Everus Construction - Earnings Call - Q2 2025

Transcript

Speaker 4

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Everus Construction Group Inc. Second Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please limit yourself to one question. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I'd now like to turn the call over to Paul Bartlei. You may begin.

Speaker 1

Thank you. Welcome to Everus Construction Group Inc.'s Second Quarter 2025 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 2025 operational and financial results. This release, together with the accompanying presentation materials, is publicly available on our website at investors.everus.com. I would like to remind you that management's commentary and response to the 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 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, followed by a financial update from Max. At the conclusion of these prepared remarks, we will open the line for your questions. With that, I'll turn the call over to Jeff.

Speaker 0

Thank you, Paul, and good morning to everyone joining us on the call today. We are very excited to be with you all today as we report our second quarter 2025 results. I will provide a brief overview of our results and highlight some of our key accomplishments against our strategic priorities before I turn it over to Max for his financial review. Beginning with slide four, I am very pleased with our results through the first half of the year, with our second quarter results further building on our strong first quarter start. Our second quarter revenue increased 31%, driven by continued strength in our Electrical & Mechanical segment, as well as improved results in our Transmission & Distribution segment. I am very excited by the continued momentum across many of our key end markets, which positions us well for further strength in the coming quarters.

Our second quarter EBITDA increased 36% on strong revenue growth, combined with solid execution by our team members across the organization. As a result, our EBITDA margins were up 30 basis points from last year. Our total backlog at the end of the second quarter was $3 billion, up 24% from the same period last year and up 7% from the end of 2024. We were particularly pleased with the balanced backlog growth across both E&M and T&D, as both segments posted solid 20%+ growth relative to last year. We are excited by the strong momentum in our business and continue to see favorable trends driving our growth. Our customers look to Everus as a trusted partner and count on us to perform even the most complex projects, giving us confidence that we are well positioned for continued backlog growth.

We were particularly pleased with the favorable trends in our T&D business during the quarter, where our momentum continues to grow, driven by strong spending plans of many of our key customers. We are seeing strength across the utility end market, notably in our underground submarket. We continue evaluating several opportunities in our pipeline. The need to upgrade and expand power transmission infrastructure in the U.S. is clear, given the projected load growth that is expected in the coming years. With our long-term customer relationships and track record of safety, efficiency, and project execution, we are well positioned to succeed. We will remain disciplined as we approach some of the larger projects we are pursuing, and we are excited about the outlook. As we look across the rest of our business, we continue to see favorable opportunities in most of our submarkets, including data center and hospitality.

As it relates to data center work, our message remains the same. We continue to see very strong demand trends and have not seen any meaningful change in our customers' plans. We are deeply involved in the long-term planning with many of our key customers, giving us good visibility into the ongoing strength in the data center submarket. Our operating companies are positioned in key geographic locations, which puts us in a favorable position to take advantage of the attractive trends in the data center submarket. We remain well positioned as one of only a small handful of service providers with a track record, expertise, and people to successfully execute on these complex jobs. Now, let me shift gears a bit and provide a quick update on some of our key accomplishments during the quarter regarding our Forever strategy.

During the second quarter, we continued our focus on attracting and retaining key talent. We were able to add to our skilled labor headcount during the quarter, which is critical to supporting our growth objectives and enabled us to generate more than $900 million in revenue during the second quarter for the first time in our history. We had another quarter of excellent execution, which once again positively impacted the results during the quarter. This is a direct reflection of our hardworking, highly skilled, and dedicated employees across the organization. We had favorable variances and project pull-forwards across several large jobs that were spread across multiple end markets, highlighting the strength and depth of our team. Our focus on project selection, bidding discipline, training, safety, and execution are core to everything we do.

