Company Quick10K Filing
Emcor Group
Price86.49 EPS6
Shares57 P/E15
MCap4,892 P/FCF28
Net Debt-122 EBIT415
TEV4,770 TEV/EBIT11
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-10-29
10-Q 2019-06-30 Filed 2019-07-30
10-Q 2019-03-31 Filed 2019-04-30
10-K 2018-12-31 Filed 2019-02-21
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-04-26
10-K 2017-12-31 Filed 2018-02-22
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-04-30
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-10-28
10-Q 2014-06-30 Filed 2014-07-29
10-Q 2014-03-31 Filed 2014-04-29
10-K 2013-12-31 Filed 2014-02-25
10-Q 2013-09-30 Filed 2013-10-24
10-Q 2013-06-30 Filed 2013-07-25
10-Q 2013-03-31 Filed 2013-04-25
10-K 2012-12-31 Filed 2013-02-26
10-Q 2012-09-30 Filed 2012-10-25
10-Q 2012-06-30 Filed 2012-07-26
10-Q 2012-03-31 Filed 2012-04-26
10-K 2011-12-31 Filed 2012-02-27
10-Q 2011-09-30 Filed 2011-10-27
10-Q 2011-06-30 Filed 2011-07-29
10-Q 2011-03-31 Filed 2011-04-28
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-11-02
10-Q 2010-06-30 Filed 2010-07-29
10-Q 2010-03-31 Filed 2010-04-29
10-K 2009-12-31 Filed 2010-02-25
8-K 2020-06-11
8-K 2020-04-30
8-K 2020-04-21
8-K 2020-03-02
8-K 2020-02-27
8-K 2019-11-01
8-K 2019-10-29
8-K 2019-10-04
8-K 2019-07-30
8-K 2019-05-30
8-K 2019-04-30
8-K 2019-02-21
8-K 2018-12-14
8-K 2018-10-25
8-K 2018-07-26
8-K 2018-06-01
8-K 2018-04-26
8-K 2018-02-22

EME 10Q Quarterly Report

Part I. - Financial Information.
Item 1. Financial Statements.
Note 1 Basis of Presentation
Note 2 New Accounting Pronouncements
Note 3 Revenue From Contracts with Customers
Note 4 Acquisitions of Businesses
Note 5 Earnings per Share
Note 6 Inventories
Note 7 Debt
Note 8 Fair Value Measurements
Note 9 Income Taxes
Note 10 Common Stock
Note 11 Retirement Plans
Note 12 Commitments and Contingencies
Note 13 Additional Cash Flow Information
Note 14 Segment Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. - Other Information.
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-4.(A) eme-ex4a2020331xq1.htm
EX-4.(B) eme-ex4b2020331xq1.htm
EX-4.(C) eme-ex4c2020331xq1.htm
EX-4.(D) eme-ex4d2020331xq1.htm
EX-31.1 eme-ex3112020331xq1.htm
EX-31.2 eme-ex3122020331xq1.htm
EX-32.1 eme-ex3212020331xq1.htm
EX-32.2 eme-ex3222020331xq1.htm

Emcor Group Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
4.63.72.81.80.90.02012201420172020
Assets, Equity
2.41.91.41.00.50.02012201420172020
Rev, G Profit, Net Income
0.30.1-0.0-0.2-0.3-0.52012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 1-8267
EMCOR Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 
11-2125338
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
301 Merritt Seven
 

Norwalk,
Connecticut
 
06851-1092
(Address of Principal Executive Offices)
 
(Zip Code)
(203)
849-7800
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common Stock
 
EME
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes      No  
Applicable Only To Corporate Issuers
Number of shares of Common Stock outstanding as of the close of business on April 27, 2020: 54,846,251 shares.





























[This Page Intentionally Left Blank]




EMCOR Group, Inc.
TABLE OF CONTENTS
 
 
 
Page No.
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.



