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Date
Thursday, July 31, 2025, at 10:30 p.m. ET
Call participants
- Chairman, President & Chief Executive Officer — Tony Guzzi
- Executive Vice President & Chief Financial Officer — Jason Nalbandian
- Vice President, Investor Relations — Andy Backman
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Risks
- Industrial services segment profitability: Reported a 13.3% revenue decline for fiscal Q2 2025 and an operating loss of $419,000, compared to $12.7 million in operating income in fiscal Q2 2024, due to lower field and shop services volumes.
- Revenue declines in high-tech manufacturing and commercial sectors: US Mechanical Construction experienced revenue declines in these sectors due to the nearing completion of semiconductor projects and fewer warehousing/distribution projects for e-commerce customers in fiscal Q2 2025.
- Macroeconomic uncertainty: Management stated, "Macroeconomic uncertainty persists, especially around tariffs and trade," indicating potential risk factors considered in 2025 guidance.
- Increased SG&A expenses: SG&A expenses (GAAP) rose by $67.4 million in fiscal Q2 2025, attributed mainly to acquired company costs, higher headcount, and increased incentive compensation.
Takeaways
- Revenue: $4.3 billion in revenue, a quarterly record for fiscal Q2 2025, marking 17.4% growth and a $637.5 million increase driven by strong construction segment demand.
- Organic revenue growth: 8.4% organic revenue increase in the second quarter, with inorganic contributions of $330.3 million from acquisitions, notably Miller Electric.
- Operating income: $415.2 million in operating income, a nearly 25% increase, for fiscal Q2 2025, setting a quarterly record with a 9.6% operating margin (up 50 basis points).
- Remaining performance obligations (RPOs): Record $11.9 billion in remaining performance obligations as of fiscal Q2 2025, up $2.9 billion (32%) year over year and $1.8 billion (18%) since December 2024; organically, RPOs increased 22% year over year and nearly 9% since 2024.
- US electrical construction segment revenue: $1.34 billion, up 67.5% for fiscal Q2 2025 (GAAP) due to strong organic growth and the Miller Electric acquisition, with marked growth in data centers, healthcare, and institutional sectors.
- US electrical construction segment margin: Operating margin of 11.8%, a 70-basis-point increase for US Electrical Construction in fiscal Q2 2025, with operating income of $157.7 million (up 78%) and $9.8 million in incremental acquisition contribution (net of $11.4 million intangible amortization).
- US mechanical construction segment revenue: $1.76 billion, up 6% (almost all organic) for fiscal Q2 2025, led by data center, manufacturing/industrial, and hospitality sectors.
- US mechanical construction segment margin: Operating margin of 13.6% (record) for fiscal Q2 2025, with operating income up nearly 12% to $238.7 million.
- Construction segments combined: Revenue of $3.1 billion (up 26.1%) for fiscal Q2 2025, with combined operating margin of 12.8% (up 50 basis points).
- US building services segment: $793.2 million revenue (up 1.6%) for fiscal Q2 2025 (GAAP) with mechanical services revenue up 6.5%; operating income $50 million (up 6.8%) and operating margin increased by 30 basis points to 6.3%.
- Industrial services segment: Revenue of $281.1 million (down 13.3%) for fiscal Q2 2025 (GAAP) and switched to a $419,000 operating loss (operating income, GAAP) due to field and shop services volume declines.
- UK building services: Revenue grew 26.3% to $134.6 million in fiscal Q2 2025, with $8.4 million in operating income (6.3% margin); majority driven by new service contracts and customer project activity.
- Operating cash flow: $193.7 million in operating cash flow for fiscal Q2 2025; operating cash flow was $302.2 million for the first six months of fiscal 2025, projected full-year fiscal 2025 operating cash flow at least equal to net income.
- Share repurchases and acquisitions: Year-to-date fiscal Q2 2025, $432.2 million spent on share repurchases and $887.2 million on acquisitions.
- Balance sheet and liquidity: $486 million cash on hand as of fiscal Q2 2025, over $782 million in working capital, and $256.4 million in debt, with nearly $980 million undrawn under the credit facility.
- Updated 2025 guidance: Raised revenue and earnings guidance for fiscal 2025, now reflecting full-year operating margins expected between 9%-9.6%, with a midpoint of 9.2%; margin sustainability supported by recent performance.
- Record network and communications RPOs: $3.8 billion in network and communications RPOs as of fiscal Q2 2025, reflecting data center build-out momentum.
- Sector-specific RPOs: Healthcare RPOs totaled $1.4 billion as of fiscal Q2 2025, manufacturing/industrial RPOs totaled $1 billion, water/wastewater RPOs totaled $725 million, institutional RPOs totaled $1.4 billion, hospitality/entertainment RPOs up 72% year over year; high-tech manufacturing RPOs increased by $126 million sequentially after a new semiconductor project award.
- Prefabrication and BIM utilization: Company continues to invest in prefabrication and BIM to drive productivity and lower labor dependency, with 95% of prefabrication produced for internal projects.
Summary
EMCOR Group(EME -0.57%) delivered record quarterly revenue, operating income, and remaining performance obligations for fiscal Q2 2025, highlighting robust execution and continued demand across segments, especially in data centers, healthcare, and institutional markets. Segment analysis revealed notable margin expansion in both US Electrical and Mechanical Construction for fiscal Q2 2025, with data center growth leading organic gains and recently acquired Miller Electric contributing significantly to fiscal Q2 2025 results. Cash flow remained strong, supporting disciplined capital allocation, while management raised full-year guidance to reflect ongoing operating leverage and margin sustainability. Strategic updates emphasized a healthy M&A pipeline, investments in technology-driven efficiency, and a balanced approach to deployment of capital in both organic and inorganic growth initiatives.
