What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-28 · 102 added, 125 removed, 290 unchanged (44% of the section changed)

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For a more complete description of our operations, refer to Item 1.

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.

Market Update

Our business and end markets remained resilient despite the impact of uncertain global economic conditions, including supply chain, production, and other logistical issues, an inflationary cost environment, elevated interest rates, and skilled labor shortages in certain regions.

The continued strength in demand for our services is reflected in our results of operations for 2023, during which we experienced an increase in both revenue and operating income when compared to 2022.

As evidenced by the growth in our remaining performance obligations, which increased to $8.85 billion at December 31, 2023, from $7.46 billion at December 31, 2022, we anticipate a similar level of demand for our services in the near term, provided that the business environment does not significantly deteriorate.

Although improved from 2022, we continued to experience pressures in our supply chain, which resulted in material and equipment lead times significantly in excess of normal levels.

Delays in critical material and equipment deliveries additionally resulted in us funding purchases at earlier stages of project progression, or in advance of project commencement.

While we generally strive to negotiate advanced payments or billing terms with our customers that allow us to invoice for these amounts, such purchases may apply pressure on our working capital requirements in future periods.

Although we experienced a reduction in commodity prices when compared to 2022, and current economic indicators suggest that inflation is slowing, there continues to be volatility in the price of fuel, certain materials, and other commodities used in our operations.

Further, in an effort to mitigate inflation, the Federal Reserve Board increased the federal funds rate throughout 2022 and into 2023.

Our management teams continue to adapt to the challenges of the current operating environment in order to manage our business more effectively through diligent contract negotiations, enhanced labor planning and project scheduling, and increased supplier engagement.

As contractually permitted, and in order to combat inflationary pressures, we have and will continue to seek increases in pricing to the extent we experience increases in our costs.

While we believe the actions we have taken continue to be effective, as evidenced in part by our operating performance and operating cash flow in 2023, the impact of these disruptions continues to evolve and there can be no assurance that our actions will serve to mitigate such impacts in future periods.

Further, while we believe our remaining performance obligations are firm, and we have not experienced any material project cancellations to date, prolonged delays in the receipt of critical equipment could impact our ability to convert such remaining performance obligations to revenues in the near term or result in our customers seeking to delay or terminate existing or pending agreements.

Lastly, the current interest rate environment may cause a decline in capital or maintenance spending of our customers or prospective customers, particularly as it pertains to short duration project work.

Any of these events could result in reduced demand for our services or affect our ability to collect payment, and therefore, have a material adverse effect on our business, financial condition, and/or results of operations.

2024 versus 2023

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Revenues of $14.57 billion for the year ended December 31, 2024 set a new annual record for the Company and represent an increase of 15.8% from revenues of $12.58 billion for the year ended December 31, 2023.

Demand for our services continues to be strong across the majority of the market sectors we serve and, as described in further detail below, we experienced revenue growth within all of our reportable segments except for our United Kingdom building services segment.

Demand for our services continues to be strong across most of the market sectors we serve and, as described in further detail below, we experienced revenue growth within the majority of our reportable segments.

Revenues for the year ended December 31, 2024 included incremental acquisition contribution of approximately $251.5 million.

Operating income for 2024 was $1,344.9 million, or 9.2% of revenues, establishing new annual records for the Company with respect to both operating income and operating margin.

This compares to operating income of $875.8 million, or 7.0% of revenues, in 2023.

The $310.9 million increase in operating income, and corresponding 190 basis point improvement in operating margin, were a result of improved operating performance across all of our reportable segments other than our United Kingdom building services segment.

As described in further detail below, these improvements in profitability were predominantly a result of:

(a) better project execution and productivity, (b) a more favorable mix of work, (c) the successful close-out of several projects and resolution of certain disputes within our United States construction segments, and (d) a reduction in the price of certain commodities and materials utilized in our operations.

The $469.1 million increase in operating income, and corresponding 220 basis point expansion in operating margin, were predominantly a result of improved operating performance within our United States construction segments, as described in further detail below.

Operating income for the year ended December 31, 2024 included incremental acquisition contribution of $13.4 million, net of amortization expense attributable to identifiable intangible assets of $15.3 million.

Net income of $1,007.1 million, or $21.52 per diluted share, for the year ended December 31, 2024, compares favorably to net income of $633.0 million, or $13.31 per diluted share, for the year ended December 31, 2023.

In addition to the increase in operating income referenced above, our diluted earnings per share for 2023 benefited from a reduced weighted average share count given the impact of common stock repurchases made by us throughout 2022 and 2023.

While the majority of the increase in our net income and diluted earnings per share was a result of the increased operating income referenced above, these amounts additionally benefited from greater interest income and a reduction in interest expense in 2024.

Further, our diluted earnings per share for the year ended December 31, 2024 was positively impacted by a reduced weighted average share count due to common stock repurchases made by us throughout 2023 and 2024.

Impact of Acquisitions

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The amounts discussed reflect the acquired companies’ operating results in the current reported period only for the time period these entities were not owned by EMCOR in the comparable prior reported period.