FORWARD-LOOKING STATEMENTS
Certain information included in this report, or in other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Act”). Such statements are being made pursuant to the 1995 Act and with the intention of obtaining the benefit of the “Safe Harbor” provisions of the 1995 Act. Forward-looking statements are based on information available to us and our perception of such information as of the date of this report and our current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” variations of such wording and other words or phrases of similar meaning in connection with a discussion of our future operating or financial performance, and other aspects of our business, including market share growth, gross profit, project mix, projects with varying profit margins, selling, general and administrative expenses, and trends in our business and other characterizations of future events or circumstances. Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us are only predictions and are subject to risks, uncertainties, and assumptions, including, but not limited to adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for our services, adverse business conditions, availability of adequate levels of surety bonding, increased competition, unfavorable labor productivity, mix of business, the impact of the 2020 ransomware attack, and the impact of the COVID-19 pandemic on our revenue and operations. These risks and uncertainties are discussed in the “Risk Factors” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, and other sections of this report and/or our Form 10-K for the year ended December 31, 2019 filed with the SEC and available at www.sec.gov and www.emcorgroup.com. Such risks, uncertainties, and assumptions are difficult to predict, beyond our control and may turn out to be inaccurate, causing actual results to differ materially from those that might be anticipated (whether expressly or implied) from our forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.



PART I. – FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
EMCOR Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
March 31,
2020
(Unaudited)
 
December 31,
2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
347,092

 
$
358,818

Accounts receivable, less allowance for credit losses of $19,993 and $14,466, respectively
2,055,483

 
2,030,813

Contract assets
195,265

 
177,830

Inventories
35,387

 
40,446

Prepaid expenses and other
52,161

 
51,976

Total current assets
2,685,388

 
2,659,883

Property, plant and equipment, net
157,848

 
156,187

Operating lease right-of-use assets
237,796

 
245,471

Goodwill
1,064,853

 
1,063,911

Identifiable intangible assets, net
597,897

 
611,444

Other assets
91,765

 
93,462

Total assets
$
4,835,547

 
$
4,830,358

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt and finance lease liabilities
$
10,360

 
$
18,092

Accounts payable
592,576

 
665,402

Contract liabilities
590,873

 
623,642

Accrued payroll and benefits
301,878

 
382,573

Other accrued expenses and liabilities
237,973

 
195,757

Operating lease liabilities, current
52,722

 
53,144

Total current liabilities
1,786,382

 
1,938,610

Borrowings under revolving credit facility
200,000

 
50,000

Long-term debt and finance lease liabilities
294,181

 
244,139

Operating lease liabilities, long-term
198,492

 
204,950

Other long-term obligations
328,898

 
334,879

Total liabilities
2,807,953

 
2,772,578

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, 60,460,947 and 60,359,252 shares issued, respectively
605

 
604

Capital surplus
34,745

 
32,274

Accumulated other comprehensive loss
(91,722
)
 
(89,288
)
Retained earnings
2,436,305

 
2,367,481

Treasury stock, at cost 5,623,176 and 4,139,421 shares, respectively
(352,985
)
 
(253,937
)
Total EMCOR Group, Inc. stockholders’ equity
2,026,948

 
2,057,134

Noncontrolling interests
646

 
646

Total equity
2,027,594

 
2,057,780

Total liabilities and equity
$
4,835,547

 
$
4,830,358

See Notes to Consolidated Financial Statements.

1


EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)(Unaudited)

 
Three months ended March 31,
 
2020
 
2019
Revenues
$
2,299,832

 
$
2,158,728

Cost of sales
1,966,771

 
1,849,974

Gross profit
333,061

 
308,754

Selling, general and administrative expenses
226,997

 
206,169

Restructuring expenses
69

 
275

Operating income
105,995

 
102,310

Net periodic pension (cost) income
742

 
406

Interest expense, net
(2,488
)
 
(2,823
)
Income before income taxes
104,249

 
99,893

Income tax provision
28,584

 
27,483

Net income
$
75,665

 
$
72,410

 
 
 
 
Basic earnings per common share
$
1.35

 
$
1.29

 
 
 
 
Diluted earnings per common share
$
1.35

 
$
1.28

 
 
 
 
Dividends declared per common share
$
0.08

 
$
0.08

See Notes to Consolidated Financial Statements.



2


EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)(Unaudited)        
 
Three months ended March 31,
 
2020
 
2019
Net income
$
75,665

 
$
72,410

Other comprehensive (loss) income, net of tax:
 
 
 
Foreign currency translation adjustments
(2,984
)
 
611

Post retirement plans, amortization of actuarial loss included in net income (1)
550

 
535

Other comprehensive (loss) income
(2,434
)
 
1,146

Comprehensive income
$
73,231

 
$
73,556

_________
(1)
Net of tax of $0.1 million for each of the three months ended March 31, 2020 and 2019.
See Notes to Consolidated Financial Statements.


