on our technical services expertise as a point of differentiation versus the real estate firms. You know, always going to face challenges in an uncertain world of supply chain disruptions, continued economic uncertainty, interest rates, geopolitical tensions but our team has shown resilience and has overcome such challenges successfully in the past and there's no reason to believe we won't do that in the future and again we always go back to our culture of mission first people always and our unique M-Core operating model. And finally, you got to continue to invest on what's going well and you have to even do more investment and learning to make it even better. We've had a good mix of capital allocation this year from strong organic investment, acquisition investment and return of cash to shareholders through share repurchases and dividends. We continue to pursue robust opportunities to invest more organic capital across our operations to support our BDC which again reminding you is virtual design and construct and prefabrication efforts but also continue to apply technology and improve productivity, safety, efficiency from our back offices to project execution. You're going to ask about acquisitions. I've always had the attitude that deals happen when they happen. We are in discussion with many people across many years, help them come into the M-Core family and we've had a great track record of that over the last five years especially on the execution and integration of those acquisitions. As always, I want to thank my M-Core teammates for performing so well for our customers and for making M-Core a great place to work as we always strive to improve. As a mission first, people always culture and with that Chuck, I'll take questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Brent Salmon with DA Davidson. Please go ahead. Hey, thanks. Morning. Tony.

Andrew. Hey, just first time, I mean the growth in data center for you just continues to be remarkable. Tony, I was wondering if you could just talk around, you know, what's being supported by new build out versus retrofit and then as you think about retrofit down the line, I mean how much of an opportunity is that for you in that category?

I think it's going to be a significant opportunity, but if you look today specifically, 90% plus of our work is new build and probably two-thirds of that's on existing campuses and a third of that's on new campuses. And Brent, when we think about data centers, actually to get ready for this call, I always reflect on what's changed over five-year periods. If you go back to the middle of 2019 and you snap the line here at the end of the third quarter, we were serving electrically about two and a half markets at the end of 19. And it was a half is because it's not really a data center market. It's more of one of those places where they use to transfer data here around the New York area. And today, I counted at least 13, depending on how you count it, 14 markets were serving electrically and what's driving that is our customers. We execute well, we share learnings well, our customers want us to expand in more markets and we do that a number of ways. And now mechanical, let me finish, on mechanical, we went from serving one data center market in 2019 to six today. And on the fire life safety side, we can serve our customers pretty ubiquitously across the country. Again, understand what I'm saying. It's because our customers are asking us to help serve them better in more markets. So how do we do that? Well, we do that first by leveraging our capabilities and teaching folks that we already have in an existing subsidiary how to do data center work and meet this most demanding market segment. So yes, the growth is remarkable, but these are some of the most demanding customers in the world. Second, we then combine that with organic investment in those subsidiaries and in our existing subsidiaries to deliver great results for those customers. And then we're applicable, we may buy into the data center market or and that company has to do more than data center. They have to be able to stand on their own in that market without the data center market. So you put all that together, that's how you serve that market. Now, if you go look into the future here and the next question should be, OK, how much do you think is that tied to AI today? In the future, it'll probably be a third to half of what we're doing will be tied to AI and the balance will be just cloud storage and expanding that and eventually they interact with each other. I will tell you the AI power requirements are, you know, anywhere from five to six times in some cases what a traditional cloud storage data center will be. So what does that mean for us? It means enhanced scope. It means more requirement for planning. It requires more sophistication on the VDC side, which continues to make you understand why customers want us to expand with them into other markets. With that, I'll stop. Jason, you have anything to add?

Very good. Appreciate all that, Tony. And then pass-through ability in electrical is even better than the last few quarters, which were quite good. Yeah. Are there any closeouts, operational one-timers driving the 14% off margin, Tony? I know there's always things in any given quarter, but...

I think if you look at closeouts, if you look at what we disclosed, I think year over year, there really isn't a drastic change that's accounting for the margins. I think, as we've said, it continues to be driven by mix and execution. But I do think you can never look at one quarter and say that's an indicator of our margins. I think in this environment, I'd say looking at a nine to 15-month rolling average is probably a good way to look at it.