For further discussion regarding our acquisitions, refer to Note 4 - Acquisitions of Businesses of the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data.

During 2024, we acquired seven companies for upfront consideration of $231.1 million, inclusive of customary working capital adjustments.

These acquisitions are comprised of:

(a) an electrical contractor in the Southeast region of the United States, that has been included in our United States electrical construction and facilities services segment, (b) two companies that have been 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, (c) three companies that have been included in our United States building services segment, including:

(i) a provider of building automation and controls solutions in the Northeast region of the United States, (ii) a mechanical services company in the Western region of the United States, and (iii) a mechanical services company in the Eastern region of the United States, and (d) an instrumentation and electrical contractor, that has been 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 2023, we acquired eight companies for total consideration of $99.6 million.

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United Kingdom building services 425,525 3 % 436,423 3 %

Total operations $ 12,582,873 100 % $ 11,076,120 100 %

As a result of strong demand for our services across the majority of the market sectors we serve, revenues for the year ended December 31, 2023 increased to $12.58 billion compared to revenues of $11.08 billion for the year ended December 31, 2022.

As described in more detail below, we experienced increases in revenues from all of our reportable segments, except for our United Kingdom building services segment.

Companies acquired in 2023 and 2022 generated incremental revenues of $107.1 million in 2023.

Revenues of our United States electrical construction and facilities services segment were $2,783.7 million for the year ended December 31, 2023 compared to revenues of $2,433.1 million for the year ended December 31, 2022.

This segment’s results included $88.5 million of incremental acquisition revenues for the year ended December 31, 2023.

Excluding the impact of acquisitions, revenues of this segment increased by $262.1 million as a result of an increase in revenues within many of the market sectors in which we operate, most notably including:

(a) the network and communications market sector, predominantly due to our data center projects, (b) the manufacturing and industrial market sector, from contracts with our energy sector customers, including those for renewable energy projects, (c) the healthcare market sector, as a result of greater activity throughout certain of the regions in which we operate, (d) the hospitality and entertainment market sector, given an increase in projects within the Western region of the United States, and (e) the high-tech manufacturing market sector, due to an increase in projects for various biotech, life-sciences, and pharmaceutical customers as well as certain semiconductor manufacturers.

Partially offsetting these increases were modest revenue declines from the commercial market sector and the institutional market sector as well as a reduction in short duration project volume.

Consolidated revenues

$ 14,566,116 100 % $ 12,582,873 100 %

As a result of strong demand for our services across most of the market sectors we serve, revenues for the year ended December 31, 2024 increased to $14.57 billion compared to revenues of $12.58 billion for the year ended December 31, 2023.

As described in more detail below, we experienced increases in revenues from the majority of our reportable segments.

Additionally, revenues for 2024 included incremental acquisition contribution of approximately $251.5 million.

Revenues of our United States electrical construction and facilities services segment were $3,342.9 million for the year ended December 31, 2024, a $559.2 million increase compared to revenues of $2,783.7 million for the year ended December 31, 2023.

This segment’s results for 2024 included $2.7 million of incremental acquisition revenues.

Excluding the impact of acquisitions, the increase in this segment’s revenues was primarily a result of growth within the network and communications market sector, predominantly due to data center construction projects.

Increased demand for cloud computing and data storage, driven in part by the emergence of artificial intelligence, has resulted in a greater number of project opportunities for us in several of the geographies in which we operate.

In addition, this segment benefited from revenue growth within a number of the other market sectors we serve, such as:

(a) the high-tech manufacturing market sector, inclusive of construction projects for customers engaged in the design and manufacturing of semiconductors, (b) the manufacturing and industrial market sector, driven by increased activity with various energy sector customers, (c) the transportation market sector, due to certain infrastructure projects currently underway, and (d) the institutional market sector, given increased project revenues from certain schools and universities.

These increases were partially offset by a reduction in revenues within the commercial market sector due in part to reduced demand across the commercial real estate industry.

Our United States mechanical construction and facilities services segment revenues for the year ended December 31, 2024 were $6,405.7 million, a $1,330.9 million increase compared to revenues of $5,074.8 million for the year ended December 31, 2023.

The year-over-year increase in this segment’s revenues was primarily attributable to revenue growth within:

(a) the high-tech manufacturing market sector, as a result of increased demand for our mechanical construction and/or fire protection services by certain customers:

(i) engaged in either the design and manufacturing of semiconductors or the production and development of electric vehicles and/or lithium batteries, and (ii) within the biotech, life-sciences, and pharmaceutical industries, (b) the network and communications market sector, due to increased data center project activity, and (c) the manufacturing and industrial market sector, due in part to continued re-shoring of critical supply chain by certain of our customers.

Revenues of our United States building services segment were $3,120.1 million and $2,755.0 million for the years ended December 31, 2023 and 2022, respectively.

Excluding incremental acquisition contribution of $18.6 million, the $346.6 million increase in this segment’s revenues was primarily attributable to its mechanical services division, due to increased:

This segment’s results included $172.5 million of incremental acquisition revenues for the year ended December 31, 2024.

