管理層發言
Good morning. My name is Dave, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Second Quarter 2026 Earnings Conference Call. I will now turn the call over to Lucas Sullivan, Director, Financial Planning and Analysis. Mr. Sullivan, you may begin.
Thank you, Dave. Good morning, everyone, and welcome to EMCOR's Second Quarter 2026 Earnings Conference Call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcorgroup.com. With me today are Tony Guzzi, our Chairman, President and Chief Executive Officer; Jason Nalbandian, Senior Vice President and EMCOR's Chief Financial Officer; and Maxine Mauricio, Executive Vice President, Chief Administrative Officer and General Counsel. For today's call, Tony will provide comments on our second quarter and discuss our RPOs. Jason will then review the second quarter numbers, then turn it back to Tony to discuss our guidance before we open it up for Q&A. Before we begin, a quick reminder that this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. And finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony?
Yes. Thank you, Lucas, and good morning, and thanks for joining us today. I'm going to start my remarks on Slide 4. EMCOR delivered another outstanding quarter, highlighted by exceptional organic growth, strong conversion of revenue into operating income and cash flow, continued booking strength and record remaining pro forma obligations or RPOs. These results reflect the consistent execution, operational discipline and customer focus that have defined EMCOR's success over many years. Importantly, our strong performance during the first half of 2026, combined with the visibility provided by our record RPOs, supports a substantial increase to our full year 2026 earnings guidance. As we will discuss in more detail later in the call, we also continued to execute our balanced capital allocation strategy, returning significant cash to shareholders, while investing in strategic acquisitions that strengthen our capabilities and deepen our position in attractive end markets to better serve our customers. So let's go to the second quarter. In the second quarter, revenues were $5.15 billion, an increase of 19.8% over the prior year. Excluding the impact of acquisitions and the divestiture of EMCOR U.K., organic revenue growth was 19.6%. Operating income reached $547 million, resulting in an operating margin of 10.6%, while diluted earnings per share increased by 35% year-over-year to $9.06 in the quarter. These results demonstrate the strength of our business model, the quality of our execution and the sustained demand that we continue to see across many of our core markets. Electrical Construction generated revenue growth of 24% year-over-year, while delivering an impressive operating margin of 13.9%. Mechanical Construction achieved revenue growth of 31% year-over-year with a strong operating margin of about 12.5%. These results reflect our ability to execute complex projects across multiple geographies and trades and expand our scope with existing customers and consistently deliver value to our customers on mission-critical projects. Growth across our construction businesses continues to be supported by strength in several sectors. In the quarter, the largest revenue increases were generated in network and communications, which is where our data center business is, institutional, manufacturing and industrial and warehousing and distribution within commercial. Our teams are leveraging industry-leading prefabrication capabilities, virtual design and construction technology, which we refer to as VDC, disciplined labor management and advanced project planning to execute these projects safely, efficiently and productively for our customers. Our U.S. Building Services segment also delivered solid performance. Revenues increased 5.6% from the second quarter of 2025, while operating income grew 26.6%. Our Mechanical Services division continues to perform exceptionally well, benefiting from an increased service base as well as customer investments in HVAC retrofits, control systems upgrades, indoor air quality improvements and energy efficiency initiatives. In addition, the restructuring actions we implemented last year in our site-based services business are generating meaningful benefits through a leaner cost structure and a more profitable portfolio of contracts. Our Industrial Services segment generated revenue growth of 26% year-over-year, led by strong performance within field services, while also delivering year-over-year improvement in profitability. Now I'll ask you to turn to Slide 5. One of the most significant indicators of future growth continues to remain our RPO position. At quarter end, total RPOs reached a record $17.14 billion, an increase of 44% from the prior year, 29% from December, and despite the record organic growth in the quarter, 10% sequential growth from March. Notably, 95% of this growth was organic. This record position provides visibility into future revenue and reflects the strength of customer demand across several sectors. Demand within the network and communications sector led by data centers remains exceptionally strong. We continue to see expanding opportunities as customers invest in AI infrastructure and digital transformation initiatives. Equally important, our RPO growth was broad-based with strong bookings in water and wastewater, health care and the institutional sectors. Customers continue to place trust in EMCOR as we successfully execute projects and we consistently meet our commitments. Many customers are expanding across geographies and scope in the facilities, geographies, trades and other technical disciplines like our preconstruction. This ability to deepen relationships and grow alongside our customers remains a significant competitive advantage for EMCOR. And with that, I'll turn the call over to Jason to go through the numbers.