- Management specified that guidance incorporates potential impacts from persistent macroeconomic uncertainty, especially tariffs and trade.
- Chairman Guzzi explained, "We continue to see the strength in the markets that we've talked about ... manufacturing, high-tech manufacturing, networking communications, [and] healthcare," pointing to broad-based market support for future growth.
- For the back half, management expects margins between 9.0%-9.6%, resulting in full-year margins of approximately 9.0%-9.4%, giving clear operational targets.
- UK performance benefited from new service awards and higher volume, with management seeing further upside from effective overhead leverage.
- Segment leaders cited a five-year track record of outpacing broader nonresidential construction growth by 200-600 basis points, particularly in construction and mechanical services.
- The company continues to expand prefabrication capacity, focusing capital expenditure on internal productivity improvement rather than third-party sales.
- Sector RPO growth was largely organic but also augmented by strategic acquisitions, notably in data centers, healthcare, and institutional end markets.
- Management indicated future growth in pharmaceutical and renewable energy sectors, with activity in onshoring, food processing, and select renewable projects supporting sector-specific RPO increases.
Industry glossary
- RPO (Remaining performance obligations): Contracted project backlog representing revenues the company expects to recognize from existing contracts yet to be performed.
- BIM (Building information modeling): Digital modeling process for planning, designing, and managing construction/project delivery that enables prefabrication and enhances field productivity.
- BDC (Building design coordination): A project delivery method integrating design and construction planning for optimized execution, frequently mentioned alongside BIM.
- GMP (Guaranteed maximum price): A contract structure in which the contractor is compensated for actual costs plus a fee, up to a maximum price, with overruns exceeding the cap covered by the contractor.
- Prefabrication: Offsite manufacturing of building components or systems -- such as electrical, mechanical, or fire-safety modules -- to increase efficiency and reduce total onsite labor demands.
Full Conference Call Transcript
Tony will provide comments on our second quarter and discuss our RPOs. Jason will then review the second quarter, and our numbers before turning it back to Tony to discuss our guidance before we open it up for Q&A. Before we begin, as a reminder, this presentation and discussion contain certain forward-looking statements and may contain certain non-GAAP financial information. Slide two of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides.
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 10-Q filed with the Securities and Exchange Commission. With that, let me turn the call over to Tony.
Tony Guzzi: Yeah. Thanks, Andy. And good morning, and welcome to our second quarter 2025 earnings call. And I'll be speaking to page four. I'm gonna cover upfront here some of the financial highlights for the second quarter. Then I'm gonna provide some commentary on what has gone well through the first half of the year. Jason is gonna cover the quarterly financials in detail. We had an excellent second quarter and 2025. In the second quarter, we earned $6.72 in diluted earnings per share, and we generated revenues of $4.3 billion. That represents a quarterly record and a 17.4% increase from the prior year period. We achieved exceptional operating margins of 9.6% and had operating cash flow of $194 million.
Exited the second quarter with very strong RPOs or remaining performance obligations, a record $11.9 billion, which represents an increase of $2.9 billion year over year and $1.8 billion from December 2024. We continue to be disciplined capital allocators. And for the first six months of 2025, spent just over $430 million in share repurchases and utilized $887 million for acquisitions. We have a liquid balance sheet that will continue to support our growth, and capital allocation strategy. Our performance remains strong, especially in our electrical and mechanical construction segments, both of which continue to earn impressive operating margins while generating growth in their base of business as demonstrated by their RPOs.
We have managed our project mix and continue to gain the confidence of our customers across geographies and market sectors. We continue to execute well for our customers in these segments by using BDC, BIM, and prefabrication coupled with strong planning, excellent labor sourcing and management, and disciplined contract negotiation and oversight. We have the best build leadership in the business, and they operate with focus, discipline, and grit. Our electrical construction segment, our integration of Miller Electric, remains on track. Our mechanical services business in our building services segment continues to execute well with good revenue growth and an operating margin in the high single digits.
We also executed a successful restructuring in our site-based business, in response to past contract losses. This should provide us with a more efficient cost structure as we look to resume growth in the future. Although we had a tough first half in our industrial services segment, we expect both our shop and field businesses to improve as the year progresses. And lastly, the UK had a great start to the year with growth in revenue, operating margin, and operating income.
Overall, I think we can we are pretty sure that we had a very strong quarter and a very strong 2025. Now, I'll ask you to turn to page five. I'm gonna talk to RPOs before I turn the call over to Jason. As I previously mentioned, we leave the quarter with diverse strong RPOs of $11.9 billion. Due to growth in nearly all of the market sectors we serve, our RPOs have increased by 32% year over year, and 18% when compared to December 2024. Excluding acquisitions, organically, RPOs have increased 22% year over year and nearly 9% since 2024. Our growth continues to be driven by long-term secular trends across key markets.
RPOs within network and communications, which is where our data center business is, totaled a record $3.8 billion as of June. We remain well-positioned in this space supporting our customers, with their build-out of data centers. Healthcare RPOs total $1.4 billion, and that builds on an already solid base, and the acquisition of Miller Electric has expanded our opportunities in this sector. That contributed to the RPO growth we've seen thus far in 2025.
Manufacturing and industrial RPOs now total $1 billion in addition to the demand driven by customers' onshoring and reshoring initiatives, recent growth in the sector has also benefited from the award of certain food processing projects, as well as a renewable energy project within our industrial services segment. Led by our mechanical construction segment, water and wastewater RPOs totaled $725 million as we continue to be awarded projects throughout Florida. Additionally, due to a combination of new contract awards and the acquisition of Miller Electric, we saw growth within the institutional sector where RPOs now total $1.4 billion, and the hospitality and entertainment sector, where RPOs have grown 72% year over year or 64% from December.