Excluding the impact of acquisitions, the increase in this segment’s revenues was attributable to revenue growth within the majority of the market sectors in which we operate, as well as greater levels of service work.

This segment experienced notable increases in revenues within:

(a) the high-tech manufacturing market sector, as a result of stronger demand for our mechanical construction and/or fire protection services by certain customers:

(i) engaged in either the design and manufacturing of semiconductors or the production and development of electric vehicles and/or lithium batteries and (ii) within the biotech, life-sciences, and pharmaceutical industries, (b) the network and communications market sector, due to increased data center project activity as this segment benefited from the same market demand described above within our United States electrical construction and facilities services segment, (c) the institutional market sector, given several public sector or university projects which were active during 2024, (d) the manufacturing and industrial market sector largely as a result of the re-shoring of critical supply chain by certain of our customers, (e) the water and wastewater market sector, driven by several projects within the Southeast region of the United States, and (f) the healthcare market sector, due to an increase in projects throughout several of the regions in which we operate.

Partially offsetting these increases was a reduction in revenues within the commercial market sector, largely as a result of the completion of various warehouse and distribution projects, that were active in 2023.

Revenues of our United States building services segment were $3,114.8 million for the year ended December 31, 2024 compared to $3,120.1 million for the year ended December 31, 2023.

Excluding incremental acquisition contribution of $31.0 million, this segment’s revenues decreased by $36.3 million as the strength of its mechanical services division was more than offset by revenue declines within its commercial site-based services and government site-based services divisions due to the loss of certain facilities maintenance contracts not renewed pursuant to rebid.

With respect to this segment’s mechanical services division, revenue growth was experienced from:

(a) HVAC project and retrofit work, as a result of greater:

(i) project execution stemming from the increased availability of materials and equipment when compared to the prior year, which experienced greater supply chain disruptions and delays, and (ii) demand for system upgrades and replacements, partially as our customers continue to seek ways to improve the energy efficiency or indoor air quality of their facilities, (b) service repair and maintenance volumes, given growth in our service contract base, and (c) building automation and controls projects, as we continue to expand our service offerings.

In addition to increased revenues from its mechanical services division, this segment also experienced revenue growth from its commercial site-based services and government site-based services divisions, due to the award of facilities maintenance contracts with new customers as well as scope or site expansion and increased project work with existing customers.

Such increased revenues were despite the loss of certain facilities maintenance contracts not renewed pursuant to rebid.

Revenues of our United States industrial services segment for the year ended December 31, 2024 were $1,277.2 million, a $109.4 million increase compared to revenues of $1,167.8 million for the year ended December 31, 2023.

The results of operations of this segment continued to improve at a modest pace, as evidenced by the revenue growth within both this segment’s field services and shop services divisions during 2023.

In addition to steady demand for maintenance and turnaround projects, during 2023, we experienced increased levels of capital spending by our customers, in the form of greater new build heat exchanger orders and the award of certain renewable fuel projects.

This segment’s results included $45.3 million of incremental revenues from an acquired company.

Excluding such acquisition contribution, the increase in this segment’s revenues resulted from greater demand, including turnarounds of a larger size and scope growth on certain projects, in its field services division.

Our United Kingdom building services segment revenues were $425.5 million for the year ended December 31, 2024 compared to $436.4 million for the year ended December 31, 2023.

Favorable exchange rate movements for the British pound versus the United States dollar positively impacted this segment’s 2023 revenues by $2.6 million.

Excluding the impact of foreign exchange rate movements, this segment’s revenues decreased during 2023 as a result of:

(a) the loss of certain facilities maintenance contracts not renewed pursuant to rebid, and (b) a reduction in project activity, notably within the network and communications market sector.

The decrease in this segment’s revenues for 2024 was primarily a result of the loss of certain facilities maintenance contracts not renewed pursuant to rebid.

Revenues of this segment for 2024 were positively impacted by $11.4 million as a result of favorable exchange rate movements for the British pound versus the United States dollar.

Cost of sales and gross profit

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Our gross profit for the year ended December 31, 2024 was $2,765.1 million, or 19.0% of revenues, compared to gross profit of $2,089.3 million, or 16.6% of revenues, for the year ended December 31, 2023.

While the increase in gross profit can be partially attributed to the incremental revenue contribution described above, such increase, and the expansion in gross profit margin, were also the result of stronger operating performance within the majority of our reportable segments due to improved revenue mix, project execution and close-out, and/or favorable pricing.

In 2023, acquisitions contributed incremental gross profit of approximately $15.9 million, inclusive of amortization expense attributable to identifiable intangible assets of $3.6 million.

The increase in gross profit and the expansion in gross profit margin were driven by each of our domestic reportable segments due to an improved revenue mix, excellent project execution, and/or favorable pricing.

Our gross profit for 2024 included incremental acquisition contribution of $46.2 million net of amortization expense attributable to identifiable intangible assets of $8.6 million.

Refer to the operating income section below for further discussion regarding the operating performance of each of our reportable segments.