Thank you, Tony, and good morning, everyone. Over the next two slides, I will cover the operating performance for each of our segments as well as some of the key financial data for the second quarter of 2026 as compared to the second quarter of 2025. I'm going to start on Slide 6. Revenues of $5.15 billion established a quarterly record for EMCOR, increasing 19.8% or 19.6% on an organic basis when excluding acquisitions and adjusting for the sale of EMCOR U.K. Each of our segments experienced meaningful revenue growth contributing to our consolidated performance. Revenues of Electrical Construction were $1.66 billion, increasing 24%. While this segment did experience increased activity across a number of the market sectors we serve, the majority of its growth in the quarter resulted from greater data center projects within the network and communications market sector, where revenues increased by 45%. Mechanical Construction revenues of $2.3 billion grew by just over 31%. Similar to Electrical, this segment experienced the greatest growth from the network and communications market sector, where revenues more than doubled year-over-year. Increased cooling requirements for data centers, coupled with our expansion into new or adjacent geographies continue to drive more opportunities for this segment. In addition to data centers, Mechanical Construction generated notable revenue growth from several other sectors in which we operate. Specifically, institutional revenues increased 77%, commercial increased by 26% due to a resumption in demand for warehousing, distribution and logistics projects, largely within fire protection, and manufacturing and industrial, including food processing, was up 18%. On a combined basis, our Construction segment generated revenues of $3.96 billion, an increase of 28% and establishing new quarterly revenue records for both segments. Moving to Building Services. Revenues of $837.7 million increased by 5.6%. Revenues of our Mechanical Services division increased by $30 million or nearly 5% driven by broad-based strength across each of their service lines. In addition, the segment's commercial site-based services division returned to growth, experiencing a $14 million or roughly 11% increase in revenues due to the award of new facilities maintenance contracts as well as scope or site expansion with existing customers. Like our construction segments, the performance of Building Services represents a quarterly record for revenues. Industrial Services revenues were $353.8 million, reflecting an increase of nearly 26% driven by our field services division, which benefited from greater turnaround activity, higher petrochemical project volume and progress made on a large solar project. Let's move to Slide 7 for operating income. We generated operating income of $547.3 million or 10.6% of revenues, both of which are records for EMCOR for our second quarter. Operating income increased nearly 32% and operating margin expanded by 100 basis points. Looking at each of our segments. Operating income of Electrical Construction increased by 46.8% to a quarterly record of $231.4 million due to the revenue growth I previously mentioned, coupled with 210 basis points of operating margin expansion. While the segment did benefit from a 20 basis point reduction in SG&A margin, the vast majority of the increase in operating margin was a result of greater gross profit margin given exceptional field execution and a more favorable project mix. Mechanical Construction had operating income of $286.6 million, which represents a 20.1% increase. As with electrical, operating income for this segment represents a quarterly record. Although down 110 basis points, Mechanical Construction earned a solid 12.5% operating margin which is in line with the segment's average margin over both the last 12- and 24-month periods. Similar to the first quarter and very much as we anticipated, the reduction in operating margin of this segment resulted from a shift in mix that included a greater percentage of revenues from projects where we are acting as either the construction manager or prime contractor and which inherently carry lower-than-average gross profit margins due to reduced markups on materials, equipment and subcontractor costs as well as an increase in the number of GMP or cost-plus contracts. Together, our construction segments grew operating income by over 30% and earned a combined operating margin of 13.1%, an increase of 30 basis points. Building Services generated operating income of $63.4 million, an increase of 26.6%. In addition to the impact of greater revenues, the segment achieved 130 basis points of margin expansion, with operating margin reaching an impressive 7.6%. Given a more favorable project mix, coupled with improved execution, gross profit margin increased by 70 basis points. And due to the restructuring actions we completed within our site-based businesses, SG&A margin decreased by 60 basis points. Operating income for Industrial Services was $9.6 million, a significant improvement versus the year-ago period, driven by the increased revenues I previously mentioned. If we turn to Page 8, I'll quickly cover a few highlights not included on the previous slides. Gross profit of $1.02 billion increased by 22.6% and our gross profit margin of 19.8% increased by 40 basis points. While all of our operating segments contributed to the greater gross profit dollars, the improvement in gross profit margin resulted from the performance of Electrical Construction and Building Services, as I just highlighted. SG&A was $475 million or 9.2% of revenues compared to $48.6 million or 9.7% of revenues a year ago. While revenues grew nearly 20%, we obtained meaningful operating leverage during the quarter with SG&A increasing by only 13.5%, resulting in a 50 basis point reduction in quarterly SG&A margin. And lastly, on this page, diluted earnings per share was $9.06, which represents an increase of nearly 35% when compared to the $6.72 earned in last year's second quarter. If we briefly look at Slide 9, you can see the strength of our performance for the first half of the year. Revenues have grown by 19.7% or 18.3% organically, our gross profit margin has improved by 30 basis points, and we successfully leveraged our overhead cost structure, reducing SG&A margin by 50 basis points. This resulted in operating income, which has grown by nearly 30%, along with a record operating margin of 9.7%. Let's turn to Slide 10. Our balance sheet, including $924 million of cash on hand and $1.45 billion of working capital, continues to provide us with a competitive advantage and enables us to fund organic growth, pursue strategic M&A and return capital to shareholders, all of which you'll see on the next two pages. Although not shown on this slide, we did generate $289.4 million of operating cash flow in the quarter, and on a year-to-date basis, our operating cash flow is now relatively comparable to that of the year-ago period despite our growth and the associated increase in working capital. With that, I'll turn the call back over to Tony.
