EMCOR Group, Inc. 2026 Q3 Earnings Call

Thanks, Dave. Good morning, everyone, and welcome to EMCOR's Third 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 emcorgroup.com. With me today are Tony Guzzi, our Chairman, President, and Chief Executive Officer, Jason Nalbandian, Senior Vice President and EMCOR'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 2026 and discuss our RPOs. Jason will then review the third 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 contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission. With that, let me turn the call over to Tony.

Tony? Yeah. Thanks, Lucas. Good morning, and thank you for joining us.

I'm going to begin here on slide 4. EMCOR delivered another quarter of exceptional growth, margin performance, operating cash flow, and capital allocation. Revenue increased 28.8% or 25.5% organically. This growth, coupled with strong field execution and improved SG&A leverage, resulted in meaningful expansion of our operating margin. Operating cash flow in the quarter was $797 million, and remaining performance obligations reached a record $18.57 billion, up 47% year-over-year, 40% from year-end 2025, and 8.3% sequentially, despite the strong revenue growth we had in the quarter. Most of the RPO growth was organic, reinforcing the depth of demand across multiple end markets. On an adjusted basis, our third quarter operating margin was 10.5%, reflecting the strength of our execution and operating model.

We earned $9.60 in adjusted diluted earnings per share, a 46% increase versus the year ago period. Our construction segments continued to deliver outstanding performance. Both our electrical and mechanical segments grew revenues by more than 40%, with approximately 75% of such growth being generated organically. Our electrical construction segment delivered a 13.3% operating margin, and mechanical construction delivered a 12.1% operating margin, resulting in combined margin expansion of 40 basis points. Demand remains broad-based, with particular strength in the network and communications, which is data centers for the most part, healthcare, manufacturing and industrial, water and wastewater, and institutional sectors. We continue to outgrow the broader non-residential construction markets. Building services also posted a strong quarter. Revenue grew nearly 5%, operating income increased 11.5%, and operating margin expanded 50 basis points, driven by a favorable revenue mix and improved SG&A leverage.

Industrial services performed as expected and relatively in line with the third quarter of 2025. Importantly, we saw expanding opportunities in LNG maintenance and petrochemical work, which supports our continued broadening of the markets that we will serve with this segment. As I previously mentioned, this will be on slide 5 now. As I previously mentioned, our RPO position strengthened considerably during the quarter, reaching a record $18.57 billion. This growth reflects strong demand across the majority of our market sectors, led by network and communications or data centers, as well as continued strength in healthcare, water and wastewater, institutional, manufacturing, and industrial. Now I am going to take a deeper look at each of these sectors. Data center RPOs totaled a record $8.74 billion, more than double the year ago level, and an increase of 13% sequentially.

This growth demonstrates our broad capabilities in this sector, which includes electrical, mechanical, and fire life safety, construction, and service. Healthcare RPOs totaled $1.71 billion, an increase of 31% year-over-year, reflecting the strength of this longstanding core market for EMCOR. Water and wastewater RPOs totaled $1.42 billion, an increase of 38% year-over-year as we continue to capitalize on opportunities throughout Florida. Institutional RPOs totaled $1.72 billion, an increase of 25% year-over-year, driven by strong demand for many of our education customers, especially at the higher-level education. Finally, manufacturing and industrial RPOs totaled $1.18 billion, an increase of 10% year-over-year and nearly 27% sequentially, as we are benefiting from a broad range of investments across this sector. The size, quality, and diversity of our RPOs remains very strong. Before I turn the call over to Jason, I want to underscore what these results demonstrate.

Our field leaders continue to exhibit discipline and precision as they execute some of the industry's largest and most technically complex projects for our highly sophisticated and very demanding customers. That execution is translating into strong margins, cash generation, record RPOs, and growth well above the underlying market. With that, I will turn it over to Jason.

Thank you, Tony, and good morning, everyone. Starting on slide six, I will cover the results for each of our segments, as well as some of the key financial data for the third quarter of 2026 as compared to the third quarter of 2025. Revenues of $5.54 billion established a new quarterly record for EMCOR, increasing 28.8%, or 25.5% on an organic basis. Revenues of Electrical Construction were $1.85 billion, increasing 44.3%. While the largest increase was driven by greater demand for data center construction projects within the network and communications market sector, where revenues increased by 68%, this segment also saw notable growth within institutional, which was up 78%, healthcare, which was up 31%, and manufacturing and industrial, which increased by 28%.

Additionally, contributing to the growth of our electrical segment was $140.1 million of incremental revenues resulting from the acquisitions we previously announced, including Connelly & Schmidt, which closed in early August. Mechanical Construction revenues were $2.55 billion, an increase of 43.1%. Greater demand for data center construction projects, including expanded scope associated with increased cooling requirements, led to significant growth within the network and communications market sector, where revenues increased by nearly 130%. Beyond data centers, Mechanical Construction benefited from greater opportunities within several other sectors, including institutional, which was up 56%, commercial, which increased by 23%, really driven by warehousing, distribution, and logistics projects; manufacturing and industrial, which includes food processing and was up 17%; healthcare, which grew by 29%; and water and wastewater, which increased by 32%. Driven by the Danforth acquisition in Q4 of last year, this segment generated $173.2 million of incremental revenues within the quarter.

On a combined basis, our construction segments had revenues of $4.4 billion, establishing new quarterly revenue records for both segments. We often discuss the diversity of demand that we have across our business, and with double-digit revenue increases across a number of sectors, I think the performance of our construction segments this quarter really highlights that fact. If we move to Building Services, revenues of $852.4 million increased by 4.7%, and like our construction segments, represents a quarterly record. We continue to see strength within mechanical services, which experienced growth across each of its service lines, including service repair and maintenance, building automation and controls, and retrofit projects. In addition, given greater project volume, the award of new facilities maintenance contracts, and scope or site expansion with existing customers, this segment's site-based business grew revenues by 6.5%, continuing the trend we saw last quarter.

Industrial services revenues were $287.5 million, generally in line with the prior year. However, on a year-to-date basis, revenues of this segment are up 10.4% as a result of greater refinery turnaround activity, higher petrochemical project volume, new opportunities for LNG plant maintenance, and progress made on a large solar project. Let's turn to slide seven for operating income. On a GAAP basis, we generated operating income of $545.8 million, or 9.8% of revenues. Our third quarter results included a $34 million non-cash intangible asset impairment charge associated with a prior acquisition within our Building Services segment. This business, which accounts for less than 1% of the segment's revenues, provides energy efficiency contracting outside of traditional mechanical services and our site-based offerings and has been affected by disruption in the performance contracting market. When excluding this impairment, our operating income was $579.8 million, and our operating margin was 10.5%.

This represents a 43% increase in operating income and reflects 110 basis points of operating margin expansion. Looking at each of our segments, operating income of Electrical Construction increased by just over 70% to $247 million due to the revenue growth I previously mentioned, coupled with 200 basis points of operating margin expansion. While the segment did benefit from a 50 basis point reduction in SG&A margin, the overwhelming majority of the increase in operating margin was a result of greater gross profit margin, given an improved execution and a more favorable project mix. Mechanical construction had operating income of $308.2 million, which represents a 34.4% increase.