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 September 30, 2022

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 October 21, 2022: 47,655,251 shares.

[This Page Intentionally Left Blank]

EMCOR Group, Inc.

TABLE OF CONTENTS

		Page No.
PART I. - Financial Information.
Item 1.	Financial Statements.
	Consolidated Balance Sheets - as of September 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations - three and nine months ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Comprehensive Income - three and nine months ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows - nine months ended September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Equity - three months ended September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Equity - nine months ended September 30, 2022 and 2021	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	43
Item 4.	Controls and Procedures.	44
PART II. - Other Information.
Item 1.	Legal Proceedings.	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	45
Item 4.	Mine Safety Disclosures.	45
Item 6.	Exhibits.	46

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They generally 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. Forward-looking statements in this report include discussions of our future operating or financial performance and other forward-looking commentary regarding aspects of our business, including market share growth, gross profit, remaining performance obligations, project mix, projects with varying profit margins, selling, general and administrative expenses, our ability to maintain a strong safety record, and trends in our business, and other characterizations of future events or circumstances, such as the effects of the COVID-19 pandemic and supply chain disruptions and delays. Each forward-looking statement included in this report is subject to risks and uncertainties, including those identified in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section, and other sections of this report, and in our Form 10-K for the year ended December 31, 2021, including, without limitation, the “Risk Factors” section of such Form 10-K. Applicable risks and uncertainties include, but are not limited to, adverse effects of general economic conditions; changes in interest rates; domestic and international political developments; changes in the specific markets for EMCOR’s services; adverse business conditions, including scarcity of skilled labor, productivity challenges, the nature and extent of supply chain disruptions impacting availability and pricing of materials, and inflationary trends more generally, including fluctuations in energy costs; the impact of legislation and/or government regulations; the availability of adequate levels of surety bonding; increased competition; unfavorable developments in the mix of our business; and the continuing impact of the COVID-19 pandemic, including the nature, extent, and impact of future variant surges, as well as other health emergencies, and government orders and mandates related thereto, on our revenue and operations. Such risks and uncertainties could cause actual results to differ materially from those that might be anticipated from, or projected or implied by, our forward-looking statements. Accordingly, these statements do not guarantee future performance or events. The forward-looking statements contained in this report speak only as of the filing date of this report. We undertake no obligation to update any forward-looking statements unless required by law. However, any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”) should be consulted. We caution investors not to place undue reliance on forward-looking statements, due to their inherent uncertainty.

PART I. – FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS.

EMCOR Group, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	September 30, 2022 (Unaudited)		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	403,816	$	821,345
Accounts receivable, less allowance for credit losses of $25,270 and $23,534, respectively	2,510,579		2,204,519
Contract assets	299,336		230,143
Inventories	101,874		54,098
Prepaid expenses and other	63,657		80,889
Total current assets	3,379,262		3,390,994
Property, plant and equipment, net	156,090		152,066
Operating lease right-of-use assets	262,976		260,778
Goodwill	916,812		890,268
Identifiable intangible assets, net	605,949		589,365
Other assets	117,640		157,975
Total assets	$	5,438,729	$	5,441,446
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt and finance lease liabilities	$	15,635	$	16,235
Accounts payable	751,074		734,275
Contract liabilities	1,046,312		788,134
Accrued payroll and benefits	514,166		490,867
Other accrued expenses and liabilities	248,382		274,406
Operating lease liabilities, current	63,227		57,814
Total current liabilities	2,638,796		2,361,731
Borrowings under revolving credit facility	170,000		—
Long-term debt and finance lease liabilities	245,101		245,450
Operating lease liabilities, long-term	218,968		220,836
Other long-term obligations	323,442		360,340
Total liabilities	3,596,307		3,188,357
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, 60,928,336 and 60,737,006 shares issued, respectively	609		607
Capital surplus	70,121		61,874
Accumulated other comprehensive loss	(101,531)		(83,562)
Retained earnings	3,095,166		2,835,504
Treasury stock, at cost 13,281,222 and 7,437,268 shares, respectively	(1,222,645)		(562,036)
Total EMCOR Group, Inc. stockholders’ equity	1,841,720		2,252,387
Noncontrolling interests	702		702
Total equity	1,842,422		2,253,089
Total liabilities and equity	$	5,438,729	$	5,441,446