Thanks, and I'm going to go to Page 11, and this is a great page by the way. And so before I get into the guidance, Jason and I are going to talk about the acquisitions and capital allocation. I want to briefly highlight on this page some of our business development activity. We continue to execute our acquisition strategy with a focus on transactions that expand our capabilities and strengthen our core competencies. These acquisitions deepen our trade and technical expertise and broaden our geographic reach to better support our customers in our fastest-growing sectors. These acquisitions actually showcase our playbook and mindset with acquisitions. We look to create a cumulative and compounding impact with our acquisitions that provide durable performance. Further, we know that we have both cost and revenue synergies in the acquisitions. In most of the cases over the last five to eight years, our revenue synergies that we create far outweigh the cost synergies over time. If you like each of these acquisitions in turn, B&B Electric provides us really good capability in Wisconsin. They are a good industrial contractor that can do highly complex work. Sidney Electric in Sidney, Ohio complements the capability we have in Ohio that came through our Quibi acquisition over five years ago. We learned with things like Sidney, who are great industrial contractors that can do health care work that we can pivot them if the data center opportunities become available, and then we can grow them pretty significantly. Giles was actually acquired with our Miller team and provides access to the Daytona Beach market and will allow us to go down through the growing space market in Florida. Schmidt Electric, a market leader in Central Texas and Austin, opens up that market to us. They have the ability to do data center work, and that's where we're going to be able to bring some real capability. They can do the most complex work, and we've learned that they can pivot into data center work to our customer relationships. So keep the base, grow that and put the data centers on top of it. Likewise, Connelly Electric, we have great businesses in the Chicagoland area. This is purely complementary in the locales they operate. There are two great contracting abilities. They bring a design-build capability we don't necessarily have on some warehousing and logistics work. And we think we can pivot and we know we can pivot them also to the expanding data center market in the southern and western Chicago suburbs. We feel really good. I'm going to let Jason go through. And what's important about all this, you look at this page and they're just names on a page, right? Each one of them has a story of a great operator or a great operating family that have owned the businesses for a long time. And now they've trusted us to take that with them. They're still going to be here with us to take these businesses to the next level with how we know to grow our customer relationships, and we're going to learn from them, too. We talked about the design-build capability, some of the prefabrication techniques that they have on specific products. So this is a two-way street. We feel the pressure to continue to build and make these companies successful; some of these have 70 years, in some cases, family legacy and ownership legacy have now entrusted us to take it to the next level, and we don't take that lightly. With that, I'll turn it over to Jason.
Yes. As Tony noted, these businesses will all be included in our Electrical Construction segment, and we do anticipate funding the acquisitions through a combination of cash on hand and to the extent necessary, the borrowing capacity provided by our credit facility. The slide shows here that these five businesses collectively generated $625 million of revenues and $105 million of EBITDA during the trailing 12 months ended June 30, and when considering the closing dates for Schmidt and Connelly, which collectively represent approximately 75% of the aggregate revenues and EBITDA presented. Our guidance, which Tony will discuss shortly, assumes between $250 million and $275 million of revenue contribution from these five acquisitions in the back half of the year. Given the anticipated intangible asset amortization, as well as a reduction in net interest income, the impact to diluted earnings per share will be limited for the remainder of the year. But as backlog amortization rolls off over the succeeding 12 to 18 months, these acquisitions will provide further accretion as supported by their margin profile. If you look on Slide 12, we've provided a summary of our capital allocation both year-to-date as well as over the past 10 years. As that slide shows, we remain committed to our philosophy of balanced capital allocation. When you factor in these pending acquisitions, we expect the mix for full year 2026 to be comparable to that of full year 2025 as a percentage deployed towards M&A increases. I'll turn the call back over to Tony for updated guidance.
