Sterling Infrastructure, Inc. ($STRL)

Good morning, ladies and gentlemen, and welcome to the Sterling Infrastructure First Quarter Webcast and Conference Call. [Operator Instructions] As a reminder, this call is being recorded on Tuesday, May 5, 2026. I would now like to turn the conference call over to Noelle Dilts, Vice President of Investor Relations and Corporate Strategy. Please go ahead.

Good morning to everyone joining us, and welcome to Sterling Infrastructure's 2026 First Quarter Earnings Conference Call and Webcast. I'm pleased to be here today to discuss our results with Joe Cutillo, Sterling's Chief Executive Officer; and Nick Grindstaff, Sterling's Chief Financial Officer. Joe will open the call with an overview of the company and its performance in the quarter. Nick will then discuss our financial results and 2026 guidance, after which Joe will provide some additional commentary on our markets and outlook. We will then open the call up for questions. As a reminder, there are accompanying slides on the Investor Relations section of our website. These slides include details on our full year 2026 financial guidance. Before turning the call over to Joe, I will read the safe harbor statement. The discussion today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Sterling's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligations to update forward-looking statements as a result of new information, future events or otherwise. Please also note that management may reference EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income or adjusted earnings per share on this call, which are all financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday afternoon. I'll now turn the call over to our CEO, Joe Cutillo.

Thanks, Noelle. Good morning, everyone, and thank you for joining Sterling's First Quarter 2026 Earnings Call. Sterling is off to a fantastic start, delivering strong revenue growth of 92% and adjusted diluted EPS growth of 120%. Adjusted EBITDA more than doubled with margins expanding over 150 basis points year-over-year to reach a new first quarter record of 20%. During this period of unprecedented demand, our focus remains on pursuing projects that offer the most attractive returns. We're not looking to win all projects. We are looking to win the best projects. Signed backlog at the end of the quarter totaled $3.8 billion, a 78% year-over-year increase and combined backlog grew 131% to reach $5.2 billion. Additionally, we have visibility into high probability future phase opportunities that now total over $1.3 billion. Together, our signed backlog, unsigned awards and future phase opportunities provide visibility into a total pool of work approaching $6.5 billion. This has grown by approximately $2 billion since year-end. Notably, during the quarter, we were awarded the first phase of a multiphase semiconductor fabrication campus. This first phase, which will be executed under a joint venture, totals over $0.5 billion and is expected to be completed in late 2027 or early 2028. The campus build is expected to span a multi-decade period and presents opportunities for additional scopes of work through 2027 and beyond. The growth in our backlog and future phase work in the quarter, combined with our visibility into our customers' multiyear plans, strengthen our confidence in our outlook. We believe we are perfectly positioned to continue to deliver strong earnings growth and return for our shareholders for many years to come. The Sterling Way, which is our commitment to take care of our people, our environment, our investors and our communities, while we work to build America's infrastructure remains our guiding principle as we execute our strategy and grow the company. Now I'd like to discuss our segment results for the quarter in more detail. In E-Infrastructure, first quarter revenue grew 174%, including organic growth of over 100%. The data center market was again the primary growth driver in the quarter. E-Infrastructure adjusted operating income increased 177% as margins expanded despite the dilutive impact of the CVC acquisition. Revenue for our site development operations more than doubled and operating margins expanded both year-over-year and sequentially. Margins continue to benefit from our strong execution on large time-sensitive mission-critical projects. CEC delivered 78% revenue growth compared to its prior year first quarter, with margins performing in line with our expectations. The Texas market remains exceptionally strong with robust award activity in early 2026. During the quarter, CEC secured several large project wins, contributing to a $1.2 billion increase in its combined backlog since year-end 2025. We continue to see tremendous opportunities ahead for both electrical and site development. In aggregate, our e-Infrastructure signed backlog, unsigned electrical awards and future phase site development opportunities now exceeds $5 billion, representing an increase of $2 billion since year-end. Mission-critical work, including data centers, large manufacturing projects and semiconductor represented over 90% of e-infrastructure signed backlog at the end of the quarter. Future phase work is predominantly related to mission-critical projects. Moving to Transportation Solutions. First quarter revenue grew 10%, driven by strong activity in the Rocky Mountain region, which benefited from favorable weather conditions and some earlier-than-anticipated project starts. Adjusted operating income grew 26%, reflecting strong execution and mix shift towards higher-margin projects. We ended the quarter with Transportation Solutions backlog at $1.04 billion, a 20% year-over-year increase. Shifting to Building Solutions. In the first quarter, segment revenue grew 3%, driven by a pickup in homebuilder activity and adjusted operating margins were 8.7%. While we're encouraged by the slight revenue increase in the quarter, we continue to anticipate that the residential market will face strong headwinds throughout 2026. The strength of Sterling's diversified portfolio and strategy to focus on high-growth and high-margin end markets enabled us to deliver another fantastic quarter. With that, I'd like to turn it over to Nick to give you more details on some of our financial metrics and 2026 guidance. Nick?

