What changed in this filing

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Item 1. Financial Statements

2023-10-26 compared with 2023-07-27 · 195 added, 151 removed, 728 unchanged (32% of the section changed)

4 unchanged sentences

(In thousands, except share and per share data)

September 30,

2023 December 31,

46 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

Selling, general and administrative expenses 308,139 263,137 882,684 761,099

Impairment loss on long-lived assets

2,350 — 2,350 —

Operating income 234,983 150,094 586,560 387,695

3 unchanged sentences

Income tax provision 64,863 42,153 159,292 104,927

Net income $ 140,595 $ 100,664 $ 252,068 $ 174,050

Net income including noncontrolling interests

169,746 105,772 421,814 279,822

Net income attributable to noncontrolling interests

Net income attributable to EMCOR Group, Inc.

$ 169,409 $ 105,772 $ 421,477 $ 279,822

Basic earnings per common share $ 3.59 $ 2.16 $ 8.88 $ 5.52

7 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

Net income $ 140,595 $ 100,664 $ 252,068 $ 174,050

Other comprehensive income (loss), net of tax:

Net income including noncontrolling interests

$ 169,746 $ 105,772 $ 421,814 $ 279,822

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments ( 5,368 ) ( 8,712 ) 503 ( 19,257 )

2 unchanged sentences

538 404 1,591 1,288

Other comprehensive income (loss) 4,148 ( 7,274 ) 6,924 ( 9,661 )

Other comprehensive (loss) income

( 4,830 ) ( 8,308 ) 2,094 ( 17,969 )

Comprehensive income

(1) Net of tax of $ 0.2 million and $ 0.1 million for the three months ended June 30, 2023 and 2022, respectively, and net of tax of $ 0.4 million and $ 0.3 million for the six months ended June 30, 2023 and 2022, respectively.

164,916 97,464 423,908 261,853

Comprehensive income attributable to noncontrolling interests 337 — 337 —

Comprehensive income attributable to EMCOR Group, Inc.

$ 164,579 $ 97,464 $ 423,571 $ 261,853

(1) Net of tax of $ 0.5 million and $ 0.1 million for the three months ended September 30, 2023 and 2022, respectively, and net of tax of $ 0.2 million and $ 0.4 million for the nine months ended September 30, 2023 and 2022, respectively.

See Notes to Consolidated Financial Statements.

3 unchanged sentences

(In thousands)(Unaudited)

Six months ended

Nine months ended

September 30,

Cash flows - operating activities:

Net income $ 252,068 $ 174,050

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Net income including noncontrolling interests

$ 421,814 $ 279,822

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 38,444 35,168

Amortization of identifiable intangible assets 49,335 45,465

Non-cash expense for impairment of long-lived assets

Non-cash share-based compensation expense 10,703 9,322

1 unchanged sentence

Changes in operating assets and liabilities, excluding the effect of businesses acquired ( 42,884 ) ( 130,741 )

Net cash provided by (used in) operating activities 214,932 ( 18,851 )

Net cash provided by operating activities 475,897 238,354

Cash flows - investing activities:

6 unchanged sentences

Repayments of revolving credit facility ( 100,000 ) ( 100,000 )

Repayments of long-term debt

( 142,813 ) —

Repayments of finance lease liabilities ( 2,138 ) ( 2,741 )

12 unchanged sentences

(1) Includes $ 0.6 million and $ 1.2 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2022 and 2021, respectively.

(2) Includes $ 1.2 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of June 30, 2022.

(2) Includes $ 1.1 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of September 30, 2022.

See Notes to Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the three months ended June 30, 2022 and 2023

For the three months ended September 30, 2022 and 2023

(In thousands)(Unaudited)

4 unchanged sentences

stock Noncontrolling

Balance, March 31, 2022 $ 2,135,798 $ 608 $ 62,374 $ ( 85,949 ) $ 2,901,909 $ ( 743,846 ) $ 702

Net income 100,664 — — — 100,664 — —

Balance, June 30, 2022 $ 1,952,791 $ 609 $ 65,212 $ ( 93,223 ) $ 2,995,844 $ ( 1,016,353 ) $ 702

Net income including noncontrolling interests

105,772 — — — 105,772 — —

Other comprehensive loss ( 8,308 ) — — ( 8,308 ) — — —

Common stock issued under share-based compensation plans 1 1 — — — — —

Tax withholding for common stock issued under share-based compensation plans ( 56 ) — ( 56 ) — — — —

3 unchanged sentences

Share-based compensation expense 2,859 — 2,859 — — — —

Balance, September 30, 2022 $ 1,842,422 $ 609 $ 70,121 $ ( 101,531 ) $ 3,095,166 $ ( 1,222,645 ) $ 702

Balance, June 30, 2023 $ 2,118,087 $ 611 $ 81,556 $ ( 86,527 ) $ 3,450,553 $ ( 1,328,808 ) $ 702

Balance, March 31, 2023 $ 2,066,325 $ 610 $ 75,850 $ ( 90,675 ) $ 3,318,560 $ ( 1,238,722 ) $ 702

Net income 140,595 — — — 140,595 — —

Other comprehensive income 4,148 — — 4,148 — — —

Common stock issued under share-based compensation plans — 1 ( 1 ) — — — —

Net income including noncontrolling interests 169,746 — — — 169,409 — 337

Other comprehensive loss

( 4,830 ) — — ( 4,830 ) — — —

Tax withholding for common stock issued under share-based compensation plans ( 70 ) — ( 70 ) — — — —

2 unchanged sentences

Repurchases of common stock (2)

24 — — — — 24 —

Share-based compensation expense 3,168 — 3,168 — — — —

Balance, June 30, 2023 $ 2,118,087 $ 611 $ 81,556 $ ( 86,527 ) $ 3,450,553 $ ( 1,328,808 ) $ 702

Balance, September 30, 2023 $ 2,279,969 $ 611 $ 87,018 $ ( 91,357 ) $ 3,611,442 $ ( 1,328,784 ) $ 1,039

(1) Represents cumulative foreign currency translation adjustments and post-retirement liability adjustments.