Although RPOs within high-tech manufacturing have decreased from June, I have stated this many times before, we believe in the long-term fundamentals of this sector. We acknowledge and have talked about that the award of these projects can be exotic in nature. On a sequential basis, though, when compared to March, we did experience an increase in high-tech manufacturing RPOs of $126 million or nearly 15% due in large part to the awarded phase two mechanical construction project for a semiconductor customer. And with that, I'll turn the call over to you, Jason.
Jason Nalbandian: Thank you, Tony, and good morning, everyone. Beginning on slide six, I'm going to discuss the operating performance for each of our segments, as well as some of the key financial data for 2025 as compared to 2024. As Tony mentioned, consolidated revenues of $4.3 billion set a new quarterly record and represent an increase of $637.5 million or 17.4%. Revenue growth was led by our construction segments, where we experienced greater demand across the majority of the market sectors we serve. During the quarter, acquisitions generated incremental revenues of $330.3 million with the most significant contribution from Miller Electric. On an organic basis, revenues grew by 8.4%. If we look at each of our segments, revenues of U. S.
Electrical Construction were a record $1.34 billion, increasing 67.5% due to a combination of strong organic growth and the acquisition of Miller. This segment generated greater revenues from nearly all market sectors, with the most significant growth being derived from our data center projects within the network and communications sector. Besides data centers, electrical experienced notable growth in health care, where our quarterly revenues more than doubled, commercial, as we are starting to see some resumption in tenant fit-out demand, and institutional driven by increased activity for certain colleges and universities. Revenues in this sector also benefited from higher levels of short-duration projects and service work, in part due to the service capabilities we've added through the Miller acquisition.
US Mechanical Construction quarterly revenues were a record $1.76 billion, up 6%, almost all of which was organic. Similar to electrical construction, while this segment did experience increased revenues across a number of market sectors, the largest growth during the quarter was generated from network and communications, due to greater demand for data center construction projects. Other sectors with the largest incremental growth include manufacturing and industrial, primarily driven by food processing projects, and hospitality and entertainment, given the recent award of certain contracts in the Western Region of the United States.
Partially offsetting the growth of mechanical construction, were revenue declines within high-tech manufacturing, as we near completion of certain semiconductor construction projects, and commercial largely due to fewer active warehousing and distribution projects for some of our ecommerce customers. With respect to high-tech manufacturing, and as Tony just mentioned, we did receive a Phase II award for one of our semiconductor customers, which is reflected in the sequential increase in our RPOs at the end of the quarter. On a combined basis, our construction segments generated revenues of $3.1 billion, an increase of 26.1%. Turning to US building services, revenues of $793.2 million reflect a 1.6% increase year over year.
In line with our expectations as we exited the first quarter, growth in mechanical services has now exceeded the revenue decline within site-based, and we are pleased to see that this segment has turned a corner after four consecutive quarters of organic revenue declines. With respect to the segment's Mechanical Services division, revenues increased by 6.5% as demand remained robust across each of its service lines. Moving to industrial services, revenues were $281.1 million, a 13.3% decrease. Revenues were impacted by lower field services volumes when compared to the prior year, which had benefited from jobs of a larger size and scope growth on certain turnarounds, and the performance of a renewable fuel project.
This segment also experienced a reduction in shop services revenues due to fewer new build heat exchanger sales during the quarter. And lastly, UK Building Services generated revenues of $134.6 million, an increase of $28 million or 26.3%. While favorable exchange rate movements did positively impact the segment's revenues by $7.4 million, the majority of its growth was due to greater service revenues, partially as a result of the recent award of a facility's maintenance contract and increased project activity with existing customers.
Let's turn to slide seven. With operating income of $415.2 million or 9.6% of revenues, our performance established a quarterly record for operating income, and a second quarter record for operating margin. This represents a year-over-year increase in operating income of $82.4 million, nearly 25%, and a 50 basis point improvement in operating margin. If we look at each of our segments, US Electrical Construction generated operating income of $157.7 million, which represents a 78% increase. In addition to greater revenues, operating income of this segment benefited from a 70 basis points expansion in operating margin, and the segment earned an operating margin of 11.8%.
The segment experienced greater gross profit across the majority of the market sectors in which we operate the largest increases generally, in tracking with its revenue growth. Largely driven by Miller Electric, operating income of electrical construction included $9.8 million of incremental acquisition contribution, net of $11.4 million of intangible asset amortization. Operating income for US Mechanical Construction increased nearly 12% to $238.7 million, and operating margin expanded by 70 basis points, establishing a new quarterly record of 13.6%. Similar to electrical construction, this segment experienced greater profitability across a number of market sectors, with the most significant increase in gross profit being generated from network and communications.
Together, our construction segments reported operating margin of 12.8%, which is a 50 basis point improvement year over year. Excellent project execution, enhanced productivity, and a more favorable mix continue to be significant contributors to our success. Operating income for US building services of $50 million grew by 6.8%, and operating margin of 6.3% increased by 30 basis points. Contributing to the improved profitability was a greater percentage of revenues from mechanical services, where we continue to perform well, earning strong returns with notable margin expansion across HVAC projects and retrofits, as well as repair service. Turning to industrial services, an operating loss of $419,000 compares to operating income of $12.7 million or 3.9% of revenues a year ago.
The decrease in this segment's profitability was primarily due to the reduction in revenues. This volume decline also resulted in a greater amount of unabsorbed overhead within the segment. And lastly, UK building services earned operating income of $8.4 million or 6.3% of revenues. The increased profitability of our UK business resulted from greater gross profit stemming from increased segment revenues, and a reduction in SG&A margin due to effective cost management, coupled with the leveraging of their overhead. If we move to slide eight, I'll cover a few quarterly highlights not included on the previous slides.