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 September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Revenues	$	2,826,361	$	2,521,672	$	8,126,298	$	7,263,387
Cost of sales	2,413,130		2,140,329		6,977,504		6,164,692
Gross profit	413,231		381,343		1,148,794		1,098,695
Selling, general and administrative expenses	263,137		243,922		761,099		710,912
Operating income	150,094		137,421		387,695		387,783
Net periodic pension (cost) income	1,025		908		3,288		2,738
Interest expense, net	(3,194)		(1,286)		(6,234)		(3,965)
Income before income taxes	147,925		137,043		384,749		386,556
Income tax provision	42,153		37,303		104,927		104,523
Net income including noncontrolling interests	105,772		99,740		279,822		282,033
Net income attributable to noncontrolling interests	—		—		—		169
Net income attributable to EMCOR Group, Inc.	$	105,772	$	99,740	$	279,822	$	281,864
Basic earnings per common share	$	2.16	$	1.86	$	5.52	$	5.19
Diluted earnings per common share	$	2.16	$	1.85	$	5.50	$	5.17
Dividends declared per common share	$	0.13	$	0.13	$	0.39	$	0.39

See Notes to Consolidated Financial Statements.

2

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)(Unaudited)        

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Net income including noncontrolling interests	$	105,772	$	99,740	$	279,822	$	282,033
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(8,712)		(1,687)		(19,257)		(991)
Post retirement plans, amortization of actuarial loss included in net income (1)	404		800		1,288		2,412
Other comprehensive (loss) income	(8,308)		(887)		(17,969)		1,421
Comprehensive income	97,464		98,853		261,853		283,454
Comprehensive income attributable to noncontrolling interests	—		—		—		169
Comprehensive income attributable to EMCOR Group, Inc.	$	97,464	$	98,853	$	261,853	$	283,285

_________

(1)Net of tax of $0.1 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and net of tax of $0.4 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

See Notes to Consolidated Financial Statements.

3

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)(Unaudited) 

	Nine months ended September 30,
	2022		2021
Cash flows - operating activities:
Net income including noncontrolling interests	$	279,822	$	282,033
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	35,168		36,088
Amortization of identifiable intangible assets	45,465		48,159
Non-cash share-based compensation expense	9,322		8,467
Other reconciling items	(682)		2,803
Changes in operating assets and liabilities, excluding the effect of businesses acquired	(130,741)		(263,609)
Net cash provided by operating activities	238,354		113,941
Cash flows - investing activities:
Payments for acquisitions of businesses, net of cash acquired	(91,078)		(113,658)
Proceeds from sale or disposal of property, plant and equipment	6,897		1,930
Purchases of property, plant and equipment	(38,717)		(25,954)
Distributions from unconsolidated entities	—		196
Net cash used in investing activities	(122,898)		(137,486)
Cash flows - financing activities:
Proceeds from revolving credit facility	270,000		—
Repayments of revolving credit facility	(100,000)		—
Repayments of finance lease liabilities	(2,741)		(3,253)
Dividends paid to stockholders	(20,037)		(21,224)
Repurchases of common stock	(656,573)		(183,247)
Taxes paid related to net share settlements of equity awards	(7,295)		(4,020)
Issuances of common stock under employee stock purchase plan	6,097		5,418
Payments for contingent consideration arrangements	(2,049)		(6,758)
Distributions to noncontrolling interests	—		(43)
Net cash used in financing activities	(512,598)		(213,127)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(20,540)		(1,870)
Decrease in cash, cash equivalents, and restricted cash	(417,682)		(238,542)
Cash, cash equivalents, and restricted cash at beginning of year (1)	822,568		903,562
Cash, cash equivalents, and restricted cash at end of period (2)	$	404,886	$	665,020

_________

(1)Includes $1.2 million and $0.7 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively.