(2) Represents adjustment to estimate of excise tax on net share repurchases.

Estimates of excise tax are subject to change in subsequent reporting periods, particularly if the amount of our share issuances exceed our share repurchases, thereby reducing the estimated excise tax due for the annual period.

Refer to Note 10 - Common Stock for further detail regarding the excise tax on net share repurchases.

See Notes to Consolidated Financial Statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the six months ended June 30, 2022 and 2023

For the nine months ended September 30, 2022 and 2023

(In thousands)(Unaudited)

5 unchanged sentences

Balance, December 31, 2021 $ 2,253,089 $ 607 $ 61,874 $ ( 83,562 ) $ 2,835,504 $ ( 562,036 ) $ 702

Net income 174,050 — — — 174,050 — —

Net income including noncontrolling interests 279,822 — — — 279,822 — —

Other comprehensive loss ( 17,969 ) — — ( 17,969 ) — — —

5 unchanged sentences

Share-based compensation expense 9,322 — 9,322 — — — —

Balance, June 30, 2022 $ 1,952,791 $ 609 $ 65,212 $ ( 93,223 ) $ 2,995,844 $ ( 1,016,353 ) $ 702

Balance, September 30, 2022 $ 1,842,422 $ 609 $ 70,121 $ ( 101,531 ) $ 3,095,166 $ ( 1,222,645 ) $ 702

Balance, December 31, 2022 $ 1,974,291 $ 609 $ 74,795 $ ( 93,451 ) $ 3,214,281 $ ( 1,222,645 ) $ 702

Net income 252,068 — — — 252,068 — —

Net income including noncontrolling interests 421,814 — — — 421,477 — 337

Other comprehensive income 2,094 — — 2,094 — — —

5 unchanged sentences

Share-based compensation expense 10,703 — 10,703 — — — —

Balance, June 30, 2023 $ 2,118,087 $ 611 $ 81,556 $ ( 86,527 ) $ 3,450,553 $ ( 1,328,808 ) $ 702

Balance, September 30, 2023 $ 2,279,969 $ 611 $ 87,018 $ ( 91,357 ) $ 3,611,442 $ ( 1,328,784 ) $ 1,039

(1) Represents cumulative foreign currency translation adjustments and post-retirement liability adjustments.

12 unchanged sentences

Our reportable segments and related disclosures reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment due to changes in our internal reporting structure aimed at realigning our service offerings.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.

NOTE 2 - New Accounting Pronouncements

3 unchanged sentences

In order to utilize such guidance, an entity must first conclude that the modified terms directly replace or have the potential to replace an eligible reference rate due to reference rate reform, and that any contemporaneous changes to other terms that change, or have the potential to change, the amount or timing of contractual cash flows are related to the replacement of a reference rate.

Our credit agreement contains provisions that allow for an amendment to use alternative reference rates upon the discontinuation of LIBOR.

In accordance with these provisions, we amended such agreement during the second quarter of 2023, to change the reference rate from LIBOR to an interest rate based on the secured overnight financing rate, as administered by the Federal Reserve Bank of New York (“SOFR”).

During the second quarter of 2023, we amended our credit agreement to change the reference rate from LIBOR to an interest rate based on the secured overnight financing rate, as administered by the Federal Reserve Bank of New York (“SOFR”).

As such amendment falls within the scope of the aforementioned guidance, we adopted this accounting pronouncement and utilized the optional expedients referenced above.

We are not exposed to any other material contracts that reference LIBOR.

The amendment of our credit agreement and the adoption of this accounting pronouncement did not have a material impact on our financial position and/or results of operations.

A copy of the amendment to our credit agreement is included as Exhibit 4(a) to this quarterly report.

Refer to Note 7 - Debt for further information regarding our credit agreement, including our borrowing rates.

NOTE 3 - Revenue from Contracts with Customers

86 unchanged sentences

When the current estimate of total costs for a performance obligation indicates a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Based on an evaluation of individual projects that had revisions to total estimated costs or anticipated contract value, which resulted in a reduction of profitability in excess of $ 1.0 million, our operating results were negatively impacted during the three and six months ended June 30, 2023 and 2022, as summarized in the following table (in thousands):

Based on an evaluation of individual projects that had revisions to total estimated costs or anticipated contract value, which resulted in a reduction of profitability in excess of $ 1.0 million, our operating results were negatively impacted during the three and nine months ended September 30, 2023 and 2022, as summarized in the following table (in thousands):

For the three months ended

June 30, For the six months ended

September 30, For the nine months ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

NOTE 3 - Revenue from Contracts with Customers (Continued)

During the three and six months ended June 30, 2023, we recognized revenue of approximately $ 8.0 million and $ 9.0 million, respectively, on individual projects that were substantially complete in prior periods, but had revisions to total estimated cost or anticipated contract value, which resulted in an increase to profitability in excess of $ 1.0 million.

