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All right. Good morning, everybody. My name is Stefan Diaz, Machinery and Construction Analyst here at Morgan Stanley. We're really excited today to have MCOR Group here, Tony Guzzi, Chairman, President, and CEO, and Jason Albandian, SCP, and CFO. But before we begin, I just have a quick disclosure to read. For important disclosures, please see Morgan Stanley Research Disclosure website at www.morganstanley.com slash researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So great. Tony, maybe for the investors listening on the phone, the investors in the room who aren't quite familiar with MCOR and what you all do, if you could just please give them a quick rundown of the company. Sure. I mean, when you think of MCOR, we actually do the work. So we are a specialty trade contractor. We primarily put in mechanical and electrical systems, and then we fix them and help maintain them. We do that across a variety of sectors. We are pretty well diversified from health care, the institutional sector, commercial, water and wastewater, water, transportation, and, of course, why 90% of the room is here today, we also are probably, you never know because there's private companies doing this, we are probably the largest specialty trade contractor mechanically and electrically serving the data center market. And we do that in just about every major data center market there is. And we can get into specifics in the Q&A. so when you think of us we are a company of plumbers pipe fitters electricians welders hvac technicians sprinkler fitters and the people to fix that when you go to our electrical business we are primarily a medium voltage or would say inside the fence inside the building electrician that doesn't mean we don't connect to the substation and bring the wire in but we're typically working inside the space we also have a pretty significant low voltage business so that would be structured cabling and all the low voltage that supports an operation like this on the mechanical side we do heavy piping you know anything from a small pipe which would be a plumber's job plumbing doesn't mean just bathrooms plumbing means medical gas all those things, high purity piping, to very large diameter pipe, could be up to 64 inches. We also have a sheet metal business, right? You know, plumbing and pipe moves water and fluid, sheet metal moves air, right, the enclosures that move air. On the aftermarket side, we serve, have a fairly significant mechanical service business, which is two-thirds or more of our building services segment, and the balance being, for lack of a better word, operating engineers, people that are either going to be route technicians servicing a branch network or in the building. And then we have oil and gas business. It's MCOR Industrial Service, which does more than just oil and glass, but it primarily was a downstream refining business with a little bit of upstream with a very flexible workforce. We serve LNG and other things. really good welders, really know how to work in mission-critical facilities. Put all that together, you get to MCOR, which when I think about it and how we built the company, I guess the popular world of the investment community, we would be your classic serial compounder. We invest for the long term. And the other thing I think that is a little different us we have a very strong culture we are a company led by a set of values we train our leaders in our core product we do mechanical electrical construction we do it very well and service but our core of product is actually great field leadership and that is what distinguishes us versus other companies JC have anything to add to that I think that was a great opening summary Tony Perfect. Thanks, Tony. And maybe just to start, if we could talk a little bit about data centers. I'm sure it hasn't been talked about enough here. I figure I get to do about nine hours of meetings. What do you think about six hours and 20 seconds with data centers today? So your network and communications revenue was up 45% in electrical last quarter and more than doubled in mechanical last quarter. Maybe if you could just give the audience some background. How has the work changed with the size regression of, like, 20-megawatt builds? Now we're going to hundreds of megawatt bills and multi-building campuses. And if you Could talk a little bit about the content increase as these data centers get bigger. Yeah, so the multi- building campuses, it's almost three to five years now. And that also happens, and you can have cloud data centers in that multi- building campus, and they may put, quote, an AI data center. And, like , let's be honest, as contractors, do we really know? We just know we're putting in something bigger. We know how to put the equipment in. We are not IT experts, right? We know How to install stuff and fix it. The predominance of our business still is cloud infrastructure. That in itself was a great business. It was growing 9% a year. Got those things are somewhere between 20 and 50, 75 megawatts. It's probably where we've gotten really good doing fixed price work. but there definitely is a shift to more AI and put a number on that. Is it growing 30% a year, Jason? Is it going 40% in the market? Does anybody really know? And so we are definitely participating in the expansion of the size of those data centers and we're also our ongoing cloud business is a great business for us. We serve lots of markets and so we used to come in and say well, we're serving seven markets now mechanically and 16 electrically. I don't know how to do that anymore because there used to be one campus or two campuses in the state, and now that might be five or six