Driven by our Electrical and Mechanical Construction segments, as well as our US building services segment, our gross profit margin has expanded by 70 basis points with gross profit increasing nearly 22%. Looking next to SG&A, our second quarter expenses increased by $67.4 million, and contributing to that variance was $28.9 million of incremental expenses from acquired companies and $5.5 million of additional amortization expense. Excluding these items, SG&A grew by $32.9 million largely due to employment costs given both greater headcount to support our organic growth as well as increased incentive compensation expense within certain of our segments given higher projected annual operating results.
SG&A margin for the quarter of 9.7% compares to 9.6% a year ago, and as expected, our SG&A margin did decrease from that of this year's first quarter, and we continue to expect our full year SG&A margin to be relatively comparable to that of 2024 when adjusting for the $9.4 million of transaction expenses incurred earlier this year. And finally, on this page, diluted earnings per share Rather than go through the page in detail, I wanna again highlight that we have had a tremendous start to the year setting a number of company records, as we continue to deliver for our customers and shareholders. In a later slide, Tony will outline our updated earnings guidance for 2025.
I mention that now as this guidance assumes continued strength in our margins, in line with what we've achieved through the first half of the year. Specifically, at the low end of our guidance, we have assumed a full year operating margin while the high end assumes operating margins in the back half of the year which are essentially equivalent to the outstanding 9.6% we achieved this quarter. The implied full year margin is comparable to the margins we have delivered over the last twelve to twenty-four months. With that, our balance sheet remains strong and liquid, we had cash on hand of $486 million and working capital of just over $782 million.
Our debt balance was a modest $256.4 million. We had operating cash flow of $193.7 million during the quarter, and generated $302.2 million year to date. For the full year, we estimate operating cash flow to be at least equivalent to net income. During the quarter, we utilized $207.3 million for the repurchase of our common stock bringing our year-to-date repurchases to $432.2 million. When layering in second quarter acquisitions, we have spent $887.2 million year to date on M&A.
As we've said before, our balance sheet coupled with the cash expected to be generated by our operations as well as the nearly $980 million of capacity available under our credit facility, leaves us well positioned to continue to deliver on our philosophy of balanced and disciplined capital allocation. With that, I'll call the turn the call back over to Tony.
Tony Guzzi: Thanks, Jason. I'm gonna be on pages eleven and twelve. You know, clearly, we've been executing well. And as a result, we're we will raise our 2025 revenue and earnings guidance. We now expect to earn We expect to continue to earn strong operating margins and execute with discipline and efficiency for our customers. Our RPOs demonstrate the momentum and demand in our markets. Especially in data centers, traditional and high-tech manufacturing, health care, HVAC service, building controls, and retrofit projects. Macroeconomic uncertainty persists, especially around tariffs and trade. But we believe our guidance reflects the potential impact of such uncertainty as we view it today.
We will remain disciplined capital allocator capital allocators bolstered by our strong balance sheet, a healthy pipeline of acquisitions, and robust opportunities to support our organic growth. And if you look at page 12 and you look at a ten-year view of the world, you'll see fifty balanced capital allocation. And deals happen when they happen. And finally, I wanna close with the most important statement of the call. Wanna thank my EMCOR teammates Thank you for your dedication to our customers and to our company. And thank you for taking care of each other. Keeping each other safe. With that, Ranju, I'll take questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star and one on your touch tone phone. If you are 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 questions, please press star. Then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Brent Thielman with D.A. Davidson. Please go ahead.
Brent Thielman: Question. Just Steven, please go ahead. Mean, I
Operator: Hey, Brent. Start over. You were you were muted there. You can start over. Brent?
Operator: Mister Thielman, if you have muted your phone, unmute yourself and go ahead with the question.
Ranju: Okay. Let's come back, Brent. Let's go to the next question.
Operator: Since there is no reply from the line of Mister Thielman, we'll take the next. The next question comes from the line of Adam Thalhimer with Thompson Davis. Please go ahead.
Adam Thalhimer: Good morning, guys. Nice quarter. Thanks. Hey, Tony, can you just talk a little a little bit about bidding at a high level? I'm curious what your expectations are for bookings at a high level in the back half of the year.
Tony Guzzi: Yeah. I'm not gonna guess at bookings. We'll we'll continue to win our fair share of the business, and we continue to con have repeat business with customers. That think we're doing a great job. We'll continue to expand our footprint to serve more markets. You know, in our business, they it's not a quarter-to-quarter bookings business. It never has been. But all the underlying strength we've seen through the first half of the year we saw through the back half of last year, there's no reason for us to believe that doesn't continue. You know, we're we're we're building the first building on a lot of sites that are multiyear build-outs. And phases over time.
We continue to see the strength in the markets that we've talked about, especially in the call, whether it be manufacturing, high-tech manufacturing, which a little more episodic, networking communications. The commercial market for us, which is retrofit, continues to chug along. Healthcare continues to be a strong market. So, really, it's broad-based. And if and if you think about our call, I'll have Jason go through some numbers. We have demonstrated over a long period of time that we will outpace nonres construction. Maybe cover some of those numbers, Jason.
Jason Nalbandian: Sure. I think we've we've covered some of this in the past. Right? If you look at EMCORE over a period of time, let's say, five years, we've historically outpaced nonres by 200 basis points organically and probably two fifty basis points when you include M and A. I think the more telling story, though, is when you look at our construction segment, and even the mechanical services business, within building services, know, over that same five-year period, those segments outpaced nonres by 500 to 600 basis points. So we expect the markets to be good, especially where we operate. And we expect to outperform those markets, Adam.
