Everus Construction Group, Inc. (ECG) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Everus Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand over the conference to Paul Bartolai. Please go ahead.

Thank you. Good morning, everyone, and welcome to Everus Construction Group's Second Quarter 2026 Results Conference Call. Leading the call today are CEO, Jeff Thiede; and CFO, Max Marcy. We issued a news release yesterday detailing our second quarter 2026 operational and financial results. This release and the accompanying presentation materials are available on our website at investors.everus.com. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results could differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest filings with the SEC. Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the news release issued yesterday, and in the appendix of today's presentation. Today's call will begin with prepared remarks from Jeff, who will provide a review of our recent business performance, and an update on the progress against our strategic priorities. Followed by Max, who will provide a more detailed financial update before wrapping up with our guidance. At the conclusion of these prepared remarks, we will open the line for your questions. And with that, I'll turn the call over to Jeff.

Thank you, Paul, and good morning to everyone joining us today. Our positive momentum continued during the second quarter as sustained market demand and strong project execution resulted in another quarter of record revenues, meaningful margin expansion and robust backlog growth. We also made important progress against our key strategic priorities during the quarter. In April, we announced the acquisition of SE&M Constructors and the integration is progressing as planned. We followed this transaction up with the announcement this past Friday that we expect to acquire Epsilon Industries, a leading provider of off-site modular construction solutions. We are very excited about the transaction, which we expect will provide a meaningful expansion of our off-site construction capabilities. I will give more details on the transaction later in my comments. Our robust organic growth and strong project execution directly reflect the diligent efforts of our talent team across the company and our unwavering focus on our strategic priorities. Our people are what drive our business, and I am extremely proud and grateful for their hard work and dedication. Turning to our quarterly highlights, beginning with Slide 4. We delivered record second quarter revenues of $1.23 billion, up 34% from the prior year with growth across both our E&M and T&D segments, and the contribution from SE&M. Once again, our strong top line performance was complemented by another quarter of excellent execution. As a result, record second quarter EBITDA increased 53% from the prior year period, and our EBITDA margin was up 130 basis points. Our team's ability to deliver this level of strong project execution reflects their diligent use of our operational playbook. We are extremely proud of our track record of successful execution and will not get complacent. We remain focused on executing jobs safely, on time and on budget. Our backlog at the end of the second quarter was $4.55 billion, up 53% from the same period last year, driven by continued strength in E&M. The favorable demand trends are broad-based, and we continue to benefit from positive momentum across diverse markets with growth in nearly all submarkets sequentially. Demand for our services remains strong as evidenced by our recent bookings. We always stay close to our customers, monitor market trends and track project activity. We have not experienced any project cancellations or notable changes in activity with our customers or projects. We remain encouraged by what we are seeing in our markets and remain confident in the growth outlook. The potential for change in any end market is why we remain committed to our diversified growth strategy, demand trends vary and we diligently position ourselves to take advantage of changing market dynamics. 10 years ago, it might have been health care that was a key growth driver. 5 years ago, it was hospitality, and now it is data centers and other markets like semiconductor. Our focus is on making sure we have the people, capabilities and geographic exposure to take advantage of each phase of growth. Our recent expansion into a new geography and the announced acquisitions of SE&M and Epsilon are evidence of this strategy. We will continue to evaluate new geographies and strategic acquisitions that advance our growth strategy and keep us positioned to achieve our long-term financial targets. Now I'd like to shift gears and highlight our recent progress on our key strategic initiatives. As a reminder, our value creation framework is based on targeted growth, operational excellence and disciplined capital allocation. In terms of growth, we continue to benefit from strong end market trends, notably in the commercial and industrial markets. As I already discussed, we continue to see strong momentum across our markets. Our data center work tends to be focused on several hyperscale customers. We continue to be very involved in long-term planning with these customers and demand remains strong. The project in our new geography for a semiconductor customer continues to ramp as expected, and we remain encouraged by opportunities we are seeing in this market. We will continue to focus on our diversified approach to growth and believe we are very well positioned to benefit from a broad set of favorable market trends given our strong relationships, track record of execution, and our highly skilled workforce across the country. Now turning to operational excellence. Our operating results continue to benefit from efficient project execution, including the advantages of our modular construction and prefabrication services. Off-site construction has long been an operational focus for our operating companies. Off-site construction and controlled shop environment supports safer work conditions, helps us use labor and materials more efficiently and creates more predictable project outcomes. This more predictable project planning results in a strong customer relationships, which helps us grow our business. We have quarterly meetings with our modular prefabrication teams during which we share best practices, and explore ways to increase usage of off-site construction across the organization. The expected acquisition of Epsilon will further expand our capabilities. Epsilon has more than 25 years of experience in providing off-site construction solutions across North America. They are recognized for their innovation, proprietary capabilities and highly refined execution processes that provide consistent, and efficient delivery of complex custom solutions. Epsilon offers a full range of services, including design assist, custom fabrication and turnkey field installation that support diverse project types like data centers, advanced manufacturing and health care. Epsilon has multiple strategic facilities in the U.S. and Canada, enabling nationwide distribution. In addition to integrating with our existing footprint, we expect that Epsilon's footprint will enhance growth in key geographic areas, including Florida, Texas, the Mid-Atlantic and the Northeast. Epsilon is led by a strong leadership team with extensive technical and operational expertise, and has an experienced labor force that includes more than 50 engineers and 120 skilled trace people. We are excited to welcome Epsilon to the Everus team and look forward to another successful integration after the transaction closes later this year. And finally, our focus on disciplined capital allocation. While it took some time, and I know everyone was eagerly waiting for us to begin executing on our inorganic growth strategy, we are very excited we acquired SE&M in April. Our first transaction as a stand-alone public company, and we are thrilled with our recent announcement of the pending Epsilon acquisition. As I already mentioned, the integration of SE&M is on track, and we are already exploring expanded opportunities. They have a fantastic team, and we are grateful to have them be part of the Everus family of companies. We think both SE&M and Epsilon align with the acquisition strategy we previously described which is to expand our geographic footprint, diversify our business and deepen our market presence. Our net leverage is well below our 1.5x to 2x target range which gives us continued flexibility to execute on our growth strategy. Our acquisition pipeline remains active. In summary, we remain encouraged by the sustained market demand trends and are very proud of our continued strong execution. We are performing at a very high level across the organization, both strategically and operationally. Based on our robust first half of the year, we are pleased to be raising our 2026 guidance which Max will discuss in more detail. We remain committed to our 4 EVER strategic priorities and are highly confident in our ability to deliver on our long-term financial goals. With that, I'll turn it over to Max.