Thanks, Joe, and good morning. I'll begin with our consolidated backlog metrics. Our first quarter backlog totaled $3.8 billion, a 78% year-over-year increase or 51% excluding CEC. Combined backlog of $5.2 billion increased 131% or 46% excluding CEC. First quarter 2026 book-to-burn ratios were 2.1x for backlog and 3.5x for combined backlog. Moving to our cash flow metrics. Cash flow from operating activities for the first quarter of 2026 was a strong $166 million. We expect continued strength in operating cash flow for the full year. Cash flow used in investing activities included $20 million of CapEx. For 2026, we are forecasting CapEx in the range of $100 million to $110 million, which is unchanged from prior guidance. Cash flow from financing activities was a $27 million outflow, including share repurchases of $12 million at an average price of $305.14 per share. Remaining availability under the existing repurchase authorization is $362 million. We will remain opportunistic in our approach to share repurchases. We are in great shape from a balance sheet perspective. We ended the quarter with $512 million of cash and debt of $287 million for a cash net of debt balance of $224 million. Additionally, our $150 million revolving credit facility remained undrawn during the period. Given our strong liquidity, we are in an excellent position to continue to take advantage of both organic and inorganic growth opportunities in the years ahead. Our current backlog visibility and strong market tailwinds position us for an even better year than we originally anticipated. We're increasing our guidance ranges for 2026 as follows: revenue of $3.7 billion to $3.8 billion, which at the midpoint is a 20% increase over previous guidance and represents more than 50% growth over 2025. Diluted EPS of $16.50 to $17.15. Adjusted diluted EPS of $18.40 to $19.05, which at the midpoint is a 36% increase from previous guidance and represents 72% growth over 2025. EBITDA of $801 million to $831 million, adjusted EBITDA of $843 million to $873 million. Now I will turn the call back to Joe.

Thanks, Nick. For quite some time, we've been communicating a bullish view on our markets and outlook. As we sit here today, that outlook is stronger than ever and continues to surpass our expectations. Customers are continuing to ask for more with projects growing in size, complexity and duration. At the same time, we're being pulled into new geographies with urgency as customers prioritize alignment with partners who have the capability and capacity to execute over the long term. Together, these dynamics reinforce our conviction in the multiyear opportunities across our markets. Moving to our segment expectations for 2026. In E-Infrastructure Solutions, we anticipate that the current strength in data center demand will continue for the foreseeable future. We continue to have conversations with our customers regarding how we can best support their strong multiyear capital deployment programs. As part of this, we are getting pulled more rapidly into new geographies, including Texas, the Pacific Northwest and the Midwest. In the semiconductor market, our industry-leading capabilities enabled us to be selected as the site development partner for a mega fab semiconductor campus. This award highlights how Sterling's highly differentiated capabilities make the company the partner of choice for large mission-critical projects in the U.S. We believe that this is just the beginning of a wave of semiconductor fabrication activity that will begin to accelerate at the end of the decade. In addition, there are still several opportunities in the broader manufacturing market that we believe could be awarded in 2026 or early 2027. We're gaining meaningful traction in our cross-selling efforts between site development and electrical services. We are currently in active construction on 2 data center projects where we are executing both services and an integrated capacity. These joint awards have materialized approximately 6 to 8 months ahead of our original expectations. For the full year 2026, we expect to deliver e-infrastructure revenue growth of 80% or higher, including the full year contribution of CVC. We anticipate that the legacy business will grow at rates approaching 60% or higher as several of our larger projects accelerate. Adjusted operating profit margins for E-Infrastructure are expected to be in the mid-20% range. In Transportation Solutions, we're in the final year of the current federal funding cycle, which concludes in September of '26. We have built over 2 years of backlog and continue to see good levels of bid activity. For 2026, we anticipate continued growth in our core Rocky Mountain market. The downsizing of our low bid heavy highway business in Texas is progressing according to plan, resulting in some moderation of Transportation Solutions top line and backlog, but should continue to drive margin improvement as we move through the year. We expect Transportation Solutions revenue to grow in the low to mid-single-digit range in 2026. After the strong first quarter, we anticipate a moderation of growth rates in the remaining quarters. This is driven by 3 factors: the early start of projects in the first quarter that we originally expected to start in the second quarter, the allocation of resources towards e-infrastructure projects and the final wind down of our Texas low bid work. In Building Solutions, we believe the business is well positioned for growth over a multiyear period. Our key geographies of Dallas-Fort Worth, Houston and Phoenix are expected to see population growth driving new home demand. Additionally, there is an opportunity for share gain coming out of the down cycle. We anticipate that Building Solutions revenue will be modestly down in 2026 and that adjusted operating margins will be in the low double digits. On the acquisition front, we continue to look for acquisitions that are the right strategic fit to enhance our service offering and geographic footprint. We are seeing more high-quality acquisition targets in the market today than a year ago. Our significant balance sheet firepower positions us to take advantage of these opportunities. Moving to our full year 2026 guidance. The midpoint of our guidance ranges would represent a 51% revenue growth, a 72% adjusted EPS growth and a 70% adjusted EBITDA growth. With that, I'd like to turn it over for questions.