Such revenue was recognized entirely within our United States mechanical construction and facilities services segment.

There were no significant amounts of revenue recognized during the three and six months ended June 30, 2022 related to performance obligations satisfied in prior periods.

During the three and nine months ended September 30, 2023, we recognized revenue of approximately $ 10.0 million and $ 22.6 million, respectively, on individual projects that were substantially complete in prior periods, but had revisions to total estimated cost or anticipated contract value, which resulted in an increase to profitability in excess of $ 1.0 million.

Of the amounts recorded during the three and nine months ended September 30, 2023, approximately $ 4.2 million and $ 4.3 million, respectively, were reported within our United States electrical construction and facilities services segment and approximately $ 5.8 million and $ 18.3 million, respectively, were reported within our United States mechanical construction and facilities services segment.

There were no significant amounts of revenue recognized during the three and nine months ended September 30, 2022 related to performance obligations satisfied in prior periods.

Disaggregation of Revenues

1 unchanged sentence

Our contracts are with many different customers in numerous industries.

The following tables provide further disaggregation of our revenues, by categories we use to evaluate our financial performance within each of our reportable segments, for the three and six months ended June 30, 2023 and 2022 (in thousands, except for percentages).

The following tables provide further disaggregation of our revenues, by categories we use to evaluate our financial performance within each of our reportable segments, for the three and nine months ended September 30, 2023 and 2022 (in thousands, except for percentages).

Refer to Note 14 - Segment Information of the notes to consolidated financial statements for additional information on how we disaggregate our revenues by reportable segment.

1 unchanged sentence

All prior period disclosures have been adjusted to additionally reflect these changes.

For the three months ended June 30,

For the three months ended September 30,

Total 2022 % of

20 unchanged sentences

NOTE 3 - Revenue from Contracts with Customers (Continued)

For the three months ended June 30,

For the three months ended September 30,

Total 2022 % of

16 unchanged sentences

(1) Represents those projects which generally are completed within three months or less.

For the three months ended June 30,

For the three months ended September 30,

Total 2022 % of

4 unchanged sentences

Total segment revenues $ 817,718 $ 719,383

For the three months ended June 30,

For the three months ended September 30,

Total 2022 % of

4 unchanged sentences

Total United States operations $ 3,096,872 $ 2,708,660

For the three months ended June 30,

For the three months ended September 30,

Total 2022 % of

8 unchanged sentences

NOTE 3 - Revenue from Contracts with Customers (Continued)

For the six months ended June 30,

For the nine months ended September 30,

Total 2022 % of

16 unchanged sentences

(1) Represents those projects which generally are completed within three months or less.

For the six months ended June 30,

For the nine months ended September 30,

Total 2022 % of

20 unchanged sentences

NOTE 3 - Revenue from Contracts with Customers (Continued)

For the six months ended June 30,

For the nine months ended September 30,

Total 2022 % of

4 unchanged sentences

Total segment revenues $ 2,318,105 $ 2,041,555

For the six months ended June 30,

For the nine months ended September 30,

Total 2022 % of

4 unchanged sentences

Total United States operations $ 8,816,009 $ 7,762,552

For the six months ended June 30,

For the nine months ended September 30,

Total 2022 % of

11 unchanged sentences

In addition to monitoring delinquent accounts, management reviews the credit quality of its receivables by, among other things, obtaining credit ratings of significant customers, assessing economic and market conditions, and evaluating material changes to a customer’s business, cash flows, and financial condition.

At June 30, 2023 and December 31, 2022, our allowance for credit losses was $ 20.7 million and $ 22.4 million, respectively.

The decrease in our allowance for credit losses was attributable to the write-off of specific amounts deemed uncollectible, partially offset by the provision for credit losses recorded during the first six months of 2023.

At September 30, 2023 and December 31, 2022, our allowance for credit losses was $ 21.6 million and $ 22.4 million, respectively.

Allowances for credit losses are based on the best facts available and are reassessed and adjusted on a regular basis as additional information is received.

Should anticipated collections fail to materialize, or if future economic conditions compare unfavorably to our forecasts, we could experience an increase in our credit losses.

The change in the allowance for credit losses for the six months ended June 30, 2023 was as follows (in thousands):

Balance at December 31, 2022 $ 22,382

Provision for credit losses 3,115

Net amounts written off against the allowance ( 4,790 )

Balance at June 30, 2023 $ 20,707

EMCOR Group, Inc.

2 unchanged sentences

NOTE 3 - Revenue from Contracts with Customers (Continued)

The change in the allowance for credit losses for the nine months ended September 30, 2023 was as follows (in thousands):

Balance at December 31, 2022 $ 22,382

Provision for credit losses 5,256

Net amounts written off against the allowance, net of recoveries

Balance at September 30, 2023 $ 21,644

Contract Assets and Contract Liabilities

10 unchanged sentences

The long-term portion of contract liabilities is included in “Other long-term obligations” in the Consolidated Balance Sheets.

