EMCOR Group, Inc.

Good morning. My name is Dave and I will be your conference operator today. At this time, I would like to welcome everyone to the MCOR Group second quarter 2026 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 and the number one on your telephone keypad. If you would like to withdraw your question, please press star and the number two. I will now turn the call over to Lucas Sullivan, Director, Financial Planning and Analysis. Mr. Sullivan, you may begin.

Thank you, Dave. Good morning, everyone, and welcome to MCOR's second quarter 2026 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 mcorgroup.com. With me today are Tony Guzzi, our Chairman, President, and Chief Executive Officer, Jason Nalbandian, 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 and discuss our RPOs. Jason will then review the second quarter numbers, then turn it back to Tony to discuss our guidance before we open it up for Q&A. Before we begin, a quick reminder that 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. 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 filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony?

Yeah, thank you, Lucas. And good morning and thanks for joining us today. I'm going to start my remarks on slide four. MCOR delivered another outstanding quarter highlighted by exceptional organic growth, Strong conversion of revenue into operating income and cash flow, continued booking strength, and record remaining performance obligations or RPOs. These results reflect the consistent execution, operational discipline, and customer focus that have defined MCOR's success over many years. Importantly, our strong performance during the first half of 2026, combined with the visibility provided by our record RPOs, supports a substantial increase to our full year 2026 earnings guidance. As we will discuss in more detail later in the call, we also continue to execute our balanced capital allocation strategy, returning significant cash to shareholders while investing in strategic acquisitions that strengthen our capabilities and deepen our position in attractive end markets to better serve our customers. So let's go to the second quarter. In the second quarter, revenues were $5.15 billion, an increase of 19.8% over the prior year. Excluding the impact of acquisitions and the divestiture of MCOR UK, organic revenue growth was 19.6%. Operating income reached $547 million, resulting in an operating margin of 10.6%. while diluted earnings per share increased by 35% year-over-year to $9.06 in the quarter. These results demonstrate the strength of our business model, the quality of our execution, and the sustained demand that we continue to see across many of our core markets. Electrical construction generated revenue growth of 24% year-over-year while delivering an impressive operating margin of 13.9%. Mechanical construction achieved revenue growth of 31% year-over-year with a strong operating margin of 12.5%. These results reflect our ability to execute complex projects across multiple geographies and trades and expand our scope with existing customers and consistently deliver value to our customers on mission-critical projects. Growth across our construction businesses continues to be supported by strength in several sectors. In the quarter, the largest revenue increases were generated in networking communications, which is where our data center business is, institutional, manufacturing and industrial, and warehousing and distribution within commercial. Our teams are leveraging industry-leading prefabrication capabilities Virtual Design and Construction Technologies, which we refer to as VDC many times, Disciplined Labor Management, and Advanced Project Planning to execute these projects safely, efficiently, and productively for our customers. Our U.S. Building Services segment also delivered solid performance. Revenues increased 5.6% from the second quarter of 2025, while operating income grew 26.6%. Our mechanical services division continues to perform exceptionally well, benefiting from an increased service base, as well as customer investments in HVAC retrofits, control systems upgrades, indoor air quality improvements, and energy efficiency initiatives. In addition, the restructuring actions we implemented last year in our site-based services business are generating meaningful benefits through a leaner cost structure and a more profitable portfolio of contracts. Our industrial services segment generated revenue growth of 26% year-over-year, led by strong performance within field services, while also delivering year-over-year improvement in profitability. Now I'll ask you to turn to slide five. One of the most significant indicators of future growth continues to remain our RPO position. At quarter end, total RPOs reached a record $17.14 billion, An increase of 44% from the prior year, 29% from December, and despite the record organic growth in the quarter, 10% sequential growth from March. Notably, 95% of this growth was organic. This record position provides visibility into future revenue and reflects the strength of customer demand across several sectors. Demand within the network and communications sector, led by data centers, remains exceptionally strong. We continue to see expanding opportunities as customers invest in AI infrastructure and digital transformation initiatives. Equally important are R&P growth with broad base with strong bookings in water and wastewater, healthcare, and the institutional sectors. Customers continue to place trust in MCOR. As we successfully execute projects, and we consistently meet our commitments. Many customers are expanding across geographies and scope into facilities, geographies, trades and other technical disciplines like our pre-construction. This ability to deepen relationships and grow alongside our customers remains a significant competitive advantage for MCOR. And with that, I'll turn the call over to Jason to go through the numbers.