[Operator Instructions] Your first question comes from Sangita with KeyBanc.

Maybe, Joe, you can help us understand what you think went a lot better in 1Q versus expectations maybe on revenue and margins since usually we consider 1Q to be a seasonally slower quarter.

Yes, sure. Yes. Q1 is historically and will probably be consistently our lowest quarter. A couple of things helped us. We certainly had some very good weather in the Rocky Mountains and some of the other regions, which enabled us in the Transportation segment to start some projects a little earlier and execute projects through the winter months when we normally shut down. So that definitely helped us. But more importantly, as we look at E-Infrastructure, we're really starting to see the impact of the new projects that are coming in larger and more complex and what the added values of our vertical integration are adding to the margin profile and productivity through the build of these projects. So we're far enough along. Again, a little bit of history. We started this journey when data centers became really data centers and data campuses and hit 100 acres. Now we're doing projects that are north of 1,000 acres and the future projects coming out look like they're multi-thousand acres. So the larger they get, the more complex they get, the more we can leverage our vertical integration and our size and our scope, which drives more productivity. And that's why we've said all along and we feel even more confident as we're executing, we'll continue to see nice margin growth in eIfrastructure.

Great. And then if I can ask a follow-up on the comment you made on M&A targets and the fact that you're seeing better targets now. Can you tell us how you define these targets as being better than what you saw before?

Yes. So we have some significant criteria that we look at. We always say we buy people, we don't buy businesses. So it's absolutely critical on the caliber of the talent and the willingness of the key team to stay. But our primary focus is in the infrastructure. If we take a look in kind of a couple of different areas, either geographic expansion of capabilities that we have, more focus on the site development from a geographic expansion standpoint. And then on the electrical side, a combination of geographic expansion and incremental services or products that we can offer. I'll tell you, we're looking beyond electrical as well. So we're looking at the whole portfolio. We really spend a lot of time with our customers and understand what are their needs and what are driving the success or the complexity of these projects, and we'll constantly look for those services to add to our portfolio. It's how we moved into electrical.

Your next question comes from Noah with William Blair.

Great quarter. You highlighted a robust bidding environment in Texas. Can you walk us through your current presence in that state as it relates to capacity, project manager availability and how you would characterize Texas' data center market today versus where, say, the Atlanta or Greater Georgia market is at today and your ability to gain share over there in Texas?