Net contract liabilities in the accompanying Consolidated Balance Sheets consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):

Net contract liabilities in the accompanying Consolidated Balance Sheets consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):

September 30,

2023 December 31, 2022

4 unchanged sentences

Net contract liabilities $ ( 1,182,516 ) $ ( 827,360 )

The $ 243.1 million increase in net contract liabilities for the six months ended June 30, 2023 was primarily attributable to an increase in net contract liabilities on our uncompleted construction projects, partially as a result of the timing of invoicing to our customers, which included customer deposits and advanced billings on several large projects in the earlier stages of completion, resulting in amounts invoiced exceeding the revenue recognized for such projects.

Contract assets and contract liabilities increased by approximately $ 1.8 million and $ 5.0 million, respectively, as a result of acquisitions made by us during the first nine months of 2023.

Excluding the impact of acquisitions, net contract liabilities increased by approximately $ 352.0 million during the nine months ended September 30, 2023, primarily attributable to an increase in net contract liabilities on our uncompleted construction projects, partially as a result of the timing of invoicing to our customers, which included customer deposits and advanced billings on several large projects in the earlier stages of completion, resulting in amounts invoiced exceeding the revenue recognized for such projects.

There was no significant impairment of contract assets recognized during the periods presented.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 - Revenue from Contracts with Customers (Continued)

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

The following table presents the transaction price allocated to remaining unsatisfied performance obligations (“remaining performance obligations”) for each of our reportable segments and their respective percentages of total remaining performance obligations as of June 30, 2023 (in thousands, except for percentages):

The following table presents the transaction price allocated to remaining unsatisfied performance obligations (“remaining performance obligations”) for each of our reportable segments and their respective percentages of total remaining performance obligations as of September 30, 2023 (in thousands, except for percentages):

September 30,

2023 % of Total

7 unchanged sentences

Total operations $ 8,635,443 100 %

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 - Revenue from Contracts with Customers (Continued)

Our remaining performance obligations at June 30, 2023 were $ 8.29 billion.

Our remaining performance obligations at September 30, 2023 were $ 8.64 billion.

Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts.

19 unchanged sentences

Total operations $ 7,172,197 $ 1,463,246

EMCOR Group, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4 - Acquisitions of Businesses

Acquisitions are accounted for utilizing the acquisition method of accounting and the prices paid for them are allocated to their respective assets and liabilities based upon the estimated fair value of such assets and liabilities at the dates of their respective acquisition by us.

During the first half of 2023, we acquired five companies, each for an immaterial amount.

Two companies have been included within our Unites States mechanical construction and facilities services segment, one of which provides mechanical and pipe fabrication services, and one of which provides fire protection services, both in the Midwestern region of the United States.

The other three companies have been included within our United States building services segment and provide mechanical services in the Western and Midwestern regions of the United States.

The results of operations for all such companies were de minimis.

During the first nine months of 2023, we acquired seven companies for total consideration of $ 92.8 million.

Such acquisitions include:

(a) a national energy efficiency specialty services firm, the results of operations of which have been included in our United States building services segment, and (b) six companies that enhance our presence in geographies where we have existing operations, the results of operations of which were de minimis, consisting of:

(i) two companies that have been included within our Unites States mechanical construction and facilities services segment, one of which provides mechanical and pipe fabrication services, and one of which provides fire protection services, both in the Midwestern region of the United States, and (ii) four mechanical services companies in the Western and Midwestern regions of the United States, that have been included within our United States building services segment.

In connection with these acquisitions, we acquired working capital of $ 9.1 million and other net liabilities of $ 6.7 million, including certain deferred tax liabilities, and have preliminarily ascribed $ 34.2 million to goodwill and $ 56.2 million to identifiable intangible assets.

We expect that $ 23.2 million of the goodwill and identifiable intangible assets acquired in connection with these 2023 acquisitions will be deductible for tax purposes.

During calendar year 2022, we acquired six companies for total consideration of $ 100.8 million.

1 unchanged sentence

(a) a company that provides electrical construction services in the Greater Boston area, the results of operations of which have been included in our United States electrical construction and facilities services segment, and (b) five companies that enhance our presence in geographies where we have existing operations, the results of operations of which were de minimis, consisting of:

(i) two companies that provide fire protection services in the Northeastern and Southern regions of the

EMCOR Group, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4 - Acquisitions of Businesses (Continued)

United States, respectively, and that have been included within our United States mechanical construction and facilities services segment, (ii) two companies that specialize in either building automation and controls or mechanical services in the Southwestern and Southern regions of the United States, respectively, and that have been included within our United States building services segment, and (iii) a company that provides electrical construction services in the Midwestern region of the United States and that has been included within our United States electrical construction and facilities services segment.

(i) two companies that provide fire protection services in the Northeastern and Southern regions of the United States, respectively, and that have been included within our United States mechanical construction and facilities services segment, (ii) two companies that specialize in either building automation and controls or mechanical services in the Southwestern and Southern regions of the United States, respectively, and that have been included within our United States building services segment, and (iii) a company that provides electrical construction services in the Midwestern region of the United States and that has been included within our United States electrical construction and facilities services segment.

In connection with these acquisitions, we acquired working capital of $ 7.1 million and other net liabilities of $ 1.1 million, and have ascribed $ 28.9 million to goodwill and $ 65.9 million to identifiable intangible assets.

We expect that all of the goodwill acquired in connection with these acquisitions will be deductible for tax purposes.

We expect that all of the goodwill and identifiable intangible assets acquired in connection with these 2022 acquisitions will be deductible for tax purposes.

