SOLV Energy, Inc. (MWH) Earnings Call Transcript

Greetings, and welcome to SOLV Energy's Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Adams with Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and thank you for joining us for SOLV Energy's Second Quarter 2026 Earnings Conference Call. Before we begin, we would like to remind you that this conference call may include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are subject to various risks, uncertainties and assumptions, could cause our actual results to differ materially from these statements. These risks, uncertainties and assumptions are detailed in this morning's press release as well as our filings with the SEC, which can be found on our website at investors.solvenergy.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law. During our call today, we will also reference certain non-GAAP financial information. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in this morning's press release and in our SEC filings. Joining me on the call today is SOLV Energy's CEO, George Hershman, and CFO, Chad Plotkin. Following our prepared remarks, we'll open the call for your questions. As a reminder, there will be a replay of this call posted on the IR website. With that, I'll turn the call over to George.

Great. Thank you, Mike, and good morning, everyone. I'm very excited to report that we are executing more work today than at any point in our company's history with our largest projects to date underway and more employees working safely across the country than ever before. That is a reflection of both the scale we have achieved and the incredible strength and dedication of our teams. I'm proud of where we are and even more excited about where we are going. Now let's walk through our highlights for the second quarter. I'll start where we always do, with safety. Our trailing 12-month safety metrics continue to outperform industry benchmarks. A safe project is a profitable project. And, most importantly, our #1 responsibility is to get our people home safely every day. That commitment is embedded across our organization, and it shows across all of our results. So let's turn to financial performance. We delivered record results for the first half of 2026. Revenue was $1.63 billion, up 72% with adjusted EBITDA of $210 million, up 75%. These results reflect strong execution across the business and a backlog that is continuing to convert according to plan. The market environment remains very favorable. We are in the middle of a step change in the U.S. power demand, driven by growth in data infrastructure, industrial reshoring and electrification. Solar and battery storage remain the most cost competitive and fastest-to-market solution for adding new generation capacity, and we believe SOLV is well positioned to reap the benefits of the accelerating infrastructure build-out. We also continued executing on our M&A strategy with the closing of the Roberson Waite Electric acquisition on July 1. Roberson Waite Electric expanded our utility infrastructure capabilities and strengthens the range of services we can provide to our customers. We ended the quarter with approximately $8.9 billion of backlog, representing 44% growth year-over-year. Importantly, a 100% of the projects in our backlog are safe harbor. Recognizing our strong performance in the first half of the year and the continued momentum in the business, we are raising our full year financial guidance. Chad will discuss this in more detail later in the call. Overall, SOLV is in a strong position. Our backlog continues to grow. Our teams are executing at the highest level and demand across our markets remain extremely healthy. So let's turn to Slide 5. I want to spend a moment here on the market because it supports the long-term opportunities we see for the business. First, U.S. electricity demand is expected to increase approximately 28% over the next decade compared to only 5% growth during the prior decade. We believe that this growth will be driven primarily by data infrastructure, electrification and the continued industrial reshoring trends. Second, we expect approximately $518 billion of investment in solar and battery storage projects between 2025 and 2034, supporting roughly 430 gigawatts of new capacity with battery storage expected to grow approximately 26% annual growth rate. I also want to highlight the domestic manufacturing build-out because I think it is an underappreciated part of this story. The United States now has over 70 gigawatts of domestic module manufacturing capacity, up from roughly 8 gigawatts just a few years ago. Cell, wafer and ingot capacity are growing quickly behind it. Not to mention the numerous factories supporting steel fabrication, tracker, inverter, batteries and electrical components. A stronger domestic supply chain helps reduce risk, improves resiliency and supports long-term investment in the industry. The more we build domestically, the more durable the demand environment becomes for our services and the SOLV ecosystem. And finally, operating solar capacity is expected to increase approximately 3.8x over the coming decade. Importantly, every gigawatt constructed creates decades of recurring revenue opportunities in operations, maintenance, repowering, upgrades and other life cycle services. Taken together, these market dynamics continue to provide a compelling long-term tailwind for SOLV's lifecycle services platform. Moving to Slide 6. One of the questions we get asked most often is how we are able to consistently execute large, complex projects while maintaining strong margins. The answer is a multilayered risk management process that has been refined over almost 2 decades of building solar projects. Our process begins with disciplined preconstruction procedures, where cross-functional teams collaborate to develop project-specific pricing and execution strategies. We then utilize multiple LNTP agreements to validate site conditions, test foundation systems and advance engineering and equipment procurement, all to further derisk project execution for us and for our customers. Once a project is underway, performance is monitored closely through our proprietary Sunscreen platform and through daily, weekly and monthly reviews with project teams and senior leadership. Most importantly, our regionalized workforce brings deep knowledge of the markets where we operate. This includes local permitting requirements, labor availability, weather conditions and other factors that influence project execution. Those insights help us make better decisions before construction begins and throughout the life of the project. Consistent execution isn't the result of any one process. It's the result of applying this framework across every project, every customer and every region we operate. Let's talk a bit about strategy. Turning to Slide 7. Acquisitions remain an important part of our long-term growth strategy. When we evaluate opportunities, we're looking for businesses that strengthen our platform, expand the services we can provide and create additional value for our customers. Every acquisition must fit strategically, complement what we already do well and support our vision for the future of the business. When you look at this time line, each acquisition represents a deliberate step in building that platform. CS Energy expanded our EPC capabilities, SDI Services strengthened our foundation expertise, Spartan Infrastructure expanded our transmission and distribution platform and most recently, Roberson Waite Electric adds highly complementary utility infrastructure, substation and battery storage capabilities. Individually, each of these businesses brings talented people, strong customer relationships and specialized expertise. Together, they have expanded our capabilities and strengthened our ability to support customers across a broad portion of the energy infrastructure value chain. Our most recent acquisition of Roberson Waite Electric closed on July 1. Roberson Waite Electric brings deep, long-standing relationships with California utilities and specialized expertise in substation construction and urban battery storage deployments. These capabilities complement what we've built through Spartan and further strengthen our utility infrastructure platform. We are really excited to have them as part of the SOLV family. Looking ahead, we'll continue to evaluate opportunities across several targeted categories to support the SOLV ecosystem. Our approach remains disciplined and focused on opportunities that strengthen the business, align with our strategy and create long-term value for our shareholders and customers. The results of this strategy is the ecosystem we're building, which is illustrated on Slide 8. Everything we do supports a simple goal, being the partner our customer can rely on throughout the life of their power plant. As energy infrastructure becomes more complex, customers increasingly value partners that can support multiple phases of an asset's life cycle. They value partners who can help solve challenges, reduce complexities and deliver consistency over the long term. When you look at this slide, what you're seeing is the ecosystem we're building. Today, our capabilities span generation, delivery and services, allowing us to support customers across a broad portion of the energy infrastructure value chain. From solar and storage construction to transmission and distribution, high-voltage services, foundations, O&M and repowering, we're continuing to expand the way we can service our customers. Importantly, the value isn't in any single capability. The value comes from how these capabilities work together. Our customers don't think about their needs in terms of individual services. They think about execution, reliability and finding partners they can trust with a proven track record. The ecosystem we're building to meet those needs [Audio Gap] cycle of their assets. As more energy infrastructure gets built, we see opportunities not only during construction but also throughout the decades that follow through O&M, upgrades, repowering and other life cycle solutions. That's the one thing that differentiates our business model. Our objective is straightforward: continue strengthening our relationship with customers, expand the value we provide and continue building the preferred life cycle services platform in our industry. With that, I'll turn the call over to Chad to discuss our financial results in detail. Chad?