Yes. So our approach in Texas is we have CEC located up in Dallas, we'll call that North Central Texas. And we're attacking Texas from the West, and we're attacking Texas from the East. We're using our Rocky Mountain assets and businesses to come from the West to hit the Western Texas, even into New Mexico, there's a little bit of activity there. And then we're leveraging the Atlanta folks and Southeast team to come east. They'll make it all the way to Dallas and both of those teams are kind of meet in the middle. So we've got current capabilities and capacity to do that. We're constantly looking for acquisitions that could be in the upper Pacific Northwest, also in Texas that we can add capacity as we move along the way. So we'll continue to do that. If I look at the market, I would tell you that the Atlanta Southeast market is more mature, has a longer runway and today is probably a larger market. As I look forward the next 4 to 5 years, I think people will be shocked with the size and scope and quantity of data centers along with some other stuff being built in the Texas market. So we're in the early innings, but the projects are extremely big. They're coming out extremely quickly. And we see not only this year, next year, but what our core customers and key customers are talking about starting '28, '29. These projects on top of being large, will obviously take longer in time frame to complete. So a typical project today is more like 3 years. These will be pushing out more like 4- and 5-year projects.

And one other thing, Noah, just to add here is we're getting pulled into these new geographies by our customers. So it's not like we're just going into these new geographies cold. They're looking for partners that can support their builds in these new areas. And that's really a continuation of the geographic expansion strategy we've had since the beginning. So it's just kind of taking that one step further.

Yes. And just to add to that, I think that's a great point. Our customers, if you look at our geographic expansion from the beginning of this, going back to when we started this, we've let the major hyperscalers pull us into new markets. I will tell you, we generally take our time to do that. They're more than pulling now. They're kind of screaming to get into these markets faster with what they see coming in capital spending they're going to do. So it's really -- it's exciting times for us. Our challenge is how do we grow as fast as we can and still deliver at the same levels in caliber. But it also allows us to be extremely picky on the projects we decide to do and the projects we're not going to do. And that only helps us long term on margins and capacity planning.

Fantastic. That was great color. And then just a follow-up. As it relates to CEC, can you walk us through your current level of integration with the business as it relates to what you're seeing with revenue and cost synergies? You mentioned the 2 active projects that are involved are involving both the legacy site development work with CEC's Electrical. But how much of their collective bidding pipeline is collaborative with this cross-selling? And then what's the progress on CEC's margin expansion opportunity?

Yes. So we call it a simulation, not integration. But we've been really happy with the progress made with CEC. As I said on the call, we're 6 to 8 months. We really didn't think we would see a joint opportunity or joint effort take place until late second quarter, early third quarter of this year. We started those in the first quarter, which is fantastic. We've got great reception from the hyperscalers, and they will quickly and are seeing the benefit of combining these together and what it does to the cycle time of the build process. So we're really happy with that. Integration is going great. On the margin expansion piece, we're still extremely bullish that we're going to see 300 to 500 basis points of margin in really 12 to 18 months. One of the things that people need to realize that CEC is there's a couple of end markets and products that we knew they were doing to have much lower margin. We are exiting those. And as we exit those, those margins will come up. I will tell you on the core business ex those markets, we saw a really nice margin expansion in the quarter. I would tell you that it was actually ahead of what we anticipated. So we're very confident in where those margins will go over the next 12 to 18 months and feel really good about what the business is bringing to us and what we can do jointly with that business as we go forward. In addition, it's taken off so quickly. We talked about expanding or growing our modular capabilities. We just locked down a lease to triple the size of our modular build capabilities. We're building a world-class manufacturing site to do that. And we think we'll ultimately expand that to other locations in the U.S. over the next 18 months. So we're excited about it. I feel very good about what it's bringing. I just wish I had 2,000 or 3,000 more electricians, and we would grow it even faster.

Your next question comes from Manish with Cantor.

Manish? We lost him.

Your next question comes from Brian with Stifel.

Congrats on a great quarter here. Just a follow-up on Texas in your traditional site development business. How much do you expect Texas to account for as a percentage of revenue there, kind of putting CEC aside? And can you remind us where about it was last year? And then is there any notable differences in margin profile in the site development business in Texas relative to some of your other regions?