The purchase price allocations for the businesses acquired in 2023 are preliminary and subject to change during their respective measurement periods.

2 unchanged sentences

The purchase price allocations for the businesses acquired in 2022 have been finalized during their respective measurement periods with an insignificant impact.

On June 30, 2023, we entered into a definitive agreement to acquire ECM Holding Group, Inc.

(“ECM”) in an all-cash transaction.

ECM is a leading national energy specialty services firm, with estimated 2023 revenues of approximately $ 60 million.

The transaction is expected to close in the third quarter of 2023, subject to customary closing conditions.

Upon closing, its results will be included within our United States building services segment.

NOTE 5 - Earnings Per Share

Calculation of Basic and Diluted Earnings per Common Share

The following tables summarize our calculation of Basic and Diluted Earnings per Common Share (“EPS”) for the three and six months ended June 30, 2023 and 2022 (in thousands, except share and per share data):

The following tables summarize our calculation of Basic and Diluted Earnings per Common Share (“EPS”) for the three and nine months ended September 30, 2023 and 2022 (in thousands, except share and per share data):

For the three months ended

Net income $ 140,595 $ 100,664

September 30,

Net income attributable to EMCOR Group, Inc.

$ 169,409 $ 105,772

Weighted average shares outstanding used to compute basic earnings per common share 47,173,974 48,867,420

3 unchanged sentences

Diluted earnings per common share $ 3.57 $ 2.16

For the six months ended

Net income $ 252,068 $ 174,050

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 5 - Earnings Per Share (Continued)

For the nine months ended

September 30,

Net income attributable to EMCOR Group, Inc.

$ 421,477 $ 279,822

Weighted average shares outstanding used to compute basic earnings per common share 47,446,298 50,676,365

3 unchanged sentences

Diluted earnings per common share $ 8.85 $ 5.50

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 5 - Earnings Per Share (Continued)

The number of share-based awards excluded from the computation of diluted EPS for the three and six months ended June 30, 2023 because they would be anti-dilutive were 8,726 and 9,026 , respectively.

The number of share-based awards excluded from the computation of diluted EPS for the three and six months ended June 30, 2022 because they would be anti-dilutive were 57,949 and 57,899 , respectively.

The number of share-based awards excluded from the computation of diluted EPS for the three and nine months ended September 30, 2023 because they would be anti-dilutive were 400 and 800 , respectively.

The number of share-based awards excluded from the computation of diluted EPS for the three and nine months ended September 30, 2022 because they would be anti-dilutive were 850 and 1,350 , respectively.

NOTE 6 - Inventories

Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts as of June 30, 2023 and December 31, 2022 (in thousands):

Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts as of September 30, 2023 and December 31, 2022 (in thousands):

September 30,

2023 December 31,

2 unchanged sentences

Inventories $ 115,466 $ 85,641

The increase in inventories as of June 30, 2023, compared to December 31, 2022, was a result of:

The increase in inventories as of September 30, 2023, compared to December 31, 2022, was a result of:

(a) advanced purchases of materials and equipment for use on specific construction projects, in an effort to mitigate the impact of increased lead times, which have resulted from supply chain disruptions, (b) an increase in raw materials on hand to support our fabrication facilities given the growth in demand for our fire protection services, and (c) higher levels of work in process inventory within our United States industrial services segment given greater new build heat exchanger orders.

NOTE 7 - Debt

Debt in the accompanying Consolidated Balance Sheets consisted of the following amounts as of June 30, 2023 and December 31, 2022 (in thousands):

Debt in the accompanying Consolidated Balance Sheets consisted of the following amounts as of September 30, 2023 and December 31, 2022 (in thousands):

September 30,

2023 December 31,

5 unchanged sentences

Total long-term debt $ 97,480 $ 231,625

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 7 - Debt (Continued)

Credit Agreement

3 unchanged sentences

We may allocate up to $ 400.0 million of available capacity under the 2020 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries.

As of June 30, 2023 and December 31, 2022, the balance of the 2020 Term Loan was $ 242.8 million.

There were no direct borrowings outstanding under the 2020 Revolving Credit Facility as of June 30, 2023 and December 31, 2022.

However, outstanding letters of credit reduce the available capacity under such facility, and as of June 30, 2023 and December 31, 2022, we had $ 130.9 million and $ 71.3 million, respectively, of letters of credit outstanding.

As of September 30, 2023 and December 31, 2022, the balance of the 2020 Term Loan was $ 100.0 million and $ 242.8 million, respectively.

There were no direct borrowings outstanding under the 2020 Revolving Credit Facility as of September 30, 2023 and December 31, 2022.

However, outstanding letters of credit reduce the available capacity under such facility, and as of September 30, 2023 and December 31, 2022, we had $ 123.7 million and $ 71.3 million, respectively, of letters of credit outstanding.

At the Company’s election, borrowings under the 2020 Credit Agreement bear interest at either:

(1) a base rate plus a margin of 0.00 % to 0.75 %, based on certain financial tests, or (2) a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable tenor plus 0.10 % (“Adjusted Term SOFR”) ( 5.34 % at June 30, 2023) plus a margin of 1.00 % to 1.75 %, based on certain financial tests.