Thank you, George, and good morning, everyone. Turning to Slide 10. The second quarter marks a continuation of the strong execution across the company, resulting in record first half results for SOLV. Revenue was up 77% year-over-year to $951 million, bringing first half revenue to near $1.63 billion or up 72% as compared to the first half of 2025. This performance was primarily driven by a significant increase in new construction and the contribution from last year's M&A activity. Notably, and another example of our project team's strong execution, we also pulled forward revenue from the second half of 2026 as certain projects accelerated ahead of schedule with approximately 75% of new construction revenue in the second quarter from projects at less than 50% complete. Moving to adjusted gross profit. Year-over-year, we saw an increase of 28% in the second quarter to $145 million, leading to an increase of 56% in the first half of 2026 to $269 million. On a percentage basis, 2025 adjusted gross margin in the second quarter and first half benefited from the contribution of higher-margin repair work in our O&M business and the sale of some legacy development projects. Additionally, in 2026, we now have a prospective change in how we present our accrual for incentive-based cash compensation expense. Beginning in the second quarter, a portion of our annual incentive expense previously reflected in SG&A is now reported in cost of revenue. We believe this change is a better presentation for the business going forward. For context, while this modification did reduce planned adjusted gross margin by over 60 basis points through the first half of the year as reflected in the 16.5% adjusted gross margin, it has no impact on adjusted EBITDA, net income or cash flows as there was a direct offset in SG&A expense. For adjusted EBITDA, second quarter results were $117 million, bringing first half adjusted EBITDA to $210 million, an increase of 75% year-over-year. This brings adjusted EBITDA margin to nearly 13% through the first half of 2026, a great reflection of overall profitability performance for the business. Turning to Slide 11 to discuss our backlog. Backlog at the end of the second quarter grew to approximately $8.9 billion, representing 44% growth over the last 12 months. Over this time, the scale of the project continues to grow as the average project size originating into backlog during the second quarter was approximately 450 megawatts as compared to just over 200 megawatts in the same period last year. Additionally, and providing evidence of further market momentum, we now see approximately $2.5 billion of the reported backlog relating to projects associated with storage, either on a hybrid or stand-alone basis. This compares to $1.9 billion at the end of the first quarter. Now let's turn to Slide 12 to discuss our outlook. Based on the strength of our first half execution, we are increasing our full year 2026 financial guidance. We now expect full year revenue of $3.87 billion to $3.97 billion, adjusted gross profit of $620 million to $660 million and an adjusted EBITDA of $485 million to $505 million. This update reflects the expected contribution from the Roberson Waite acquisition, which closed on July 1, and our current plan for project pacing and costs, including new conversions not in our original assumptions. On an adjusted gross margin, our updated range is now 16% to 16.6% versus our prior range of 16.4% to 17%. This modification is primarily driven by the prospective accounting change related to the geography of certain cash compensation expense. Therefore, this update to adjusted gross margin guidance should not be construed as a signal of overall portfolio performance, but rather a signal that results are tracking better than previously forecasted as evidenced by the strength in our current outlook for adjusted EBITDA margin, which is now forecasted at 12.5% to 12.7% for the full year. And with that, I'll turn it back to George for closing remarks.