Yeah. And the reason we say that is we don't control the timing of these projects. So at any given time, we could have, especially our supervision, sort of on the bench for us for a month or a month and a half as we wait for new projects to start up. It's always important to remember. I always have to recall back to early 2022, we saw the build happening. People were questioning whether this was going to be sustained. We thought, yes, we held on to the key supervision. The margins got beat up a little bit in the first quarter of 2022, and here we are today. This is not a quarter to quarter business. This is a long-term... You think about what we're trying to do here. We're trying to match our precious resources, which is our shop capacity, our BDC capability, our estimating, but most importantly, our field supervision and labor on the means and method with what is a long-term capital build cycle across some high impact sectors. And you can see that in our RPOs. Those high impact sectors include data centers and connectivity. They include the aftermarket. They include high-tech manufacturing to include semiconductors. They include traditional manufacturing industrial. They include healthcare. They include water and wastewater. So we really value our field supervision, and we're taking that precious resource and thinking about how to line it up against those opportunities in the future. And that's not a linear path to get there.

Very good. Maybe just last one, Tony, appreciate the comments around high-tech manufacturing, that your visibility into these projects sort of extends several years. The timing can be episodic. I get it. I was actually more curious on the RPO strength in manufacturing and industrial, which sort of reflects things, I guess, outside of high-tech. What are the sorts of things you're seeing there? Maybe what contributed to the strength this quarter? I found that uptake interesting.

Yeah, it's pretty broad-based, but it's the traditional things we've done. Again, it always goes back to those manufacturers drive for efficiency and automation and market expansion coupled with restoring. And it's traditional things. It's food. It's general consumer goods. It's some subsection of auto suppliers into the traditional automotive chain. It's suppliers doing everything from pumps and motors and all those things that support all these other projects we're doing in capacity expansion. So some of it is driven by capacity expansion to meet the more mundane areas of all these other growth trends. And then some of it's restoring and the drive for automation. And look, all these places, you think about what's going on with energy prices. So we talk a lot about office buildings, office buildings, office buildings. But think about what a manufacturing plant uses. We're doing that work there, too, where they drive for energy efficiency and they get into a multi-year program with us to drive efficiency across their plant network. So that theme of driving down energy costs and reducing carbon footprint. But I will tell you, it's led by cost right now because of the spike in energy prices and no one thinks they're going down anytime soon.

Yeah, I think the only thing I would add to that, right, I agree with everything Tony said, I think the near-shoring and reshoring continues to be strong for us, continues to be a driver. If you're looking at RPOs sequentially, I will say maybe we saw a little bit more strength in the food process side, which Tony mentioned at the onset of his commentary. But just looking sequentially, food is definitely a driver.

Excellent. I appreciate it. I'll pass it on.

The next question will come from Adam Pahlheimer with Thompson Davis. Please go ahead.

Hey, good morning, guys. Congrats on another great quarter. Thank you. Tony wanted to ask about the revenue guidance first. What's kind of your message on the decline there?

There's not a decline. We gave you a range of 14 and a half to 15 billion. Now that we look at the project timing out of our RPOs, we're at 14 and a half billion. It always was meant to be a range. Now we're sort of zeroing in on year end. And with 18.3 percent year over year growth and revenues, I think we're doing OK.

Yes. To me, I think it's as Tony said, it's looking at the RPOs that we have coming in and the timing of when we expect those projects to kick off. Right. There's there's always a natural lag between when a contract's awarded and when that contract ramps up. And this is just us revising our estimates of when we think those projects are going to ramp. So I don't necessarily view it as a reduction over a loss of revenues as much as I view it as a timing.

OK, so that was my next question. That's perfect. So this is your best sequential backlog growth in two years. And my question is, when do those jobs start?

Some of them are starting right now. Some will start in the first quarter. Very few things we have in RPOs right now will start much past March. Most of it will start between now and the middle of March.

And then with backlog growth accelerating and maybe a little push out in project timing, I guess. Just curious if you had any high level thoughts on 25 revenue growth you could share.