Thanks, Jason. And I'm going to be on Page 13 to close this out. Given our strong first half performance and the visibility provided by our record RPO position, we're going to raise full year 2026 guidance, which is outlined on Page 12. Our updated guidance reflects continued demand across several key markets, our success in winning and executing large-scale projects and our confidence in the operational capabilities of our teams. As a reminder, while acquisitions strengthen our long-term earnings power, as Jason just said, the earnings contribution near term on a diluted EPS basis remains moderated by acquisition-related backlog amortization. We now expect to earn revenue of between $20 billion and $20.5 billion and diluted earnings per share of between $32 and $33.25. Our outlook assumes strong continued operating performance and margins, disciplined project execution and sustained demand across our core market sectors. We remain focused on maintaining pricing discipline, carefully selecting opportunities and delivering those opportunities to provide exceptional value to our customers. I've said these things before, and I always think they are worth reiterating. We have four enduring fundamentals that we built our company on. First, our commitment to training, innovation and safety. We continue to invest in workforce development, prefabrication, virtual design and construction or VDC, project delivery methods that improve productivity and strengthen execution. Second, our disciplined approach to contract management. Our teams consistently balance customer service with prudent risk management, particularly on large and complex projects. Third, we do have exceptional field leadership. The dedication and expertise of our foremen, superintendents, project managers, project engineers and operating leaders at the subsidiary level and segment level remain an important differentiator for EMCOR and a major reason why customers continue to choose us. And finally, disciplined capital allocation. We continue to focus on organic growth, execute strategic acquisitions and return capital to shareholders, creating long-term value while maintaining financial flexibility. Together, these strengths create a durable competitive advantage and position us for continued success. I put this paragraph in here all the time. I don't know when there hasn't been macroeconomic uncertainties that continue to exist, including geopolitical conflicts, commodity cost fluctuations, equipment lead time volatility. However, our teams have always repeatedly demonstrated their ability to manage through complexity and deliver results. We entered the second half of 2026 with strong momentum and confidence in our ability to continue creating value for our customers and our shareholders. And finally, and probably most importantly, I want to thank all my teammates for their commitment to safety, disciplined execution and customer service. Your dedication has continued to drive EMCOR's performance and our long-term success. Thank you for joining us today. And with that, I will turn the questions over to Dave to open the line so that you can ask Jason and I questions — innumerable questions about data centers. With that, I'll turn it over to Dave.
分析師問答
Our first question comes from Adam Thalhimer with Thompson Davis.
I'm going to try not to ask about data centers.
Okay. Great.
Good. I actually wanted to ask more in the semiconductor space, which maybe that's the high-tech manufacturing. But can you talk about any bookings in the quarter or upcoming bids in that sector?
We continue to see opportunities there. Fire life safety has been particularly strong in the data center space. Mechanically, we're doing some important work in Arizona, on top of the fire life safety work. And we're doing that in multiple locations. And we continue to see opportunities. We're very capable in that market. It's always balancing those opportunities versus other opportunities. For us, high-tech manufacturing also includes pharma and biotech and EV battery.
Yes. I think if you look at where we stand today versus both year-end and sequentially, so from March, we've had strong bookings. RPOs are up in that space about 7%, both sequentially and from year-end. I think the comps get a little bit easier for us as the year goes on. So as we continue to book some of this work and the first phase completion of the first phase of semiconductors is behind us in prior years, I think you'll see some growth here, either later this year or early next year.
We are fire life safety, I think, on just about every important site that's being built right now. And mechanically, we're on a couple of them and electrically on some of the low voltage work. We continue to do the work also. Like anything else in contracting, you're balancing that opportunity versus other opportunities in that geographic market. And in some places, the data center market might be stronger and provide us more near-term earnings power. We can always go back and do some of that semiconductor work in some of these markets.
Got it. Okay. Super helpful. And then with all the acquisitions, a lot of other contractors entering your end markets via acquisition. I thought maybe it would be helpful for you to just break down how your capacity, the machine that you guys have built over decades, compares to some of the competitors out there?