(1) a base rate plus a margin of 0.00 % to 0.75 %, based on certain financial tests, or (2) a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York for the applicable tenor plus 0.10 % (“Adjusted Term SOFR”) ( 5.42 % at September 30, 2023) plus a margin of 1.00 % to 1.75 %, based on certain financial tests.

The base rate is determined by the greater of:

(a) the prime commercial lending rate announced by Bank of Montreal from time to time ( 8.25 % at June 30, 2023), (b) the federal funds effective rate, plus ½ of 1.00%, (c) Adjusted Term SOFR for a one-month tenor, plus 1.00 %, or (d) 0.00 %.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 7 - Debt (Continued)

The interest rates in effect at June 30, 2023 and December 31, 2022 were 6.34 % and 5.73 %, respectively.

(a) the prime commercial lending rate announced by Bank of Montreal from time to time ( 8.50 % at September 30, 2023), (b) the federal funds effective rate, plus ½ of 1.00%, (c) Adjusted Term SOFR for a one-month tenor, plus 1.00 %, or (d) 0.00 %.

The interest rates in effect at September 30, 2023 and December 31, 2022 were 6.42 % and 5.73 %, respectively.

A commitment fee is payable on the average daily unused amount of the 2020 Revolving Credit Facility, which ranges from 0.10 % to 0.25 %, based on certain financial tests.

The fee was 0.10 % of the unused amount as of June 30, 2023 and December 31, 2022.

The fee was 0.10 % of the unused amount as of September 30, 2023 and December 31, 2022.

Fees for letters of credit issued under the 2020 Revolving Credit Facility range from 0.75 % to 1.75 % of the respective face amounts of outstanding letters of credit, depending on the nature of the letter of credit, and are computed based on certain financial tests.

3 unchanged sentences

The 2020 Credit Agreement contains various covenants providing for, among other things, the maintenance of certain financial ratios and certain limitations on the payment of dividends, common stock repurchases, investments, acquisitions, indebtedness, and capital expenditures.

We were in compliance with all such covenants as of June 30, 2023 and December 31, 2022.

We were in compliance with all such covenants as of September 30, 2023 and December 31, 2022.

We are required to make annual principal payments on the 2020 Term Loan.

Any voluntary prepayments are applied against the outstanding balance of the loan and reduce our future scheduled payments on a ratable basis.

Based on our outstanding balance, principal payments of $ 13.9 million are due on December 31 of each year until maturity, with any remaining unpaid principal and interest due on March 2, 2025.

Voluntary prepayments are applied against the outstanding balance of the loan and reduce our future scheduled payments on a ratable basis.

During the quarter ended September 30, 2023, we made a prepayment in the amount of $ 142.8 million.

Based on our outstanding balance, principal payments of $ 5.0 million are due on December 31, 2023 and 2024, with any remaining unpaid principal and interest due on March 2, 2025.

NOTE 8 - Fair Value Measurements

6 unchanged sentences

Level 3 – Significant unobservable inputs that reflect the reporting entity’s own assumptions.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 8 - Fair Value Measurements (Continued)

Recurring Fair Value Measurements

The following tables summarize the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2023 and December 31, 2022 (in thousands):

Assets at Fair Value as of June 30, 2023

The following tables summarize the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands):

Assets at Fair Value as of September 30, 2023

Asset Category Level 1 Level 2 Level 3 Total

14 unchanged sentences

(1) Cash and cash equivalents consist of deposit accounts and money market funds with original maturity dates of three months or less, which are Level 1 assets.

At June 30, 2023 and December 31, 2022, we had $ 272.4 million and $ 209.4 million, respectively, in money market funds.

At September 30, 2023 and December 31, 2022, we had $ 361.9 million and $ 209.4 million, respectively, in money market funds.

From time to time, we have cash balances in certain of our domestic bank accounts that exceed federally insured limits.

2 unchanged sentences

Restricted cash primarily represents cash held in account for use on customer contracts.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 8 - Fair Value Measurements (Continued)

Nonrecurring Fair Value Measurements

1 unchanged sentence

Such assets are measured at fair value at the time of acquisition based on valuation techniques that appropriately represent the methods which would be used by other market participants in determining fair value.

In addition, goodwill and intangible assets are tested for impairment using similar valuation methodologies to determine the fair value of such assets.

In addition, goodwill, intangible assets, and certain other long-lived assets are tested for impairment using similar valuation methodologies to determine the fair value of such assets.

Periodically, we engage an independent third-party valuation specialist to assist with the valuation process, including the selection of appropriate methodologies and the development of market-based assumptions.

The inputs used for these nonrecurring fair value measurements represent Level 3 inputs.

During the quarter ended September 30, 2023, we identified facts and circumstances that indicated the carrying values of certain long-lived assets within our United States mechanical construction and facilities services segment may not be fully recoverable, necessitating a comparison of their carrying values to the undiscounted pre-tax cash flows expected to result from the use of such assets.

As a result of this test, we determined that these assets were impaired, and recognized a $ 2.4 million impairment charge as calculated using a discounted cash flow model.

As of September 30, 2023, the value of these assets was $ 2.0 million, which represents fair value as determined on a nonrecurring basis.

