EMCOR Group, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. EMCOR Group, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) (Unaudited) March 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 840,985 $ 789,750 Accounts receivable, less allowance for credit losses of $ 31,364 and $ 22,502 , respectively 3,206,131 3,203,490 Contract assets 267,611 269,885 Inventories 113,751 110,774 Prepaid expenses and other 79,651 73,072 Total current assets 4,508,129 4,446,971 Property, plant, and equipment, net 186,410 179,378 Operating lease right-of-use assets 321,505 310,498 Goodwill 956,549 956,549 Identifiable intangible assets, net 569,781 586,032 Other assets 144,953 130,293 Total assets $ 6,687,327 $ 6,609,721 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 865,059 $ 935,967 Contract liabilities 1,649,207 1,595,109 Accrued payroll and benefits 477,529 596,936 Other accrued expenses and liabilities 363,677 315,107 Operating lease liabilities, current 76,013 75,236 Total current liabilities 3,431,485 3,518,355 Operating lease liabilities, long-term 269,799 259,430 Other long-term obligations 370,661 361,121 Total liabilities 4,071,945 4,138,906 Equity: EMCOR Group, Inc. stockholders’ equity: Preferred stock, $ 0.10 par value, 1,000,000 shares authorized, zero issued and outstanding — — Common stock, $ 0.01 par value, 200,000,000 shares authorized, 61,162,115 and 61,094,042 shares issued, respectively 612 611 Capital surplus 87,673 91,813 Accumulated other comprehensive loss ( 86,436 ) ( 85,704 ) Retained earnings 4,003,079 3,814,439 Treasury stock, at cost 14,166,515 and 14,046,777 shares, respectively ( 1,390,583 ) ( 1,351,381 ) Total EMCOR Group, Inc. stockholders’ equity 2,614,345 2,469,778 Noncontrolling interests 1,037 1,037 Total equity 2,615,382 2,470,815 Total liabilities and equity $ 6,687,327 $ 6,609,721 See Notes to Consolidated Financial Statements. 1 Table of Contents EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)(Unaudited) Three months ended March 31, 2024 2023 Revenues $ 3,432,276 $ 2,890,432 Cost of sales 2,842,967 2,454,370 Gross profit 589,309 436,062 Selling, general and administrative expenses 329,356 281,152 Operating income 259,953 154,910 Net periodic pension income (cost) 222 ( 274 ) Interest income (expense), net 7,541 ( 1,832 ) Income before income taxes 267,716 152,804 Income tax provision 70,567 41,331 Net income $ 197,149 $ 111,473 Basic earnings per common share $ 4.18 $ 2.33 Diluted earnings per common share $ 4.17 $ 2.32 Dividends declared per common share $ 0.18 $ 0.15 See Notes to Consolidated Financial Statements. 2 Table of Contents EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)(Unaudited) Three months ended March 31, 2024 2023 Net income $ 197,149 $ 111,473 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 1,216 ) 2,257 Post-retirement plans, amortization of actuarial loss included in net income (1) 484 519 Other comprehensive (loss) income ( 732 ) 2,776 Comprehensive income $ 196,417 $ 114,249 _________ (1) Net of tax of $ 0.2 million for each of the three months ended March 31, 2024 and 2023. See Notes to Consolidated Financial Statements. 3 Table of Contents EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)(Unaudited) Three months ended March 31, 2024 2023 Cash flows - operating activities: Net income $ 197,149 $ 111,473 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 13,337 12,621 Amortization of identifiable intangible assets 16,251 15,877 Provision for (recovery of) credit losses 9,898 ( 343 ) Non-cash share-based compensation expense 6,527 4,087 Other reconciling items ( 2,829 ) 505 Changes in operating assets and liabilities, excluding the effect of businesses acquired ( 108,069 ) ( 228,803 ) Net cash provided by (used in) operating activities 132,264 ( 84,583 ) Cash flows - investing activities: Payments for acquisitions of businesses, net of cash acquired ( 100 ) ( 11,834 ) Proceeds from sale or disposal of property, plant, and equipment 939 9,583 Purchases of property, plant, and equipment ( 20,278 ) ( 23,154 ) Net cash used in investing activities ( 19,439 ) ( 25,405 ) Cash flows - financing activities: Proceeds from revolving credit facility — 100,000 Repayments of finance lease liabilities ( 773 ) ( 780 ) Dividends paid to stockholders ( 8,470 ) ( 7,151 ) Repurchases of common stock ( 39,000 ) ( 16,033 ) Taxes paid related to net share settlements of equity awards ( 11,648 ) ( 5,242 ) Issuances of common stock under employee stock purchase plan 943 2,168 Payments for contingent consideration arrangements — ( 1,456 ) Net cash (used in) provided by financing activities ( 58,948 ) 71,506 Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 1,140 ) 2,239 Increase (decrease) in cash, cash equivalents, and restricted cash 52,737 ( 36,243 ) Cash, cash equivalents, and restricted cash at beginning of year (1) 789,750 457,068 Cash, cash equivalents, and restricted cash at end of period (2) $ 842,487 $ 420,825 _________ (1) Includes $ 0.6 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2022 . (2) Includes $ 1.5 million and $ 0.8 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of March 31, 2024 and 2023, respectively . See Notes to Consolidated Financial Statements. 4 Table of Contents EMCOR Group, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF EQUITY For the three months ended March 31, 2023 and 2024 (In thousands)(Unaudited) EMCOR Group, Inc. Stockholders Total Common stock Capital surplus Accumulated other comprehensive loss (1) Retained earnings Treasury stock Noncontrolling interests Balance, December 31, 2022 $ 1,974,291 $ 609 $ 74,795 $ ( 93,451 ) $ 3,214,281 $ ( 1,222,645 ) $ 702 Net income 111,473 — — — 111,473 — — Other comprehensive income 2,776 — — 2,776 — — — Common stock issued under share-based compensation plans — 1 ( 1 ) — — — — Tax withholding for common stock issued under share-based compensation plans ( 5,242 ) — ( 5,242 ) — — — — Common stock issued under employee stock purchase plan 2,168 — 2,168 — — — — Common stock dividends ( 7,151 ) — 43 — ( 7,194 ) — — Repurchases of common stock ( 16,077 ) — — — — ( 16,077 ) — Share-based compensation expense 4,087 — 4,087 — — — — Balance, March 31, 2023 $ 2,066,325 $ 610 $ 75,850 $ ( 90,675 ) $ 3,318,560 $ ( 1,238,722 ) $ 702 Balance, December 31, 2023 $ 2,470,815 $ 611 $ 91,813 $ ( 85,704 ) $ 3,814,439 $ ( 1,351,381 ) $ 1,037 Net income 197,149 — — — 197,149 — — Other comprehensive loss ( 732 ) — — ( 732 ) — — — Common stock issued under share-based compensation plans — 1 ( 1 ) — — — — Tax withholding for common stock issued under share-based compensation plans ( 11,648 ) — ( 11,648 ) — — — — Common stock issued under employee stock purchase plan 943 — 943 — — — — Common stock dividends ( 8,470 ) — 39 — ( 8,509 ) — — Repurchases of common stock ( 39,202 ) — — — — ( 39,202 ) — Share-based compensation expense 6,527 — 6,527 — — — — Balance, March 31, 2024 $ 2,615,382 $ 612 $ 87,673 $ ( 86,436 ) $ 4,003,079 $ ( 1,390,583 ) $ 1,037 _________ (1) Represents cumulative foreign currency translation adjustments and post-retirement liability adjustments. See Notes to Consolidated Financial Statements. 