Adam Thalhimer: Great. And then I wanted to ask about the industrial business. With the change in administration, curious if you are seeing any signs of life. You know, the business
Tony Guzzi: again, think about it. A lot of the business is focused downstream. That really hasn't changed. It's more a timing, which you see through the first half of this year last year. It's a timing of turnarounds. We do expect strengthening through the year. We do see more activity potentially midstream, which will our electrical business within industrial. And we also see some work around other energy build-out, especially in the LNG world and other things as the plans come to fruition. So I'd say that's the major part you'll see it. But you know, being that we're 70% or so downstream focused, you know, we're dependent on refinery utilization and the turnaround schedule. Got it.
And last one for me.
Adam Thalhimer: In The UK, what's caused the strength there? I'm curious if that's sustainable.
Tony Guzzi: Yeah. I think the biggest thing is increased volume. Right? We got a recent award or two on the service side. We had more project activity. And when you really look, I'll I'll that's what's driving the revenue growth. When you look at the margin side, it's really just leveraging their overhead in a period of growth. And it's been a pretty steady performer. And it you know, it's known for technical excellence. And it wins those kinda it wins those kinda contracts. And it's had long-term customer relationships. We've grown it organically and, you know, and we and we've been pretty steady over time, and it's been a very good performer for
Adam Thalhimer: Yep. Nice to see the step up in revenue there. Alright. I'll turn it over. Thank you. Thank you.
Operator: Next question comes from the line of Brent Thielman with D.A. Davidson. Please go ahead.
Brent Thielman: Hey. Thanks. Morning. Sorry for that.
Tony Guzzi: No. No problem. Yeah.
Brent Thielman: Hey, Tony. You know, this seems to be becoming an even more active M and A environment with some larger public transactions out there lately in either electrical or mechanical. Wanted to get your take on, the pipeline of potential targets to is the market evolved a lot in the last twelve months where you know, seller expectations are still meet your criteria to be an attractive deal here. I'd just love to get your take there.
Tony Guzzi: I think it's yes and yes. If you go back to sort of how we think about deals, right, that hasn't changed. We're looking to buy companies of any size that can execute in the field. And execute very well. As they become larger or larger acquisitions, we worry then very much about, is there a cultural fit? And if you look at our two largest acquisitions, we've done in the last five or six years, Bachelor and Kimball, Miller Electric, both met those criteria. And both were led by teams that were worried about the long-term sustainability of their organizations. Did we fit with their values as much as we worried about them fitting with our values?
And the ability to grow and have growth capital. So how we look at deals haven't changed. We're always looking to make a fair deal, and that's gotta be fair for our shareholders. But we also want the seller to feel that they've made a good deal with us because that's how you perform better together going forward. If you think about the current environment, I think you're referencing, you know, we did Miller and Quanta did Cupertino, and then they this morning, they just did DSI. Yeah. Some of the deals have gotten larger. And that's understandable. Right? Some of these are closely held businesses. They're getting very large. The owners have all their eggs in one basket.
And they also want growth capital because they see what we see in the future. Right? They see a growing market. They wanna be part of that, they wanna continue to provide opportunities for their people. While at the same time taking some of the risk off the table but continuing to run their business. So the competitive environment for those I mean, for me, you wake up in the morning and you know, you say, okay. One of your competitors or quasi competitors potentially bought somebody that a good company, that's not a bad thing. You know? Because know how to run businesses, and we compete with those people today.
And nothing's really changed on the playing field today and how things are procured and how that moves. So I think it's a combination of I think, optimism towards the future that drives these larger deals.
Brent Thielman: Yeah. That's great color, Tony. I appreciate that. Guess I yeah. I wanna ask on the I mean, you continue to put up really impressive expansion in the mechanical margins, I guess, particular here. And Tony, just wanted to circle back. Is this sort of the same mix in terms of combination of operating leverage versus just getting higher rates be helpful to hear what exactly you're you're leveraging in that. That group. Yeah. So I think it starts with us Right? You think about the customer set, that's driving that mix today. And you've heard me say this many times. These are the most sophisticated customers in the world. And they're very demanding.
So they're not paying one more cent than they need to. And it's up to us to deliver. And they're not also having any easier contract terms than they need to. So start there. So then you have to get to okay, it's a busy market. Maybe pricing's a little bit better. But I believe most of it's being driven by our means and methods. Our ability to gain productivity on a job site, our ability to leverage things like VDC and BIM, which our customers see real value to, then our ability to turn that into prefabricated solutions and our ability to have less labor on the job site and more highly skilled labor.
And then it really comes down to also do you have the best field supervision on the site? To be able to drive the best productivity and get the best outcomes and do that in a safe manner to the point where you become a point, a place where labor really wants to work. And I think we checked the box on all that. If you start with great supervision on a job site, you have a lot of great planning going on. You negotiated the contract the right way. You're you're you're you're really doing good progress billings and keeping you're prized.
And coming up with solutions how to how to drive value engineering and productivity, a lot of times you end up in a good place. I'm gonna ask Jason to go through this. You know, sustainability of margins we always look at, you know, twelve, eighteen, and twenty-four month averages. And I think we're at a level where we think we're pretty good, Jason.
Jason Nalbandian: I think two things I'd add. One, before we talk about margins is just also the project sizes. Right? We've talked about it increasing your project sizes, and you get better utilization You get better leverage on your indirect And all of that's certainly helping margins as well. When you look at each of our segments, and we say this repeatedly, it's not a quarter-to-quarter business. Right? So mechanical is a is a record quarterly margin here in the second quarter. But margins will bounce around think, on a consolidated basis, we've said, look at the trailing twelve to twenty-four months, I think that same logic holds true the segment level.