campuses in a state. So that's irrelevant now. I venture to say we're probably servicing in some way, fire protection we're servicing everywhere in the country. Electrically, we'll probably be servicing 50% of the markets that matter, 60%. Mechanically, somewhere around 40%, 50%, a little less. The scope has definitely gone up. You know when you're doing a 200-megawatt data center, and I always try to ground people on what 200 megawatts really means, the city of Pittsburgh runs on 300 megawatths. So just a scope of one data center may use. We know we're doing more mechanical scope, probably one and a half to two times if that was just a cloud data center. It's the heat, right? the heat needs it needs to be cold and electrically that might be 1.25 to 1.5 jason maybe i think the other thing i would add is the pace and timing of these projects right if you look at how fast these projects are moving today versus what they would just three years ago i think that's another factor in terms of what's changed for us and it definitely informs our investment so it's always important to remember who we are. We're contractors. And so, by nature, we're opportunists, right? But we're strategic opportunists. So in a market, we are going to make sure we take care of our core customers, but we're also going to go to where the best margin opportunity is for us to deploy our labor over that one to three-year period. That's sort of, for a good contractor, your long-term investments are building your workforce, your training, building your leadership team, investing in the right software, investing in the Right Prefab, or at least knowing how to expand that, because you've got to be ready for the moment. So we got to be where we are in these fast-growing markets. We just didn't fall into it. We had to be ready for the moment. And we were ready for the moment because we invested in all those things I talked about over a long period of time. Now, the way you attack the market like data centers is a couple different ways. One is you have people that were always great at it. They built some of the first data centers in the country. The MCOR team did. We built the AOL data center in Virginia in 2000, 1999 and 2000. We did the first Equinox jobs down there. and then we did the first big financial data centers. And that team is really what allowed us to expand into the number of markets we are today, and that happens two ways. It happens through you have great electrical and mechanical companies that you already own that do really health care and high-end institutional lab work, manufacturing work, and they can be trained to do data center work, and their teammates do that with them. You do that through acquisition where someone might be just doing the day two work, and because of our scale, training, and capability, we can make them a major data center player. Some required at a very reasonable cost many years ago, eight, ten years ago. But we knew that was starting in that market. And then it informs your capital allocation even today. So we announced five electrical deals and, you know, $600 million in revenue trailing, $100 million, give or take, of EBITDA. The two biggest being Schmidt and Conley. Schmidt in central Texas, Conley outside Chicago. And there we already have a good presence in Chicago. And just for the record, both of those are now closed. We closed them in early August. And what will happen there? Well, they already have great customers. They have a great customer base. They did a little bit of data center work. But the market's there outside Chicago to do more, and they can team with, well, we have a great company there, Gibson and Lion's Pinner, and those three companies will team together to do some other work. In the case of Central Texas, one of the companies we've expanded in the data center market was our Morley Moss company. We bought it back in 2018. It's now 10 times the size it was. Great data center builders, that team. they will now bring Schmidt, who is a very sophisticated contractor and executes well in the field. Their growth will mainly come from more exposure to the data center market. And, Jason, so you think about markets, people thought about Texas, right? But we think Texas is magic, too. That's why we do, outside of the oil and gas business, over a billion dollars of revenue in Texas without Schmidt. and so we've spent a lot of time through capital allocation preparing ourselves for the moment and that's not just data centers that's high-tech manufacturing it's health care it's significant institutional work and then we have the aftermarket business that will do single-line service trade and any of those sophisticated long-winded answer Jason got anything to add? I think I'm good No, I think, Tony, that's really helpful, and I think that's a pretty good said way. You mentioned your contractors. You go for the jobs that offer the highest returns. Let's say in a hypothetical situation, if data centers were to slow for a few quarters, do you have the ability to move the workforce around into areas like semis, health care, more institutional work, And are you turning down jobs in other sectors to be able to service this data center and market? The answer to the last question is, of course. I mean, nobody can do everything in a market. I mean you can't. And so the critical bottleneck for us to grow, come at it that way, is actually supervision. We'll find the tradespeople, and we'll find they're right ones because they'll want to work for us. But we have to train that foreman, that superintendent, that project manager to be able to expand. By nature, MCOR is diverse. Maybe Jason talked a little bit about our diversity of demand, and that will get