5 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. References to the “Company,” “EMCOR,” “we,” “us,” “our,” and similar words refer to EMCOR Group, Inc. and its consolidated subsidiaries unless the context indicates otherwise. Readers of this report should refer to the consolidated financial statements and the notes thereto included in our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of those of a normal recurring nature) necessary to present fairly our financial position and the results of our operations. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024. NOTE 2 - New Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”), which expands the required disclosure for reportable segments. This guidance requires entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all segment disclosures which are currently required annually. This ASU additionally requires entities to disclose the title and position of the individual or the name of the group or committee identified as its chief operating decision-maker. Such guidance, which is required to be applied retrospectively, is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, although early adoption is permitted. While the adoption of this ASU will not have an impact on our financial position and/or results of operations, we are currently evaluating the impact to our segment disclosures. In December 2023, the FASB issued an ASU intended to enhance the transparency and decision-usefulness of income tax disclosures. Such guidance requires entities to provide additional information within their income tax rate reconciliation, including further disclosure of federal, state, and foreign income taxes and to provide more details about these reconciling items if a quantitative threshold is met. This guidance additionally requires expanded disclosure of income taxes paid, including amounts paid for federal, state, and foreign taxes. This ASU, which is required to be applied prospectively, is effective for fiscal years beginning after December 15, 2024, although early adoption and retrospective application is permitted. While the adoption of this ASU will not have an impact on our financial position and/or results of operations, we are currently evaluating the impact on our income tax disclosures, including the processes and controls around the collection of this information. NOTE 3 - Revenue from Contracts with Customers The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services by applying the following five step model: (1) Identify the contract with a customer A contract with a customer exists when: (a) the parties have approved the contract and are committed to perform their respective obligations, (b) the rights of the parties can be identified, (c) payment terms can be identified, (d) the arrangement has commercial substance, and (e) collectability of consideration is probable. Judgment is required when determining if the contractual criteria are met, specifically in the earlier stages of a project when a formally executed contract may not yet exist. In these situations, the Company evaluates all relevant facts and circumstances, including the existence of other forms of documentation or historical experience with our customers that may indicate a contractual agreement is in place and revenue should be recognized. In determining if the collectability of consideration is probable, the Company considers the customer’s ability and intention to pay such consideration through an evaluation of several factors, including an assessment of the creditworthiness of the customer and our prior collection history with such customer. 6 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) (2) Identify the performance obligations in the contract At contract inception, the Company assesses the goods or services promised in a contract and identifies, as a separate performance obligation, each distinct promise to transfer goods or services to the customer. The identified performance obligations represent the “unit of account” for purposes of determining revenue recognition. In order to properly identify separate performance obligations, the Company applies judgment in determining whether each good or service provided is: (a) capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and (b) distinct within the context of the contract, whereby the transfer of the good or service to the customer is separately identifiable from other promises in the contract. In addition, when assessing performance obligations within a contract, the Company considers the warranty provisions included within such contract. To the extent the warranty terms provide the customer with an additional service, other than assurance that the promised good or service complies with agreed upon specifications, such warranty is accounted for as a separate performance obligation. In determining whether a warranty provides an additional service, the Company considers each warranty provision in comparison to warranty terms which are standard in the industry. Our contracts are often modified through change orders to account for changes in the scope and price of the goods or services we are providing. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of our change orders are for goods or services that are not distinct within the context of our original contract and, therefore, are not treated as separate performance obligations. (3) Determine the transaction price The transaction price represents the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to our customers. The consideration promised within a contract may include fixed amounts, variable amounts, or both. To the extent the performance obligation includes variable consideration, including contract bonuses and penalties that can either increase or decrease the transaction price, the Company estimates the amount of variable consideration to be included in the transaction price utilizing one of two prescribed methods, depending on which method better predicts the amount of consideration to which the entity will be entitled. Such methods include: (a) the expected value method, whereby the amount of variable consideration to be recognized represents the sum of probability-weighted amounts in a range of possible consideration amounts, and (b) the most likely amount method, whereby the amount of variable consideration to be recognized represents the single most likely amount in a range of possible consideration amounts. When applying these methods, the Company considers all information that is reasonably available, including historical, current, and estimates of future performance. The expected value method is typically utilized in situations where a contract contains a large number of possible outcomes while the most likely amount method is typically utilized in situations where a contract has only two possible outcomes. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved. This threshold is referred to as the variable consideration constraint. In assessing whether to apply the variable consideration constraint, the Company considers if factors exist that could increase the likelihood or the magnitude of a potential reversal of revenue, including, but not limited to, whether: (a) the amount of consideration is highly susceptible to factors outside of the Company’s influence, such as the actions of third parties, (b) the uncertainty surrounding the amount of consideration is not expected to be resolved for a long period of time, (c) the Company’s experience with similar types of contracts is limited or that experience has limited predictive value, (d) the Company has a practice of either offering a broad range of price concessions or changing the payment terms and conditions of similar contracts in similar circumstances, and (e) the contract has a large number and broad range of possible consideration amounts. Pending change orders represent one of the most common forms of variable consideration included within contract value and typically represent contract modifications for which a change in scope has been authorized or acknowledged by our customer but the final adjustment to contract price is yet to be negotiated. In estimating the transaction price for pending change orders, the Company considers all relevant facts, including documented correspondence with the customer regarding acknowledgment of and/or agreement with the modification, as well as historical experience with the customer or similar contractual circumstances. Based upon this assessment, the Company estimates the transaction price, including whether the variable consideration constraint should be applied. 7 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) Contract claims are another form of variable consideration which is common within our industry. Claim amounts represent revenue that has been recognized for contract modifications that are not submitted or are in dispute as to both scope and price. In estimating the transaction price for claims, the Company considers all relevant facts available. However, given the uncertainty surrounding claims, including the potential long-term nature of dispute resolution and the broad range of possible consideration amounts, there is an increased likelihood that any additional contract revenue associated with contract claims is constrained. The resolution of claims involves negotiations and, in certain cases, litigation. In the event litigation costs are incurred by us in connection with claims, such litigation costs are expensed as incurred, although we may seek to recover these costs. For some transactions, the receipt of consideration does not match the timing of the transfer of goods or services to the customer. For such contracts, the Company evaluates whether this timing difference represents a financing arrangement within the contract. Although rare, if a contract is determined to contain a significant financing component, the Company adjusts the promised amount of consideration for the effects of the time value of money when determining the transaction price of such contract. Although our customers may retain a portion of the contract price until completion of the project and final contract settlement, these retainage amounts are not considered a significant financing component as the intent of the withheld amounts is to provide the customer with assurance that we will complete our obligations under the contract rather than to provide financing to the customer. In addition, although we may be entitled to advanced payments from our customers on certain contracts, these advanced payments generally do not represent a significant financing component as the payments are used to meet working capital demands that can be higher in the early stages of a contract, as well as to protect us from our customer failing to meet its obligations under the contract. Changes in the estimates of transaction prices are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates can result in the recognition of revenue in a current period for performance obligations which were satisfied or partially satisfied in prior periods. Such changes in estimates may also result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate. (4) Allocate the transaction price to the performance obligations in the contract For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on a relative standalone selling price. The Company determines the standalone selling price based on the price at which the performance obligation would have been sold separately in similar circumstances to similar customers. If the standalone selling price is not observable, the Company estimates the standalone selling price taking into account all available information such as market conditions and internal pricing guidelines. In certain circumstances, the standalone selling price is determined using an expected profit margin on anticipated costs related to the performance obligation. (5) Recognize revenue as performance obligations are satisfied The Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. A good or service is considered to be transferred when the customer obtains control. The Company can transfer control of a good or service and satisfy its performance obligations either over time or at a point in time. The Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date. For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided. 8 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls as it is created or enhanced. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. For our unit price construction contracts, progress towards complete satisfaction is measured through an output method, such as the number of units produced or delivered, when our performance does not produce significant amounts of work in process or finished goods prior to complete satisfaction of such performance obligations. For our services contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly and the customer receives and consumes the benefits of our performance throughout the contract term. The timing of revenue recognition for the manufacturing of new build heat exchangers within our United States industrial services segment depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. For these performance obligations, we use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer. For bill-and-hold arrangements, revenue is recognized when the customer obtains control of the heat exchanger, which may be prior to shipping if certain recognition criteria are met. For certain of our revenue streams, such as call-out repair and service work, outage services, refinery turnarounds, and specialty welding services that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date. Changes in Estimates Due to uncertainties inherent in the estimation process, as well as the significant judgment involved in determining variable consideration, it is possible that estimates of costs to complete a performance obligation, and/or our estimates of transaction prices, will be revised in the near term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, or changes in the estimate of transaction prices, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. 