Good morning. My name is Dave, and I will be your conference operator today. At this time, I would like to welcome everyone to the MCOR Group third quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star and then two. I will now turn the call over to Lucas Sullivan, Director, Financial Planning and Analysis. Mr. Sullivan, you may begin.

Thanks, Dave. Good morning, everyone, and welcome to MCOR's third quarter 2026 earnings conference call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at mcorgroup.com. With me today are Tony Guzzi, our Chairman, President, and Chief Executive Officer, Jason Nalbandian, Senior Vice President and MCOR's Chief Financial Officer, and Maxine Mauricio, Executive Vice President, Chief Administrative Officer, and General Counsel. For today's call, Tony will provide comments on our third quarter 2026 and discuss our RPOs. Jason will then review the third quarter numbers, then turn it back to Tony to discuss our guidance before we open it up for Q&A. Before we begin, a quick reminder that this presentation and discussion contain certain forward-looking statements and may contain certain non-GAAP financial information. Slide two of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and Company, Inc. slides. and finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10Q filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony.

Yeah, thanks, Lucas. And good morning and thank you for joining us. I'm going to begin here on slide four. MCOR delivered another quarter of exceptional growth, margin performance, operating cash flow, and Capital Allocation. Revenue increased 28.8% or 25.5% organically. This growth coupled with strong field executions and improved SG&A leverage resulted in meaningful expansion of our operating margin. Operating cash flow in the quarter was $797 million and remaining performance obligations reached a record $18.57 billion. Up 47% year-over-year, 40% from year-end 2025, and 8.3% sequentially, despite the strong revenue growth we had in the quarter. Most of the RPO growth was organic, reinforcing the depth of demand across multiple end markets. On an adjusted basis, our third quarter operating margin was 10.5%. reflecting the strength of our execution and operating model. And we earned $9.60 in adjusted diluted earnings per share, a 46% increase versus the year-ago period. Our construction segments continued to deliver outstanding performance. Both our electrical and mechanical segments grew revenues by more than 40%, with approximately 75% of such growth being generated organically. Our electrical construction segment delivered a 13.3% operating margin, and mechanical construction delivered a 12.1% operating margin, resulting in combined margin expansion of 40 basis points. Demand remains broad-based, with particular strength in the network and communications, which is data centers for the most part, healthcare, manufacturing and industrial, water and wastewater, and institutional sectors. We continue to outgrow the broader non-residential construction market. Building services also posted a strong quarter. Revenue grew nearly 5%, operating income increased 11.5%, and operating margin expanded 50 basis points, driven by a favorable revenue mix and improved SG&A leverage. Industrial services performed as expected and relatively in line with the third quarter of 2025. Importantly, we saw expanding opportunities in LNG maintenance and petrochemical work, which supports our continued broadening of the markets that we will serve with this segment. As I previously mentioned, and this will be on slide five now, as I previously mentioned, our RPO position strengthened considerably during the quarter, reaching a record $18.57 billion. This growth reflects strong demand across the majority of our market sectors. led by Network and Communications, or data centers, as well as continued strength in healthcare, water and wastewater, institutional, manufacturing, industrial, and now I'm going to take a deeper look at each of these sectors. Data center RPOs totaled a record $8.74 billion, more than double the year-ago level, and an increase of 13% sequentially. This growth demonstrates our broad capabilities in this sector, which includes electrical, mechanical, and fire, life, safety, construction, and service. Healthcare RPOs total 1.71 billion, an increase of 31% year-over-year, reflecting the strength of this long-standing core market for MCOR. Water and wastewater RPOs total 1.42 billion, an increase of 38% year-over-year, as we continue to capitalize on opportunities throughout Florida, Institutional RPOs totaled $1.72 billion, an increase of 25% year-over-year, driven by strong demand from many of our education customers, especially at the higher level education. And finally, manufacturing and industrial RPOs totaled $1.18 billion, an increase of 10% year-over-year, and nearly 27% sequentially, as we are benefiting from a broad range of investments across this sector. The size, quality, and diversity of our RPOs remains very strong. Before I turn the call over to Jason, I want to underscore what these results demonstrate. Our field leaders continue to exhibit discipline and precision as they execute some of the industry's largest and most technically complex projects for our highly sophisticated and very demanding customers. That execution is translating into strong margins, cash generation, record RPOs, and growth well above the underlying market.