Great. Thank you, Chad. Let me wrap with why we're so confident in the opportunities ahead. First, the market fundamentals remain strong. Demand for power continues to grow, driven by data infrastructure, electrification and industrial expansion. We believe solar, battery storage and grid infrastructure will continue to play a critical role in meeting that demand, creating significant opportunities across the markets we serve. Second, our competitive position is strong and getting stronger. We have constructed over 22 gigawatts of capacity across more than 500 projects since our founding, and we currently manage over 23 gigawatts under O&M contract. As projects become large and more complex, fewer providers have the ability to execute at the scale our customers require. And third, our teams are executing at the highest level. We delivered strong growth in the second quarter. Our backlog continues to expand, and we're raising our full year financial guidance. At the same time, we maintain a strong balance sheet with no long-term debt and remain focused on disciplined growth. Overall, we believe SOLV is well positioned to capitalize on the long-term demand for energy infrastructure. The results we discussed today reflect the hard work, commitment and execution of our employees across the organization. I'm proud of what our teams have built, and I'm even more excited about the opportunities in front of us. With that, operator, let's open the line for questions.

Thank you. [Operator Instructions] The first question is from Julien Dumoulin-Smith from Jefferies.

Nicely done genuinely here. Maybe just to follow up here a little bit to the comments. The backlog increased nicely here, $8 billion, $9 billion despite a big revenue quarter itself. What drove the gross additions, right? So LNTP conversions, new awards, incremental scope or just faster customer decisions? Can you add a little bit more granularity to the backlog to start with here? And then maybe talk a little bit more about the base backlog, what drove that increase in particular here?

Yes, Julien, thank you. The backlog is continuing to grow. As we have spoken about before, we have a large funnel above the backlog that we report. We have a lot of projects that are in later-stage discussions and moving into LNTP, which is when we show them as backlog. So we are seeing a significant portfolio of projects and opportunities. And so those are continuing to move in, getting executed really on plan. So I think this -- you will continue to see our backlog grow as we move through this cycle. So I don't think there's anything unique to this. Other than there's a large subset of opportunity out there that sit above our backlog really in our overall project funnel. To your point on energy storage, we're just seeing a lot of energy storage opportunities, both in stand-alone opportunities and hybrid. The majority of our projects are solar plus storage now, and that is driving the backlog number specific to energy storage.

Okay. Fair enough. A couple of more specific ones, if I can. Just first, Section 232, very recent here, just your early opinions. I suspect not too much there, but I just wanted to make -- double check with you here. And then any comments or any lumpier awards or projects here or any specific comments on the Big Rooter in particular that you'd want to flag just as it pertains to backlog and margin profile?

Well, first, on 232, we are working with our customers as we work through the implications of it. Early on, we see that not a lot of near-term impact as most of our projects are in late-stage development, modules secured and moving forward. So we'll continue to work on that and update it as we work with our customers who procure the actual modules. And then to your point on Big Rooter, that's a great project, wonderful award. And it's been in backlog for a while as we've moved the project through LNTP and into final notice to proceed. So a great project for us and our customer, and we're excited to move it forward, but it has been in backlog for a while as we move through the preconstruction and LNTP process.

The next question is from Mark Strouse from JPMorgan.

It's Michael Fairbanks on for Mark Strouse. Curious, as the backlog stands today, can you talk about just how much visibility that gives you into maybe 2027 and also 2028 at this point? And how much of '27 would you characterize as being booked out?