3


EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(Unaudited) 
 
Three months ended March 31,
 
2020
 
2019
Cash flows - operating activities:
 
 
 
Net income
$
75,665

 
$
72,410

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
11,767

 
10,585

Amortization of identifiable intangible assets
14,747

 
11,610

Provision for (recovery of) credit losses
2,614

 
(673
)
Deferred income taxes
4,375

 
2,496

Excess tax benefits from share-based compensation
(157
)
 
(499
)
Non-cash share-based compensation expense
3,291

 
3,557

Other reconciling items
199

 
467

Changes in operating assets and liabilities, excluding the effect of businesses acquired
(191,314
)
 
(157,388
)
Net cash used in operating activities
(78,813
)
 
(57,435
)
Cash flows - investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(2,582
)
 
(31,124
)
Proceeds from sale or disposal of property, plant and equipment
196

 
1,023

Purchase of property, plant and equipment
(12,035
)
 
(13,113
)
Investments in and advances to unconsolidated entities

 
(794
)
Net cash used in investing activities
(14,421
)
 
(44,008
)
Cash flows - financing activities:
 
 
 
Proceeds from revolving credit facility
200,000

 

Repayments of revolving credit facility
(50,000
)
 

Proceeds from long-term debt
300,000

 

Repayments of long-term debt and debt issuance costs
(257,549
)
 
(3,800
)
Repayments of finance lease liabilities
(1,277
)
 
(1,053
)
Dividends paid to stockholders
(4,500
)
 
(4,480
)
Repurchase of common stock
(99,048
)
 

Taxes paid related to net share settlements of equity awards
(2,492
)
 
(3,735
)
Issuance of common stock under employee stock purchase plan
1,638

 
1,323

Payments for contingent consideration arrangements
(653
)
 
(23
)
Distributions to noncontrolling interests

 
(40
)
Net cash provided by (used in) financing activities
86,119

 
(11,808
)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(4,678
)
 
1,298

Decrease in cash, cash equivalents, and restricted cash
(11,793
)
 
(111,953
)
Cash, cash equivalents, and restricted cash at beginning of year (1)
359,920

 
366,214

Cash, cash equivalents, and restricted cash at end of period (2)
$
348,127

 
$
254,261

_________
(1)
Includes $1.1 million and $2.3 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.
(2)
Includes $1.0 million and $2.2 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of March 31, 2020 and 2019, respectively.

See Notes to Consolidated Financial Statements.

4


EMCOR Group, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(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, 2018
$
1,741,441

 
$
601

 
$
21,103

 
$
(87,662
)
 
$
2,060,440

 
$
(253,937
)
 
$
896

Net income
72,410

 

 

 

 
72,410

 

 

Other comprehensive income
1,146

 

 

 
1,146

 

 

 

Common stock issued under share-based compensation plans

 
1

 
(1
)
 

 

 

 

Tax withholding for common stock issued under share-based compensation plans
(3,735
)
 

 
(3,735
)
 

 

 

 

Common stock issued under employee stock purchase plan
1,323

 

 
1,323

 

 

 

 

Common stock dividends
(4,480
)
 

 
44

 

 
(4,524
)
 

 

Distributions to noncontrolling interests
(40
)
 

 

 

 

 

 
(40
)
Share-based compensation expense
3,557

 

 
3,557

 

 

 

 

Balance, March 31, 2019
$
1,811,622

 
$
602

 
$
22,291

 
$
(86,516
)
 
$
2,128,326

 
$
(253,937
)
 
$
856

Balance, December 31, 2019
$
2,057,780

 
$
604

 
$
32,274

 
$
(89,288
)
 
$
2,367,481

 
$
(253,937
)
 
$
646

Net income
75,665

 

 

 

 
75,665

 

 

Other comprehensive loss
(2,434
)
 

 

 
(2,434
)
 

 

 

Cumulative-effect adjustment (2)
(2,307
)
 

 

 

 
(2,307
)
 

 

Common stock issued under share-based compensation plans
1

 
1

 

 

 

 

 

Tax withholding for common stock issued under share-based compensation plans
(2,492
)
 

 
(2,492
)
 

 

 

 

Common stock issued under employee stock purchase plan
1,638

 

 
1,638

 

 

 

 

Common stock dividends
(4,500
)
 

 
34

 

 
(4,534
)
 

 

Repurchase of common stock
(99,048
)
 

 

 

 

 
(99,048
)
 

Share-based compensation expense
3,291

 

 
3,291

 

 

 

 

Balance, March 31, 2020
$
2,027,594

 
$
605

 
$
34,745

 
$
(91,722
)
 
$
2,436,305

 
$
(352,985
)
 
$
646

 _________
(1)
Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.
(2)
Represents adjustment to retained earnings upon the adoption of Accounting Standards Codification Topic 326.
See Notes to Consolidated Financial Statements.