We are extremely proud of our track record of superior execution and work every day to maintain our success. As we highlight on slide eight of today's presentation, we expect our Forever strategy to drive us toward a long-term financial framework of organic revenue growth in a range of 5% to 7% compounded annually, which, combined with our disciplined focus and operational excellence, should drive EBITDA growth of 7% to 9% on a compound annual basis. We are confident, based on the strength of our recent results, favorable backlog trends, and high performance of our team, that we will remain on track to successfully execute on our long-term financial targets, delivering more than our long-term framework in 2025, grinding value for our shareholders. With that, I'll turn it over to Max.

Speaker 1

Thank you, Jeff, and good morning, everyone. I will provide additional details on the quarter, give an update on our liquidity and balance sheet, and wrap up with some details on our guidance. Beginning on slide 10 in today's presentation, revenues for the second quarter of 2025 were $921.5 million, an increase of 31% compared to the same period last year. The increase was driven by growth in both segments, with E&M revenue increasing 42% and T&D up 3%. Total EBITDA was $84.2 million during the second quarter, an increase of 36% from the same period last year that was driven by solid revenue growth and increases in segment-level margins in both E&M and T&D, including continued strong project execution on a number of projects that we completed, which will not likely repeat in the second half of the year.

Our standup costs continue to trend in line with our expectation for full-year run rate incremental costs of $28 million. As a result, our second quarter EBITDA margin was 9.1%, up from 8.8% in the prior year period. At June 30th, total backlog was $3 billion, up 24% from June 30th of 2024. We saw solid year-over-year growth in both of our segments, with E&M backlog up 24% from the prior year period and T&D up 21%. While data center work was once again a key driver, we continued to see solid growth in several key submarkets, highlighting the diversity in our business. Given the current mix of our backlog, which includes some larger multi-year projects, many of which are just getting started, our backlog conversion may be extended relative to our historical pattern in the coming quarters.

Our backlog at the end of the second quarter was down modestly from our record first quarter levels, but as we have previously discussed, our backlog can be lumpy quarter to quarter. In addition, our second quarter revenues were at record levels and up nearly $100 million from the first quarter. It is also worth noting that we have several larger projects that are either in the pre-construction phase or early stages of construction, and these large projects generally do not have the full scope of work in backlog at these early stages. This is all to say, given the number of early-stage large projects, combined with our strong competitive positioning and favorable demand drivers, we remain confident in our ability to generate continued backlog growth. Now, turning to our segment results, let's first look at E&M, where our second quarter revenues increased 42% to $713.6 million.

The increase was driven by growth across key submarkets, with data center once again a key driver. Our E&M EBITDA was $63.7 million in the second quarter, up from $41.5 million in the same period last year, or an increase of 53%. The increase was driven by higher revenues and higher gross profit margin due to project timing pull forward and efficiency gains on certain projects as they came to a close, partially offset by changes in project mix and higher SG&A expenses. As a result, our E&M segment EBITDA margin was 8.9%, up 70 basis points compared to 8.2% in the second quarter of 2024. Our second quarter T&D revenues were $212.4 million, up from $206.8 million last year, an increase of 3% driven by growth in both the transportation and utility end markets.

The transportation end market experienced higher workloads in the traffic signalization submarket, while the utility end market had increased activity in a number of submarkets with underground activity leading the way. T&D segment EBITDA increased 19% to $30.4 million in the second quarter, driven primarily by the increase in revenues, together with higher gross profit margin due to project mix and solid project execution. As a result, T&D segment EBITDA margin was 14.3%, up 200 basis points compared to 12.3% in the same period last year. Turning now to our balance sheet and liquidity. As of June 30, we had $64.5 million unrestricted cash and cash equivalents, $292.5 million of gross debt, and $209.4 million available under the credit facility, net of $15.6 million of standby letters of credit. Net leverage, defined as net debt to trailing 12-month EBITDA, was approximately 0.8 times.