Thank you, Tony. And good morning, everyone. Over the next few slides, I will cover the operating performance for each of our segments as well as some of the key financial data for the second quarter of 2026 as compared to the second quarter of 2025. I'm going to start on slide six. Revenues of $5.15 billion established a quarterly record for MCOR, increasing 19.8% or 19.6% on an organic basis when excluding acquisitions and adjusting for the sale of MCOR-UK. Each of our segments experienced meaningful revenue growth, contributing to our consolidated performance. Revenues of electrical construction were $1.66 billion, increasing 24%. While this segment did experience increased activity across a number of the market sectors we serve, the majority of its growth in the quarter resulted from greater data center projects within the network and communications market sector, where revenues increased by 45%. Mechanical construction revenues of $2.3 billion grew by just over 31%. Similar to electrical, this segment experienced the greatest growth from the network and communications market sector, where revenues more than doubled year over year. Increased cooling requirements for data centers, coupled with our expansion into newer adjacent geographies, continued to drive more opportunities for this segment. In addition to data centers, mechanical construction generated notable revenue growth from several other sectors in which we operate. Specifically, institutional revenues increased 77%, commercial increased by 26% due to resumption in demand for warehousing, distribution, and logistics projects, largely within fire protection, and manufacturing and industrial, including food processing, was up 18%. On a combined basis, our construction segments generated revenues of $3.96 billion, an increase of 28%, establishing new quarterly revenue records for both segments. Moving to building services, revenues of $837.7 million increased by 5.6%. Revenues of our mechanical services division increased by $30 million, or nearly 5%, driven by broad-based strength across each of their service lines. In addition, the segment's commercial site-based services division returned to growth, experiencing a $14 million or roughly 11% increase in revenues due to the award of new facilities maintenance contracts as well as scope for site expansion with existing customers. Like our construction segments, the performance of building services represents a quarterly record for revenues. Industrial services revenues were $353.8 million reflecting an increase of nearly 26% driven by our field services division, which benefited from greater turnaround activity, higher petrochemical project volume, and progress made on a large solar project. Let's move to slide seven for operating income. We generated operating income of $547.3 million, or 10.6% of revenues, both of which are records for MCOR for our second quarter. Operating income increased nearly 32% and operating margin expanded by 100 basis points. Looking at each of our segments, operating income of electrical construction increased by 46.8% to a quarterly record of $231.4 million due to the revenue growth I previously mentioned, coupled with 210 basis points of operating margin expansion. While the segment did benefit from a 20 basis point reduction in SG&A margin, the vast majority of the increase in operating margin was a result of greater gross profit margin given exceptional field execution and a more favorable project mix. Mechanical construction had operating income of $286.6 million, which represents a 20.1% increase. As with electrical, operating income for this segment represents a quarterly record. Although down 110 basis points, mechanical construction earned a solid 12.5% operating margin, which is in line with the segment's average margin over both the last 12 and 24-month periods. Similar to the first quarter, and very much as we anticipated, the reduction in operating margin of this segment resulted from a shift in mix that included a greater percentage of revenues from projects where we are acting as either the construction manager or prime contractor, and which inherently carry lower than average gross profit margins due to reduced markups on materials, equipment and subcontractor costs, as well as an increase in the number of GMP or Cost Plus contracts. Together, our construction segments grew operating income by over 30% and earned a combined operating margin of 13.1%, an increase of 30 basis points. Building Services generated operating income of $63.4 million, an increase of 26.6%. In addition to the impact of greater revenues, the segment achieved 130 basis points of margin expansion, with operating margin reaching an impressive 7.6%. Given a more favorable project mix, coupled with improved execution, gross profit margin increased by 70 basis points, and due to the restructuring actions we completed within our site-based businesses, SG&A margin decreased by 60 basis points. Operating income for industrial services was $9.6 million, a significant improvement versus the year-ago period driven by the increased revenues I previously mentioned. If we turn to page eight, I'll quickly cover a few highlights not included on the previous slides. Gross profit of $1.02 billion increased by 22.6% and our gross profit margin of 19.8% increased by 40 basis points. While all of our operating segments contributed to the greater gross profit dollars, the improvement in gross profit margin resulted from the performance of electrical construction and building services as I just highlighted. SG&A was $475 million or 9.2% of revenues Thank you. And lastly on this page, diluted earnings per share was $9.06, which represents an increase of nearly 35% when compared to the $6.72 earned in last year's second quarter. If we briefly look at slide 9, you can see the strength of our performance for the first half of the year. Revenues have grown by 19.7% or 18.3% organically, our gross profit margin has improved by 30 basis points, and we successfully leveraged our overhead cost structure, reducing SG&A margin by 50 basis points. This resulted in operating income, which has grown by nearly 30%, along with a record operating margin of 9.7%. Let's turn to slide 10. Our balance sheet, including $924 million of cash on hand and $1.45 billion of working capital, continues to provide us with a competitive advantage and enables us to fund organic growth, pursue strategic M&A, and return capital to shareholders, all of which you'll see on the next two pages. Although not shown on this slide, we did generate $289.4 million of operating cash flow in the quarter. And on a year-to-date basis, our operating cash flow is now relatively comparable to that of the year-ago period, despite our growth and the associated increase in working capital. With that, I'll turn the call back over to Tony.