Fair Value of Financial Instruments

1 unchanged sentence

The carrying value of our debt associated with the 2020 Credit Agreement approximates its fair value due to the variable rate on such debt.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 9 - Income Taxes

The following table presents our income tax provision and our income tax rate for the three and six months ended June 30, 2023 and 2022 (in thousands, except percentages):

The following table presents our income tax provision and our income tax rate for the three and nine months ended September 30, 2023 and 2022 (in thousands, except percentages):

For the three months ended

June 30, For the six months ended

September 30, For the nine months ended

September 30,

2023 2022 2023 2022

2 unchanged sentences

The difference between the U.S.

statutory tax rate of 21 % and our effective income tax rate for both the three and six months ended June 30, 2023 and 2022 was primarily a result of state and local income taxes and other permanent book-to-tax differences.

The increase in our income tax provision for the three and six months ended June 30, 2023, when compared to the three and six months ended June 30, 2022, was due to:

(a) greater income before income taxes, and (b) an increase in our effective income tax rate.

The change in our effective income tax rate was attributable to an increase in certain permanent book-to-tax differences, including the impact of the expiration of specific provisions within the Consolidated Appropriations Act, 2021, which allowed for a 100% tax deduction for business meals in 2022.

For periods after December 31, 2022, the tax deduction for business meals has been reduced to 50%.

As of June 30, 2023 and December 31, 2022, we had no unrecognized income tax benefits.

statutory tax rate of 21 % and our effective income tax rate for both the three and nine months ended September 30, 2023 and 2022 was primarily a result of state and local income taxes and other permanent book-to-tax differences.

The increase in our income tax provision for the three and nine months ended September 30, 2023, when compared to the three and nine months ended September 30, 2022, was primarily due to greater income before income taxes.

While our effective income tax rate for the nine months ended September 30, 2023 is comparable to that for the nine months ended September 30, 2022, the difference between our effective income tax rate for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022 was attributable to a revision to our estimate of the full year impact of certain permanent book-to-tax differences during the third quarter of 2022.

As of September 30, 2023 and December 31, 2022, we had no unrecognized income tax benefits.

We file a consolidated federal income tax return including all of our U.S.

2 unchanged sentences

Our income tax returns are subject to audit by various taxing authorities and are currently under examination for the years 2017 through 2020.

Legislation has been enacted in the United Kingdom to implement measures in concert with the Base Erosion and Profit Shifting Pillar Two framework for international taxation developed by the member countries of the Organization for Economic Co-operation and Development (the “Pillar Two Model Rules”).

The Pillar Two Model Rules are intended to ensure that multinational enterprises pay a minimum 15% effective tax rate in every jurisdiction in which they operate.

While we do not anticipate that these rules will have a material effect on our tax provision or effective tax rate, we continue to monitor evolving tax legislation in the jurisdictions in which we operate.

NOTE 10 - Common Stock

As of June 30, 2023 and December 31, 2022, there were 47,130,116 and 47,666,725 shares of our common stock outstanding, respectively.

During the three months ended June 30, 2023 and 2022, we issued 42,578 and 76,426 shares of common stock, respectively.

During the six months ended June 30, 2023 and 2022, we issued 114,654 and 171,757 shares of common stock, respectively.

As of September 30, 2023 and December 31, 2022, there were 47,141,954 and 47,666,725 shares of our common stock outstanding, respectively.

During the three months ended September 30, 2023 and 2022, we issued 11,838 and 19,573 shares of common stock, respectively.

During the nine months ended September 30, 2023 and 2022, we issued 126,492 and 191,330 shares of common stock, respectively.

These shares were issued upon either the satisfaction of required conditions under our share-based compensation plans or the purchase of common stock pursuant to our employee stock purchase plan.

1 unchanged sentence

We currently pay a regular quarterly dividend of $ 0.18 per share.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 10 - Common Stock (Continued)

In September 2011, our Board of Directors (the “Board”) authorized a share repurchase program allowing us to begin repurchasing shares of our outstanding common stock.

1 unchanged sentence

Since the inception of the repurchase program, the Board has authorized us to repurchase up to $ 2.15 billion of our outstanding common stock.

During the six months ended June 30, 2023, we repurchased approximately 0.7 million shares of our common stock for approximately $ 106.2 million.

Since the inception of the repurchase program through June 30, 2023, we have repurchased approximately 25.7 million shares of our common stock for approximately $ 1.87 billion.

As of June 30, 2023, there remained authorization for us to repurchase approximately $ 283.6 million of our shares.

During the nine months ended September 30, 2023, we repurchased approximately 0.7 million shares of our common stock for approximately $ 106.1 million.

Since the inception of the repurchase program through September 30, 2023, we have repurchased approximately 25.7 million shares of our common stock for approximately $ 1.87 billion.

As of September 30, 2023, there remained authorization for us to repurchase approximately $ 283.7 million of our shares.

The repurchase program has no expiration date, does not obligate the Company to acquire any particular amount of common stock, and may be suspended, recommenced, or discontinued at any time or from time to time without prior notice.

3 unchanged sentences

Starting with the first quarter of 2023, we have included the applicable excise tax as a component of treasury stock as it represents a direct cost associated with the repurchase of our common stock.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 11 - Retirement Plans

8 unchanged sentences

Components of Net Periodic Pension Cost

The components of net periodic pension cost (income) of the UK Plan for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

The components of net periodic pension cost (income) of the UK Plan for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

For the three months ended

June 30, For the six months ended

September 30, For the nine months ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

Net periodic pension cost (income) $ 233 $ ( 1,022 ) $ 688 $ ( 3,283 )

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 - Commitments and Contingencies

7 unchanged sentences

We have agreed to indemnify the surety companies for amounts, if any, paid by them in respect of surety bonds issued on our behalf.