So our backlog traditionally is about a 24 to 30-month look. And so that has stayed pretty traditional over the years. And so I think that gives us good visibility into '27 and into '28. I think that a large portion of '27 looks really strong based on backlog and signed awards. And so we have -- we're optimistic on '27 outlook. But I think from a percentage basis, we're comfortable.

Great. And then as a follow-up, when you look at these new project awards and the mix of customers, how would you expect O&M attach rates to trend over time? And should we see an uptick in that part of the backlog as some of these projects reach completion?

Michael, it's Chad. It's a great question. I think as you can see, we did increase the megawatts we have under contract to 23 gigs as of the end of the second quarter. It's important to note that unlike traditional EPC, if you do have an attachment that the revenue lags because you don't start getting paid for O&M services until the projects are in operation. I think our attachment rates, as we've talked about in the past, they do tend to oscillate subject to who we're working with. But we're seeing that attachment for certainly a subset of the projects, and we've seen some continued incremental growth in that, which has contracted quarter-over-quarter. So that part of the business is certainly materializing. And as we stated in the past, it also then begins to present a lot of optionality for us as it relates to, sort of, less routine preventative maintenance contracts, other nonrecurring type of activity that also can come with attractive economics.

The next question is from Philip Shen from ROTH Capital Partners.

As a follow-up on the 232, George, you said no near-term impacts. Your Slide 16 shows more than half of your backlog is awarded backlog. How much of your awarded backlog may be subject to any poly 232 risk because some of those projects may need to renegotiate some of those PPAs?

Well, we've been reaching out with our customers and working very closely with our customers through this process. And I think that a number of them have -- kind of, all of us have recognized this was coming and have worked through it. So what we're seeing that there's no real impact into near term. But as this continues to unfold and we recognize how challenging the price increases are to customers, then we'll get more insight into understanding their contractual relationships upstream. Obviously, because the module procurement is all handled directly with our customer and not us. So we're having those discussions. We're not seeing project schedules slip. We're not seeing any direct discussions with our customers regarding that yet and don't expect the projects that we have in late term or signed contracts to slip.

Okay. All right. And then back on the backlog, it's substantial. Your bookings were meaningful in the quarter. Your guidance raise on revenue is smaller relative to the size of the backlog. Is that just due to conservatism or timing or something else? And then on the EBITDA margin improvement, it's been healthy over the -- just going forward over the long term, is there an opportunity to drive that higher, especially with more visibility on crews and less lag time?

Yes, Phil, it's Chad. Maybe on your first question on the backlog. As you think about additions to backlog as you move through the course of the year, as you move to, sort of, the second half, a lot of the backlog we will sign obviously starts with LNTPs. So direct revenue generation tends to be smaller until you actually get to notice to proceed. So when we looked at the revenue raise relative to our visibility, part of that, as we said, we did pull forward, and we've seen some additional pacing come in from some acceleration. But these backlogs are really setting us up for beyond '26 into '27 and '28, as George had mentioned. I think on your margin point, we're obviously continue to be quite disciplined on project execution. The stage of projects matter as we move through the life cycle of a project. As we've stated before, in the early part of the projects, you tend to start more at budgeted margins and as execution increases over time, that's when we'll see the outperformance subject to being executed. We continue to also be very focused on building the operating leverage in the business. I think it's important to note from my prepared remarks, in the second quarter, the average project size that came into the business was 450 megawatts versus what we had in prior periods. So revenue growth is heavily driven by size of project. And on that point, we see a lot of sort of fixed cost operating leverage because we don't need to add as much in the way of incremental support costs to support revenue growth given the project sizes have gotten larger. So this is something we obviously work on across the board, both at efficiency within the projects and how we can bring in permanent efficiency within our fixed cost structure.

The next question is from Jon Windham from UBS.

George, Chad, thanks for all the commentary on the broader policy and the backlog. Maybe just a quick housekeeping one for me. I see the tax receivable agreement remeasurement and the adjusted EBITDA. There's obviously a lot of moving parts in the cash flow statement with the IPO earlier this year. Can you tell me if there were any cash disbursements around the TRA in the second quarter?

Thanks, Jon. So the movement on the TRA and that revaluation measure is primarily driven to the secondary transaction. As far as disbursements under the TRA, the answer is no. The provisions under the TRA kind of drags out until you would get past the first period of corporate tax return. So actual TRA payments probably don't really manifest until 2028 because you'd have to get through the 2026 filing, which I think after you think about the timing of when you would do your tax returns, it ends up being in like late '27. And then the provisions under the LLC are later. So there is time under the payments for the TRA.

The next question is from Dylan Nassano from Wolfe Research.

Sorry if I missed this, but could you just clarify or quantify how much of the backlog increase and guidance increase came from the RWE closing?