Thanks. And I'm going to go to page 11. And this is a great page, by the way. And so before I get into the guidance, Jason and I are going to talk about the acquisitions and capital allocation. I want to briefly highlight on this page some of our business development activity. We continue to execute our acquisition strategy with a focus on transactions that expand our capabilities and strengthen our core competencies. These acquisitions deepen our trade and technical expertise and broaden our geographic reach to better support our customers in our fastest growing sectors. These acquisitions actually showcase our playbook and mindset with acquisitions. We look to create a cumulative and compounding impact with our acquisitions that provide durable performance. Further, we know that we have both cost and revenue synergies in an acquisition. In these cases, in most of the cases over the last five, eight years, our revenue synergies that we create far outweigh the cost synergies over time. If you like each of these acquisitions in turn, B&B Electric provides us really good capability in Wisconsin. They are a good industrial contractor that can do highly complex work. Sidney Electric in Sidney, Ohio, complements the capability we have in Ohio that came through our Quibi acquisition over five years ago. We learned with things like Sidney, who are great industrial contractors and can do healthcare work, that we can pivot them if the data center opportunities become available, and then we can grow them pretty significantly. Jowls was actually acquired with our Miller team and provides access to the Daytona beach market will allow us to go down through the growing space market in Florida. Schmidt Electric, market leader in Central Texas and Austin, it opens up that market to us. They have the ability to do data center marketing, but that's where we're going to be able to bring some real capability. They can do the most complex work known, and we've learned that they can pivot into data center work through our customer relationships. So keep the base, grow that, and put the data centers on top of it. Likewise, Conley Electric, we have great businesses in the Chicagoland area. This is purely complementary in the locals they operate. They're, too, great contracting ability. They bring a design build capability we don't necessarily have on some warehousing and logistics work. And we think we can pivot them. We know we can pivot them also to the expanding data center market in the southern and western Chicago suburbs. We feel really good. I'm going to let Jason go through. And what's important about all this, you look at this page, and they're just names on a page, right? Each one of them have a story of a great operator or a great operating family that have owned the businesses for a long time. And now they've trusted us to take that with them. They're still going to be here. With them, take these businesses to the next level with how we know to grow our customer relationships. And we're going to learn from them, too. We talked about the design-build capability, some of the prefabrication techniques that they have on specific products. So this is a two-way street, but I know we feel the pressure to continue to build and make these companies successful as now up to 70 years in some cases, family legacy and ownership legacy have now entrusted us to take it to the next level, and we don't take that lightly. With that, I'll turn it over to Jason.

Yeah, as Tony noted, these businesses will all be included in our electrical construction segment. and we do anticipate funding the acquisitions through a combination of cash on hand and to the extent necessary, the borrowing capacity provided by our credit facility. The slide shows here that these five businesses collectively generated 625 million of revenues and 105 million of EBITDA during the trailing 12 months ended June 30th. And when considering the closing dates for Schmidt and Connelly, which collectively represent approximately 75% of the aggregate revenues and EBITDA presented, Our guidance, which Tony will discuss shortly, assumes between $250 and $275 million of revenue contribution from these five acquisitions in the back half of the year. Given the anticipated intangible asset amortization, as well as the reduction in net interest income, the impact of diluted earnings per share will be limited for the remainder of the year. But as backlog amortization rolls off over the succeeding 12 to 18 months, These acquisitions will provide further accretion as supported by their margin profile. If you look on slide 12, we provided a summary of our capital allocation both year to date as well as over the past 10 years. As that slide shows, we remain committed to our philosophy of balanced capital allocation. When you factor in these pending acquisitions, we expect the mix for full year 2026 to be comparable to that of full year 2025 as the percentage deployed towards M&A increases. I'll turn the call back over to Tony for updated guidance.

Thanks, Jason. I'm going to be on page 13 to close this out. Given our strong first half performance and the visibility provided by our record RPO position, we're going to raise full year 2026 guidance, which is outlined on page 12. Our updated guidance reflects continued demand across several key markets, our success in winning and executing large-scale projects, and our confidence in the operational capabilities of our teams. As a reminder, while acquisitions strengthen our long-term earnings power, as Jason just said, the earnings contribution near-term on a diluted EPS basis remains moderated by acquisition-related backlog amortization. We now expect to earn revenue of between $20 and $20.5 billion and diluted earnings per share between $32 and $33.25. Our outlook assumes strong continued operating performance and margins, disciplined project execution, and sustained demand across our core market sectors. We remain focused on maintaining pricing discipline, carefully selecting opportunities and delivering those opportunities to provide exceptional value to our customers. I've said these things before and I always think they merit reiterating. We have four enduring fundamentals that we've built our company on. First, our commitment to training, innovation and safety. We continue to invest in workforce development, prefabrication, virtual design and construction or VDC Project delivery methods that improve productivity and strengthen execution. Second, our disciplined approach to contract management. Our teams consistently balance customer service with prudent risk management, particularly on large and complex projects. Third, we do have exceptional field leadership. The dedication and expertise of our foremen, superintendents, project managers, project engineers, and operating leaders at the subsidiary level and segment level remain an important differentiator for MCOR and a major reason why customers continue to choose us. And finally, disciplined capital allocation. We continue to invest in organic growth, execute strategic acquisitions, and return capital to shareholders, creating long-term value while maintaining financial flexibility. Together, these strengths create a durable competitive advantage and position us for continued success. I put this line in here, this paragraph in here all the time. I don't know when there hasn't been macroeconomic uncertainties that continue to exist, including geopolitical conflicts, commodity cost fluctuations, equipment lead time volatility. However, our teams have always repeatedly demonstrated their ability to manage through such complexity and deliver results. We enter the second half of 2026 with strong momentum and confidence in our ability to continue creating value for our customers and our shareholders. and finally, and probably most importantly, I want to thank all my teammates for their commitment to safety, discipline execution, and customer service. Your dedication is what continues to drive MCOR's performance and our long-term success. Thank you for joining us today. And with that, I will turn the questions over to Dave to open the line so that you can ask Jason and I questions, innumerable questions about data centers. With that, I'll turn it over to Dave.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, 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 and then two. Our first question comes from Adam Thalheimer with Thompson Davis. Please go ahead.

Hey, good morning, guys. Great quarter.

Thanks, Adam.

I'm going to try not to ask about data centers.

Okay, great.

Good. I actually wanted to ask more in the semiconductor space, which maybe that's the high-tech manufacturing, but can you talk about any bookings in the quarter or upcoming bids in that sector?

We continue to see opportunities there. Fire life safety has been particularly strong in the data center space. Mechanically, we're doing some important work in Arizona on top of the fire life safety work We're doing that in multiple locations, and we continue to see opportunities. We're very capable in that market, and it's always balancing those opportunities versus other opportunities. For us, high-tech manufacturing also includes pharma and biotech and EV battery. Jason?

Yeah, I think if you look at where we stand today versus both year-end and sequentially, so from March, we've had strong bookings. Our POs are up in that space about 7%, both sequentially and from year-end. I think The compares get a little bit easier for us as the year goes on. So as we continue to book some of this work and the completion of the first phase of semiconductors is behind us in prior years, I think you'll see some growth here either later this year or early next year.

We are fire life safety, I think, on just about every important site that's being built right now. And mechanically, we're on a couple of them. And electrically, on some of the low voltage work, we continue to do the work also. Like anything else in contracting, you're balancing that opportunity versus other opportunities in that geographic market. And in some places, the data center market might be stronger and provide us more near-term earnings power. We can always go back and do some of that semiconductor work in some of these markets.

Got it. Okay. Super helpful. And then with all the acquisitions, a lot of other contractors entering the You're in markets via acquisition. I thought maybe it would be helpful for you to just break down how your capacity, the machine that you guys have built over decades, compares to some of the competitors out there.

Yeah, I think for the most part, the page 13, 11, is a great example of our machine in action. And that machine will continue. First thing we look for is, can they execute in the field? So we're not doing anything different today than we were doing five years ago or eight years ago. Doing a little more, a little larger, but can they execute in the field? If they can't execute in the field, whether they're a $5 million acquisition or a $400 million acquisition, we're not touching it. Then the second part is, do they share our values? The smaller ones, That's hard to know. $10 billion acquisition, maybe that's less important because we're going to mold that into one of our existing operations. But if we're going to do a significant acquisition, like some of the ones on page 11, they've got to look at the world the way we do. We're a values-driven company. We have a disciplined operating model. And they have to be willing to share learning and be willing to accept learning and best practices. And so that hasn't changed. When you look at others in the space, I don't know how they do acquisition or whatever, but to buy into this space cold and not know how it operates and think you're going to generate synergy, here's some things I do know over a long period of time. Other than the relationships, that does help. Bundling mechanical and electrical together at a local site. There are plenty of sites where we're together. We don't very rarely combine a bid. That's not a thing, putting all the trades together typically. The other thing I know I'm pretty sure about is no one's asking the contractor that's doing the utility work to now do the data center work because you're doing the utility work. And I'm pretty sure the site contractors are not the electrical contractor of choice because they did the site work. These trades are very distinct with strong expertise. And I would say that's going to remain that way for a long time. So we're looking for people that are very good at what they do. And in some of them, we think we have substantial growth because what we've learned Over time, especially the sort of mid-sized $50 to $100 million contractor, if they can do complex work, if they've been working in industrial plants, if they've been working in healthcare facilities, and let's say there's a data center adjacency with a relationship we have, we're pretty sure we can put them in the data center market in addition to that. And our folks have been great about sharing knowledge, and that knowledge starts all the way back or how you're going to estimate it, how you're going to bid it, what do the contractual negotiations look like. all the way through to how do you set up the VDC models, how does that work, all the way through to means and methods in the field. What we've learned through time, we learn a lot from our acquisitions on means and methods, and we learn a lot from them on basic project planning and labor, and they learn a lot from us. Overdrawn, but just thought I'd give you some highlights.