CapEx was $31.6 million during the first half of 2025, up from $16.5 million in the first half last year. The increase in CapEx reflects our strategy to increase investments that support our organic growth, including the purchase of our new prefab facility that we discussed last quarter, as well as additional vehicles and equipment purchases in T&D to support the growth of our business. Wrapping up with guidance, we are very pleased with our strong first half results, which reflect the attractive demand drivers in our business and our strong competitive positioning, as well as excellent project execution and the pull forward of revenues and profit on certain projects. Based on these factors, combined with our project mix and expected project cadence for the second half of the year, we are raising our 2025 guidance.

We are now forecasting revenues in the range of $3.3 to $3.4 billion, which is up from the prior range of $3 to $3.1 billion, and EBITDA in the range of $240 million to $255 million, up from $210 to $225 million previously. At the midpoint of our updated range, our revenue and EBITDA forecasts represent growth of 18% and 21% adjusted for the incremental standalone costs versus last year. Before wrapping up, I want to provide some additional color as it relates to our outlook for the balance of this year. As we have already discussed, we have benefited from some very strong execution during fiscal 2025. While we always strive to outperform our projected margins, there were several projects where we recognized meaningful upside in the first half.

If you adjust for the strong execution that has benefited our results this year, our margins have been relatively consistent in the low to mid-7% range over the past several quarters. We expect this trend to continue for the remainder of the year on solid revenue. Additionally, we will be executing on a higher mix of large jobs that are in the engineering phase or in the early stages of construction during the back half of the year. This makes it more difficult to predict how our workflow will ramp up over the next couple of quarters, which impacts our margin visibility. Furthermore, given we were able to pull some jobs forward in the early part of this year at the request of our clients, we had work that was originally slated for the second half that was completed early.

We are working on lining up schedules as we ramp new projects and finalize opportunities with book and burn work, but the timing is tough to predict. Another result of having a higher mix of projects in the early stages is that there are fewer opportunities for significant execution upside in the near term. We are focused on continuing our strong execution and see the potential for additional upside as these jobs progress. This will likely be more of a 2026 event as it relates to these projects that are just getting underway. Again, all of this is to say that while we are encouraged by the trends in our core markets and excited by the momentum in our business and backlog growth, there are several factors impacting the outlook for the second half of the year relative to the first half.

This is nothing more than a timing issue, which is very typical for a business like ours, and we remain confident in our outlook and our ability to deliver on our long-term financial targets. That completes our prepared remarks. Operator, we are now ready for the question and answer portion of our call.

Speaker 4

Just as a reminder, if you'd like to ask a question, press star followed by one on your telephone keypad. Just one moment while we compile the Q&A wisely. Your first question comes from the line of Brent Thielman from D.A. Davidson & Co. Your line is live.

Hey, thanks. Good morning. Congrats on a really strong quarter. I guess my question would be, just considering the success you've had in hiring that you mentioned, Jeff, through the quarter, and your capability to kind of pull forward some of these projects that you mentioned, maybe if you could just talk about your capability going forward to continue to convert the backlog at the rate you'd experienced here through the first half and/or be able to fill some of these holes with more book and burn work. Just be curious around that. Thank you.

Speaker 0

Yeah, timing's key, Brent. We get on these projects early and become an extension of the design team, providing our constructability reviews. Sometimes those pre-construction phases are shorter, and therefore we get moving quicker than anticipated. That's what happened in the second quarter as far as the pull forward work, which resulted in record revenues for our company. We're always looking at planning our resources and allocating resources and staying ahead so we can continue to build our business, support our growth, and also anticipate where we have to add headcount. We're at record employment today, and we'll continue to add people, train people, and support the continued growth. The timing is key on these projects. Sometimes they're difficult to anticipate, but we're well positioned. We're partners on many of our projects, especially the large-scale projects, and we think this is a strength of our business.

Okay, thank you.

Speaker 4

Your next question comes from the line of Ian Zaffino from Oppenheimer & Co. Inc. Your line is live.