Yes. So it's really hard to say where Texas will be as a percent of revenue. I will tell you, it is growing extremely quickly. But so is -- people forget the Southeast is still growing incredibly fast, too, right? And we've just got pulled into the Midwest by one of our customers, and so there's another market there. So it's hard for me to -- I'll only be wrong if I try to give you an answer. Margin profile, as legacy things are getting bigger and more complex, margin profiles will be fine. We certainly have seen in some of the far Pacific Northwest projects early on where we've got a little smaller equipment group, and we're not as fully vertically integrated as we are in the Southeast. Those margins are a little lower. but they would be margins everybody would love to have. So we're not worried about that. Part of our acquisition strategy is to look at how do we start putting in those elements or even organically adding those elements of vertical integration. We are really, really seeing the benefits of these ancillary goods and services, not only from time reduction of the project because we control more of it, but that's what's really helping drive these margins. Everybody keeps asking us if we're getting more price. The answer is no, we're not getting more price. This is all around effectiveness and efficiency and what we're able to drive through the execution of these projects for our customers.

Yes. That's great. And then just a follow-up on CEC. In the release, you guys talked about $600 million-ish contribution to backlog, but a $1.9 billion contribution to combined backlog. Can you help us understand the delta here? Is that some underground electrical work that you won that hit RPOs and maybe some of the inside work is coming later? Or how should we think about that.

Yes, it's a combination. It's both external and internal electrical work, and that will be on upcoming centers and existing centers. The contracts with CEC are very similar to what we've talked about in our site development where this stuff is phased. So they'll release a small phase. We know the scope of the project. Internal electrical package is $300 million to $500 million generally. So we know kind of the total scope of the project, but they'll release those in small pieces along the way. So that's why you see kind of some backlog, some in that future phase work. But those are projects that we're either actively working on or getting ready to work on.

Brian, this is -- sorry, just one thing to add. We've actually -- within some of that work that fell into combined backlog, they have -- and again, the terms and conditions are kind of already finalized on that piece of the contract that would -- is maybe unsigned, but would fall into combined backlog. And some of that has subsequently moved into signed here as we've moved into the second quarter, a pretty big chunk of it.

Your next call comes from Alex with Texas Capital.

How should we think about your new work being competitively bid versus negotiated? And how has that changed or how might that change?

Well, in theory, everything is bid. The question is, in certain instances, we're asked to go work on specific projects with the customer. I guess you could consider that negotiated. Our pricing -- what people don't understand, we've done a tremendous amount of work for these customers in the past. So it's not like we can raise our prices 20% or 30% even if we're negotiating it. They know what the price range is going to be. It's our ability at the end of the day to execute this stuff faster than anybody else and be on time every single time with our customers that gets us pulled into these jobs. So that's really where we're at. I think as we go forward, we're looking at these multiyear programs of our core customers and the size and scope of these and it's really causing us to look harder at those. And we'll be passing up on more jobs as we go forward that may be smaller in size or scope or may have lower margin profiles because they're not as complex as some of these bigger jobs, and we'll just keep moving assets to where the most money is. I will tell you, with the combination of electrical and the site side, it really gives us a whole another avenue on some of these extremely large projects coming out in the future.

And congratulations on the semi fab campus. It sounds really exciting. Do you see other opportunities developing sort of outside the data center market this calendar year? Or is that more of a 2027 event?

Yes. So let's talk about the semi fab for a little bit. here's a job that's going to be one of the bigger jobs in the U.S. It's the biggest semi-fab plant in the U.S. And I will tell you, it was fun. We actually participated in the process, and I say we, some of us in corporate because we didn't know if we wanted to do the project or not, to be honest. We went through the process and it was really fascinating to see the differentiation that we had over anybody else that spoke to the customer about doing this project. It was just so blightly evident. There was no one else in the room that was going to have a chance at this. But more importantly, it's the first semiconductor project we've done. It's not a market we've been in, in the past. It's not a market that's really existed in the U.S. But a lot of the GCs in that space, the engineering firms in that space are not people we deal with every day. Now we're dealing with them every day. And when we show them the capabilities of what we're able to do, we feel very confident that just like in data centers, we will be the supplier of choice for every chip plant that comes out in the future. We don't see the huge rush of chip plants coming out until '29, 2030 kind of looks like the time line, but we're positioned perfectly for that as we go forward with that. I'm sorry, what was the second part of the question?

That covered it.

Your next question comes from Julio with Sidoti.