to the question. But you also have to be reposition your workforce. That also means you have to cut it. And so we as a big part of MCOR, and maybe it's we try to keep our cost structure as variable as it can be. That's the other thing good contractors do. We lease our prefabrication facilities. When we build them, we count on a three-year or less payback. We're doing it with an eye towards that market that we're in today, clear-eyed about what it is. Maybe go through some of the diversity demand and how things would actually shift. Yeah, so I think to some extent, right, the work is the work and we have a track record of being able to pivot from one sector to to another, whether it was when we moved from warehousing and distribution coming out of COVID to the semiconductor space and then into the data center space. So we could do that in reverse as well. And the other thing is all the investments we've made in prefabrication and some of the construction tools we have, none of them are tied to a single market sector. So you could take those same fabrication shops today that are maybe serving data center customers and use them to serve a different sector. But to Tony's point on diversity, if you just look at MCOR, let's just take the first half of 26, we've grown organically about 18.3 percent. But if you strip out high-tech manufacturing, which is semiconductors, biotech, and you strip out network and communications, which is data centers, we're still growing organically around 9 percent. So there's strength in other markets, and those are things like institutional, which is heavily weighted towards some of the colleges and universities we're working for, manufacturing and industrial, which includes both the reshoring or near-shoring work we're doing, as well as some of the food processing work we'RE doing. And then we're starting to see a resumption in demand for warehousing and distribution. And for us, that's in commercial. But it also goes beyond that. If you look at the first half of this year, we saw some sizable growth in our building services business, which isn't tied to the data center market. And that's up about 5% organically. And then our oil and gas, our industrial services business, is up 15% organical. So I think that just speaks to our diversity and how we are able to serve all of these markets. And if you think about data centers, I mean, a lot of press out there, and I'm not a political prognosticator. I have my own opinions, which I don't necessarily need to share with you today. That's irrelevant as the CEO of MCOR. You have to understand where we are in a job cycle so before we get engaged someone's usually has almost always has the power the site we're not talking usually in the m core world they may talk to us about something five years down the road but we're nicht listening really for us there has to be a job there has to be how they're going to prosecute or execute that site what our role is going to be in it and And my view, and I think our constructive view, is for the next three years, they pretty much know what they're going to build. And that won't be affected unless we really go draconian, which I don't see happening by moratoriums or anything else. And I don'T think the political thing is what's going to drive this, by the way. It might be an antecedent of it. all the power we said we need to put in in these places you know that were sold off for gas turbines for 2031 I know everybody in the room probably knows that because you track things like that in the three or four major producers and we're talking large combined cycle things that's what's going to power this long term or eventually nuclear that's what powers a base load system that will be the obstacle if we don't do that by 2030. It won't be all this other stuff. Because when we talk to our customers, and we're talking both to the people that will actually occupy the colos, or the people that are building themselves, they're doing both. They can't keep up with their product developers. And for the most part, our customers aren't people like Anthropic and OpenAI. Our customers are who you would think they would be. and they can't for people like us in this room they can not keep up with the bandwidth you all want and what we need to run our business we think long term so in the cloud business is a pretty good business in its own right and of course my personal view is I always ask people and I pull out my phone what are you willing to give up and once we answer that question we can have these other talks so the power question is the real question and when you get to there behind the meter, in front of the meter I don't think it matters because most of the behind the meter solutions will be dispatchable power eventually the behind the meter means we're funding that solution so you don't want a data center in your neighborhood, you certainly don't want a combined cycle power plant or a modular we don't like the data center but we're going to put a modular nuke at the end of the cul-de-sac right come really so i think the power will happen it almost has to happen but there'll be people that win and lose in this and i think the good news about who we are is we are very well positioned for where it's going to matter and that's intentional that's not an accident that's really helpful tony um i do want to let the audience know if you do have a question feel free to raise your hand we'll get a mic over to you and and you could ask um but maybe just moving along here outside the data centers you know we've seen some recent announcements on the semi side your high-tech manufacturing business you know where do you think we are in the semiconductor and the pharma build cycle and where