So if you look at mechanical and you look at kind of a rolling twelve to twenty-four months, that's a good expectation for the for the margins there. So that gets to the sustainability point. If you were seeing outsized and a big fall off, we don't expect to see that. But that sort of twelve to twenty-four month average give you sort of a picture into how we view sustainability of margins.
Brent Thielman: Understood. I take from your comments just on building services sort of feels like we're we're maybe at an inflection point here when you think about the just the financial outlook for the rest of the year? Is that implying that we're back to kind of a growth business here?
Tony Guzzi: I think we'll start growing again. The comps get easier. And more fair, really. It was a large customer that you did very well with. And then the mix moves more towards mechanical services, which is good for the margins.
Brent Thielman: Okay. Very good. I'll pass it on. Thank you.
Operator: Next question comes from the line of Brian Brophy with Stifel. Please go ahead.
Brian Brophy: Thanks. Good morning, everybody. Congrats on the nice quarter. Just curious what you're seeing from a pipeline perspective project specifically on the pharma manufacturing side. Have you seen any change or acceleration in conversations with customers just given some of the changing outlook on the tariff discussion in that space? Thanks.
Tony Guzzi: Yeah. I think for the most part, our customers started playing so you gotta separate it into two things. Right? The first part is they've got a bunch of new drugs they're gonna build onshore. That they've been investing. It's it's you know, I'm not a medical expert. I think they're called GLP ones. The weight loss drugs. That's been a big part of the story in the places we are. Whether it be parts of Indiana, New or North Carolina, and then somewhat New Jersey. Now you're getting to the second part, which I think they started planning middle of next last year. Is, okay. We got and it really started as a result of COVID too.
Of onshoring more manufacturing. That doesn't happen overnight. But that has been ongoing, and I expect that to accelerate. You know, I saw an analyst yesterday say that they you know, there hasn't been a lot of farmer activity in The US. A stock analyst. And I'm watching TV, and I go, I must be in a different world than they've been because we see a lot of activity and we participated in it.
Brian Brophy: Thanks. That's yeah. That's really helpful. And good to hear. And then one follow-up on this phase two award on the semi side that you guys mentioned your opening comments. Is this a small portion of the overall award you're expecting as part of this phase two projects, or should we be thinking about additional awards in subsequent quarters as it relates to this?
Tony Guzzi: I think this is not a small job. It's a $100 million plus, and it's and it's on a second phase. It's the next fab on a site where we're repeating what we did the first phase. So it's not a small award. But the question, I think, is what happens on other sites And, you know, that's where we'll probably do some initial work, and then which you probably won't even see because it'll be smaller. And then an award like this potentially can happen.
Brian Brophy: Thanks. I appreciate it. I'll pass it on.
Operator: Thank you. Next question comes from the line of Justin Hockey with Baird. Please go ahead.
Justin Hockey: Oh, great. Thanks for taking my questions here this morning. Just wanted to ask, I guess, obviously, the first half is really strong, 2Q really strong. I'm just thinking about the guidance raise and, you know, the kind of the implied second half, is it obviously, you don't guide quarterly, but is the guidance raise more a reflection of 2Q coming in stronger than expected and second half expectations kind of unchanged? Or is it a balance of the two? Obviously, you raised the margin guide, but you know, it sounds like you know, at the low end, it would be kind of assuming it kind of stays at the first half level.
Just trying to understand, the emphasis on that front and how you would characterize the guidance.
Tony Guzzi: So first of all, welcome. We appreciate picking you guys up and having you cover us. And we very much look forward to your conference this fall. As far as the guidance, it's think you've characterized it right. The lower end is sort of keep going what we're doing and the higher end sort of takes the higher end of the revenue guidance, puts a higher margin on it. Jason's got a fairly detailed analysis here he can walk you through. I'm sure the rest of you will love to hear that too. It'll save you having to do the work.
Jason Nalbandian: No. I mean, I think the only thing I would say is I think it is twofold. Right? A piece of it is the performance in the second quarter and a piece of it is our expectations for margin in the back half of the year. And if you look now as I stated, for the back half, we expect margins between nine to nine six. Gets you full year margins of somewhere between nine and nine four.
And so if you just look at that midpoint which is about 9.2%, and you take into consideration the intangible asset amortization impact from Miller, there's probably another 20 to 30 basis points on top of that you're really comparing apples to apples to 24. But to answer your question, I think it's it's a two part raise. It's taking into consideration what we did in the second quarter and our expectations in the back half. Which are good.
Justin Hockey: Yeah. Yeah. Okay. Fair enough. And I guess my second question we talked a lot about, pharma bio stuff and the semis. You don't have a ton of exposure renewables, but it is something that you guys have talked about.
Tony Guzzi: No. We've so it that allows me to make a broader point. Right? First of all, think of who we are. We're contractors. Right? So we look for two things when we look at how we're gonna invest and grow in a resource. The first thing we look at there's projects that are we consider one off things or maybe of a short term but I thought about EVs that way. And the hysteria around that. We participated, especially on the fire life safety. But that's not where we made our long term durable bet. We made it more into other high-tech manufacturing and into data centers.
I do believe there'll still be more batteries, and we'll participate, and we'll do all that. But it wasn't where we put people wanted us to put an outside part of our resources there. And we buy into it. Yeah. Secondarily, when you get to specifics around semis or bio life, we're we're set up well to participate. And then your third part about renewables, that has always been something we do. We've built some very successfully, some renewable farm to especially solar. We've done it specifically also with respect to smaller scale, sort of the megawatt or less when they're doing it on-site. We've done that. We've done combined heat and power.