(2)Includes $1.1 million of restricted cash classified as “Prepaid expenses and other” in the Consolidated Balance Sheets as of September 30, 2022 and 2021.

See Notes to Consolidated Financial Statements.

4

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the three months ended September 30, 2021 and 2022

(In thousands)(Unaudited)        

			EMCOR Group, Inc. Stockholders
	Total		Common stock		Capital surplus		Accumulated other comprehensive loss (1)		Retained earnings		Treasury stock		Noncontrolling interests
Balance, June 30, 2021	$	2,091,177	$	607	$	53,204	$	(106,925)	$	2,648,109	$	(504,520)	$	702
Net income including noncontrolling interests	99,740		—		—		—		99,740		—		—
Other comprehensive loss	(887)		—		—		(887)		—		—		—
Tax withholding for common stock issued under share-based compensation plans	(249)		—		(249)		—		—		—		—
Common stock issued under employee stock purchase plan	1,857		—		1,857		—		—		—		—
Common stock dividends	(6,988)		—		44		—		(7,032)		—		—
Repurchases of common stock	(45,217)		—		—		—		—		(45,217)		—
Share-based compensation expense	2,617		—		2,617		—		—		—		—
Balance, September 30, 2021	$	2,142,050	$	607	$	57,473	$	(107,812)	$	2,740,817	$	(549,737)	$	702
Balance, June 30, 2022	$	1,952,791	$	609	$	65,212	$	(93,223)	$	2,995,844	$	(1,016,353)	$	702
Net income including noncontrolling interests	105,772		—		—		—		105,772		—		—
Other comprehensive loss	(8,308)		—		—		(8,308)		—		—		—
Tax withholding for common stock issued under share-based compensation plans	(56)		—		(56)		—		—		—		—
Common stock issued under employee stock purchase plan	2,074		—		2,074		—		—		—		—
Common stock dividends	(6,418)		—		32		—		(6,450)		—		—
Repurchases of common stock	(206,292)		—		—		—		—		(206,292)		—
Share-based compensation expense	2,859		—		2,859		—		—		—		—
Balance, September 30, 2022	$	1,842,422	$	609	$	70,121	$	(101,531)	$	3,095,166	$	(1,222,645)	$	702

 _________

(1)Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.

See Notes to Consolidated Financial Statements.

5

EMCOR Group, Inc. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the nine months ended September 30, 2021 and 2022

(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, 2020	$	2,053,244	$	606	$	47,464	$	(109,233)	$	2,480,321	$	(366,490)	$	576
Net income including noncontrolling interests	282,033		—		—		—		281,864		—		169
Other comprehensive income	1,421		—		—		1,421		—		—		—
Common stock issued under share-based compensation plans	1		1		—		—		—		—		—
Tax withholding for common stock issued under share-based compensation plans	(4,020)		—		(4,020)		—		—		—		—
Common stock issued under employee stock purchase plan	5,418		—		5,418		—		—		—		—
Common stock dividends	(21,224)		—		144		—		(21,368)		—		—
Repurchases of common stock	(183,247)		—		—		—		—		(183,247)		—
Distributions to noncontrolling interests	(43)		—		—		—		—		—		(43)
Share-based compensation expense	8,467		—		8,467		—		—		—		—
Balance, September 30, 2021	$	2,142,050	$	607	$	57,473	$	(107,812)	$	2,740,817	$	(549,737)	$	702
Balance, December 31, 2021	$	2,253,089	$	607	$	61,874	$	(83,562)	$	2,835,504	$	(562,036)	$	702
Net income including noncontrolling interests	279,822		—		—		—		279,822		—		—
Other comprehensive loss	(17,969)		—		—		(17,969)		—		—		—
Common stock issued under share-based compensation plans	2		2		—		—		—		—		—
Tax withholding for common stock issued under share-based compensation plans	(7,295)		—		(7,295)		—		—		—		—
Common stock issued under employee stock purchase plan	6,097		—		6,097		—		—		—		—
Common stock dividends	(20,037)		—		123		—		(20,160)		—		—
Repurchases of common stock	(660,609)		—		—		—		—		(660,609)		—
Share-based compensation expense	9,322		—		9,322		—		—		—		—
Balance, September 30, 2022	$	1,842,422	$	609	$	70,121	$	(101,531)	$	3,095,166	$	(1,222,645)	$	702