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Our selling, general and administrative expenses for the year ended December 31, 2024 were $1,420.2 million, or 9.7% of revenues, compared to selling, general and administrative expenses of $1,211.2 million, or 9.6% of revenues, for the year ended December 31, 2023.

For the year ended December 31, 2023, selling, general and administrative expenses included $17.3 million of incremental expenses directly related to companies acquired in 2023 and 2022, including amortization expense attributable to identifiable intangible assets of $4.6 million.

Excluding incremental expenses from businesses acquired, the increase in selling, general and administrative expenses, and SG&A margin, was predominantly attributable to increases in incentive compensation expense across the majority of our reportable segments, due to higher operating results than in the prior year, and salaries and related employment expenses, largely as a result of additional headcount to support our organic revenue growth as well as annual cost of living adjustments.

In addition to these increases in employment costs, our SG&A for 2023 included incremental:

(a) computer hardware and software costs, as a result of various information technology and cybersecurity initiatives currently in process, (b) travel and entertainment expenses, and (c) rent and other occupancy costs driven by:

(i) the expansion or addition of certain fabrication facilities, which support our operations, and (ii) the impact of inflation on the real estate market.

Selling, general and administrative expenses for 2024 included $32.8 million of incremental expenses directly related to companies acquired in 2024 and 2023, including amortization expense attributable to identifiable intangible assets of $6.7 million.

Excluding incremental expenses from businesses acquired, the increase in selling, general and administrative expenses was predominantly attributable to greater:

(a) salaries and related employment expenses, largely as a result of additional headcount to support our organic revenue growth as well as annual cost of living adjustments, and (b) incentive compensation expense at certain of our operating subsidiaries, due to higher operating results than in the prior year.

Operating income (loss)

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Impairment loss on long-lived assets — — (2,350) —

Consolidated operating income

1,344,863 9.2 % 875,756 7.0 %

Total operations 875,756 7.0 % 564,877 5.1 %

Net periodic pension (cost) income (1,119) 4,311

Net periodic pension income (cost)

Interest expense (3,779) (17,199)

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Operating margin was 9.2% and 7.0% in 2024 and 2023, respectively.

Our performance in 2023 established new annual records for the Company with respect to operating income and operating margin.

As described in more detail below, improvements in profitability were a result of:

(a) better project execution, (b) a more favorable mix of work, (c) the successful close-out of certain projects within our United States construction segments, and (d) the impact in 2022 of certain supply chain disruptions and delays, which were greater than those experienced in 2023, and which, in the prior year, led to:

(i) reduced labor productivity and efficiency, (ii) the under-absorption of labor costs in instances where projects were delayed pending the receipt of materials, or (iii) material and commodity price escalations.

As described in more detail below, these increases in profitability were predominantly a result of improved operating performance within our United States construction segments, due to a more favorable mix of work and better project execution, including enhanced productivity, due in part to investments in virtual design and construction, prefabrication, and automation.

Operating income for 2024 included incremental acquisition contribution of $13.4 million net of amortization expense attributable to identifiable intangible assets of $15.3 million.

Operating income of our United States electrical construction and facilities services segment for the year ended December 31, 2024 was $447.2 million, or 13.4% of revenues, compared to operating income for the year ended December 31, 2023 of $230.6 million, or 8.3% of revenues.

The $81.9 million increase in operating income and the 220 basis point improvement in operating margin of this segment were largely a result of greater gross profit and gross profit margin given:

(a) a more favorable mix of work, (b) improved project execution and productivity, and (c) the successful close-out of certain construction projects during the year.

The largest increases in gross profit and gross profit margin were recognized within the network and communications market sector, the commercial market sector, and the healthcare market sector.

Although we continue to experience supply chain disruptions and delays, which are impacting project delivery in various ways, market conditions surrounding equipment availability steadily improved over the last year and our management teams continued to adapt to this environment.

Such developments led to improved job-site and labor productivity as well as more normalized project sequencing, resulting in fewer project write-downs when compared to the prior year.

For example, 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, the operating results of our United States electrical construction and facilities services segment were negatively impacted by approximately $12.5 million during the year ended December 31, 2023, compared to $33.5 million during the year ended December 31, 2022.

While these reductions in estimated project profitability negatively affected operating margin of this segment by 40 basis points for 2023, the impact in 2022 was 140 basis points.

Partially offsetting the year-over-year improvements in gross profit and gross profit margin were increased selling, general and administrative expenses and SG&A margin, largely as a result of greater incentive compensation expense recognized by several operating subsidiaries of this segment given improvements in profitability year-over-year.

The $216.5 million increase in operating income and 510 basis point improvement in operating margin of this segment were a result of greater gross profit and gross profit margin from projects within the majority of the market sectors in which we operate, due to both an increase in revenues as well as a more favorable mix of work.

While the most significant increase in gross profit was experienced within the network and communications market sector, this segment additionally benefited from greater gross profit recognized on projects within the manufacturing and industrial, transportation, institutional, and high-tech manufacturing market sectors.

Our United States mechanical construction and facilities services segment’s operating income for the year ended December 31, 2024 was $799.6 million, a $269.0 million increase compared to operating income of $530.6 million for the year ended December 31, 2023.