Hi, great. I just wanted to ask if I could just squeeze in two here. I know you called out weather last quarter, but not this quarter, so I was wondering if there was a weather impact at all in T&D. Also, in commercial, can you talk about hospitality and how that did and what's sort of the outlook for that? I know we had a little bit of a trough previously. Are we coming out of that, and when do we start to see some contribution from the hospitality? Thanks.

Speaker 0

First part of your question on weather, we didn't really have any weather impacts in the second quarter. In Las Vegas hospitality work, you know, we saw an uptick in our backlog. We've got four great companies in Las Vegas. We do the electrical, low voltage, mechanical plumbing, HVAC, fire protection, underground services. We are very well positioned with a fantastic reputation to be able to execute large complex projects in Vegas. We've seen an uptick. We haven't seen it return to 2022-2023, where we had a robust construction on major projects and where we were very successful. Nevertheless, with the reputation we have, the experience, and the relationships, we continue to be well positioned to capture this work.

Okay, thank you very much.

Speaker 4

Your next question comes from the line of Peter Englert from Wolfe Research LLC. Your line is live.

Speaker 3

Hey, guys. This is Peter on for Chris Cynic. Thanks for taking the question and congrats on the strong quarter.

Thank you.

You guys noted that gross margins benefited from efficiency gains this quarter. To what extent were those tied to the prefab investments you've made versus factors like project execution or mix? How should we be thinking about the sustainability of those kind of going in the back half of the year? Thanks.

Speaker 0

Yeah, prefab certainly does help with our companies being able to execute. It also helps with us getting work. Our customers come into our prefab facilities and give us feedback, and the feedback is very positive. We never rest on our laurels when it comes to prefab offsite manufacturing. When we get the benefit of safety, of course, in production, being in a controlled environment, it also helps with reducing congestion on our job sites. It not only helps us, but it helps other trades and also gives us an advantage to be able to bring those schedules in and get those projects delivered sooner. We established this prefab initiative many years ago, and we've vastly improved our processes and our output to support the production and the safety and schedule, as I just mentioned. We're going to continue to invest in prefab facilities with our operating companies last quarter.

Max's opening comments referred to the expansion of our prefab in the Midwest. We go through our strategic planning process with our operating companies to be able to support prefab, and it is a contributing factor. The other factors are planning, executing, procurement, and then delivery of production safely in the field. Our teams are really good at that. We can't always forecast for write-ups and upside, but we drive towards that, and we'll continue to have that goal of margin uplift on our projects going forward.

Speaker 4

Your next question comes from the line of Brian Brophy from Stifel. Your line is live.

Yeah, thanks. Good morning, everybody. Congrats on the nice quarter. Just a question on book to bill. Obviously, it was a little bit below one this quarter. Is there anything notable to call out that's driving? Are you seeing any sort of change in the demand environment outside of data centers, or is this more of a reflection of lumpiness of awards? Thanks.

Speaker 0

I think, Brian, it's more of a reflection of the lumpiness of our backlog. We're very close to where we ended up on the prior quarter as far as our backlog. We had pull forward, and that contributed to record revenue for the quarter. Q2 is our second largest backlog in our history and was a Q2 record. It's timing and project positioning. It's resource availability. If you take a look at our year-to-date book to bill, it's 1.1. We're really excited about our ability to be able to get additional backlog to be able to support our growth.

Thanks. That's helpful. In some of your opening comments, you mentioned some activity around large projects in T&D, which seems kind of a unique change of trend relative to historical. I guess just any more color on what you're seeing from a large project perspective on the T&D side. Thanks.

Yeah, we're bidding on projects in the T&D space all the time, and we always go through a disciplined project selection process. We look for those opportunities that are a good fit for our teams and our talent. We're very selective in the types of projects that we pursue. Of course, it comes down to resource availability and timing. We have an excellent reputation to be able to deliver underground and above ground distribution and transmission, and our T&D segment is a very important part of our business. We see backlog growth in the quarter and the opportunity to be able to execute and be able to build upon the T&D segment of our business.

Thanks. Just thinking about growth rates in the back half by each segment, anything notable to call out as we should think about adjusting our models, Electrical & Mechanical versus T&D from a growth perspective in the back half? Thanks.

Speaker 2

Yeah, Brian, this is Max. If you think about the growth rates we've experienced thus far this year, I think we've had some pull forward. I think we've had some good solid growth rates. Based on our guidance in the back half of the year, you can see maybe those growth rates would be tempered. That was kind of always, we always had a very soft first half in 2024. We have tougher comps as we go forward here. Some of that pull forward will cause the growth rates to be a little bit down. I would say, on balance, you should see T&D continue at about the rates that it has, with E&M probably maybe growing outside of the T&D.

That's really helpful. I'll pass it on. Thanks, guys.

Speaker 4

Your final question comes from the line of Brent Thielman from D.A. Davidson & Co. Your line is live.

Hey, thanks, guys. Hey, Jeff, maybe just kind of bigger picture. Several months now since the spend and being a public company. I know you're hiring at Corporate. Maybe you could just talk about, you know, the pipeline you may be cultivating. I know inorganic growth was one part of the, you know, kind of equation as we look out a few years. How's that pipeline look and, you know, any sort of sense for when we can start to see transactions pick up?

Speaker 0

Yeah, as far as our corporate team, I'm very proud of building this team and being able to stand on our own as a publicly traded company. It's gone very, very well. The team is very talented, got a lot of experience, and I've had a lot of success and good talent. As far as pipeline for M&A, we're looking at quite a few opportunities. We have an expansion of our opportunity list, and that's largely due to the hiring of Tim Sevis, who joined Everus Construction Group Inc. as Vice President of Corporate Development and Strategy. We're excited about his expertise, his reputation, and track record, and that's going to help us continue to look for companies that have high integrity, get awarded work due to best value, have a commitment to safety and operations, and are respected within their communities.

We see a lot of opportunities out there, and we're pursuing the best ones that fit our company to give us the geographic expansion that we're looking for.

Speaker 2

Yeah, I think I just said, Brent, obviously our leverage continues to tick down as we grow our revenue and our EBITDA, but we want to find the right opportunity, right? We are focused on growing this business and expanding this business, and if we find the right opportunity for inorganic growth, we'll take a look at that. We definitely see good opportunities to continue to grow this business organically and continue to add to our backlog in the operating companies and the geographies that we currently operate.

Okay. Max, maybe if I could sneak one more on the question on cash flow, you know, it's kind of looking back and typically through the first half, you've got some commitment in working capital, presumably for these projects. I was just trying to think about, you know, as you're ramping up still on some of these larger projects, should we think that's a drain on your cash flow in the second half, or are you still feeling pretty good about your ability to convert more cash here as you work through the second half of the year?

We're still feeling pretty good about our ability to convert cash in the back half of the year. I think some of these projects are getting started, and that's part of the increase in working capital into the second quarter here. As those projects get ramped, build, I think we feel good about our ability to continue to generate cash. I think our free cash flow is pretty consistent with historical patterns, first and second quarter. Obviously, we saw a nice change from first to second, so we feel pretty good as the year's going to progress here.

Okay. Hey, thanks, guys.

Speaker 4

That concludes the Q&A session. I'd now like to turn the call back over to Jeff Thiede for closing remarks.

Speaker 0

Thank you, Operator, and thank you all again for joining us today. We are very excited about the opportunities ahead for Everus and are confident that we have the right strategy in place and the right team to execute on our plan. We will be attending several investor events during the quarter, including the D.A. Davidson Diversified Industrial and Services Conference in Nashville during September. If we are not able to connect during the quarter, we look forward to speaking with you on our next quarterly earnings call. Thank you for your time and interest in Everus. This concludes today's call.

Speaker 4

This concludes the meeting. You may now disconnect.