 _________

(1)Represents cumulative foreign currency translation adjustments and post retirement liability adjustments.

See Notes to Consolidated Financial Statements.

6

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 (“U.S. GAAP”) 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.

Our reportable segments and related disclosures reflect certain reclassifications of prior year amounts from our United States mechanical construction and facilities services segment to our United States building services segment, and from our United States building services segment to our United States construction segments, due to changes in our internal reporting structure aimed at realigning our service offerings.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.

NOTE 2 - New Accounting Pronouncements

The Company is currently evaluating the impact of an accounting standards update issued by the Financial Accounting Standards Board (the “FASB”), which provides temporary optional expedients and exceptions to existing U.S. GAAP. This guidance is aimed at easing the financial reporting burdens related to reference rate reform, including the market transition from LIBOR, or other interbank offered rates, to alternative reference rates. Such accounting pronouncement allows entities to account for and present certain contract modifications, which occur before December 31, 2022 and result from the transition to an alternative reference rate, as an event that does not require remeasurement at the modification date or reassessment of a previous accounting determination. Although not yet reflected within such accounting pronouncement, the FASB has announced its intention to extend the period of time that entities can utilize this guidance from December 31, 2022 to December 31, 2024. While we are still evaluating the impact of this pronouncement, we do not anticipate that it will have a material impact on our financial position and/or results of operations, as we are not exposed to any contracts that reference LIBOR, other than our credit agreement dated as of March 2, 2020, which contains provisions that allow for the amendment of such agreement to use alternative reference rates upon the discontinuation of LIBOR.

In October 2021, an accounting pronouncement was issued by the FASB, that changes how an entity accounts for revenue contracts it acquires in a business combination. The pronouncement requires entities to apply the revenue recognition guidance within Accounting Standards Codification Topic 606 to recognize and measure contract assets and liabilities from contracts with customers in a business combination, creating an exception to the fair value recognition and measurement principle typically utilized when valuing acquired assets. The guidance is aimed at improving comparability by addressing when an acquirer should recognize a contract asset or contract liability, as well as how such assets and liabilities should be measured, and will generally result in companies recognizing contract assets and contract liabilities at amounts consistent with those recorded by the target entity prior to acquisition. This guidance is effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption permitted. We are currently evaluating the potential impact of this accounting pronouncement; however, we do not believe that its adoption will have a material impact on our financial position and/or results of operations.

7

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 we expect 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) collectability 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 collectability 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.

8

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 and nine months ended September 30, 2022 and 2021, there were no significant amounts of revenue recognized during the period related to performance obligations satisfied in prior periods. In addition, for the three and nine months ended September 30, 2022 and 2021, there were no significant reversals of revenue recognized associated with the revision of transaction prices.

9

EMCOR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 - Revenue from Contracts with Customers (Continued)

(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.

(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 number 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.