Operating margin of this segment for the year ended December 31, 2024 was 12.5%, a 200 basis point improvement over its operating margin for the year ended December 31, 2023 of 10.5%.

This increased annual operating performance was primarily a result of contribution from projects within:

(a) the high-tech manufacturing market sector, including certain mechanical construction or fire protection projects for customers:

(i) engaged in either the design or manufacturing of semiconductors or the production and development of electric vehicles and/or lithium batteries, and (ii) within the biotech, life-sciences, and pharmaceutical industries, (b) the commercial market sector, including various fire protection projects, and (c) the manufacturing and industrial market sector, which continues to benefit from customer initiatives to re-shore their critical supply chain.

Operating income and operating margin of this segment were also favorably impacted as a result of the successful close-out of certain projects during 2023 and improved productivity, due in part to investments in building information modeling, prefabrication, and digital tools.

Similar to our United States electrical construction and facilities services segment, the results of this segment in the prior year were negatively impacted by external market conditions, which manifested themselves through price escalations, particularly for materials and commodities, such as copper and steel, that are used in our mechanical and fire protection operations.

Although there remains volatility in the pricing of these commodities, more favorable pricing year-over-year has resulted in improved profitability of this segment during 2023.

Increased gross profit and gross profit margin of this segment were partially offset by higher selling, general and administrative expenses and a slight increase in SG&A margin, given greater:

(a) incentive compensation expense, due to improved operating results for certain of the operating subsidiaries within this segment, and (b) salaries and related employment costs, largely as a result of additional headcount to support current and anticipated organic revenue growth.

This segment’s operating income for 2024 included incremental acquisition contribution of $14.4 million net of amortization expense attributable to identifiable intangible assets of $10.3 million.

Excluding the impact of acquisitions, the increases in operating income and operating margin of this segment were primarily a result of contribution from projects within:

(a) the high-tech manufacturing market sector, including certain mechanical construction or fire protection projects for customers engaged in either the design or manufacturing of semiconductors or the production and development of electric vehicles and/or lithium batteries, and (b) the network and communications market sector.

While the most significant increases in gross profit were seen within the above referenced market sectors, this segment also experienced increases in gross profit across all of the other market sectors in which we operate, with notable increases generated within institutional, manufacturing and industrial, and commercial.

Operating income of our United States building services segment for the year ended December 31, 2024 was $176.7 million, or 5.7% of revenues, compared to operating income of $183.0 million, or 5.9% of revenues, for the year ended December 31, 2023.

The $36.4 million increase in operating income and the 60 basis point increase in operating margin for 2023 was almost entirely attributable to this segment’s mechanical services division, as a result of greater gross profit and gross profit margin across all of its service lines, with the largest incremental contribution from projects and retrofits as well as building automation and controls.

These improvements were due in part to favorable project execution, greater absorption of indirect costs, and favorable contractual terms.

Increased gross profit from this segment’s mechanical services division, due primarily to greater profitability across its portfolio of HVAC and building automation and controls projects and retrofits, was partially offset by reductions in gross profit from its commercial site-based services and government site-based services divisions, given the loss of certain facilities maintenance contracts not renewed pursuant to rebid.

In addition, operating income and operating margin for the year ended December 31, 2024 were negatively impacted by an $11.0 million reserve recorded during the first quarter for a specific customer bankruptcy within this segment’s commercial site-based services division.

Such reserve negatively impacted the operating margin of this segment for 2024 by approximately 30 basis points.

Our United States industrial services segment’s operating income for the year ended December 31, 2024 was $44.2 million, or 3.5% of revenues, compared to operating income of $35.4 million, or 3.0% of revenues, for the year ended December 31, 2023.

In addition to the growth in this segment’s revenues referenced above, which resulted in greater gross profit contribution, the improved year-over-year performance was due to an increase in gross profit margin within both this segment’s field services and shop services divisions.

Operating performance of this segment continues to improve steadily and we are beginning to experience better pricing, most notably within the shop services division.

Operating income of our United Kingdom building services segment for the year ended December 31, 2023 was $25.7 million compared to operating income of $29.8 million for the year ended December 31, 2022.

The decrease in this segment’s operating income for 2023 was attributable to a reduction in gross profit, due to lower revenues, as well as an increase in selling, general and administrative expenses, resulting from certain initiatives undertaken during the year.

This segment’s operating margin for 2023 of 5.9% declined by 40 basis points when compared to an operating margin in 2022 of 6.3%.

Despite an increase in gross profit margin, driven by both the successful close-out of certain projects and a more favorable contract mix, operating margin was negatively impacted by an increase in the ratio of selling, general and administrative expenses to revenues, given the aforementioned decline in revenues and the increase in overhead costs in 2023.

This segment’s operating income for the year ended December 31, 2023 was positively impacted by $0.5 million related to the effect of favorable exchange rate movements.

Operating income of this segment benefited from greater gross profit generated within its:

(a) field services division due to the increase in revenues referenced above, and (b) shop services division as a result of an improvement in gross profit margin given favorable pricing.

The increase in operating margin of this segment was attributable to the increased gross profit margin within the shop services division.

Operating income of our United Kingdom building services segment for the year ended December 31, 2024 was $21.5 million, or 5.0% of revenues, compared to operating income of $25.7 million, or 5.9% of revenues, for the year ended December 31, 2023.

The decrease in operating income and operating margin was due to a decline in gross profit and gross profit margin.

In addition to the impact of lower facilities maintenance revenues, gross profit and gross profit margin were negatively affected by a less favorable mix of work when compared to the prior year, which included a greater number of higher margin projects.

Operating income of this segment for 2024 was positively impacted by $0.5 million as a result of favorable exchange rate movements for the British pound versus the United States dollar.

Our corporate administration expenses were $144.4 million for 2024 compared to $127.2 million in 2023.

The increase in corporate expenses for 2023 was primarily due to greater incentive compensation expense, largely associated with our long-term incentive plans, given higher projected future operating results.

In addition, we have experienced increases in:

(a) salaries, as a result of annual cost of living adjustments and an increase in headcount to support our operations, (b) computer hardware and software costs, due to various information technology and cybersecurity initiatives currently in process, and (c) travel and entertainment expenses, given a greater level of travel and business meals.

The increase in corporate expenses was primarily due to:

(a) greater employment compensation and related costs, including salaries and benefits, incentive compensation, and share-based compensation, (b) certain severance expenses which were recorded during the first quarter of the year, and (c) higher computer hardware and software costs, due to various information technology and cybersecurity initiatives currently in process.

Interest expense was $3.8 million and $17.2 million for the years ended December 31, 2024 and 2023, respectively.

The year-over-year increase in interest expense was a result of higher interest rates, partially offset by reduced average outstanding borrowings.

The year-over-year decrease in interest expense was a result of the repayment, in December of 2023, of all previously outstanding direct borrowings under our credit facility.

Interest income was $35.4 million and $15.4 million for the years ended December 31, 2024 and 2023, respectively.

The increase in annual interest income resulted from greater returns on our invested cash, due to the previously referenced interest rate environment, as well as an increase in average bank deposits.

The increase in annual interest income resulted from greater returns on our invested cash, due to an increase in our average daily invested cash balance.

Our income tax provision for the year ended December 31, 2024 was $370.2 million, based on an income tax rate of 26.9%, compared to an income tax provision and an income tax rate of $239.5 million and 27.5%, respectively, for the year ended December 31, 2023.

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Our remaining performance obligations at December 31, 2024 were $10.10 billion compared to $8.85 billion at December 31, 2023.

The increase in remaining performance obligations year-over-year was attributable to an increase in remaining performance obligations within:

(a) each of our United States construction segments, driven by the award of various projects within the majority of the market sectors in which we operate, and (b) our United States building services segment, largely due to increased project opportunities within its mechanical services division.

From a market sector perspective, we experienced the most significant growth in remaining performance obligations within:

(a) the high-tech manufacturing market sector, inclusive of projects for customers engaged in:

(i) the design and manufacturing of semiconductors, and (ii) the production and development of electric vehicles and/or lithium batteries, (b) the network and communications market sector, driven by data center construction projects, (c) the institutional market sector, and (d) the water and wastewater market sector, due to the award of several construction projects within the Southeastern region of the United States.

Remaining performance obligations increased by $23.7 million as a result of acquisitions during 2023.

These increases were partially offset by a reduction in remaining performance obligations from the commercial market sector, primarily given the completion of several warehouse and distribution center projects.

While the continued growth in our remaining performance obligations is largely due to the strength in demand for our services, a portion of this increase can likely be attributed to external market factors such as material and labor inflation, which has increased the price of certain of our project work.

Remaining performance obligations increased within all of our reportable segments, with the exception of our United States building services segment, which experienced a modest decline.

The most significant growth was experienced within our United States construction segments, largely as a result of the award of several data center construction contracts within the network and communications market sector.

These segments also experienced increases in remaining performance obligations across a number of the other sectors we serve, most notably within healthcare.

Remaining performance obligations increased by $178.8 million as a result of acquisitions made by us during 2024.

Partially offsetting these increases was a decrease in remaining performance obligations within the high-tech manufacturing market sector primarily as a result of progress made on certain semiconductor and electric vehicle manufacturing construction projects within our United States mechanical construction and facilities services segment.

See Note 3 - Revenue from Contracts with Customers of the notes to consolidated financial statements included in Item 8.

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While we strive to negotiate favorable billing terms, which allow us to invoice in advance of costs incurred on certain of our contracts, there can be no assurance that such terms will be agreed to by our customers.

As of December 31, 2023, we had cash and cash equivalents of $789.8 million, which are maintained in depository accounts and highly liquid investments with original maturity dates of three months or less.

As of December 31, 2024, we had cash and cash equivalents, excluding restricted cash, of $1,339.6 million, which are maintained in depository accounts and highly liquid investments with original maturity dates of three months or less.