I wanted to ask about how your competitive positioning is evolving due to these shifting and increasing customer needs. As you said, these customers are no longer asking you to scale, but kind of screaming for you to go into other geographies. And as they act with more urgency, are you realizing a better pricing environment? Are you negotiating better payment terms? And kind of related to that, how do you maintain risk discipline and essentially not allow these large customers to force your hand for lack of a better word, into taking on more work than you would typically handle?

Yes. I think if we were going to get criticized for something it would be that we're probably not aggressive enough on price. And we just -- we have a philosophy that we have a fair price and we make our money on execution. If we take care of customers, they'll have us back. There's no reason for us to try to take advantage of the situation. My history says at some point in time, that comes back to. So if somebody wanted to be critical of us, it would be that we're probably not pushing price hard enough, but we keep -- we will keep growing margins with vertical integration and the productivity. On the risk profile, the beauty of all of this stuff coming at us is we're not afraid to say no. And sometimes our biggest customers may not like that. There may be a geography or something that takes place. It could be a real small job that, frankly, just for the time, effort and energy would take away significant capacity from doing their bigger jobs. So what we try to do is work with them and say, here's the jobs we're going to do. Here's the jobs proactively we're going to pass on. We'll even help them in some cases if they need help try to find somebody to get that done. So that's where we go. On the risk profile, we are incredibly risk adverse. It's another reason why our margins are where they are. We won't take on high-risk jobs that are going to get us in trouble. So we don't see that as an issue. Right now, our biggest challenge is they would like to have us in 2 or 3 or 4 new markets tomorrow. We've had to say no to some of those. We really have. And some days, it kills us because we'd like to be in all those markets, but we've just had to say no. And over the long term, that enhances or continues to build our credibility with them because we'll never let them down. So that's important to us.

Very helpful. And that kind of dovetails into my next kind of question is about expanding production capacity. I know you discussed earlier expanding your modular build capabilities. I think last call, we talked about AI deployment internally to improve production capacity for product managers. And then obviously, you have a joint venture with the first phase of the semiconductor facility project here. How would you kind of rank order the levers you have to pull to expand production capacity to continue to grow, both in the near term and in the longer term?

Well, I think it's different in each area. So electrical is very different than site development. Electrical comes down to electricians. It really does. And so as we said before, we've got the university, it's great. We're graduating people as we speak. The downside of the university is it's a 4-year program to get somebody from start through apprenticeship into a certified electrician. That doesn't mean they can't work along the way as an apprentice, but it's a long, lengthy process, and we can't put out thousands of people a year. So that's one avenue. Second avenue as we get these larger multiyear jobs, you can actually attract electricians from smaller shops that may be on small jobs that are moving every 3 or 4 months to where they can be some place for 18, 24, 36 months, depending on the size and scope of the project. So there's an attractive piece of that. And then the third piece is acquisitions. And that's a combination of can we buy something -- someone larger that gives us a nice geographic expansion element? Or are there some small tuck-in smaller shop electrical contractors that don't have the size and scope to do data centers or large mission-critical projects, but they've got 150 or 200 electricians. We can buy those and we can convert those electricians to work on mission-critical stuff. So that's kind of how we're going at it in the electrical space. And then the last piece of the modular, which is anything I can build in a factory where I don't have to have a certified electrician doing 100% of the work, saves me that electrical work in the field, okay? Plus there's some added quality and other advantages of doing it in a factory, quite frankly. So we have that. On the site development side, we have a waiting list of operators. It's really about project managers. We've talked about that in the past. The AI project we did first was focused on project managers. We picked up about 15% capacity in project managers. We've got the apprenticeship program or internship program, I should say. So we're literally hiring people in their soft more year. We run them all through college, and then we got a program that they go into right after that. We're graduating for, I think, a year, 4 or 5 a year right now that are not only through college, but through the program itself and are becoming real project managers in the field for us. So we'll continue to do that. And we're looking hard for acquisitions. It's challenging on the site development side, candidly, for us to find the right acquisitions for a couple of reasons. One, the size and scale that we have is so much bigger than anybody else. There's a lot of small players out there. They tend to have either small equipment fleet or most of them have no equipment at all, they rent and lease it. And I would tell you that the rental and lease market right now is extremely tight. So they're going to be highly limited on capacity and capabilities. So we're looking hard. And if we can find the right ones, we will buy them. It's just hard for us to find that. But that's our strategy on that front on top of, I'll call it, the internal development.