Yes. I think for the most part, Page 11 is a great example of our machine in action and that machine will continue. First thing we look for is can they execute in the field. So we're not doing anything different today than we were doing five years ago or eight years ago. Doing a little more a little larger, but can they execute in the field? If they can't execute in the field, whether they're a $5 million acquisition or a $400 million acquisition, we're not touching it. Then the second part is, do they share our values? The smaller ones, that's hard to — a $10 billion acquisition, maybe that's less important because we're going to hold that into one of our existing operations. But if we're going to do a significant acquisition, like some of the ones on Page 11, they have to look at the world the way we do. We're a value-driven company. We have a disciplined operating model. And they have to be willing to share learning and be willing to accept learning and best practices. And so that hasn't changed. When you look at others in the space, I don't know how they do acquisition or whatever. But to buy into this space cold and not know how it operates and think you're going to generate synergy — here's some things I do know over a long period of time. Other than the relationships, like that does help bundling mechanical and electrical together at a local site, we are plenty of sites where we're together. We very rarely combine a bid; that's not a thing, putting all the trades together typically. The other thing I know I'm pretty sure about is no one's asking the contractor that's doing the utility work and now do the data center work because you're doing the utility work, and I'm pretty sure the site contractors are not the electrical contractor of choice because they did the site work. These trades are very distinct with strong expertise, and I would say that's going to remain that way for a long time. So we're looking for people that are very good at what they do. And in some of them, we think we have substantial growth because what we've learned over time, some — especially the midsized $50 million to $100 million contractor — if they can do complex work, if they've been working in industrial plants, if they've been working at health care facilities, and let's say there's a data center adjacency with the relationship we have, we're pretty sure we can put them in the data center market in addition to that. Our folks have been great about sharing knowledge. That knowledge starts all the way back at how you're going to estimate it, how you're going to bid it, what the contractual negotiations look like, all the way through to how do you set up the VDC models, how does that work all the way through to means and methods in the field. What we've learned through time we learn a lot from our acquisitions on means and methods and we learn a lot from them on basic project planning and labor, and they learn a lot from us. Overdrawn, but just thought I'd give some highlights.
I also think quickly, if you look at that package of acquisitions we put together, the thing that sets this apart is they're fairly diverse, both in terms of geography when you look at them together and markets they can serve. So I think that diversity gives them the opportunity to grow similar to the way EMCOR has grown over the last several years.
The next question comes from Brent Thielman with Oppenheimer.
I guess first question, the mechanical margin comparisons, obviously reflect some mix effects, which always seems to be the case, Tony, but Jason, I think you mentioned performance as a prime, a higher proportion of cost-plus contracts as some of the factors in the quarter. Is there any sort of change in philosophy here with that business or just something more nuanced in the quarter?
We talked about this in Q1 as well, Brent. And it's very much some of the water and wastewater work that we're doing, some of the food processing work that we're doing. So we had more bookings in that space. We have more revenue coming through some of those contracts. And so it's just a little bit dilutive to margin. It really is more of mix and project-based than anything else.
Yes. I mean, 12.5% is an outstanding performance and we're executing really great across a number of end markets and a number of projects.
Yes. And I think that — those dynamics remain throughout the rest of the year, but I don't think it's an indication of a philosophical change in terms of how we're running the business. We're running the business the way we always have.
Okay. And then you mentioned with a few of these transactions maybe some plans to pivot some or more of their business towards the data center opportunities that might be within their respective territories. Obviously, you bring the customer relationships to the table. But could you just talk about the capabilities of these operations to do that work? Is it going to require more resources for you to do that effectively, what gets you comfortable with those businesses potentially pivoting toward that kind of business?
Because we've done it internally multiple times, we've taken existing EMCOR companies that have the same profile as these companies. And we've done it with acquisitions already in Ohio; that's the best example. Existing EMCOR companies that have the exact capability and the exact kind of mentality these folks have, and we've been able to pivot them pretty successfully into both high-tech manufacturing and data centers. These are good businesses in their own right, serving the markets that they serve. Like Jason said, that's what makes this exciting. Where there's an opportunity to add growth because of the things you identified, we're pretty sure we can do that. Now what we do is we implant a couple of our folks at the field level to help them initially, sure. Do we help them on the front end to make sure the numbers are right or do we help them with contract negotiations? All those things are true. But ultimately, they have to have great field execution and great field supervision to be able to pivot and grow their business with us in those markets.
The next question comes from Justin Hauke with Baird.
I've got two here. I guess, first one, just clarifying I'm assuming it's probably the case, but the acquisitions, are these all still union contractors like your typical electrical construction markets or the mix?
Yes, they're all union. IBEW contractors.