5


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 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, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.
NOTE 2 New Accounting Pronouncements
On January 1, 2020, we adopted the accounting pronouncement issued by the Financial Accounting Standards Board (“FASB”), which changes the way in which entities estimate and present credit losses for most financial assets, including accounts receivable and contract assets. This pronouncement replaces the previous incurred loss model with an expected credit loss model that requires consideration of a broader range of information when estimating expected credit losses over the lifetime of an asset. This guidance requires entities to estimate expected credit losses by considering forecasts of future economic conditions in addition to information about past events and current conditions. The cumulative effect of applying the new guidance was recorded as a reduction to retained earnings in the amount of $2.3 million, net of tax.
In accordance with the guidance described above, we maintain an allowance for credit losses, which represents the portion of our financial assets (accounts receivable and contract assets) that we do not expect to collect over the contractual life of such assets. Credit 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. A considerable amount of judgment is required in determining expected credit losses. Relevant factors 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. At March 31, 2020 and December 31, 2019, our allowance for credit losses was $20.0 million and $14.5 million, respectively. Our allowance for credit losses increased based on our evaluation of forecasts of future economic conditions and the expected impact on customer collections. Allowances for credit losses are based on the best facts available and are re-evaluated and adjusted on a regular basis as additional information is received. Negative macroeconomic trends, including the impact of COVID-19, could result in an increase in our credit losses if we experience delays in the payment of outstanding receivables or if future economic conditions differ from our forecasts.
The change in the allowance for credit losses for the three months ended March 31, 2020 was as follows (in thousands):
Balance at December 31, 2019
$
14,466

Cumulative-effect adjustment
3,150

Provision for credit losses
2,614

Amounts written off against the allowance
(237
)
Balance at March 31, 2020
$
19,993


In December 2019, an accounting pronouncement was issued by the FASB that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to intraperiod tax allocations and the methodology for calculating income taxes in an interim period. The guidance also simplifies aspects of the accounting for franchise taxes as well as enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The pronouncement is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. Certain aspects of this standard must be applied retrospectively while other aspects are to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company intends to adopt this accounting pronouncement on January 1, 2021, and we are currently evaluating the potential impact on our financial position and/or results of operations.

6

EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

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 the Company expects 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) collectibility 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 collectibility 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.
(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.



7

EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)
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.
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. For the three months ended March 31, 2020 and 2019, there were no significant amounts of revenue recognized during the period related to performance obligations satisfied in prior periods. In addition, for the three months ended March 31, 2020 and 2019, there were no significant reversals of revenue recognized associated with the revision of transaction prices.
(4) Allocate the transaction price to 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.

8

EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)
(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.
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 amount 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.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation 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, 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 indicate 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. For the three months ended March 31, 2020 and 2019, there were no changes in total estimated costs that had a significant impact on our operating results. In addition, there were no significant losses recognized during the three months ended March 31, 2020 and 2019.


9

EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)
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. 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, as well as a more complete description of our business.
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, 2020 and 2019 (in thousands):
 
For the three months ended March 31,
 
2020
 
% of
Total
 
2019
 
% of
Total
United States electrical construction and facilities services:
 
 
 
 
 
 
 
Commercial market sector
$
242,841

 
46
%
 
$
269,441

 
51
%
Institutional market sector
41,518

 
8
%
 
22,345

 
4
%
Hospitality market sector
5,082

 
1
%
 
6,841

 
1
%
Manufacturing market sector
120,372

 
23
%
 
98,803

 
19
%
Healthcare market sector
20,646

 
4
%
 
17,615

 
3
%
Transportation market sector
44,180

 
8
%
 
58,139

 
11
%
Water and wastewater market sector
2,329

 
1
%
 
6,015

 
1
%
Short duration projects (1)
32,721

 
6
%
 
40,409

 
8
%
Service work
16,296

 
3
%
 
9,262

 
2
%
 
525,985

 

 
528,870

 
 
Less intersegment revenues
(756
)
 


 
(800
)
 
 
Total segment revenues
$
525,229

 