Thank you, Jeff, and good morning, everyone. I will provide additional details on the quarter to give an update on our liquidity and balance sheet and wrap up with our updated guidance. Beginning on Slide 11 of the presentation. Record revenues for the second quarter were $1.23 billion, an increase of 34% compared to the same period last year. The increase was driven by growth in both our E&M and T&D segments, including contributions from the recently acquired SE&M. Excluding the contribution from SE&M, revenues were up 30% on an organic basis. Total EBITDA was $128.6 million during the second quarter, an increase of 53% from the same period in 2025 driven by solid revenue growth and continued strong project execution. As a result, our second quarter EBITDA margin was 10.4%, up 130 basis points from 9.1% in the prior year period. On June 30, total backlog was $4.55 billion, up 53% from June 30 of last year. The increase was driven by strong growth in our E&M backlog, which was up 62%, reflecting organic growth across all E&M markets, as well as contributions from SE&M which contributed roughly $100 million to backlog at quarter end. Now turning to segment results. Let's first look at E&M, where our second quarter revenues increased 42% to $1.01 billion. The increase was driven primarily by growth in our commercial and industrial end markets, as well as the addition of SE&M. Excluding SE&M, our E&M revenue was up 37% organically. Our E&M EBITDA was $109.3 million in the second quarter, an increase of 72% compared to second quarter of 2025. The increase was driven by our strong revenue growth and higher gross margin due to project timing and strong project execution. As a result, our E&M segment EBITDA margin was 10.8%, up 190 basis points compared to 8.9% in the second quarter of 2025. Our second quarter T&D revenues were $227.5 million, up 7.1% from second quarter of last year, driven by growth in our utility end market. T&D segment EBITDA was $32.8 million in the second quarter, up 7.9% from the prior year period due to the higher revenues. As a result, T&D segment EBITDA margin was 14.4% during the second quarter compared to 14.3% in the same period last year. Turning to our balance sheet and liquidity. As of June 30, we had $157 million of unrestricted cash and cash equivalents, $278 million of gross debt and $223 million available under the credit facility. Our net debt increased sequentially, reflecting the acquisition of SE&M, partially offset by our strong operating results. Net leverage defined as net debt to trailing 12-month EBITDA was 0.3x as of June 30, well below our 1.5x to 2x targeted range, providing ample flexibility to continue investing in our strategic growth initiatives. Operating cash flows were $196.8 million for the first 6 months of 2026, compared to $32.5 million in the same period last year, due to the strong operating results and favorable working capital timing. CapEx was $35.6 million for the first 6 months of 2026, up modestly from $31.6 million in the prior year period. We generated free cash flow of $167 million for the first 6 months of 2026, up from $6.5 million in the first half of 2025. While our first half free cash flow had some timing benefits, we still expect a more normalized free cash flow conversion through the remainder of the year with our forecasted growth in operating results, largely offset by our higher levels of growth investments. Wrapping up with guidance. Based on our strong first half results, combined with the continued momentum we see across our business, we are raising full year 2026 guidance. We are now forecasting revenues in the range of $4.5 billion to $4.7 billion, and EBITDA in the range of $410 million to $425 million. Our guidance does not include any contribution from the Epsilon acquisition, which we expect to close later this year. At the midpoint of our range, our guidance implies EBITDA margins of around 9% for the year, which reflects the execution upside from the first half, as well as the margin accretion from SE&M. For the balance of the year, our guidance assumes EBITDA margins of around 8.5%. That completes our prepared remarks. Operator, we are now ready for the question-and-answer portion of our call.