Well, Adam, we've been doing this together for a while. No, we'll talk about 2025 in February. But clearly, with the RPO growth, we are planning another year of growth. Jason put together some interesting analysis because it sort of helps frame it for the long term. Right. First of all, we've spent a lot of time on this call already and justifiably so talking about some of these outside growth sectors like data centers and high tech manufacturers. Even if you strip that out and you look at this year, we're still growing in the underlying more traditional markets, 7 percent revenue growth. And if you look over the last five years and you say, how are you growing versus non-res construction? We're growing about 250 basis points above that of non-res construction. I've typically said we grow somewhere between 20 to 30 to 35 percent of non-res in a high growth market and in a slower growth market when it's growing to GDP. We typically double that growth. Right. So that's held true over the last five years, which has been a very healthy growth market for non-res. So there's no reason for us to believe whatever the expectation for non-res is that we're likely to outperform it over a year period, quarter to quarter. You never you never quite know. Right. OK, thank you, guys.

The next question will come from Alex Dwyer with KeyBank Capital Market. Please go ahead.

Hi, Tony, Jason and Andy. Good morning.

Morning.

Congrats on the quarter. Thanks. I guess I wanted to get your thoughts on what would happen if there was a change in administration next year. And I guess the things that come to my mind would be the more the more focused on oil and gas, less on clean energy, maybe tariffs and continued focus on domestic manufacturing. I'm not sure how to think about how impactful any of these could be to your business or if or if I'm missing anything. But just any thoughts there would be helpful.

Well, I always say so. You'll never hear me make partisan comments publicly and maybe over a beer. I'll give you my own thoughts. But the reality is we make money with Democrats and we make money with Republicans. So I think if you go to the broad themes, is anybody likely not to want to see more manufacturing reshore into the United States? I think the answer to that is both want that to happen. I think the second thing you say, one of the big drivers is semiconductors. Does anybody think that the situation between Taiwan and China is better today than it was when they did the Chips Act or even before the land was bought, which was like five or seven years ago? Does anybody think that it's better today than it was, you know, two years ago? And do you think either either either the Republican or Democrat in this case, either one of them not want to see the domestic chip manufacturing industry flourish? Well, the answer to that. Do you think anybody wants to not see data center construction go and have a be a real advantage in this country? And do you think that either one of them want to let significant U.S. computing power or companies want that overseas? The answer to that is no. So some of the big drivers, I think, remain intact because these are major forces driving it that have little to do with public policy or think they're more to do with geopolitical things and security. Then you go to the energy situation. I think there is a difference there. I don't think it'll be as profound as people think. I personally think that we're going to have to have an all of the above strategy, but I think you're going to see oil and gas flourish under one verse the other more quickly. I think in any case, we're going to have to build more gas turbine plants in the next five years because it's the only way to fill this energy gap that's going to be created because of all the things I talked about in the beginning of my answer. I think with one of them, that will happen quicker. And with the other one, we'll have to get into a little bit of a crisis for that to happen, but it will happen. I think on the renewable side, not an area that we have huge exposure to. We have some exposure, but not huge exposure like others. I think we may need to be seen. I do think that's been challenging anyway, and that'll be more challenging if one wins versus the other. I think if you go long term in the autospace for us, we look at a lot of different scenarios with respect to our own fleet. We believe for what we do, hybrids will eventually come in as a viable solution somewhere the next three to five years as it gets more into SUVs and pickup trucks and vans and those things. On the EV value chain, something we have exposure to, but of all these big trends, it's the one we have the least exposure to. It's been more of a fire life safety vote as they build infrastructure. I think in that case, I don't know either one of them will jump ahead. One will be a market approach. I do think if one wins versus the other, the tailpipe emission standard will change pretty dramatically. Back to something that can actually maybe be accomplished. Put all that together. Go back to my original comment. We've done well under Democratic administrations and we've done well over Republican administrations. What our shareholders pay this management team to do is adjust and adapt. We're not big on lobbying. We don't do that. We adjust and adapt. We move on. And that's the greatest thing about a contractor. That's how we're trained to think.