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 months ended March 31, 2024 and 2023, as summarized in the following table (in thousands): For the three months ended March 31, 2024 2023 United States electrical construction and facilities services $ 5,319 $ 5,232 United States mechanical construction and facilities services 3,653 1,164 Total impact $ 8,972 $ 6,396 9 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) During the three months ended March 31, 2024, we recognized revenue of approximately $ 9.0 million 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 months ended March 31, 2024, approximately $ 6.6 million was reported within our United States electrical construction and facilities services segment, predominantly as a result of the settlement of final contract value on two projects, and approximately $ 2.4 million was reported within our United States mechanical construction and facilities services segment. There were no significant amounts of revenue recognized during the three months ended March 31, 2023 related to performance obligations satisfied in prior periods. Disaggregation of Revenues Our revenues are principally derived from contracts to provide construction services relating to electrical and mechanical systems, as well as to provide a number of building services and industrial services to our customers. 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 months ended March 31, 2024 and 2023 (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. For the three months ended March 31, 2024 % of Total 2023 % of Total United States electrical construction and facilities services: Network and communications market sector $ 309,540 40 % $ 213,751 33 % Commercial market sector 93,448 12 % 97,098 15 % Manufacturing and industrial market sector 100,551 13 % 85,241 13 % Healthcare market sector 53,380 7 % 55,503 9 % High-tech manufacturing market sector 35,243 4 % 30,554 5 % Institutional market sector 38,070 5 % 37,411 6 % Transportation market sector 43,624 6 % 33,902 5 % Water and wastewater market sector 4,207 1 % 7,458 1 % Hospitality and entertainment market sector 21,955 3 % 20,052 3 % Short duration projects (1) 51,059 7 % 47,680 7 % Service work 14,125 2 % 16,877 3 % 765,202 645,527 Less intersegment revenues ( 491 ) ( 781 ) Total segment revenues $ 764,711 $ 644,746 ________ (1) Represents those projects which generally are completed within three months or less. 10 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) For the three months ended March 31, 2024 % of Total 2023 % of Total United States mechanical construction and facilities services: Network and communications market sector $ 131,081 9 % $ 99,421 9 % Commercial market sector 259,770 18 % 255,846 24 % Manufacturing and industrial market sector 187,726 13 % 141,635 13 % Healthcare market sector 117,253 8 % 112,728 10 % High-tech manufacturing market sector 310,930 22 % 116,796 11 % Institutional market sector 98,354 7 % 64,048 6 % Transportation market sector 14,012 1 % 12,218 1 % Water and wastewater market sector 63,434 5 % 68,662 6 % Hospitality and entertainment market sector 12,855 1 % 10,077 1 % Short duration projects (1) 105,216 7 % 81,417 8 % Service work 128,350 9 % 117,188 11 % 1,428,981 1,080,036 Less intersegment revenues ( 1,316 ) ( 1,478 ) Total segment revenues $ 1,427,665 $ 1,078,558 ________ (1) Represents those projects which generally are completed within three months or less. For the three months ended March 31, 2024 % of Total 2023 % of Total United States building services: Mechanical services $ 514,148 66 % $ 462,534 64 % Commercial site-based services 218,629 28 % 209,371 29 % Government site-based services 48,383 6 % 53,470 7 % Total segment revenues $ 781,160 $ 725,375 For the three months ended March 31, 2024 % of Total 2023 % of Total United States industrial services: Field services $ 309,801 88 % $ 285,844 86 % Shop services 44,252 12 % 45,039 14 % Total segment revenues $ 354,053 $ 330,883 Total United States operations $ 3,327,589 $ 2,779,562 For the three months ended March 31, 2024 % of Total 2023 % of Total United Kingdom building services: Service work $ 49,844 48 % $ 51,663 47 % Project work 54,843 52 % 59,207 53 % Total segment revenues $ 104,687 $ 110,870 Total operations $ 3,432,276 $ 2,890,432 11 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) Accounts Receivable and Allowance for Credit Losses Accounts receivable are recognized in the period we deliver goods and services to our customers or when our right to consideration is unconditional. The Company maintains an allowance for credit losses to reduce outstanding receivables to their net realizable value. Judgment is required when determining expected credit losses. Estimates of such losses are recorded when we believe a customer, or group of customers, may not be able to meet their financial obligations due to deterioration in financial condition or credit rating. Factors relevant to our assessment include our prior collection history with our customers, the related aging of past due balances, projections of credit losses based on historical trends in credit quality indicators or past events, and forecasts of future economic conditions. 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 March 31, 2024 and December 31, 2023, our allowance for credit losses was $ 31.4 million and $ 22.5 million, respectively. The increase in our allowance for credit losses during the first three months of 2024 was primarily due to a reserve taken for a specific customer bankruptcy within our United States building services segment. 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 three months ended March 31, 2024 was as follows (in thousands): Balance at December 31, 2023 $ 22,502 Provision for credit losses 9,898 Amounts written off against the allowance, net of recoveries ( 1,036 ) Balance at March 31, 2024 $ 31,364 Contract Assets and Contract Liabilities The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts are not yet billable under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. In addition, many of our time and materials arrangements, as well as our contracts to perform turnaround services within the United States industrial services segment, are billed in arrears pursuant to contract terms that are standard within the industry, resulting in contract assets and/or unbilled receivables being recorded as revenue is recognized in advance of billings. Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to scope and/or price, or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets. Contract liabilities from our construction contracts arise when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue. The long-term portion of contract liabilities is included in “Other long-term obligations” in the Consolidated Balance Sheets. 