I also think quickly if you look at that package of acquisitions we put together, The thing that sets this apart is they're fairly diverse, both in terms of geography when you look at them together and markets they can serve. So I think that diversity gives them the opportunity to grow similar to the way MCOR has grown over the last several years.

Great color. Thanks, guys. And the next question comes from Brent Thielman with Oppenheimer. Please go ahead.

Hey, thanks. Good morning. Morning, Brent. I guess the first question, the mechanical margin comparisons, obviously reflects some mixed effects, which always seems to be the case, Tony. But Jason, I think you mentioned performance as a prime and higher proportion of cost plus contracts as some of the factors in the quarter. Is there any sort of change in philosophy here with that business or just something more nuanced?

We talked about this in Q1 as well, Brent, and it's very much some of the water and wastewater work that we're doing, some of the food processing work that we're doing. So we had more bookings in that space. We had more revenue coming through from some of those contracts, and so it's just a little bit dilutive to margin. It really is more of mix and project-based than anything else.

Yeah, I mean, 12.5% is outstanding performance, and were executing really great across a number of end markets and a number of projects.

And I think that those dynamics remain throughout the rest of the year, but I don't think it's an indication of a philosophical change in terms of what we're doing.

Okay. And then you mentioned with a few of these transactions, maybe some plans to pivot some or more of their business toward kind of the data center opportunities that might be within their kind of respective territories. Obviously, you bring The customer relationships to the table, but could you just talk about the capabilities of these operations to do that work? Is it going to require more resources from you to do that effectively, I guess? What gets you comfortable with those businesses potentially pivoting toward that kind of business?

Because we've done it internally multiple times. We've taken existing M-Corp companies that have the same profile of these companies, and we've done it with acquisitions already. in Ohio, this is the best example, but existing MCOR companies that have the exact capabilities, the exact kind of mentality that these folks have, and we've been able to pivot them pretty successfully into both high-tech manufacturing and the data centers. But these are good businesses in their own right, serving the markets that they serve, like Jason said. That's what makes this exciting, where there's an opportunity to add growth because of the things you identified, and we're pretty sure we can do that. Now, what we do is we And the next question comes from Justin Hawk with Baird. Please go ahead.

Yeah, I've got two here. I guess the first one, just clarifying, and I'm assuming it's probably the case, but the acquisitions, are these all still union contractors, like your typical electrical construction markets, or a mix?

Yes, they're all union, IBW contractors.

Okay, I figured they were. And then I guess, you know, the other question I had was just, I wanted to understand the dynamics on, you know, raising the margin guidance Obviously, electric was really strong here. And I know you guys don't manage to margin. You manage to gross profits and risk and everything else. But with the mechanical drag and then the incremental amortization from these deals, I guess I'm just surprised that the guidance was raised, given you've been relatively conservative on that. So just can you walk through what's different that drove that?

I think one of the biggest factors is you can see the acceleration we've had in revenue. and that revenue acceleration is really absorbing a lot of overhead, both some of our indirects within cost of sales and then just SG&A. And so with that revenue growth, we're getting better absorption, we're getting better SG&A leverage. And so with the new revenue guidance, and we said all along this is really going to be a revenue story for us if there was upside. with that new revenue guidance, we feel better about the operating margins because we're going to continue to see that absorption. And then to your point, we had really, really good execution from electrical, and then we saw greater contribution from building and industrial. And so when you kind of look at the first half of this year, we see no reason why the back half shouldn't look like the first half.

Got it. Great. Thank you.

And the next question comes from Abby Jaroslawicz with UBS, please go ahead.

Hey, good morning, guys. Morning, Avi. So, yeah, the really strong electrical margins here in Q2, just wondering if there was anything kind of more unique that drove that strength, or was it really more just everything going right?

Well, I don't know if everything went right, but what it is, it's just the ebb and flow of the business. The good point in the business, we always talk about margins and bands. and we're at, you know, at a pretty good place. We're at the midpoint of what that band would be right now. And we always say, you know, margins will fluctuate quarter to quarter, but in our guidance is pretty strong performance for electricals for the remainder of the year.

Okay. Yeah, I was wondering if, you know, I know last quarter we spoke about how there was contract mix that was kind of restraining some of the margin percentages and so I was wondering.