That's when one of one of our customers ask us to get involved. Or something. We have a team that has particular expertise. It was never something that we did large scale acquisitions on. And it's never something that we put the majority of the company's resources against. I've always had a simple philosophy. Go to durable demand where your customers have their money, and aren't counting on somebody else's money to make it a successful project or not. I've always looked at if something subsidized, that's icing on the cake. But one person's subsidies is another person's ability to remove that subsidy. So we always look for a long term dural demand.
And over a very long time, that has served us well.
Jason Nalbandian: Yeah. I think if you take the broadest definition of renewable and you threw everything in there, solar, even some of the EV plants, the battery manufacturing, that we've done, it's less than 5% of our total revenue. So it's not a significant piece of what we've
Justin Hockey: Yeah. Okay. Alright. That's kinda what I thought. I appreciate that perspective. And thanks for letting us help you guys. We're looking forward to
Tony Guzzi: Welcome aboard. We look forward to the future.
Operator: Next question, please. Thank you. Next question comes from the line of Avi Jarosiewicz with UBS. Please go ahead.
Avi Jarosiewicz: Hey. Good morning, guys. Congrats on a nice You too. Welcome. Appreciate your cover. Glad to be covering you guys. So just wanna circle back to the margin conversation. And I know you guys touched on this to some extent, but I just when we think of the margins moving in advance, we've now seen, I believe, five quarters where the margins in the, combined construction segment is north of 12%. But if we extend it back to the range back to twenty-four months, a decently wider range. So curious how you guys are thinking about, the range within the construction segment. For the foreseeable future.
Yes, think if you look at a rolling twenty-four months rolling twenty-four months for construction, it's gonna get you somewhere between 12 and a half, maybe 12 and a quarter to 13, 13 and a quarter. So I think I think that's a decent range on the construction.
Jason Nalbandian: We might have not been core. We were looking at a rolling twelve. Yeah. Only twelve, rolling 24. Yeah. Sorry about that.
Avi Jarosiewicz: Okay. Makes sense. And in terms of the capacity for your prefabrication capabilities, do you still see opportunity to leverage that to grow your volumes faster than your headcount? And are you working on continuing to expand your capacity there?
Tony Guzzi: Yes and yes. We absolutely continue to look for opportunities to expand that. We fabricate, for the most part, for ourselves. 95% is for us. There's some that someone will ask us to do a job because we did particularly well somewhere, and there's another this kid they wanna send to another data center site somewhere. Where we're not the installer. But, again, that's that's 5%, 95% are for us. We have if you look at our CapEx, you know, as a percentage of sales, it's relatively the same. But, you know, it's more than doubled, and that is almost all into prefabrication assets. And it's mainly in, you know, in the construction business.
It's in the fire life safety business. And we still source 30%. And we'll always do that because some of the smaller jobs On the electrical, we continue to expand that. Probably more aggressively than any right now because that we have more sites we're doing data center work at. And other large scale work. And mechanically, we have a couple really big shops we continue to expand. Again, we're fabricating for ourselves. And where you see that fabrication really come into play on fire life safety, it's almost every job on the sprinkler side. But where you see it come to play in electrical is on the large stops.
When you're doing a big data center, a big duck bank, if you're doing some of the underground, We're looking for ways every day to take labor off the job and become more efficient and safer. And so the big electrical jobs, data centers, semiconductor plants, pharma plants, Been mechanical even more so, especially as you get to the heavy piping systems. Which is especially true for, semi plants and manufacturing plants in general, health care, and also data centers. If you put all that together, the growth in the markets where we see is what's driving our prefabrication. But you cannot do that prefabrication unless you have very good BDC and BIM capability.
So what's really happening in the world today is you know, drawings are getting done to a certain level. We're not usually the engineer record. But we are finishing for constructability at about 50 to 70, 60% We're picking up and getting more involved in the design on these to design for constructability. And offer our suggestions to get more value engineering in place especially on means and methods. That then drives our prefabrication plan for that job. And for us, that's very much coordinated with the field and how we do that. Like I said, for us today, it's about 95% for us. Some people call this modular construction. We call it prefabrication.
Avi Jarosiewicz: Alright. That is helpful. Then just when we think about your bookings this quarter, obviously, that can be somewhat volatile quarter to quarter, you know, try to fit it into a ninety-day window. But just we think about your capacity there and spending your capacity, You know, how much more do you think you or I guess, is this the limit of what you were comfortable booking How much more could you have booked with more capacity There's clearly a lot of momentum in your end market. But you also need to be prudent about work that you're taking on Just curious to hear how you're balancing that.
Tony Guzzi: Yeah. Well, that We don't really think about it that way. Mean, we look at a market. We look at the jobs. We look at the long-term potential on a site and we've had the ability to track the labor we need to do the work we're going to. Of course, you know, I've never said that, you know, people are throwing work at us and we're we're deciding what we wanna do. That process isn't true. For us, we start with strategically, what are the markets we're gonna serve? What's the capacity we're gonna build to serve that over time? How do we build supervision to serve that market?
We'll find the craft labor because people wanna work for us. We've gotta build supervision. Right? We've gotta build the foreman, the project managers, the project engineers, We've gotta we gotta build the VDC capability And we've gone through this period of significant growth and know, we can continue to build that capacity. And we think about I don't even say measured. We think about it site by site, location by location, company by company, and I wouldn't say our people are capacity constrained. Every contractor can be capacity constrained if they wanna chase the whole market. What I would say is we continue to manage to the right mix.
That we need to be successful over a very long period of time.
Avi Jarosiewicz: Alright. Appreciate the color, and thanks for the time.
Operator: Thanks, Avi. Next question, please.
Operator: Thank you. The next question comes from the line of Sam Snyder with Northcoast Research. Please go ahead.