12 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) Net contract liabilities in the accompanying Consolidated Balance Sheets consisted of the following amounts as of March 31, 2024 and December 31, 2023 (in thousands): March 31, 2024 December 31, 2023 Contract assets, current $ 267,611 $ 269,885 Contract assets, non-current — — Contract liabilities, current ( 1,649,207 ) ( 1,595,109 ) Contract liabilities, non-current ( 1,776 ) ( 1,812 ) Net contract liabilities $ ( 1,383,372 ) $ ( 1,327,036 ) The $ 56.3 million increase in net contract liabilities for the three months ended March 31, 2024 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 as we continue to effectively manage our working capital. There was no significant impairment of contract assets recognized during the periods presented. 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 March 31, 2024 (in thousands, except for percentages): March 31, 2024 % of Total Remaining performance obligations: United States electrical construction and facilities services $ 2,551,430 28 % United States mechanical construction and facilities services 4,997,257 54 % United States building services 1,351,585 15 % United States industrial services 111,935 1 % Total United States operations 9,012,207 98 % United Kingdom building services 163,145 2 % Total operations $ 9,175,352 100 % Our remaining performance obligations at March 31, 2024 were $ 9.18 billion. Remaining performance obligations increase with awards of new contracts and decrease as we perform work and recognize revenue on existing contracts. We include a project within our remaining performance obligations at such time the project is awarded and agreement on contract terms has been reached. Our remaining performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when a reasonable estimate of the total transaction price can be made. Remaining performance obligations include unrecognized revenues to be realized from uncompleted construction contracts. Although many of our construction contracts are subject to cancellation at the election of our customers, in accordance with industry practice, we do not limit the amount of unrecognized revenue included within remaining performance obligations for these contracts as the risk of cancellation is very low due to the inherent substantial economic penalty that our customers would incur upon cancellation or termination. We believe our reported remaining performance obligations for our construction contracts are firm and contract cancellations have not had a material adverse effect on us. Remaining performance obligations also include unrecognized revenues expected to be realized over the remaining term of service contracts. However, to the extent a service contract includes a cancellation clause which allows for the termination of such contract by either party without a substantive penalty, the remaining contract term, and therefore, the amount of unrecognized revenues included within remaining performance obligations, is limited to the notice period required for the termination. 13 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 3 - Revenue from Contracts with Customers (Continued) Our remaining performance obligations are comprised of: (a) original contract amounts, (b) change orders for which we have received written confirmations from our customers, (c) pending change orders for which we expect to receive confirmations in the ordinary course of business, (d) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which the variable consideration constraint does not apply, and (e) other forms of variable consideration to the extent that such variable consideration has been included within the transaction price of our contracts. Such claim and other variable consideration amounts were immaterial for all periods presented. Refer to the table below for additional information regarding our remaining performance obligations, including an estimate of when we expect to recognize such remaining performance obligations as revenue (in thousands): Within one year Greater than one year Remaining performance obligations: United States electrical construction and facilities services $ 2,120,190 $ 431,240 United States mechanical construction and facilities services 4,296,296 700,961 United States building services 1,217,565 134,020 United States industrial services 111,935 — Total United States operations 7,745,986 1,266,221 United Kingdom building services 121,604 41,541 Total operations $ 7,867,590 $ 1,307,762 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 quarter of 2024, we entered into definitive agreements to acquire four companies for upfront consideration of approximately $ 175.0 million. Three of these transactions closed subsequent to March 31, 2024, and the fourth is expected to close later in the second quarter of 2024, subject to certain closing conditions. These acquisitions are comprised of: (a) two companies that will be included within our United States mechanical construction and facilities services segment, including: (i) a leading plumbing services provider in the Southeast region of the United States and (ii) a full service provider of mechanical construction and maintenance services in Central Texas, (b) a company, that will be included in our United States building services segment, which provides building automation and controls solutions in the Northeast region of the United States, and (c) an instrumentation and electrical contractor, that will be included in our United States industrial services segment, which provides electrical, automation, digital integration, and fabrication services to various energy sector and process equipment customers. During calendar year 2023, we acquired eight companies for total consideration of $ 99.6 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) seven companies, the results of operations of which were de minimis, consisting of: (i) three companies that have been included within our United States mechanical construction and facilities services segment, one of which provides mechanical and pipe fabrication services in the Midwestern region of the United States, and two of which add capabilities to our national fire protection services, 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 and enhance our presence in geographies where we have existing operations. In connection with these acquisitions, we acquired working capital of $ 9.1 million and other net liabilities of $ 6.1 million, including certain deferred tax liabilities, and have preliminarily ascribed $ 37.4 million to goodwill and $ 59.2 million to identifiable intangible assets. We expect that $ 29.6 million of the goodwill and identifiable intangible assets acquired in connection with these 2023 acquisitions will be deductible for tax purposes. The purchase price allocation for one of the businesses acquired in 2023 is preliminary and subject to change during its measurement period. As we finalize such purchase price allocation, adjustments may be recorded relating to finalization of intangible asset valuations, tax matters, or other items. Although not expected to be significant, such adjustments may result in changes in the valuation of assets and liabilities acquired. The purchase price allocations for the other businesses acquired in 2023 have been finalized during their respective measurement periods with an insignificant impact. 