That's more mechanical.

Gotcha. Okay, and then just thinking about the second half of the year, and I know margins move in bands, and this was a nice quarter, but is there any, you know, potential that we could see them stay in kind of the 10% plus range, or is that not realistic?

If you look at our guidance, right, the way we're looking at it, this was a phenomenal quarter, and so I think you really need to take the first half of the year together, and if you look at our guidance, effectively you If you take the low end, what we believe can happen, so take low revenue, low EPS, the implication there on margins is that it's really comparable to the back half of last year. If you take the midpoint, so midpoint revenues, midpoint EPS, the implication there is that the back half of this year looks like the first half of this year. And then the higher end of that guidance implies that we continue to see some better execution and we continue to get more SG&A leverage. But I wouldn't suspect and certainly not baked into our guidance is that this 10.6% margin repeat, it's more like the first half of the year collectively.

There's some seasonal things that work against that too. The second quarter is always a strong building services quarter. There was a stronger industrial services than we typically have. I think when you look at industrial services, we talked about the geopolitical risks. Thank you for joining us.

Understood. Appreciate the time. Thank you. I'll pass it on.

And the next question goes to Brian Brophy with Stifel. Please go ahead.

Yeah, thanks. Good morning, everybody. Congrats on the great quarter. I'll ask a data center question. Obviously, public market investors seem concerned about something as it relates to data centers, but just curious, your discussion with your customers, Have you seen any change at all in the demand profile from that end market? Thanks.

Short answer, none. The demand profile remains the same. I do think, you know, there are some places we're going to build more, right? I think Ohio, Texas, Pennsylvania is a burgeoning market. Arizona has been a strong market. Northern Virginia will continue to be strong. We have less of a share of them because just the law of large numbers. Other places are building them. Northwest Indiana and Chicagoland continue to be important markets, Arizona, and then Georgia and the Carolinas. And they all have one thing in common. They have power and are willing to build power. And the sort of not in your backyard thing, that's going to get play. It's the same people that were against fracking. They really don't want data centers because they don't want natural gas to continue to expand. And what has to expand is natural gas to keep this going. and if you look at, we've done some work on power and where power is going to become available and all that. We are in really good shape to continue to serve those markets. It's sort of laughable that New York put a data center ban on because there's really nothing materially happening in New York with data centers anyway.

Yeah, that's great. And then a question on the GMP, some attention, but in terms of your contract mix, can you give us a sense of how much has actually shifted to GMP versus fixed price. Are we talking hundreds of basis points, thousands of basis points? Can you just give us a sense of the overall percentage?

It's probably shifted mechanical 9% to 10%, which can be meaningful because they're large contracts. And then go back to the point I make about careful contract negotiation. A lot of that's driven by the owners, and a lot of that's driven on the mechanical side because these mechanical systems, a lot of times, are being done for the first time. are being done. They're fairly complex, and a lot of that GMP mix has shifted. There's always been an element of more GMP and mechanical, but the shift is really coming into the AI data centers. That's prudent both from the end customer, the owner, and that's prudent from us to be taking those contracts that way. Understood. I'll pass it on. Thank you.

And the next question comes from Tim Mulrooney with William Blair. Please go ahead.

Yeah, thank you. Good morning. I have two questions. My first one is kind of building on your last conversation around state moratoriums and, you know, data center bans. As we think about some of these proposals in place at the state and local level, and they're just mostly proposals at this point, can you help us think about how flexible and transportable your labor is when it Are there enough of these projects in the works where you can have people drive a few towns over or do you have to house these workers in new states depending on where these projects are moving forward? Curious about your ability around labor capacity and flexibility. Thank you.

That's one of the benefits of being a union contractor. Because of the demand in some of these states, there's a capacity to bring in people from they will travel themselves. and then it's not us sort of housing them. They get paid per diem. They find a place to live. It could be as simple as the folks in Chicago, some of the labor moving up to Northwest Indiana to do the work and then that local gets built up and they take more of the work. That's one of the benefits. They come in. They come in with a level of sophistication. We know what their capabilities are. They check into the local union hall and we go to work and we can help facilitate that in some cases. and so there's that. That's the more traditional way of doing it. And then you get to some of the rural markets which we're participating in, whether it be in some of the rural Midwest markets. Just take Texas. We're finding creative ways to serve Texas, whether it's through more prefabrication on the job and then subcontracting some of the installation or in doing it ourselves. You can do it from, if you're gonna do union in some cases, you'll permit non-union people to be union for a short period of time and use that capacity. and then finally there are opportunities for some non-union operations that we may have to participate in very rural markets that look a lot more like how the oil and gas people work than how a traditional IBW or a commercial contractor will work. So you have to be flexible and do all of the above, but mainly it starts with the tradespeople themselves being flexible and looking for the work. You know, I think about these moratoriums and we've done some work on that. We're by far, we're not lobbyists, we're not experts. But when you start to see the level of tax revenues that come into some of these counties, like Ludden County, Virginia, 95% I think of the property receipts are now from the data center people. Pretty hard to take a step back when that's been driving your local tax base and your education systems. We think there's plenty of opportunities, and at the end of the day, when we talk to the owners, they're going to find the places that build them, and we are well positioned to do that in the places where they are going to build them.