Got it. Appreciate the thoughts, Tony. And then I guess just coming back to the high tech manufacturing RPOs, the return to sequential growth in the quarter. How should we think about the ability to keep growing these RPOs, this end market RPO going forward as we think about the initial STEMI FAB awards turning into follow on awards? I'm just wondering if

that could be a headwind. And again, my gut tells me talking to our folks on the ground and the conversations on the three areas that were most exposed to FABs, electrically, mechanically more mechanical than electrical, is the sites we're on somewhere between now and the middle of third quarter next year, we're likely to get another big award and it might come in pieces. That's likely to happen. And that's going to happen at two of the sites. The planning is well along the way and we're helping with some of the infrastructure planning as they get ready to do that. I think, you know, the building side of it is one part of it, but then they got to staff it and run it for the long term. And the people that are doing this have to do both. We don't have to do this. We just help to help them get it up and running and commission it. So NetNet, I think it's a great long term market for us. I'm glad we have the capabilities we have and I'm glad we continue to invest and build more capabilities into that market.

Got it. OK. And then I guess my last question, the cash flows just continue to be super strong this year. I think in the beginning of the year, you had given that that 100% operating cash flow to net income guide. I think it's just it's been well above that for the for the year to date performance. How do we think about that? Was that overly conservative or is there something in the cash performance that has just significantly exceeded your expectations? And is that the right way to think about the business as we head to next year?

Well, you know, long term over three to four years, you can't collect more than that income. Right. That's that is the standard. Right. 100% of that income. Now, why are we doing better than that right now? We're getting ahead of some of our contracts. You know, we always focus on this net billings and access is a major metric for us. And I'm going to let Jason jump in here in more detail. But the point is, people say, oh, you send bills. No, that's not how that works. Right. That means the project is going very well and the schedule values and we've negotiated them to a way that we can keep ahead of cash a little bit or cash neutral on these projects. Sometimes we get prepayments ahead of time to allow us to mobilize and go on the customer site. That's a negotiation. I will tie it back to a broader point. I'm going to turn it over to Jason. Our balance sheet is a major way that we compete. Right. We have the capacity to do a lot of things with that balance sheet and we will. We will continue to look through the growth and acquisition. We are not afraid of doing it. We said that before for the right deal. We would move and go do that. We think that works. But in general, we're never going to be a high leverage company. And the reason for that is you think of who we're working for. They are all cash focused, cash rich customers. And when they point to long term relationship with customers like contractors like us and partners, they want people that look like them with that respect. They want to know the job is going to get done. And so we've been able to get favorable contract terms. And that's really what allows us to be a little bit ahead on cash versus net income. But long term, right. That doesn't work. Jason.

Yeah, I think I think Tony, that's a great summary. I think I think long term we will go back to that that average that we always look at, which is 100 percent of net income or 80 to 85 percent of operating income. When we when we look at this year, yeah, right now we're 98 percent of operating income. I think we'll maintain that level through through the end of the year. We'll have another strong cash generation quarter in Q4. But I think over the long term, we have to revert back to that traditional metric.

Jason and I had a very wise colleague that ran our construction business for years and say, Tony, you can only collect the cash once. And that's how you get back to cash flow equals net income.

Got it. Appreciate the thought. Thanks.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Tony Guzzi for any closing remarks. Please go ahead.

Yeah, one. Thank you all for your interest in M-Corp. I know that the audience listening is broader than just our sell side analysts. So thank you all. And if you're invested in our company, we appreciate that. Again, I want to go back and circle around and thank our field leadership and all of our teammates at M-Corp. It's surely been an extraordinary five year of performance as we continue to grow. And with that, Andy, I'll turn the call back over to you.

Yeah, thanks, Tony. Thanks, Jason, Maxine and everybody for joining us before we close the call. As we announced this morning, Tony, Jason and I will be participating in the Baird 2024 Global Industrial Conference in Chicago, including one on one than a webcast fireside chat on Tuesday, November 12th at nine thirty a.m. Eastern Time. We hope to see many of you there. As always, if you should have any follow up questions, please do not hesitate to reach out to me directly. Thank you all and have a great day. And Chuck, if you please close the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.