14 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 5 - Earnings Per Share Calculation of Basic and Diluted Earnings per Common Share The following table summarizes our calculation of Basic and Diluted Earnings per Common Share (“EPS”) for the three months ended March 31, 2024 and 2023 (in thousands, except share and per share data): For the three months ended March 31, 2024 2023 Numerator: Net income $ 197,149 $ 111,473 Denominator: Weighted average shares outstanding used to compute basic earnings per common share 47,138,185 47,775,819 Effect of dilutive securities—Share-based awards 178,312 169,996 Shares used to compute diluted earnings per common share 47,316,497 47,945,815 Basic earnings per common share $ 4.18 $ 2.33 Diluted earnings per common share $ 4.17 $ 2.32 The number of share-based awards excluded from the computation of diluted EPS for the three months ended March 31, 2024 because they would be anti-dilutive was 1,095 . There were no anti-dilutive share-based awards for the three months ended March 31, 2023. NOTE 6 - Inventories Inventories in the accompanying Consolidated Balance Sheets consisted of the following amounts as of March 31, 2024 and December 31, 2023 (in thousands): March 31, 2024 December 31, 2023 Raw materials and construction materials $ 98,564 $ 94,447 Work in process 15,187 16,327 Inventories $ 113,751 $ 110,774 NOTE 7 - Debt Excluding finance lease liabilities of $ 5.3 million in each period, we had no outstanding debt as of March 31, 2024 and December 31, 2023. The current portion of our finance lease liabilities of $ 2.4 million and $ 2.5 million at March 31, 2024 and December 31, 2023, respectively, were included in “Other accrued expenses and liabilities” and the non-current portion of our finance lease liabilities of $ 2.9 million and $ 2.8 million at March 31, 2024 and December 31, 2023, respectively, were included in “Other long-term obligations” in the accompanying Consolidated Balance Sheets. Credit Agreement We have a credit agreement dated December 20, 2023 (the “2023 Credit Agreement”), which provides for a $ 1.3 billion revolving credit facility (the “2023 Revolving Credit Facility”) expiring December 20, 2028 . If additional lenders are identified and/or existing lenders are willing to increase their current commitments, we may increase the 2023 Revolving Credit Facility by an amount equal to the greater of: (a) $ 900 million or (b) the Company’s Adjusted EBITDA (as such term is defined in the 2023 Credit Agreement) for the twelve-month period ending immediately prior to the increase in commitment. We may allocate up to $ 600.0 million of available capacity under the 2023 Revolving Credit Facility to letters of credit for our account or for the account of any of our subsidiaries. There were no direct borrowings outstanding under the 2023 Revolving Credit Facility as of March 31, 2024 and December 31, 2023. However, outstanding letters of credit reduce the available capacity under this facility, and as of March 31, 2024 and December 31, 2023, we had $ 89.9 million and $ 116.7 million of letters of credit outstanding, respectively. 15 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 7 - Debt (continued) At the Company’s election, borrowings under the 2023 Revolving Credit Facility bear interest at either: (1) a base rate plus a margin of 0.125 % to 0.875 %, depending on the Company’s Leverage Ratio (as such term is defined in the 2023 Credit Agreement), 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”) plus a margin of 1.125 % to 1.875 %, depending on the Company’s Leverage Ratio. The base rate is determined by the greater of: (a) the prime commercial lending rate announced by Bank of Montreal from time to time, (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 %. A commitment fee is payable on the average daily unused amount of the 2023 Revolving Credit Facility, which ranges from 0.125 % to 0.25 %, depending on the Company’s Leverage Ratio. The fee was 0.125 % of the unused amount as of March 31, 2024 and December 31, 2023. Fees for letters of credit issued under the 2023 Revolving Credit Facility range from 0.85 % to 1.875 % of the respective face amounts of outstanding letters of credit, depending on the nature of the letter of credit, and are computed depending on the Company’s Leverage Ratio. Obligations under the 2023 Credit Agreement are guaranteed by most of our direct and indirect subsidiaries and are secured by substantially all of our assets. The 2023 Credit Agreement contains customary 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 March 31, 2024 and December 31, 2023. NOTE 8 - Fair Value Measurements For disclosure purposes, we utilize a fair value hierarchy to categorize qualifying assets and liabilities into three broad levels based on the priority of the inputs used to determine their fair values. The hierarchy, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs, is comprised of the following three levels: Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 – Observable inputs, other than Level 1 inputs, that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 – Significant unobservable inputs that reflect the reporting entity’s own assumptions. Recurring Fair Value Measurements The following tables summarize the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2024 and December 31, 2023 (in thousands): Assets at Fair Value as of March 31, 2024 Asset Category Level 1 Level 2 Level 3 Total Cash and cash equivalents (1) $ 840,985 $ — $ — $ 840,985 Deferred compensation plan assets (2) 58,432 — — 58,432 Restricted cash (3) 1,502 — — 1,502 Total $ 900,919 $ — $ — $ 900,919 _________________________ (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 March 31, 2024, we had $ 528.3 million 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) Deferred compensation plan assets are classified as “Other assets” in the Consolidated Balance Sheets. (3) Restricted cash is classified as “Prepaid expenses and other” in the Consolidated Balance Sheets. Restricted cash represents cash held in account for use on customer contracts. 16 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 8 - Fair Value Measurements (continued) Assets at Fair Value as of December 31, 2023 Asset Category Level 1 Level 2 Level 3 Total Cash and cash equivalents (1) $ 789,750 $ — $ — $ 789,750 Deferred compensation plan assets (2) 47,315 — — 47,315 Total $ 837,065 $ — $ — $ 837,065 _________________________ (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 December 31, 2023, we had $ 497.3 million 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) Deferred compensation plan assets are classified as “Other assets” in the Consolidated Balance Sheets. Nonrecurring Fair Value Measurements We have recorded goodwill and identifiable intangible assets in connection with our business acquisitions. 