I appreciate that extra color there, Tony, on the moratoriums too. It's an interesting dynamic that's happening right now. Switching gears, I wanted to ask about your backlog, your RPOs. As I look at this, I look at your one-year RPOs to be completed within a year. It typically represents about 50% of your next 12 months revenue. Yeah, that was true every year, basically for the last four years, plus or minus a percentage point or two. It's basically 50% in a very tight range. Is there any practical reason? And I don't know, but is there any practical reason that you could think of for why that might not be the case anymore?

No, I can't think why the future doesn't look like the past, Jason. Yeah, I think the one thing we have to just Thank you for joining us. It used to be that we'd have to go and book and earn 60% of our annual revenue in that year. That percentage has dropped dramatically. It dropped to 50%, 45%. I think this year it was 40% of the revenue we had to go book and earn. So I think that's the new norm right now. We do have some projects that are skewing out a little bit longer. Historically, we would say that 85% or so of our RPOs burn in 12 months. where we're sitting today, it's more like 75% or 76%. And some of that's the water and wastewater mix. Some of it's just the volume of bookings we've had.

Could it also be project size, Jason?

Absolutely. 100%. That's been increasing. And if you look at the last few years, there's really no big shift going on here.

Got it. Okay. Hey, thank you very much.

And the next question comes from Manish Bhaskar. Samaya with Cantor. Please go ahead.

Good morning and congratulations, everybody.

Thank you.

Tony, I wanted to go back to slide 11. It seems to be your favorite slide on M&A. If you could just help us get a better sense as to going forward, you know, what the missing pockets of exposure might be by sector, by market, That would be helpful. And what does a pipeline look like as you look ahead?

The pipeline is strong. And so what we're looking for always is can we augment existing capability to one of our largest subsidiaries? A great example that we're at a geographic market is Giles in the Miller and Sydney teaming up with Quibi in Ohio. Those are classic examples of what we do. We will always do those and that's a big part of what we do. And then there's the sort of standalone capability which would be a B&B, Schmidt and Conley. A B&B, we were not in that part of Wisconsin. It's a good industrial part of Wisconsin. They have the ability to travel some and do some industrial work and they're just really, really good executors. Schmidt brings more Texas to us. We have a fairly strong business in Texas mechanically and electrically. This just adds to it. And it's in, you know, sort of Austin, San Antonio, and a little bit in Houston with a great operating team that's known for their technical sophistication and just great values, right? Like all these companies, they all have great values. And then Conley, you know, if you put a chessboard together of what's going on in northwest Indiana, Illinois, we have two great companies, Gibson Electric, which is one of the founding M-Corp companies, Lyons Pinner, and now Conley. and it's like a mosaic chessboard around the city of Chicago, northwest Indiana, and southern suburbs. And it really allows us to serve our customers better. That's what drives most of this is our customers look for us to continue to expand capability. I think when I think of acquisitions, you know, we're going to continue to focus on what we do well, which is mechanical and electrical construction, you know, and adding on both companies like Sydney, Giles, B&B, and also the bigger ones like Schmidt and Conley. and then also mechanical services. Again, something we do very well. That's where some of the smaller acquisitions are as we build out a branch network. Are we looking to invest in things that we don't know as well? Probably not. We see plenty of white space yet, both to do the add-ons and also sort of the standalone ones. And what we've done over a long period of time, we grow these faster, quite frankly, a lot of times in the rest of the company. And we're looking, you know, there's a sentence I put in there. We're looking for the cumulative and compounding impact. We want to pay a fair price, but we're very cautious when you think about some companies that are one market companies, exposure to one end market, two or three customers, or one geography, or just a couple geographies. We found that we can do that as well by putting a mosaic of acquisitions together off of one of our bases and grow pretty strongly in some of those markets. And we've been very successful at that.

And Tony, the $750 upfront purchase price that you outlined, should we think of these acquisitions having any earnouts?

There's another up to $90 million in earnouts for two of the deals. That's the maximum they can be. That's not our prediction of where those will land. We hope they hit it.

Jason, while I have you on the cash flow front, how should we think about cash conversion in second half? I guess if you're willing to give some as well.