10

EMCOR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 - Revenue from Contracts with Customers (Continued)

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 indicates 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. Based on an evaluation of individual projects that had revisions to total estimated costs, which resulted in a reduction of profitability in excess of $1.0 million, our operating results were negatively impacted by approximately $10.5 million and $34.9 million during the three and nine months ended September 30, 2022, respectively. The entire amount recorded during the three months ended September 30, 2022, was reported within our United States electrical construction and facilities services segment. However, of the amount recorded during the nine months ended September 30, 2022, approximately $26.5 million was reported within our United States electrical construction and facilities services segment and approximately $8.4 million was reported within our United States mechanical construction and facilities services segment. There were no changes in total estimated costs that had a significant impact on our operating results during the three and nine months ended September 30, 2021.

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.

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 and nine months ended September 30, 2022 and 2021 (in thousands):

	For the three months ended September 30,
	2022		% of Total		2021		% of Total
United States electrical construction and facilities services:
Commercial market sector	$	339,478	54	%	$	275,824	52	%
Manufacturing market sector	78,562		12	%	61,618		12	%
Healthcare market sector	43,911		7	%	29,419		5	%
Institutional market sector	46,344		7	%	42,153		8	%
Transportation market sector	40,525		6	%	49,578		9	%
Water and wastewater market sector	5,466		1	%	4,381		1	%
Hospitality market sector	4,575		1	%	2,522		1	%
Short duration projects (1)	58,637		9	%	54,678		10	%
Service work	16,829		3	%	11,433		2	%
	634,327				531,606
Less intersegment revenues	(944)				(656)
Total segment revenues	$	633,383			$	530,950

 ________

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

11

EMCOR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 - Revenue from Contracts with Customers (Continued)

	For the three months ended September 30,
	2022		% of Total		2021		% of Total
United States mechanical construction and facilities services:
Commercial market sector	$	444,515	40	%	$	369,791	37	%
Manufacturing market sector	156,524		14	%	154,644		15	%
Healthcare market sector	120,562		11	%	123,415		12	%
Institutional market sector	104,306		9	%	74,867		8	%
Transportation market sector	15,494		1	%	23,954		2	%
Water and wastewater market sector	66,667		6	%	53,367		5	%
Hospitality market sector	6,513		1	%	10,806		1	%
Short duration projects (1)	77,261		7	%	78,218		8	%
Service work	128,792		11	%	116,824		12	%
	1,120,634				1,005,886
Less intersegment revenues	(3,246)				(1,479)
Total segment revenues	$	1,117,388			$	1,004,407

 ________

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

	For the three months ended September 30,
	2022		% of Total		2021		% of Total
United States building services:
Mobile mechanical services	$	462,401	65	%	$	408,949	65	%
Commercial site-based services	199,957		28	%	166,375		27	%
Government site-based services	48,292		7	%	49,293		8	%
Total segment revenues	$	710,650			$	624,617

	For the three months ended September 30,
	2022		% of Total		2021		% of Total
United States industrial services:
Field services	$	213,866	87	%	$	196,846	85	%
Shop services	33,373		13	%	35,372		15	%
Total segment revenues	$	247,239			$	232,218
Total United States operations	$	2,708,660			$	2,392,192

	For the three months ended September 30,
	2022		% of Total		2021		% of Total
United Kingdom building services:
Service work	$	51,762	44	%	$	65,486	51	%
Project work	65,939		56	%	63,994		49	%
Total segment revenues	$	117,701			$	129,480
Total operations	$	2,826,361			$	2,521,672

12

EMCOR Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 3 - Revenue from Contracts with Customers (Continued)

	For the nine months ended September 30,
	2022		% of Total		2021		% of Total
United States electrical construction and facilities services:
Commercial market sector	$	908,999	53	%	$	776,121	52	%
Manufacturing market sector	210,331		12	%	162,186		11	%
Healthcare market sector	119,259		7	%	75,417		5	%
Institutional market sector	115,799		6	%	138,973		9	%
Transportation market sector	128,047		7	%	144,788		10	%
Water and wastewater market sector	15,962		1	%	9,909		1	%
Hospitality market sector	9,887		1	%	11,286		1	%
Short duration projects (1)	167,553		10	%