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, 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. Fair Value of Financial Instruments We believe that the carrying values of our financial instruments, which include accounts receivable and other financing commitments, approximate their fair values due primarily to their short-term maturities and low risk of counterparty default. Although there were no outstanding borrowings under our 2023 Credit Agreement as of March 31, 2024 and December 31, 2023, the carrying value of any debt associated with this agreement would approximate its fair value due to the variable rate on such debt. NOTE 9 - Income Taxes The following table presents our income tax provision and our income tax rate for the three months ended March 31, 2024 and 2023 (in thousands, except percentages): For the three months ended March 31, 2024 2023 Income tax provision $ 70,567 $ 41,331 Income tax rate 26.4 % 27.0 % The difference between the U.S. statutory tax rate of 21 % and our effective income tax rate for both the three months ended March 31, 2024 and 2023 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 months ended March 31, 2024, when compared to the three months ended March 31, 2023, was predominantly due to greater income before income taxes. The decrease in our effective income tax rate for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was attributable to the impact of favorable discrete tax items during the first quarter of 2024. As of March 31, 2024 and December 31, 2023, we had no unrecognized income tax benefits. We file a consolidated federal income tax return including all of our U.S. subsidiaries with the Internal Revenue Service. We additionally file income tax returns with various state, local, and foreign tax agencies. Our income tax returns are subject to audit by various taxing authorities and are currently under examination for the years 2017 through 2021. 17 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 10 - Common Stock As of March 31, 2024 and December 31, 2023, there were 46,995,600 and 47,047,265 shares of our common stock outstanding, respectively. During the three months ended March 31, 2024 and 2023, we issued 68,073 and 72,076 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, prior to the discontinuation of such employee stock purchase plan. We have paid quarterly dividends since October 25, 2011. Commencing with the dividend to be paid on April 30, 2024, our quarterly dividend will increase from $ 0.18 per share to $ 0.25 per share. 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. Subsequently, the Board has from time to time increased the amount authorized for repurchases under such program. 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 three months ended March 31, 2024, we repurchased approximately 0.1 million shares of our common stock for approximately $ 39.2 million, inclusive of the applicable excise tax. Since the inception of the repurchase program through March 31, 2024, we have repurchased approximately 25.9 million shares of our common stock for approximately $ 1.93 billion. As of March 31, 2024, there remained authorization for us to repurchase approximately $ 221.9 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. We may repurchase our shares from time to time to the extent permitted by securities laws and other legal requirements, including provisions in our 2023 Credit Agreement placing limitations on such repurchases. NOTE 11 - Retirement Plans The funded status of our defined benefit plans, which represents the difference between the fair value of plan assets and the projected benefit obligations, is recognized in the Consolidated Balance Sheets with a corresponding adjustment to accumulated other comprehensive income (loss). Gains and losses for the differences between actuarial assumptions and actual results are recognized through accumulated other comprehensive income (loss). These amounts will be subsequently recognized as net periodic pension cost (income) within the Consolidated Statements of Operations. Our United Kingdom subsidiary has a defined benefit pension plan covering all eligible employees (the “UK Plan”); however, no individual joining the company after October 31, 2001 may participate in the UK Plan. On May 31, 2010, we curtailed the future accrual of benefits for active employees under such plan. We also sponsor three domestic retirement plans in which participation by new individuals is frozen. Amounts related to these domestic retirement plans were de minimis for all periods presented. Components of Net Periodic Pension Cost The components of net periodic pension (income) cost of the UK Plan for the three months ended March 31, 2024 and 2023 were as follows (in thousands): For the three months ended March 31, 2024 2023 Interest cost $ 2,376 $ 2,376 Expected return on plan assets ( 3,232 ) ( 2,791 ) Amortization of unrecognized loss 653 639 Net periodic pension (income) cost $ ( 203 ) $ 224 18 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 12 - Commitments and Contingencies Severance Agreements We have agreements with our executive officers and certain other key management personnel providing for severance benefits for such employees upon termination of their employment under certain circumstances. Guarantees In the ordinary course of business, we, at times, guarantee obligations of our subsidiaries under certain contracts. Generally, we are liable under such an arrangement only if our subsidiary fails to perform its obligations under the contract. Historically, we have not incurred any substantial liabilities as a consequence of these guarantees. Surety Bonds The terms of our construction contracts frequently require that we obtain from surety companies, and provide to our customers, surety bonds as a condition to the award of such contracts. These surety bonds are issued in return for premiums, which vary depending on the size and type of the bond, and secure our payment and performance obligations under such contracts. 