Yeah, so I obviously won't comment on 27 at this point. I think if we look at 26 and we just look at MCOR as a whole, the philosophy or the algorithm we always have on cash flow is we should be able to have operating cash flow at least equivalent to net income, and that goes up to 80% to 85% of our operating income. So if you look back over the last several years, let's just take Thank you. And the next question comes from Adam Bubbs with Goldman Sachs. Please go ahead.

Hi, good morning. Just wondering if you could touch on the size of the data center projects you're seeing in the pipeline. How does that compare to what's in backlog, what you're executing against today? And then to what extent do larger project sizes create opportunities for higher workforce utilization, increased revenue per employee?

That actually depends on more the mix. So in general, We're going to get more revenue per employee in the mechanical side than we are in the electrical side. And also the mechanical side allows us to do more prefabrication on modules that have higher value content, especially in the AI data center. When you look at trending up, that's been going on over time, right? If you've been back in 2019, a 20 megawatt data center was considered large. And the way I think about it today, when we're doing cloud storage, we're now building somewhere between 40 and 75 megawatts, give or take. And when there's an AI component, and we have no idea how these things work together or anything, it's not our area of expertise, you're starting to talk 100 plus megawatts, 200 megawatts, and people have all kinds of different things. When they get much above 200, 250, then I think most people are talking about campuses. So two things have happened. The size has gone up over the last five years, and on the mechanical side especially, we get a multiplier of one and a half to two on an AI data center, and on the electrical side for an AI data center, it's probably one and a half, and that's just driven by the size of the electrical coming in that needed the power of the data center. So they're getting bigger. They're getting more complex, especially when the AI is introduced, and they're usually always built with the idea toward the campus of three to seven buildings that are going to fill out that campus.

And then you touched on it a little bit earlier, but could you just expand on the opportunity to move into maybe traditionally non-union regions to serve data centers seem to be expanding into more rural markets? And then maybe Texas in particular, you acquired the electrical contractor there, but what's the exposure to the state today? And How big could that exposure get over time?

So exposure to the state today is broad. If you bring in the industrial segment, it's very broad. If you talk about our exposure today as part of the mechanical and electrical segment, mechanical services has some exposure there, but I think what you're focused on, what's our exposure to the mechanical and electrical segment, and what's our exposure broadly? We have pretty good exposure in central Texas. through our Batchelor and Kimball subsidiary. They went out there, had not been there. They went out there to build a semiconductor plant. They did a very good job on it. Excellent job for the owner. And that allowed us to build a workforce out there. We followed up with an add-on acquisition in Central Texas mechanically. And we're pretty well positioned to serve both the more metro markets in Central Texas but also some of the rural markets because on the data center market mechanically, you can have a large prefabrication component which allows us to have less labor on the job in those rural markets. When you go electrically, we have a range of options. We already were participating in the DFW market. I would say we're either one or two supporting the data center market in the Dallas-Fort Worth area. That was from an acquisition we made about seven years ago with an eye towards doing this. They had been doing day two work in those data centers. With our skill and the capability, I talked about our ability to come down and do that. The team really did a great job learning how to do that. We've expanded that capacity, and I would say we're a significant player in the Dallas-Fort Worth area market and the data center market. Schmidt gives us the opportunity to expand that. Schmidt's a terrific full-line contractor run by just an exceptional team. We feel really good about our ability to bring that capability into Texas. and then we have the ability to leverage some of our other assets in the market to support that in rural Texas where some of the oil and gas folks can maybe help us do that over time. So we're fairly well positioned now in Texas. We'll be, I think, better positioned after these acquisitions and we'll look to continue to do add-on acquisitions in Texas to support this growth.

Just two facts to round that out. If you look at our non-oil and gas business in Texas, We do a billion dollars of revenue there today before Schmidt, before any acquisitions. And if you look at, because you have data centers specifically, if you look at data center RPOs, Virginia is the state where we have the most activity, but Texas is second for us and followed closely by Georgia. So Texas is an important market for us. It's one where we have a lot of activity today, and I think that's going to continue to grow.

And I think it shows you our ability to pivot. And if you think about how we grew in Texas, they both were acquisitions that were made pre-2020. Batchelor and Kimball in 2019. We had Gowen down there, and we added on there in the Houston area, a more traditional commercial and healthcare contractor. Then Batchelor and Kimball expanded. We acquired a company in Austin mechanically, which helped get us to know the electrical, quite frankly, on Schmidt. And we grew that. And so it's been a good story of acquisitions, great culture with those companies, then organic growth on top of the acquisitions.

Appreciate all the detail. Thanks so much.

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

First, again, I want to reiterate and thank my teammates for outstanding performance over a sustained period of time. I do want to welcome our new teammates in B&B Electric, Sidney, Giles, Schmidt, and Conley. We're thrilled to have you as part of our electric team, and we look forward to closing Schmidt and Conley here in the third quarter. and then finally everybody stay safe and we look forward to continue to execute well for our customers. Thank you.

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