[Operator Instructions] Your first question from the line of Brent Thielman with Oppenheimer.

Thanks. Great quarter. I guess first question, Jeff or Max, just on Epsilon. Could you just talk about whether there's a previous relationship there? Maybe the synergies you foresee with the transaction with your existing operations, whether that's from an integration with your field services people or sort of new customer opportunities?

Thanks for the question, Brent. We're really excited about Epsilon. They are an excellent upside construction business, and they have a very well-known customer list, and it's grown primarily in the mechanical space. They're going to provide access for us in new geographies through their modular solutions, and there's also going to be potential to add satellite locations to support their business. We're going to see continued growth in the mechanical and cross-selling opportunities in electrical as well, introducing Epsilon and their leadership team into the rest of our company is going to also help us leverage customer list from our current customers and also with theirs. So we see this as a great opportunity for collaboration and to be able to leverage what they do also coupling that with whatever consistently has done to be able to build upon our modular expertise.

Great. And I guess my follow-on is just on the solid E&M margin performance. I know there's a portion of the business that you approach more on a cost-plus basis, but Jeff, what specifically is driving the higher margins here? Is it more effective leverage of your workforce? Is it performance bonuses? Anything else that you can kind of talk through as we think about kind of margin performance going forward for that segment?

Yes. We're always striving to be able to have margin uplift. And our goal, of course, is the 20 to 30 basis points gross margin expansion. And we attribute our margin results to planning the work, making sure we have good deals upfront, contract reviews, good estimates, all of these processes that we put in place and what we call a repeatable playbook. Then the execution safely and productively and building those relationships with the customers really helps us get that repeat business work on similar type projects and improve those margins. And then when you think about the available labor and making sure that we're emphasizing access to labor, training our people, providing the tools and equipment, and information they need that all contributes to the margin performance that we've had for the first half of the year.

Your next question is from Manish Somaiya with Cantor Fitzgerald.

Congratulations on a strong quarter as well as the acquisitions so far this year. I had a question, Jeff, Max, specifically on the backlog conversion. The $4.5 billion of backlog, how should we think about the conversion of that in second half '26, '27? How should we think about the margins in that backlog? If you can just give us some sense of how we should think about those things.

Yes. Great question, Manish. When we look at our backlog and how much burns off in 12 months, and we look least every quarter. And we're still about that 80% range of backlog that burns up in 12 months. And we look at the work that we're getting and the margins are comparable in what we've seen over prior periods. We'll again focus on our execution to be able to take those backlog numbers and improve upon what we have when we start these projects.

And Jeff, on that, have you talked about the data center concentration within E&M backlog? Maybe if you can just kind of give us some sense as to how diversified the backlog is across customers' geography?

Sure. Data centers, as we've said before in previous quarters, and it still is the case. It's the largest part of our backlog. And we're executing, and we're doing a great job with data centers. Our goal is to become indispensable to our customers. We do look at customer concentration. But when we look at our largest customer, we're serving them in multiple regions. So we want to make sure that we're still getting the work, negotiating or semi-negotiating the work and serving our current customers but expanding our customer base. When I look at our backlog, sequentially, we have increased backlog in almost every single one of our end markets, which is exciting to me because we talk about diversification, looking at where the best markets are but also the industrial, the institutional renewables, our service work and of course, a utility where all we have seen sequential increases in our backlog.

Yes. I would just add also that the majority of the sequential backlog increase was not in the commercial market.

Good point.

So I guess, Jeff and Max, just based on everything that you just said, when I look at the long-term expectations that you have on Slide 9, organic revenue growth of 5% to 7%, EBITDA CAGR, 7% to 9%. It just looks way too conservative based on what we're discussing today. I guess, how do you think about potentially revising those or making it a little bit more in line with the outlook?

We're experiencing tremendous opportunities in the markets today. And we set our long-term growth targets, that's what they are, is long-term growth targets. We're going to look at those again. Meanwhile, we're going to try to capitalize on the great market conditions we have with our very strategic approach to focus on diversification and execution.