Your next question comes from Adam with Thompson, Davis.

Congrats on putting up one of the best earnings reports I've ever seen.

Thanks, Adam.

You had some large awards you said recently for CEC. What should our expectation be for continued awards from those guys? And as they get out some of their lower-margin ventures, you talked about that, does that free up electricians that you can move back and take on more mission-critical work?

Yes. So we get kind of a double benefit from the low-margin stuff we want to exit. You free up people and your margins move pretty significantly when you do that. So we get 2 benefits of that. as we go forward. We have more opportunities than we have capacity to get to with CEC. So just like we've talked about with everything else, we'd like to focus more on where we get joint opportunities because we can really lever that on the total project scope and take out some significant time and drive some significant productivity. So our net margins will go up as well. So that's kind of where we're focusing their growth activities on as we go forward. And we'll continue to look at it's been really fun to watch. We've had CEC for 8 months now or so, watching them kind of transform as well from where they were, which is a great business to with all these opportunities and what's happening in these joint opportunities, watching them quickly trying to shift and move more and more resources, assets and capabilities there because they really see the benefit of what that brings to them as well. So it's fun to watch. Like I said, if I had 2,000 more electricians, I can tell you we can put them to work in a quarter for sure out there right now. It's a really good time on the electrical insight side.

And then on the M&A side, you -- since your electrical deal has worked out so well, you said that they you would go to where they're asking you to add scope. So I guess my question is where are they asking you to add more scope? And could that include maybe something just purely on the manufacturing side?

Yes. Well, it's interesting you say that because there's a lot more to these projects than people realize. And there are underground components that are manufactured by others that we purchase and put in that may make sense for us to do. As we look at this modular capability piece, we're kind of starting out with the basic stuff, but there's no reason that we can't go to whole modules of these being built in a factory and put on site. So we see that expanding and growing very rapidly as an opportunity. And for 2 reasons. One, just pure electrical capacity; and two, it could open up other end markets for us that we're not in today.

Your next question comes from Manesh with Cantor.

Congrats again. Joe, 2 questions for you. One is on E-Infrastructure. The margins that we're seeing, are they structurally sustainable? And should we think of them as peak margins? Or is there more room to be had?

Well, when you ask if they're sustainable, I will tell you, if you consider them going up higher than they are now, then they're not sustainable because they will continue to go up. Our margins will improve, and they will improve for a couple of reasons. As these jobs become more complex, we drive better productivity. As we vertically integrate through the Rocky Mountains and add larger equipment suites, they will get further productivity. Those will both drive margins. As we combine the electrical packages and the site civil packages, there's another element of productivity that we can drive, which helps the margins. And then the inherent margin of that is actually better for our CVC business on top of it. When you couple all those together on top of the end markets that we'll get out of with CVC, what that does with the margin profile, we will continue to see margins tick up in E-Infrastructure as we go forward. So we're very bullish that we're certainly not at the top and feel like we've still got a long way to go before we're peaking out on this thing. So you may see some variability quarter-over-quarter because of volumes. But if you take the trend line of margins, we're going to -- we'll continue to grow.

And Joe, how should we think about margins, risk profile between data center and advanced manufacturing work?

Fundamentally the same. Margins are -- again, size matters to us. So I'll tell you a 50-acre data center is not going to have the margins that a 1,000-acre data center has, just like a 50-acre mission-critical plant is not going to have the margins of a 1,000-acre mission-critical plant is. But I will tell you, there's opportunity for some large manufacturing projects either late this year or early next year that we're on top of, and they will have similar margin profiles.

And then if I can just squeeze...

The only variable that we see is that if you look geographically, historically, our Northeast region has had lower margins than the others. The driver of that is size of their projects is generally smaller. and some of their projects mandate vertical integration more than others with the union base. But other than that, really not a big differentiation. Think of it in size, not end market.

Right. Okay. That's super helpful. And then, Joe, one last question. Residential and transportation segments, we don't really talk about those 2 segments a whole lot. Obviously, all the thunder is on e-infrastructure for all the right reasons. But how should we think about those 2 segments long term? I mean, are they core, noncore? Would you monetize them if you found a bigger acquisition that gives you more scale in e-Infrastructure?