Sam Snyder: Hey, guys. Thanks for the question. Just wanted to know, you know, maybe you could remind us I'm looking at the growth rates between mechanical and electrical. Do you expect that to converge? And then maybe you could remind us, for everybody on the call, how that sort of flows from the beginning to an end of a project. Obviously, every project is different, but do you expect the mix to change as projects mature on average?
Tony Guzzi: Yeah. Yeah. So you could almost think of every project as a cycle. Manpower usually starts to peak between 25 to 30% of the job to about 65% of the job. So that's obviously when you're earning the most revenue. And margins, trail that typically because you start to figure out what you're actually gonna make on the job. Remember, everything we do is based on an estimate. And, you know, estimates becomes more for better or worse as the job progresses. But you know you know, will they converge? Probably not. I mean, they'll have different growth rates in a quarter. Are they both serving the same end market? Yeah. With a little different mix.
Electrically is a little more heavily weighted towards data centers. Mechanically, a little more diverse mix of projects. Some of that should just start heritage and where our footprint is. Some of them are data center markets where our big mechanical contractors are. And some of them are just getting into that business now. But the markets they serve are relatively the same. More of an emphasis right now electrically on data centers. Continue to look to expand the mechanical capacity. But, really, because there's so many projects going at any time, it's hard to say there's anything, Jason, right, driving overall on the timing.
Jason Nalbandian: The one thing I'd add on the data center growth for each, right, is if you look at electrical construction, dollar-wise, growing faster data centers or more growth from data centers dollar-wise, mechanical is growing at a faster growth rate. And that's to the point that Tony made that historically our electrical business was our data center business. We are starting to see an uptick in demand in mechanical now. Yeah. And then we have, you know, three or four companies that do it. Mechanically. Fire, life, safety, everywhere we can do it. Electrically, that's upwards of eight or ten. That really do it in a significant way.
Sam Snyder: Got it. Thanks. I'll pass it back to the rest of the queue.
Tony Guzzi: Appreciate it. Thank you.
Operator: The last question comes from the line of Adam Bubes with Goldman Sachs. Please go ahead.
Adam Bubes: Hi. Good morning. I just had a couple on the data center business. Based on last quarter's 10-Q and today's results, it looks like your data center business is growing in the very high double-digit growth range organically. And it appears that's well above broader data center construction spending in The US. Which is closer to call it 25% up year over year. So just wondering what's driving your data center growth versus industry data points in your view? And you expect that the spread is sustainable?
Tony Guzzi: Well, I don't know if that sizable spread is sustainable, but I think much like the nonres market, I would expect us over time to outgrow whatever the data center market is growing by. That's for a number of reasons. We're in more markets than just about anybody. We have a lot of customers that really like us. We do great work for them. Some of our folks are the most innovative people both mechanically and electrically in how a data center gets built. That's both fire life safety, mechanical, electrical. We do a great job of BDC and BIM and prefabrication in the data center world. Which leads to really good outcomes for our customers.
And we have a resume in a lot of ways that's second to none. And, again, I always go back to these are the most demanding, smart customers that we work with. And so I take it as a real source of pride, but not so much for me. Source of pride in our people that have become leaders in this market and build our capability. And they're good. And I think if you're growing like we are, both mechanically and electrically, and outpacing the market by one and a half to two x, you have to be good. Because, again, you're working for some of the toughest customers known demand.
Adam Bubes: Great. And then I understand there's many different moving pieces underpinning margins, but I think all else equal, data center margins are relatively strong. If data centers continue to increase as a percent of your overall revenue, should we expect potential for further total company margin expansion all else equal?
Tony Guzzi: Well, I'd have to say you'd have to add a whole other variable on top of that, and that's contract mix. You know, certain times we're working GMP, we're working to a target fee and a target price. Other times, we're doing it fixed price. That mix of contract mix, and that can change quarter to quarter by customer, That can be whether one of the big people we all heard about this morning as they announced you know, whether it's, one of the seven or whether it's one of the colo people building for the seven. The contract mix has a big part to that. And also for us is the timing when we're on a site.
Sometimes we'll start on a site and are gonna do a three-year build, four-year build on that data center site. We'll start on that site, and we'll work on that site initially, and we've started some new sites. We'll initially start as a GMP, and then we'll move to a fixed price. So that changes in mix are happening all the or they'll come up with a new design on a site. We thought we were gonna be doing that fixed price, now that'll go GMP for the next build. Because they've changed their design. We're they're managing their risk. Remember, we're always managing our risk. Too.
But the only reason data centers may look more profitable is because we spend a lot of time working with our customers on feed to market, and we spend a lot of time working with our customers on what's the appropriate level of risk each of us should be taking.
Jason Nalbandian: Yeah. And just to echo what Tony said. Right? I'd never generalized by sector. I think we earn our margin on every job and it's just speculation until you know the scope of the job, the contract structure, the geography, what that labor pool like looks like, and how much we can prefab. And just as a point there, right, as you said, if you look at the growth rate we've seen for data centers this year, it's definitely high double-digit. But our guidance for the full year implies the same margins we were in last year. So I wouldn't necessarily say that just because you have more of one sector, your margins are going up. Because the contract mix.
So much of that. And we're in learning curve in some of these new sites too because of the labor.
Adam Bubes: Great. Appreciate all the color.
Tony Guzzi: Thank you so much.
Operator: Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Tony Kasi, closing remarks.
Tony Guzzi: Thank you all very much for being part of our call today. Welcome to our new cover analyst. And we look forward to a strong second half. And I hope you all stay safe. And have a good remainder of the summer. Andy, back to you.
Andy Backman: Great. Thanks, Tony, and thanks, Jason. And thank you all for joining us today. Always, if you should have any follow-up questions, please do not hesitate to reach out to me directly. Thank you all again, and have a great day. Ranju, can you please close the call?
Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.