do we see demand progressing in high- tech manufacturing you know as we go i'm going to hit it here and jason has we've done some interesting analysis that first of all semiconductor work uh there's about six geographic markets that matter we're in four of them and we're in all of them fire protection sprinkler wise it's lumpy work and the initial fab they build on a site comes in at a big number as far as you get a contract and then quite frankly once you've been there sometimes it comes in in smaller numbers and you necessarily don't see in backlog which you may see in revenue eventually uh where do i think we are and look we can participate we uh in three of those places maybe three and a half we're very good mechanically electrically a couple of them and fire work and sprinkler everywhere it's also very difficult work uh doesn't mean you can't make good margins on that doesn't mean, it is very difficult work. For the most part, pretty difficult customers. They're all difficult. The data center people are difficult too. But they're good customers because they value what we do. But sometimes we're making a trade off. In one state, we made a trade off because of bigger data center build happening. We're really good at it. We are going to sit out the next round of the fab, probably come back for the third one as we continue to build up our labor force. Pharma's a little different. I think a chunk of what we're doing today is tied to GLP-1s. And there you have to be positioned in the right place. And we are. We're in New Jersey. We're here in Southern California where they're doing sort of more of the bio research. So we're where we need to be. There, we're both mechanical and electrical. I'd say probably general. Like New Jersey, we have more of an electrical presence to do that work than mechanical. North Carolina, we are sort of both. Southern California, we Are probably more electrical. But all of them are really good markets for us. But again, go back to what my statement was earlier. We're contractors. We're going to look at that market. We're not going to exclude ourselves from something that matters. But over that two-year period, we're going to try to get the mix right to maximize margin in our return to you. Jason? Yeah, I think to Tony's point, right, some of the growth we've seen recently in data centers did come at the expense of semiconductors. But if you just step back and you say the high-tech business, which is roughly 40% semi, 40% biotech, and 20% some EV battery work that we're doing, if you Just look at that sector overall and you say today versus three years ago, we're still operating at a base that's almost one and a half times what it was in 2023 and if you kind of did a three-year cagger from 23 to today you'd see they were growing there at almost 11 so there's still a lot of opportunity i still think to tony's point we're well positioned and we you know if you've done it if you snap the line in 24 and shown we were growing 30 right because we had a big job right and uh no we like it we've been working in Arizona in semiconductors and I've been here 22 years so 1998 97 well I'm like it so that that's the thing about our our capabilities we have deep capabilities in some of these markets and where we didn't we acquired the right companies and we're able to take our folks and they were good teammates and they brought people along we share knowledge probably better than any company in the industry. And we share resources. I mean, what we can do on the VDC side to share resources across our company, we have 1,500, 1,600 BIM VDC people. Scale matters. And the type of work you're talking about, whether it be data centers or semiconductors or pharmaceutical or healthcare especially, the virtual design construct VDC that then takes it through to prefab that's a real skill and that then informs our capital spending and what we do there Tony I think that's a really good transition you just mentioned VDC, prefab I think in the last earnings call you mentioned that a good portion of your capex is going towards prefab you know maybe what's the right way to think about your prefab capacity expansion and then how should we think about capex as we go into $27, $28, does this investment step down? I don't think it steps down because we're growing. The absolute dollars don't step down. You know, about 20%, 25% of that capex is just maintenance capex. It's leases, it's building upgrades on office space, it's specialized vehicles that we can't lease. It's things like that. The rest, the growth in that caplex, as we've built out our modular and prefab capability, which we had, and then we just continue to grow it. Maybe go through the math on that, Jason. Yeah, I think if you look at, I don't know, let's take a five-year look. If you look, let'S say our revenue CAGR is about 14%, 15% over a five‑year period. Our CapEx CAGR's nearly twice that. It's about 28% to 30%. That delta is those investments that we're making in our shops. And I think it takes two forms. Sometimes it's the addition of new fabrication space, the expansion of existing shops. But the other element of it is us reinvesting in existing shops to make them more productive. How do we add more automation? How do мы change out equipment to make sure that the layout is best so that we're getting the most productivity and the most efficiency? So I think, you know, we're not capital intensive. Our CapEx is like 0.6 to 0.65% of revenues. And I think that holds into 27 and 28. But The way I would think about it is any capex growth in excess of revenue growth are those investments into the future the rest are just maintenance capital maybe if we could just take a moment um to talk about your rpos they've been growing meaningfully faster than your revenue guidance um maybe how should investors think about conversion versus history you know and do you think revenue growth should begin to catch up to rpo growth in the next few years i think a big piece of the delta is just how much book work we've booked in the last two quarters. We had significant bookings in Q1 and Q2, and I think we're carrying today more revenue in RPO than we did historically. So we used to start a year and we usedと say, we need to go book and earn 60% of that year's revenue in that year. That number has steadily come down as project sizes have went up and our pipelines have kind of expanded. And so in recent years, it's come down to about 40 to 45%. And I think that's what's driving the disconnect between RPO growth and revenue growth. The other thing, I think it's always important when you think about us, those numbers over time are all apples to apples to apple. Everything is consistent because our RPO definition is the accounting definition. We're not making guesses in those RPOs. We have a contract. It's executed. It's a firm price. Or it's a change order. that's been approved. We're not making guesses in those RPOs about what might happen. So we might be on a data center site and we know we did building one and they're going to build five buildings and we're probably going to do one, three, and five. Maybe other people in this space would say we're putting all that in there and guessing at it. We don't do that because one, you don't know. You still have to perform, right? It's sort of like working with you all, right. We build one building, we had to do a great. it's like you're on the right to go do the next one and what I can say is we're a pretty good track record of doing that a lot of people lead that way because we finished work for other people but no one's ever finished our work especially in the data center space and so we're on the conservative side with RPOs maybe versus other folks in our space but when people say backlog. There's people that will put in, you're guessing what their T&M work's going to be in a year. They're guessing with the next couple jobs on a site. We don't do that. It is an accounting definition. Like we have a three or five year service agreement. It's the non-cancellable portion of a service agreement, which is usually 90 to 120 days. So this all came out, what, Jason, about eight years ago? Yeah, somewhere in there. And we were so close to it anyway, we just went with the accounting definition And that's true with our numbers, too, right? We report gap numbers. We figure you're all smart enough to add back the amortization and see what that number is. Maybe we could spend a minute or two here on margins. So last quarter you posted healthy operating margins, close to 11%. But I think on the call you noted that, you know, these levels aren't necessarily run rate going forward. Maybe if you could just explain to the audience why margins move around maybe quarter to quarter and what's the right band for investors to think about? So for a long time I've had one statement always and I'm going to say it now it's like your with that statement at the beginning safe harbor this is our safe harbor statement this is not a quarterly business we also don't get to say we're not a manufacturer we don't get to stay we made 10.6% margins, and now we have all these standard costs in, and we know what they are, and that widget's always going to be, or that air conditioning is always going to be that for the next three quarters, because we know what our costs are. Here's what we know, is our operations for a very long, our margins for a very long time, and our RPOs for a very long time, can bounce around quarter to quarter. And then they do settle into bands, because that's what the composition of the market right now may be. I think Tony's point's very valid, right? It's a project-based business. So just mix or project timing, even execution can have an impact in a given quarter. But for us, we think if you want to look at a sustainable margin guidance for us and say in the near term where do we think margins can settle, we really do believe a rolling 12- to 24-month average is pretty indicative of what our business can do. And so if you start at the consolidated level, it gets you right around where our margin guidance is today, 9.5% to 9.8%. That's operating margin. If you looked at each of the segments, our electrical business would be somewhere between 12% and 13%. Our mechanical business today would be somewhere between12% and 12.5%. Our building services business would be 6% to 6.5%, and industrial would be right around the 3% margin. And it has a pretty heavy amortization load yet. Arnon, what's going on there? If we could just talk a little bit about contracts. Recently, we've seen maybe a little bit of a shift to guaranteed maximum price. more cost plus contracts as opposed to fixed price. Why are we seeing this shift to these type of agreements? And do you think this is maybe more structural given these jobs might be more complex given the AI data center build out? Yeah, so we're still predominantly a fixed price contractor and always will be. You get into a guaranteed maximum price area sometimes in healthcare. And then sometimes complex manufacturing jobs will take you there. And the more complex data centers will take it. We have one client that that's how they build. Now they're very rational, reasonable what they allow us to put into cost. So their margins tend to be a little better and tend to look like a fixed price job from a margin standpoint sometimes. But what leaves us and them there, right, you take a risk and return. And, you know, we try