Okay. I figured they were. And then I guess the other question I had was just I wanted to understand the dynamics on raising the margin guidance. Obviously, electric is really strong here. And I know you guys don't manage the margin, you manage gross profits and risk and everything else. But with the mechanical drag and then the incremental amortization from these deals, I guess I'm just surprised that the guidance was raised, given and you've been relatively conservative on that. So just can you walk through what's different that drove that?
I think one of the biggest factors is you can see the acceleration we've had in revenue. And that revenue acceleration is really absorbing a lot of overhead, both some of our indirect within cost of sales and then just SG&A. And so with that revenue growth, we're getting better absorption, we're getting better SG&A leverage. And so with the new revenue guidance, and we said all along, this is really going to be a revenue story for us — if there was upside with that new revenue guidance, we feel better about the operating margins because we're going to continue to see that absorption. And then to your point, we had really, really good execution from Electrical and then we saw greater contribution from Building and Industrial. And so when you kind of look at the first half of this year, we see no reason why the back half shouldn't look like the first half.
The next question comes from Avinatan Jaroslawicz with UBS.
So yes, the really strong electrical margins here in Q2. Just wondering if there was anything kind of more unique that drove that strength? Or was it really more just everything going right?
Well, I don't know if everything went right, but what it is, is just the ebb and flow of the business. A good point in the business. We always talk about margins in bands, and we're in a pretty good place. We're at the midpoint of what that band would be right now. And we always say margins will fluctuate quarter-to-quarter. But our guidance assumes pretty strong performance for Electrical for the remainder of the year.
Okay. I was wondering if — I know last quarter, we spoke about how there was contract mix that was kind of restraining some of the margin percentages and so —
More mechanical. That's more mechanical.
Got you. Okay. And then just thinking about the second half of the year, and I know margins move in bands, and this was a nice quarter. But is there any potential that we could see them stay in the 10% plus range or is that not realistic?
If you look at our guidance, the way we're looking at it is this was a phenomenal quarter. And so I think you really need to take the first half of the year together. And if you look at our guidance effectively, if you take the low end, what we believe can happen — take low revenue, low EPS — the implication there on margins is that it's really comparable to the back half of last year. If you take the midpoint, so midpoint revenues, midpoint EPS, the implication there is that the back half of this year looks like the first half of this year. And then the higher end of that guidance implies that we continue to see some better execution, we continue to get more SG&A leverage. But I wouldn't suspect that — and certainly not baked into our guidance — is that this 10.6% margin repeats exactly. It's more like the first half of the year collectively.
There's some seasonal things that work against that, too. The second quarter is always a strong Building Services quarter. There was a stronger Industrial Services than we typically have. And look, I'm just going to say, when you look at Industrial Services, we talked about the geopolitical risks. It has nothing to do with the business, but the refiners can't shut down for the most part in any substantial way in the back half of the year. So we had a pretty good turnaround season in February, March. I think the turnaround season will not be as strong as it normally can be because of what's happening in the Middle East because they have to keep open and keep producing oil and gas. Now that's a small impact on margins but it's likely to impact margins in the fourth quarter.
The next question goes to Brian Brophy with Stifel.
Yes. Congrats on the great quarter. I'll ask a data center question. Obviously, public market investors seem concerned about something as it relates to data centers, but just curious, in your discussion with your customers, have you seen any change at all in the demand profile from that end market?
Short answer, none. The demand profile remains the same. I do think there are some places we're going to build more. I think Ohio, Texas, Pennsylvania is a burgeoning market. Arizona has been a strong market. Northern Virginia will continue to be strong. Other regions have less of a share simply because, by the law of large numbers, other places are building them. Northwest Indiana, Chicago, Atlanta continue to be important markets, Arizona, and then Georgia and the Carolinas. And they all have one thing in common: they have power and they're willing to build power. The 'not in my backyard' sentiment will get play. It's the same people that were against fracking. They really don't want data centers because they don't want natural gas to continue to expand and what has to expand is natural gas to keep this going. If you look at where power is going to become available, we are in really good shape to continue to serve those markets. It's sort of laughable that New York put a data center ban on because there's really nothing materially happening in New York with data centers anyway.
That's great. And then a question on the GMP mix. I know there's some attention. But in terms of your track mix, can you give us a sense of how much has actually shifted to GMP versus fixed price? Are we talking hundreds of basis points, thousands of basis points? Can you just give us a sense of the overall percent of mix?
Mechanically, probably a shift of about nine to ten percent, which could be meaningful because they're large contracts. And then go back to the point I make about careful contract negotiation: a lot of that's driven by the owners and a lot of that is driven on the mechanical side because these mechanical systems are fairly complex. A lot of that GMP mix that shifted is driven by AI data centers. That's prudent both from the end customer, the owner, and that's prudent from us to be taking those contracts that way.
The next question comes from Tim Mulrooney with William Blair.
Yes. I have two questions. My first one is kind of building on your last conversation around state moratoriums and data center bans. As we think about some of these proposals at the state and local level, and they're mostly proposals at this point, can you help us think about how flexible and transportable your labor is when it comes to these types of projects? Like are there enough of these projects in the works where you can have people drive a few towns over? Or do you have to house these workers in new states, depending on where these projects are moving forward? Curious about your ability around labor capacity and flexibility.
That's one of the benefits of being a union contractor. Because of the demand in some of these states there's a capacity to bring in people from other areas — they will travel themselves. Often it's not us housing them; they get paid per diem and they find a place. It can be as simple as the folks in Chicago, some of the labor moving up to Northwest Indiana to do the work. Then that local gets built up and they take more of the work. That's one of the benefits: they come in with a level of sophistication. We know what their capabilities are. They check into the local union hall and we go to work. We can help facilitate that in some cases. In some rural markets we participate in, whether it be some Midwestern markets or Texas, we're finding creative ways to serve those markets, whether it's through more prefabrication on the job and then subcontracting some of the installation or doing it ourselves. In some cases, you'll permit nonunion people to be union for a short period of time and use that capacity. And finally, there are opportunities for some nonunion operations that we may have to participate in very rural markets to look a lot more like how the oil and gas people work than how the traditional IBEW or a commercial contractor will work. So you have to be flexible and do all of the above. Mainly, it starts with the tradespeople themselves being flexible and looking for the work. Regarding these moratoriums, when you start to see the level of tax revenues that come into some of these counties, like Loudoun County, Virginia, five percent of the property receipts are now from the data center people. It's pretty hard to take a step back when that's been driving your local tax base and your education systems. We think there's plenty of opportunities. And at the end of the day, when we talk to the owners, they're going to find the places that build them, and we are well positioned to do that in the places where they are going to build them.
I appreciate that extra color there, Tony, on the moratorium too. It's an interesting dynamic. Switching gears, wanted to ask about your backlog, your RPOs. As I look at this, I look at your one-year RPOs to be completed within a year. It typically represents about 50% of your next 12 months revenue. That was true every year basically for the last four years, plus or minus a percentage point or two. It's basically 50%. It's in a very tight range. Is there any practical reason for why that might not be the case anymore?
No, I can't think why the future doesn't look like the past.
I think one thing to weigh as well is we've booked a lot of work in the last two quarters. So some of it will be the timing of ramp-up and the timing of mobilization. If you're looking at growth rates in RPO versus growth rates in guidance and there's a disconnect — our RPO is growing a little bit faster than we're saying our revenues are going to grow — that is just the timing of mobilization. We did book a lot of work over the last two quarters. Historically, we would say that 85% or so of our RPOs burn in 12 months. Where we're sitting today, it's more like 75% or 76%. Some of that's the water and wastewater mix. Some of it is just the volume of bookings we've had. Project size also matters; we've seen larger projects that skew out over longer periods. So those factors explain the change versus the historical 50% rule of thumb.
The next question comes from Manish Somaiya with Cantor.
Congratulations, everybody. Tony, I wanted to go back to Slide 11, which seems to be your favorite slide on M&A. If you can just help us get a better sense as to going forward, what the missing pockets of exposure might be by sector, by market, that would be helpful. And what does the pipeline look like as you look ahead?
The pipeline is strong. What we're always looking for is can we augment existing capability to one of our larger subsidiaries? A great example of that is Giles teaming up with Miller and Sidney teaming up with our Ohio operations. Those are practical examples of what we do. We will always do those and that's a big part of what we do. And then there is the stand-alone capability, like B&B, Schmidt and Connelly. B&B put us into a part of Wisconsin we weren't in; it's a good industrial contractor and a strong executor. Schmidt brings more Texas to us. We have a fairly strong business in Texas, mechanically and electrically. This just adds to it and it's in Austin, San Antonio and a little bit in Houston with a great operating team known for technical sophistication. Connelly helps in the Chicago mosaic, allowing us to serve customers better across that region. That's what drives most of this as our customers look for us to continue to expand capability. We're going to continue to focus on what we do well which is Mechanical and Electrical Construction and adding on companies like Sidney, Giles and B&B and also the larger ones like Schmidt and Connelly. And then mechanical services is another area we do very well where smaller acquisitions build out a branch network. We're not looking to invest heavily in businesses we don't know well. We see plenty of white space to do add-ons and stand-alone deals. We've been very successful at assembling mosaics of acquisitions off of one of our bases and growing strongly in those markets.