 
$
528,070

 
 
 
For the three months ended March 31,
 
2020
 
% of
Total
 
2019
 
% of
Total
United States mechanical construction and facilities services:
 
 
 
 
 
 
 
Commercial market sector
$
304,690

 
36
%
 
$
281,862

 
37
%
Institutional market sector
76,997

 
9
%
 
61,283

 
8
%
Hospitality market sector
7,714

 
1
%
 
13,648

 
2
%
Manufacturing market sector
115,582

 
14
%
 
98,763

 
13
%
Healthcare market sector
88,059

 
10
%
 
61,374

 
8
%
Transportation market sector
14,346

 
2
%
 
5,734

 
1
%
Water and wastewater market sector
40,513

 
5
%
 
43,211

 
6
%
Short duration projects (1)
97,202

 
12
%
 
99,936

 
13
%
Service work
90,893

 
11
%
 
89,466

 
12
%
 
835,996

 

 
755,277

 
 
Less intersegment revenues
(1,884
)
 


 
(2,868
)
 
 
Total segment revenues
$
834,112

 

 
$
752,409

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





10

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,
 
2020
 
% of
Total
 
2019
 
% of
Total
United States building services:
 
 
 
 
 
 
 
Commercial site-based services
$
143,438

 
28
%
 
$
155,978

 
30
%
Government site-based services
42,917

 
8
%
 
48,791

 
10
%
Mechanical services
303,391

 
59
%
 
274,166

 
54
%
Energy services
28,337

 
5
%
 
33,144

 
6
%
Total segment revenues
$
518,083

 

 
$
512,079

 
 
 
For the three months ended March 31,
 
2020
 
% of
Total
 
2019
 
% of
Total
United States industrial services:
 
 

 
 
 
 
Field services
$
269,756

 
87
%
 
$
216,770

 
84
%
Shop services
40,275

 
13
%
 
41,875

 
16
%
Total segment revenues
$
310,031

 

 
$
258,645

 
 
 
 
 
 
 
 
 
 
Total United States operations
$
2,187,455

 
 
 
$
2,051,203

 
 
 
For the three months ended March 31,
 
2020
 
% of
Total
 
2019
 
% of
Total
United Kingdom building services:
 
 
 
 
 
 
 
Service work
$
55,106

 
49
%
 
$
54,634

 
51
%
Projects & extras
57,271

 
51
%
 
52,891

 
49
%
Total segment revenues
$
112,377

 

 
$
107,525

 
 
 
 
 

 
 
 
 
Total worldwide operations
$
2,299,832

 

 
$
2,158,728

 
 


 Contract Assets and Contract Liabilities
Accounts receivable are recognized in the period when our right to consideration is unconditional. Accounts receivable are recognized net of an allowance for credit losses. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our long-term construction projects when revenues recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed 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.


11

EMCOR Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 Revenue from Contracts with Customers - (Continued)
Contract liabilities from our long-term 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.
Net contract liabilities consisted of the following (in thousands):
 
March 31, 2020
 
December 31, 2019
Contract assets, current
$
195,265

 
$
177,830

Contract assets, non-current

 

Contract liabilities, current
(590,873
)
 
(623,642
)
Contract liabilities, non-current
(2,051
)
 
(2,142
)
Net contract liabilities
$
(397,659
)
 
$
(447,954
)

The $50.3 million decrease in net contract liabilities for the three months ended March 31, 2020 was primarily attributable to a decrease in net contract liabilities on our uncompleted long-term construction contracts, partially as a result of the completion or substantial completion of certain large projects which were previously billed in advance pursuant to contract terms. The acquisition completed in the first quarter of 2020 did not have a significant impact on our contract assets and contract liabilities. There was no significant impairment of contract assets recognized during either period 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 (in thousands, except for percentages):
 
March 31, 2020
 
% of Total
Remaining performance obligations:
 
 
 
United States electrical construction and facilities services
$
1,032,611

 
23
%
United States mechanical construction and facilities services
2,601,659

 
59
%
United States building services
545,803

 
12
%
United States industrial services
109,192

 
3
%
Total United States operations
4,289,265

 
97
%
United Kingdom building services
134,634

 
3
%
Total worldwide operations
$
4,423,899

 
100
%

Our remaining performance obligations at March 31, 2020 were $4.42 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 due to the inherent substantial economic penalty that would be incurred by our customers upon cancellation.
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.


12

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
$
842,643

 
$
189,968