Everus Q3 2026 Earnings Call - EVERUS CONSTRUCTION GROUP INC

Financial Performance:

• Third quarter 2026 revenue reached a record $1.4 billion (specifically $1.38 billion reported by CFO), representing a 40% year-over-year increase, with 36% organic growth excluding acquisitions.
• EBITDA surged 58% YoY to $140.2 million, driven by revenue growth and operational efficiency; a one-time net gain of $7.6 million from a past project settlement was included.
• Third quarter EBITDA margin was 10.1% (up 110 bps YoY), excluding the one-time gain; full-year 2026 YTD margin is 9.8% (up 120 bps).
• Total backlog stood at $5.5 billion at quarter-end, a 86% increase YoY, with E&M backlog growing approximately 100% YoY.
• Operating cash flow for the first nine months was $267.3 million (vs. $108.6 million prior year); Free Cash Flow (FCF) was $221.2 million (vs. $74.8 million prior year).
• Capital expenditures for the first nine months were $53.4 million (1.5% of revenue), below the 2-2.5% target, with full-year 2026 guidance remaining at $90-100 million.
• Net leverage remains disciplined at 0.7x (Net Debt / TTM EBITDA), well below the 1.5-2.0x target range, with $245 million in unrestricted cash and $248 million available under the credit facility.

Guidance and Future Outlook:

• Management raised full-year 2026 guidance: Revenue expected between $5.0-5.1 billion; EBITDA expected between $485-495 million, implying an ~9.7% margin.
• The outlook reflects strong momentum across diverse end markets, including data centers, industrial, and utility sectors, as well as the full-year integration impact of the Epsilon acquisition.
• 2027 outlook is positive, with management expressing confidence in sustained demand, though specific 2027 guidance will be provided in February.
• Data center backlog is expected to convert over an extended period due to long project planning horizons with hyperscalers, though Epsilon's modular work may convert at a slower pace than typical stick-built projects.

Business Segments and Product Lines:

• E&M Segment: Revenue grew 48% YoY to $1.14 billion; EBITDA grew 79% to $119.8 million; EBITDA margin expanded 180 bps to 10.5%. Growth driven by commercial/industrial markets, including semiconductors, pharmaceuticals (via SENM), and healthcare.
• T&D Segment: Revenue grew 14% YoY to $255.6 million; EBITDA grew 13.3% to $38.3 million; margin held steady at 15.0%, supported by utility investment trends and aging infrastructure upgrades.
• Acquisitions: SENM and Epsilon contributed significantly to growth; Epsilon (closed Sept 1) adds off-site modular construction capabilities and expands geographic footprint, while SENM deepens pharma/healthcare presence.
• Strategic Initiatives: Accelerated adoption of prefabrication and modular construction to mitigate labor constraints and improve efficiency; focus on cross-selling opportunities between Everest's and Epsilon's customer bases.

Market and Competitive Landscape:

• Data centers remain the primary backlog driver; hyperscalers are in active project planning, providing multi-year visibility.
• Diversification is evident with strong backlog growth in institutional (government, healthcare), industrial (semiconductors), hospitality, warehouses, and renewables.
• Utility markets show robust momentum driven by transmission/distribution spending to address aging infrastructure and projected load growth.
• Management highlighted a "broad-based" growth trend across all E&M markets, reducing reliance on any single sector.

Risks and Challenges:

• Labor: Potential challenges in labor availability for 2027, though mitigated by record employment levels, succession planning, and increased use of off-site construction ("doing more with less").
• Political/Regulatory: Addressed investor concerns regarding potential data center construction pauses or policy changes following the election; management noted no immediate change in customer behavior or pipeline visibility.
• Integration: Managing the integration of Epsilon and SENM, including cultural alignment and realizing cross-sell synergies.
• Execution: Ensuring successful execution of a record backlog volume, particularly given the longer burn rate of modular projects.

Management Commentary and Tone:

• Tone was highly confident and optimistic, citing "record quarterly revenue, earnings, and backlog" and "robust demand."
• Jeff Seed (CEO) emphasized the success of the "forever strategic framework" (growth, operational excellence, capital allocation) and the value of disciplined execution.
• Max Mercy (CFO) provided detailed reassurance on balance sheet health, liquidity, and margin sustainability despite recent acquisitions.
• Management expressed strong conviction in their ability to navigate potential market shifts through diversification and execution excellence.

Analyst Questions and Answers:

• Brent Feeman (Oppenheimer): Asked about pipeline visibility beyond reported backlog and election risks. Response: Backlog growth across all submarkets; no evidence of election-driven slowdown; data center planning is long-term.
• Kurt Yinger (D.A. Davidson): Queried if data center strength implies continued focus given potential risks. Response: Diversification strategy is working; they remain active in pharma, manufacturing, and institutional markets alongside data centers.
• Michael Strattoti (Guten Securities): Inquired about off-site prefab shift and CapEx impact. Response: Off-site construction is growing organically and via Epsilon; CapEx guidance of 2-2.5% of revenue remains unchanged as modular fits the current framework.
• Brian Brophy (Stifel): Asked about Epsilon's growth pace and Q3 revenue recognition. Response: Epsilon revenue is "lumpy" due to modular cadence and only one month of contribution; strong long-term run rates expected.
• Sue Red Hicha (Cantor Fitzgerald): Asked about labor availability for 2027. Response: Company has quadrupled labor over 10-12 years; prefab/modular reduces labor intensity per dollar of revenue.

Other Key Points:

• Epsilon is 100% off-site construction, bringing distinct modular expertise that complements Everest's existing capabilities.
• The company has deployed over $500 million in capital for growth initiatives (acquisitions and organic) in 2026 while maintaining low leverage.
• Management is actively evaluating further acquisition pipeline opportunities to expand footprint and diversify.
• Upcoming investor events include the Baird Industrial Conference, Wolf Virtual Small and Mid Cap Conference, and Oppenheimer Winter Industrial Summit.