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 March 31, 2024, 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 $ 2.2 billion, which represents approximately 24 % 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 March 31, 2024, 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. Hazardous Materials We are subject to regulation with respect to the handling or disposal of certain materials used in the performance of our services, which are classified as hazardous or toxic by federal, state, and local agencies. Our practice is to avoid participation in projects principally involving the remediation or removal of such materials. However, when remediation is required as part of our contract performance, we believe we comply with all applicable regulations governing the discharge of hazardous materials into the environment or otherwise relating to the protection of the environment. Government Contracts When we perform work as a federal government contractor/subcontractor or when we perform work on a project that has received federal government funding, we are subject to U.S. government audits and investigations relating to our operations, which such audits may result in fines, penalties and compensatory and treble damages, and possible suspension or debarment from doing business with the government. Based on currently available information, we believe the outcome of ongoing government disputes and investigations will not have a material impact on our financial position, results of operations, or liquidity. Legal Proceedings We are involved in several legal proceedings in which damages and claims have been asserted against us. We believe that we have a number of valid defenses to such proceedings and claims and intend to vigorously defend ourselves. We do not believe that any such matters will have a material adverse effect on our financial position, results of operations, or liquidity. We record a loss contingency if the potential loss from a proceeding or claim is considered probable and the amount can be reasonably estimated or a range of loss can be determined. We provide disclosure when it is reasonably possible that a loss will be incurred in excess of any recorded provision. Significant judgment is required in these determinations. As additional information becomes available, we reassess prior determinations and may change our estimates. Additional claims may be asserted against us in the future. Litigation is subject to many uncertainties, and the outcome of litigation is not predictable with assurance. 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. 19 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 12 - Commitments and Contingencies (Continued) Insurance Liabilities We have loss payment deductibles for certain workers’ compensation, automobile liability, general liability, and property claims, have self-insured retentions for certain other casualty claims, and are self-insured for employee-related healthcare claims. In addition, we maintain a wholly-owned captive insurance subsidiary to manage certain of our insurance liabilities. Losses are recorded based upon estimates of our liability for claims incurred and for claims incurred but not reported. 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 March 31, 2024 and December 31, 2023, the estimated current portion of such undiscounted insurance liabilities, included in “Other accrued expenses and liabilities” in the accompanying Consolidated Balance Sheets, were $ 53.4 million and $ 51.0 million, respectively. The estimated non-current portion of such undiscounted insurance liabilities included in “Other long-term obligations” as of March 31, 2024 and December 31, 2023 were $ 238.0 million and $ 229.8 million, respectively. The current portion of anticipated insurance recoveries of $ 13.3 million and $ 11.9 million as of March 31, 2024 and December 31, 2023, respectively, were included in “Prepaid expenses and other” and the non-current portion of anticipated insurance recoveries of $ 52.8 million and $ 48.8 million as of March 31, 2024 and December 31, 2023, respectively, were included in “Other assets” in the accompanying Consolidated Balance Sheets. NOTE 13 - Additional Cash Flow Information The following table presents additional cash flow information for the three months ended March 31, 2024 and 2023 (in thousands): For the three months ended March 31, 2024 2023 Cash paid for: Interest $ 132 $ 4,498 Income taxes $ 6,542 $ 5,131 Right-of-use assets obtained in exchange for new operating lease liabilities $ 32,408 $ 25,558 Right-of-use assets obtained in exchange for new finance lease liabilities $ 738 $ 29 NOTE 14 - Segment Information 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, technology, manufacturing, industrial, healthcare, utility, and institutional customers through approximately 100 operating subsidiaries. Such operating subsidiaries are organized into the following reportable segments: • United States electrical construction and facilities services; • United States mechanical construction and facilities services; • United States building services; • United States industrial services; and • United Kingdom building services. 20 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 14 - Segment Information (continued) The following tables present financial information for each of our reportable segments for the three months ended March 31, 2024 and 2023 (in thousands): For the three months ended March 31, 2024 2023 Revenues from unrelated entities: United States electrical construction and facilities services $ 764,711 $ 644,746 United States mechanical construction and facilities services 1,427,665 1,078,558 United States building services 781,160 725,375 United States industrial services 354,053 330,883 Total United States operations 3,327,589 2,779,562 United Kingdom building services 104,687 110,870 Total operations $ 3,432,276 $ 2,890,432 Total revenues: United States electrical construction and facilities services $ 766,739 $ 645,654 United States mechanical construction and facilities services 1,436,828 1,099,484 United States building services 803,873 748,610 United States industrial services 358,175 338,507 Less intersegment revenues ( 38,026 ) ( 52,693 ) Total United States operations 3,327,589 2,779,562 United Kingdom building services 104,687 110,870 Total operations $ 3,432,276 $ 2,890,432 For the three months ended March 31, 2024 2023 Operating income (loss): United States electrical construction and facilities services $ 91,589 $ 40,516 United States mechanical construction and facilities services 150,720 86,227 United States building services 33,459 37,650 United States industrial services 17,966 15,020 Total United States operations 293,734 179,413 United Kingdom building services 5,377 5,424 Corporate administration ( 39,158 ) ( 29,927 ) Total operations 259,953 154,910 Other items: Net periodic pension income (cost) 222 ( 274 ) Interest income (expense), net 7,541 ( 1,832 ) Income before income taxes $ 267,716 $ 152,804 21 Table of Contents EMCOR Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE 14 - Segment Information (Continued) March 31, 2024 December 31, 2023 Total assets: United States electrical construction and facilities services $ 1,218,422 $ 1,243,707 United States mechanical construction and facilities services 2,258,381 2,242,833 United States building services 1,372,560 1,382,664 United States industrial services 592,464 571,658 Total United States operations 5,441,827 5,440,862 United Kingdom building services 278,147 277,066 Corporate administration 967,353 891,793 Total operations $ 6,687,327 $ 6,609,721 22 Table of Contents