Both our short-term and long-term liquidity requirements are expected to be met through our cash and cash equivalent balances, cash generated from our operations, and, as necessary, the borrowing capacity under our revolving credit facility.

Our credit agreement provides for a $1.30 billion revolving credit facility, for which there is $1.18 billion of available capacity as of December 31, 2023.

Our credit agreement provides for a $1.30 billion revolving credit facility, for which there was $1.23 billion of available capacity as of December 31, 2024.

Refer to Note 9 - Debt of the notes to consolidated financial statements included in Item 8.

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Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (2,600) $ 6,372

Increase (decrease) in cash, cash equivalents, and restricted cash

$ 332,682 $ (365,500)

Increase in cash, cash equivalents, and restricted cash $ 550,645 $ 332,682

During the year ended December 31, 2024, our cash balance, including cash equivalents and restricted cash, increased by $550.6 million from $789.8 million at December 31, 2023 to $1,340.4 million at December 31, 2024.

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Operating Activities – Operating cash flows generally represent our net income as adjusted for certain non-cash items and changes in assets and liabilities.

For 2023, net cash provided by operating activities was approximately $899.7 million compared to approximately $497.9 million of net cash provided by operating activities in 2022.

The $401.7 million increase in operating cash flows during 2023, when compared to 2022, was largely a result of increased income, coupled with customer deposits and advanced payments on certain construction contracts, as evidenced by the growth in our contract liabilities.

Investing Activities – Investing cash flows consist primarily of payments for the acquisition of businesses, capital expenditures, and proceeds from the sale or disposal of property, plant, and equipment.

During 2023, we utilized approximately $161.3 million of cash for investing activities compared to $140.8 million during 2022.

The increase in investing cash outflows year-over-year was primarily driven by higher capital expenditures to support our organic growth, partially offset by an increase in proceeds from the sale or disposal of property, plant, and equipment.

Payments for the acquisition of businesses were fairly consistent each year as we utilized $96.5 million in 2023, compared to $98.7 million in 2022.

For 2024, net cash provided by operating activities was approximately $1,407.9 million compared to approximately $899.7 million in 2023.

The $508.2 million year-over-year increase in operating cash flows was primarily a result of:

(a) our improved operating performance and the corresponding increase in our net income and (b) the timing of cash receipts from our customers.

Investing Activities – Investing cash flows consist primarily of payments for acquisition of businesses, capital expenditures, and proceeds from the sale or disposal of property, plant, and equipment.

Net cash used in investing activities for 2024 increased by approximately $138.0 million compared to 2023, primarily due to an increase in payments for acquisitions.

Financing Activities – Financing cash flows consist primarily of the issuance and repayment of short-term and long-term debt, repurchases of common stock, payments of dividends to stockholders, and the issuance of common stock through certain equity plans.

Net cash used in financing activities during 2024 was $555.4 million compared to $412.1 million during 2023.

The $298.1 million reduction in financing cash outflows was primarily due to a decrease in funds used for the repurchase of our common stock during 2023, partially offset by an increase in net repayments of debt under our credit agreement.

The $143.3 million variance was primarily due to an increase in common stock repurchases made by us during 2024, partially offset by the impact of repayments on our outstanding debt in the prior year period.

The timing of common stock repurchases is at management’s discretion subject to securities laws and other legal requirements and depends upon several factors, including market and business conditions, current and anticipated future liquidity, share price, and share availability, among others.

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For the years ended December 31, 2024 and 2023, cash payments related to dividends were $43.4 million and $32.7 million, respectively.

Subsequent to December 31, 2023, our Board of Directors announced its intention to increase the regular quarterly dividend to $0.25 per share commencing with the dividend to be paid in April 2024.

Our credit agreement places limitations on the payment of dividends on our common stock.

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Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash – We are exposed to fluctuations in foreign currency exchange rates, almost entirely with respect to the British pound.

Therefore, the $18.9 million variance between the years ended December 31, 2023 and 2022 was a direct result of favorable exchange rate movements for the British pound versus the United States dollar.

Therefore, the $9.0 million variance between the years ended December 31, 2024 and 2023 was a direct result of exchange rate movements for the British pound versus the United States dollar.

Material Cash Requirements from Contractual and Other Obligations

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As of December 31, 2024, the present value of expected future payments relating to these contingent consideration arrangements was $29.7 million.

Of this amount, $6.1 million is estimated as being payable during 2024, with the remainder due in 2025.

Of this amount, $20.4 million is estimated as being payable during 2025, with the remainder due pursuant to the terms of our contractual agreements, some of which extend into 2027.

In addition, material cash requirements for other potential obligations, for which we cannot reasonably estimate future payments, include the following:

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Refer to Note 14 - Retirement Plans of the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data for more information regarding these multiemployer benefit plans.

Financial Statements and Supplementary Data for more information regarding multiemployer benefit plans.

Off-Balance Sheet Arrangements and Other Commercial Commitments

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We do not have any other material financial guarantees or off-balance sheet arrangements other than those disclosed herein.

To help mitigate the impacts of greenhouse gas emissions on climate change, EMCOR has established initial carbon-based fuel consumption and greenhouse gas emission reduction targets, and has committed to investigating the establishment of science-based greenhouse gas emissions targets.