not, quite frankly, to operate in the high-risk, high-return box. It's a dangerous box to be in when you're deploying highly skilled labor. And so what puts you in that box? You haven't built one before. You haven'T built one in that location before. You haven'T built one for that customer before. You haven''T built on with that engineering team before. Now, it doesn't have to check all those blocks to put you in a high-right. that changes one could be weighted more than the other but four or five of those things together if you if you're hitting two or three of them you sit there and go huh maybe we want to be in a GMP environment and we got to convince the customer what's happening today because again go to these are really smart customers there's no surprises we're putting yours we're putting each other into the moderate decent return good outcome box together because what don't they want to do one they don't want us not to work for them right they want us to be on the team because we're good and we want to be on the Team because they're good. And so on these more complex designs these larger AI designs it would it wouldn't be either one of our interests probably to work in fixed price and especially in the mechanical world because they are figuring out how they're going to do this the most efficient way possible and what the cooling system needs to be and the piping system needs to be to do that. That may change mid-job or they want to share information openly with each other so they can get an idea as they're building the next design what things really cost versus we just gave them a fixed price for the whole job. And in those guaranteed max price jobs also typically have a reasonable change order mechanism and that allows the job to keep flowing. because you don't want to get into, you know, we don't want to price an acceleration change order, and that change order could come either a little change in design or they may want it done faster. And they don't really want to catch us, right? They want to have an open book about what that's actually costing. And for all they've done, they've been very fair on what cost looks like. Sometimes they'll help pay part of our fabrication cost to expand our facility if it's on site. The general conditions tend to be fairly generous because they want to track the workers. And part of what you're doing in some of these sites is you're trying to build a workforce. And to build that workforce, you need to know what you've got to have to pay them. In some of the sites, they haven't had a project of this scale. So what are you going to need to do to attract labor there to build this over the next couple of years, knowing that you're not going to keep, hopefully keep your supervision, but most of that labor will cycle in and out of there over time. That's what takes you to that box. And that's going to be part of our mix, I think, for a while, Jason, because of that. Both from our choice and theirs. We don't just get to dictate that, but if we think it's in that, you know, higher risk, higher return, even higher risk moderate return, we will sit down with the customer and try to push it that way. You almost have to, right? Great. Well, thank you, gentlemen. We're actually, If we could sneak in one more question. Yeah. You can just say it. We're almost out of time. Yeah, fire away. Mike is coming. A question is given all the debate in the U.S. on... Great. A question on especially the debate of increasing inflations and wages and people in your business are so busy that some of your people and also independent contractors can have jobs and increase salaries by two, three, four times and work all over the place, especially the more specialized workers. Yeah, I don't think. Even your nice 100 million kind of hours worked and to figure out how, let's say, the salary costs. You really can't do that by any mathematical equation. No, but the question is more like how you sort of manage the costs and also because you're a price-fixed operator, how you sort of manage that, because that's probably one of the most important things to... So on a fixed-price job, we would never take that unless we knew what our labor cost was going to be on that job on a dollar-per-hour basis, or with that mix of labor between apprentices, helpers, and everything to get us to a composite laborer. We would never do that. One of the reasons you end up in a GMP world is because you sometimes need to structure the package of wages, base wages, overtime, and per diem to get the people there. And to retain people? Is that difficult, to retain People? Because there's a lot of demand of your kind of people. You know, the trade worker themselves, about 40% of our workforce, 50% is actually they work for us all the time, and the supervision is usually ours. That's who we focus on. The trade people, a chunk of them will come in and out of a job, right? If it's a two-year build, they may leave. They work for six months, all that overtime, leave for four months, come back for six weeks, and then leave again. Actually, the base wages have been very pragmatic of what folks have asked for in the union contract. That's not where they're focused. The other focus is what the package is going to look like on that job, and they want to stay competitive, too. As far as us or wages in the salary side, it really hasn't been a whole lot different we have terrific retention at our CEO level and our direct reports like great coming to work and we're very fair on how we pay people where people who have the opportunity at the salary level at m4 or the superintendent levels in the bonuses and we do good we're we're actually at a time I'm you can join one of the meetings it thank you