Well, let's start with transportation. If you asked me 7 years ago, I probably would have answered this differently. But today, we turned transportation -- first, transportation is like the Rodney Dangerfield of our business. They don't get enough respect. If you take a look at their margins, they are now almost 2x better than best-in-class in margins. So they've got great margins. They've done a phenomenal job. We've turned that into a cash cow that really we work off customers' money and that throws off great cash for us that we can then use to grow our high-margin, high-growth project -- product lines, e-Infrastructure and at one time it was residential. So when we look at it, great solid business today. But in addition, what we've been able to do is start shifting those assets towards e-infrastructure. And I'll give you a couple of perfect examples. We started with a pilot with Meta, as a matter of fact, who asked us to go to the upper Northwest, Pacific Northwest, and we used the yellow iron and assets out of our highway business in Utah with our project management teams and stuff out of Atlanta, and they executed a project level. They've got 5 or 6 projects out of that between the customers and the GCs with their ability to execute. So we continue to shift assets there. We've talked about closing down our low bid heavy highway business in Texas. We're coming into the final innings of that. However, what we've been able to do is we've started shifting their underground assets to e-infrastructure. So now we're helping with underground utilities and some of the underground duct bank work by leveraging those assets and converting them into e-infrastructure. So we've taken lemons and we're making lemonade out of it and the lemonade keeps getting better and better. So there's not really, one, a reason for us to do anything different with transportation. And two, it will be really hard even if we wanted to because it's now so intertwined with our e-infrastructure business, it's not an easy thing you can break out. So that's where we are with that. Building Solutions, it's been a great business for us. It's been a great cash cow business for us. We'll continue to look for opportunities to grow it. we look at everything every day, is it or is it not a strategic fit for us. Right now, we believe it's still got long-term -- great long-term growth potential. We're in the best 3 markets in the U.S. So we have no different plans for Building Solutions, but to grow it out as we move.

Your next question comes from Louie with William Blair.

Following up, is your large semi fab project for your Totillo division? And secondly, what is the timing for the expansions into the Northwest and the Midwest? I think you just referenced how you were doing a trial project with Meta in the Northwest, but has that already started?

Yes. So let's talk about the semiconductor fab, it is being done in the Northeast, and it is being done by a union operation. And that would be Pilla that's doing that. So that's an exciting project for us. It's spray in our backyard and it should be a great project. The Pacific Northwest, Louis, I have confused everyone. That's one we did. We started 2 years ago. That was our foray into kind of transitioning RLW into e-infrastructure site development, and we've got multiple through there. What we're seeing is we believe, based on conversations with our customers, in '27, '28, there will be some nice projects coming out in the Pacific Northwest. And believe it or not, the Pacific Northwest and Western Texas are a lot closer than people think from our Salt Lake City office to our West Texas job is plus or minus 200 miles difference than us driving from Houston, right? So Texas is a pretty big state. It goes pretty far west. So we're using those resources to come further east as well. But we believe in '27, '28 is going to be the start of some really nice projects in the Pacific Northwest. So you'll see us adding capacity and capabilities in that area over the next 6 to 12 months, and we'll be able to talk more about that probably in the second or third quarter.

Your next question comes from Julio with Sidoti.

You guided to legacy business e-Infrastructure growth of 60% for '26. I think that implies some moderation of the year-over-year growth rates above the 102% that was this quarter. That makes sense. But just given the larger order intake this quarter, which I assume has some timing variability, how would you have us think about the year-over-year legacy growth rates expected in the e-Infrastructure over the remaining 3 quarters of the year to get to that 60%.

I haven't laid it out in that level of detail. The question around the big wins and all that, it's timing, right? It's when do these kick off, when do they start, how fast do they go. If we get great weather through the rest of the year and projects kick off earlier, we'll be really happy and we'll beat those numbers. There's just a lot of variables left from now to the rest of the year. Julio, we can lay that out exactly for you and talk more about what that does quarter-by-quarter. I just don't -- I don't have that.

There are no further questions at this time. I'll turn the call back over to Joe Cutillo. Please go ahead.

Thank you, Melissa. I want to thank everybody again for joining today's call. We're off to a great start, and we're going to have an amazing year. If you have any follow-up questions or want to schedule further calls, feel free to contact Noelle Dilts. Our contact information is in the press release. Hope everybody has a great day. And again, thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.