As of June 30, 2023, based on the percentage-of-completion of our projects covered by surety bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $ 1.4 billion, which represents approximately 17 % of our total remaining performance obligations.

As of September 30, 2023, based on the percentage-of-completion of our projects covered by surety bonds, our aggregate estimated exposure, assuming defaults on all our then existing contractual obligations, was approximately $ 2.0 billion, which represents approximately 23 % of our total remaining performance obligations.

Surety bonds are sometimes provided to secure obligations for wages and benefits payable to or for certain of our employees, at the request of labor unions representing such employees.

In addition, surety bonds may be issued as collateral for certain insurance obligations.

As of June 30, 2023, we satisfied approximately $ 48.1 million of the collateral requirements of our insurance programs by utilizing surety bonds.

As of September 30, 2023, we satisfied approximately $ 48.1 million of the collateral requirements of our insurance programs by utilizing surety bonds.

We are not aware of any losses in connection with surety bonds that have been posted on our behalf, and we do not expect to incur significant losses in the foreseeable future.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 - Commitments and Contingencies (Continued)

Hazardous Materials

17 unchanged sentences

It is possible that a litigation matter for which liabilities have not been recorded could be decided unfavorably to us, and that any such unfavorable decision could have a material adverse effect on our financial position, results of operations, or liquidity.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12 - Commitments and Contingencies (Continued)

Insurance Liabilities

3 unchanged sentences

The liabilities are derived from known facts, historical trends, and industry averages, utilizing the assistance of an independent third-party actuary to determine the best estimate for the majority of these obligations.

As of June 30, 2023 and December 31, 2022, the estimated current portion of such undiscounted insurance liabilities, included in “Other accrued expenses and liabilities” in the accompanying Consolidated Balance Sheets, were $ 53.9 million and $ 54.8 million, respectively.

The estimated non-current portion of such undiscounted insurance liabilities included in “Other long-term obligations” as of June 30, 2023 and December 31, 2022 were $ 234.3 million and $ 221.7 million, respectively.

The current portion of anticipated insurance recoveries of $ 15.1 million and $ 16.0 million as of June 30, 2023 and December 31, 2022, respectively, were included in “Prepaid expenses and other” and the non-current portion of anticipated insurance recoveries of $ 57.9 million and $ 59.0 million as of June 30, 2023 and December 31, 2022, respectively, were included in “Other assets” in the accompanying Consolidated Balance Sheets.

As of September 30, 2023 and December 31, 2022, the estimated current portion of such undiscounted insurance liabilities, included in “Other accrued expenses and liabilities” in the accompanying Consolidated Balance Sheets, were $ 52.4 million and $ 54.8 million, respectively.

The estimated non-current portion of such undiscounted insurance liabilities included in “Other long-term obligations” as of September 30, 2023 and December 31, 2022 were $ 225.4 million and $ 221.7 million, respectively.

The current portion of anticipated insurance recoveries of $ 13.2 million and $ 16.0 million as of September 30, 2023 and December 31, 2022, respectively, were included in “Prepaid expenses and other” and the non-current portion of anticipated insurance recoveries of $ 50.6 million and $ 59.0 million as of September 30, 2023 and December 31, 2022, respectively, were included in “Other assets” in the accompanying Consolidated Balance Sheets.

EMCOR Group, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 13 - Additional Cash Flow Information

The following table presents additional cash flow information for the six months ended June 30, 2023 and 2022 (in thousands):

For the six months ended

The following table presents additional cash flow information for the nine months ended September 30, 2023 and 2022 (in thousands):

For the nine months ended

September 30,

Cash paid for:

5 unchanged sentences

We are one of the largest specialty contractors in the United States and a leading provider of electrical and mechanical construction and facilities services, building services, and industrial services.

Our services are provided to a broad range of commercial, industrial, healthcare, utility, and institutional customers through approximately 100 operating subsidiaries.

Our services are provided to a broad range of commercial, technology, manufacturing, industrial, healthcare, utility, and institutional customers through approximately 100 operating subsidiaries.

Such operating subsidiaries are organized into the following reportable segments:

10 unchanged sentences

NOTE 14 - Segment Information (Continued)

The following tables present financial information for each of our reportable segments for the three and six months ended June 30, 2023 and 2022 (in thousands):

The following tables present financial information for each of our reportable segments for the three and nine months ended September 30, 2023 and 2022 (in thousands):

For the three months ended

September 30,

Revenues from unrelated entities:

15 unchanged sentences

Total operations $ 3,207,598 $ 2,826,361

For the six months ended

For the nine months ended

September 30,

Revenues from unrelated entities:

20 unchanged sentences

For the three months ended

September 30,

Operating income (loss):

6 unchanged sentences

Corporate administration ( 30,121 ) ( 28,982 )

Impairment loss on long-lived assets

Total operations 234,983 150,094

2 unchanged sentences

Income before income taxes $ 234,609 $ 147,925

For the six months ended

For the nine months ended

September 30,

Operating income (loss):

6 unchanged sentences

Corporate administration ( 93,901 ) ( 80,890 )

Impairment loss on long-lived assets

Total operations 586,560 387,695

6 unchanged sentences

NOTE 14 - Segment Information (Continued)

September 30,

2023 December 31,

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements