EMCOR Group, Inc. (NYSE:EME) Q4 2022 Earnings Call Transcript

So what we may be willing to do in a more established market on a contract side, we may not be willing to do it in a market where we’re just establishing a present. So there for a while, we may operate more as a time and material until we can get a feel for what that labor force is going to look like. Next phases of the work we may take fixed price because we know and our customer ultimately knows what it took us to construct the labor force. And so that’s how we think about the manpower planning. So we start with the technical aspects of the process, can we do one of these? Then we start with what kind of risk is around that. Then we think about the supply chain challenges too and say, what is the owner providing and what do we have to provide on that job and intermixed on all that is the labor planning.

And once we get a green light on the 3 and then contract structure, that’s the fourth one, that’s what — you don’t really know that until you’ve done all the other ones. Then we get a green light to say, yes, in fact, we’ll do that project. But it’s actually got to go through the thought process on all 4 of those gates.

Brent Thielman: Yes, that’s helpful, Tony. And I mean, as you look at the pipeline, of those sorts of opportunities, I mean is it large enough that you could conceivably still double your RPOs again next year? Is there any opportunity out there?

Anthony Guzzi: Yes, I don’t know about that. And the way we think about RPOs is different than a lot of other people. We’re actually — I’ll let Mark get into that. But we’re at the accounting definition. We have a contract in hand. It’s a noncancelable portion of a service agreement. So other people might say, well, how we’re going to be at this site for the next 3 years and look at all the work we’re going to do. We don’t do that, right? And it’s approved change orders. So I mean ours is a very stringent. I don’t know what that growth will be. I mean this is a pretty heady level. It’s okay. There’s plenty of opportunity out there. Some of it will be contracted in a way you won’t see it all in RPOs. It will show up later in revenues because it’s more time and material or unit price-type work. And so that never fully shows up in RPOs. There’s other work that will come out in pieces. And so it will come out depending on what we’re doing. Mark, do you want to jump in?

Mark Pompa: And Brent, the only thing I’ll add to Tony’s comments is back to the discussion of capital allocation and obviously allocating capital for growth. We clearly have a close eye on these opportunities, and when we’re making those investments is where it’s giving us the ability to take some of the labor out of the field back into the shop or into a more controlled environment where we’re able to control the pace of progress a lot closer. So I wish in my long career here, those opportunities existed from day 1 that I walked in, but it was a much different market conditions then.

Anthony Guzzi: And technology.

Mark Pompa: Yes. So our capabilities and our wherewithal is a lot stronger today than it certainly was then. And we have the balance sheet to make those investments. So I think from a competitive perspective, that certainly gives us an advantage. But at the end of the day, and one of the reasons why we’ve been successful for a long period of time is we’re not going to enter into these arrangements with customers or potential customers if we do not believe that we do not have the ability to do 100% to fill those requirements. So the only governor I think on the opportunity in the short term is ultimately what our risk appetite is and ultimately where we want to play.