To help mitigate the impacts of greenhouse gas emissions on climate change, EMCOR has established initial carbon-based fuel consumption and greenhouse gas emission reduction targets.

Although to date we have not incurred any material costs or capital expenditures associated with achieving our targets, we could be required to expend amounts in future periods as we continue to work towards our goals.

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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.

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 years ended December 31, 2023, 2022, and 2021, as summarized in the following table (in thousands):

2023 2022 2021

Based on an evaluation of individual projects that were substantially complete in prior periods but had revisions to total estimated costs or anticipated contract value (inclusive of the settlement of previously outstanding change orders and claims) that resulted in an increase to profitability in excess of $1.0 million, we recognized revenue during the years ended December 31, 2024 and 2023, as summarized in the following table (in thousands):

United States electrical construction and facilities services $ 14,006 $ 3,350

$ 12,535 $ 33,463 $ 4,627

United States mechanical construction and facilities services 10,551 13,114

Total impact $ 24,557 $ 16,464

There were no significant amounts of revenue recognized during the year ended December 31, 2022 related to performance obligations satisfied in prior periods.

Included in our results for the year ended December 31, 2024 was $12.3 million of gross profit recognized on two contracts, which are currently in process, as a result of favorable developments on certain claims.

Of this amount, $8.4 million was reported within our United States electrical construction and facilities services segment and $3.9 million was reported within our United States mechanical construction and facilities services segment.

Based on an evaluation of individual projects that had revisions to total estimated costs or anticipated contract value that resulted in a reduction of profitability in excess of $1.0 million, our operating results were negatively impacted during the years ended December 31, 2024, 2023, and 2022, as summarized in the following table (in thousands):

2024 2023 2022

United States electrical construction and facilities services $ 27,977 $ 12,535 $ 33,463

United States mechanical construction and facilities services 38,342 10,864 13,679

United States building services — 5,658 1,261

5,658 1,261 —

$ 29,057 $ 48,403 $ 6,891

During the year ended December 31, 2023, we recognized revenue of approximately $16.5 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 this amount, approximately $3.4 million was reported within our United States electrical construction and facilities services segment and approximately $13.1 million was reported within our United States mechanical construction and facilities services segment.

There were no significant amounts of revenue recognized during the years ended December 31, 2022 or 2021 related to performance obligations satisfied in prior periods.

Total impact $ 66,319 $ 29,057 $ 48,403

Due to the significant judgments utilized in the estimation process described above, if subsequent actual results and/or updated assumptions, estimates, or projections related to our underlying project positions were to change from those utilized at December 31, 2024, it could result in a material impact to our results of operations.

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Therefore, if our actual experience differs from the assumptions and estimates used for recording the liabilities, adjustments may be required and will be recorded in the period that the experience becomes known.

In addition, as discussed above, an increase in the cost to settle insurance claims could result in higher insurance costs and deductibles.

In addition, an increase in the cost to settle insurance claims could result in higher insurance costs and deductibles.

Our estimated net insurance liabilities for workers’ compensation, automobile liability, general liability, and property claims increased by $20.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, partially as a result of greater potential exposures and an increase in certain of our deductibles or self-insured retentions.

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(a) a 50 basis point increase in the discount rate utilized in our testing, (b) a 50 basis point decline in the perpetual growth rate utilized in our testing, or (c) a 10% decrease in the estimated fair value of each trade name.

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 estimated to result from the use of such assets.

As a result of this test, we determined that these assets were impaired, and, during the third quarter of 2023, recognized a $2.4 million impairment charge as calculated using a discounted cash flow model.

For the year ended December 31, 2023, there were no other indicators of impairment with respect to identifiable intangible assets that are being amortized as well as other long-lived assets.

With respect to identifiable intangible assets that are being amortized as well as other long-lived assets, we did not identify any circumstances indicating that their carrying values may not be fully recoverable and, therefore, no impairment testing was required for these assets during the year ended December 31, 2024.

During 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 estimated 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.

Other Considerations

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In addition, estimates of weighted average costs of capital are developed with the assistance of an independent third-party valuation specialist.

These assumptions and estimates may change in future periods, especially in times of uncertain economic conditions and rising interest rates.

Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future impairment charges, particularly with respect to our United States industrial services segment given that the fair value of this reporting unit more closely approximates its carrying value.

These assumptions and estimates may change in future periods.

Significant adverse changes to external market conditions or our internal forecasts, if any, could result in future impairment charges.

It is not possible at this time to determine if any future impairment charge will result or, if it does, whether such a charge would be material to our results of operations.

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Financial Statements and Supplementary Data for further information about our goodwill and identifiable intangible assets as well as our impairment testing.

No impairment of our goodwill, identifiable intangible assets, or other long-lived assets was recognized during the years ended December 31, 2022 or 2021.

No impairment of our goodwill or identifiable intangible assets was recognized during the years ended December 31, 2024, 2023, or 2022.

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-K

Item 7. Management’s Discussion and Analysis