And Tony, the $750 million upfront purchase price that you outlined, should we think of these acquisitions having any earn-outs?
There's up to $90 million in earnouts for two of the deals. That's the maximum they can be. That's not our prediction of where those will land, but we hope they hit it.
And then, Jason, while I have you on the cash flow front, how should we think about cash conversion in the second half? And if you will, give some sense as to how we should think about 2027 as well.
We won't comment on 2027 at this point. For 2026, the philosophy or algorithm we always have on cash flow is we should be able to have operating cash flow at least equivalent to net income, and that goes up to 80% to 85% of our operating income. If you look back over the last several years, including 2024 and 2025, we see no reason why operating cash flow in 2026 won't look like it did the last two years. We are back-half weighted. Q1 is always the weakest and we start to see operating cash flow accelerate in Q3 and Q4. So I think that's going to continue to hold this year as well.
The next question comes from Adam Bubes with Goldman Sachs.
Just wondering if you could touch on the size of the data center projects you're seeing in the pipeline, how does that compare to what's in backlog, what you're executing against today? And then to what extent do larger project sizes create opportunities for higher workforce utilization and increased revenue per employee?
That depends more on the mix. In general, we're going to get more revenue per employee in the mechanical side than on the electrical side. The mechanical side allows us to do more prefabrication on modules that have higher value content, especially in AI data centers. Trend-wise, back in 2019, a 20-megawatt data center was considered large. Today, for cloud storage, we're building somewhere between 40 and 75 megawatts, give or take. With an AI component, you're starting to talk 100-plus megawatts, 200 megawatts, and when it gets much above 200 to 250, then most people are talking campuses. Two things have happened: size has gone up over the last five years, and on the mechanical side especially, we get a multiplier of 1.5 to 2 on AI data center work. On the electrical side for an AI data center it's probably 1.5x, driven by the size of the electrical coming in. So they're getting bigger and more complex, especially when AI is introduced, and they're usually built with the idea toward a campus of three to seven buildings that will fill out that campus.
And then you touched on it a little bit earlier, but could you just expand on the opportunity to move into maybe traditionally nonunion regions to serve data centers that seem to be expanding into more rural markets? And then maybe Texas in particular, you acquired the electrical contractor there, but what's the exposure to the state today? And how big could that exposure get over time?
Our exposure to the state today is broad if you bring in Industrial Services. For Mechanical and Electrical Construction, Mechanical Services has some exposure there. We have pretty good exposure in Central Texas through our Batchelor & Kimball subsidiary. They went out there to build a semiconductor plant and did a very good job, which allowed us to build a workforce out there. We followed up with an add-on acquisition in Central Texas mechanically, and we're well positioned to serve both metro and rural markets. On the data center market mechanically, there can be a large prefabrication component, which allows us to have less labor on the job in rural markets. Electrically, we already participate in the DFW market and I'd say we're one of the top players in the Dallas-Fort Worth area. Schmidt gives us the opportunity to expand further. Schmidt is a terrific full-line contractor run by an exceptional team. We feel really good about our ability to bring that capability into Texas. We can also leverage other assets in the market and possibly work with oil and gas folks to support rural Texas over time. So we're fairly well positioned now in Texas and we'll be better positioned after these acquisitions. We'll continue to do add-on acquisitions in Texas to support growth.
Just two facts to round that out: if you look at our non-oil and gas business in Texas, we do $1 billion of revenue there today before Schmidt and before any acquisitions. And if you look at data center RPOs, Virginia is the state where we have the most activity, but Texas is the second for us and followed closely by Georgia. So Texas is an important market for us. It's one where we have a lot of activity today, and I think that's going to continue to grow.
I think it shows our ability to pivot. If you think about how we grew in Texas, Batchelor & Kimball was acquired in 2019. We had other presences in Houston and we added on in Austin mechanically. Schmidt expands that footprint. It's been a good story of acquisitions, great culture with those companies, then organic growth on top of the acquisitions.
This concludes our question-and-answer session. I would like to turn the conference back over to Tony Guzzi for any closing remarks.
First, again, I want to reiterate and thank my teammates for outstanding performance over a sustained period of time. I do want to welcome our new teammates in B&B Electric, Sidney, Giles, Schmidt and Connelly. We're thrilled to have you as part of our electrical team, and we look forward to closing Schmidt and Connelly here in the third quarter. And then finally, everybody stay safe, and we look forward to continuing to execute well for our customers. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.