With that, I'll turn it over to Jason. Thank you, Tony. Good morning, everyone. Starting on slide six, I will cover the results for each of our segments as well as some of the key financial data for the third quarter of 2026 as compared to the third quarter of 2025. Revenues of $5.54 billion established a new quarterly record for MCOR, increasing 28.8% or 25.5% on an organic basis. Revenues of electrical construction were $1.85 billion, increasing 44.3%. While the largest increase was driven by greater demand for data center construction projects within the network and communications market sector, where revenues increased by 68%, this segment also saw notable growth within institutional, which was up 78%, healthcare, which was up 31% and manufacturing and industrial which increased by 28%. Additionally, contributing to the growth of our electrical segment was $140.1 million of incremental revenues resulting from the acquisitions we previously announced including Connelly & Schmidt which closed in early August. Mechanical construction revenues were $2.55 billion, an increase of 43.1%. Greater demand for data center construction projects, including expanded scope associated with increased cooling requirements, led to significant growth within the network and communications market sector, where revenues increased by nearly 130%. Beyond data centers, mechanical construction benefited from greater opportunities within several other sectors, including institutional, which was up 56%, commercial, which increased by 23%, really driven by warehousing, distribution, and logistics projects, manufacturing and industrial, which includes food processing and was up 17%, healthcare, which grew by 29%, and water and wastewater, which increased by 32%. Driven by the Danforth acquisition in Q4 of last year, this segment generated $173.2 million of incremental revenues within the quarter. On a combined basis, our construction segments had revenues of $4.4 billion, establishing new quarterly revenue records for both segments. We often discuss the diversity of demand that we have across our business, and with double digit revenue increases across a number of sectors, I think the performance of our construction segments this quarter really highlights that fact. If we move to building services, revenues of $852.4 million increased by 4.7%, and like our construction segments, represents a quarterly record. We continue to see strength within mechanical services, which experience growth across each of its service lines, including service repair and maintenance, building automation and controls, and retrofit projects. In addition, given greater project volume, the award of new facilities maintenance contracts, and scope or site expansion with existing customers, This segment's site-based business grew revenues by 6.5%, continuing the trend we saw last quarter. Industrial services revenues were $287.5 million, generally in line with the prior year. However, on a year-to-date basis, revenues of this segment are up 10.4% as a result of greater refinery turnaround activity, higher petrochemical project volume, new opportunities for LNG plant maintenance, and progress made on a large solar project. Let's turn to slide seven for operating income. On a GAAP basis, we generated operating income of $545.8 million or 9.8% of revenues. Our third quarter results included a $34 million non-cash intangible asset impairment charge associated with a prior acquisition within our building services segment. This business, which accounts for less than 1% of the segment's revenues, provides energy efficiency contracting outside of traditional mechanical services and our site-based offerings and has been affected by disruption in the performance contracting market. When excluding this impairment, our operating income was $579.8 million and our operating margin was 10.5%. This represents a 43% increase in operating income, and Alex Schultz. Looking at each of our segments, operating income of electrical construction increased by just over 70% to $247 million due to the revenue growth I previously mentioned coupled with 200 basis points of operating margin expansion. While the segment did benefit from a 50 basis point reduction in SG&A margin, the overwhelming majority of the increase in operating margin was a result of greater gross profit margin given an improved execution and a more favorable project mix. Mechanical construction had operating income of $308.2 million, which represents a 34.4% increase. Similar to the first half of the year, and as we anticipated, the 80 basis point reduction in operating margin of this segment resulted from a change in mix that included a greater percentage of revenues from projects where we are acting as either the construction manager or prime contractor and which inherently carry a lower than average gross profit margin due to reduced markups on materials, equipment, and subcontractor costs, as well as an increase in the number of GMP and cost plus contracts. Despite the year-over-year decrease, operating margin of 12.1% continues to reflect strong execution by our operating companies across a vast number of projects, and we remain pleased with this performance. Together, our construction segments grew operating income by nearly 50%, establishing new quarterly operating income records for each segment and earning a combined operating margin of 12.6%, an increase of 40 basis points. Operating income of building services was $66.2 million, an increase of 11.5%, and operating margin was a quarterly record of 7.8%, A more favorable mix, coupled with better project execution, resulted in a 30 basis point improvement in gross margin, and due in part to the restructuring we completed within our site-based business last year, SG&A margin decreased by 20 basis points. Operating income for industrial services was $5.1 million, compared to $6.3 million a year ago. A 120 basis point improvement in gross profit margin was more than offset by an increase in SG&A of the segment. If we move to slide 8, I'll cover a few additional items regarding the quarter. As you can see on this page, the increase in our operating margin reflects both outstanding execution by our field teams as well as meaningful operating leverage resulting from the growth we've experienced. Specifically, gross profit of $1.11 billion increased 32.7%, while gross profit margin expanded by 60 basis points to 20%, and SG&A was $528.4 million, or 9.5% of revenues, compared to $429.6 million, or 10% of revenues, in last year's quarter. Moving down our P&L, diluted earnings per share was $9.04, but when you adjust for the intangible asset impairment charge, Diluted earnings per share was $9.60, which represents an increase of 46.1% compared to the $6.57 earned in last year's third quarter. If we briefly turn to slide nine, you can see our performance year to date. Revenues have grown by 22.9% or 20.8% organically. Our gross profit margin has increased by 30 basis points. and we successfully leveraged our cost structure, reducing SG&A margin by 40 basis points. In a few slides, Tony will provide our updated guidance for 2026. Underlying that guidance is strong fourth quarter performance and the expectation that our full year adjusted operating margin will at least be equivalent to the unprecedented 10% that we have earned through the first nine months of the year. I'm going to close on slide 10, which is our balance sheet. With $775 million of cash on hand and $1.03 billion of working capital, we continue to have significant financial flexibility. This allows us to invest in organic growth, execute on strategic M&A opportunities, and return capital to our shareholders. Although not shown on the slide, we generated $796.7 million of operating cash flow in the quarter, and on a year-to-date basis, operating cash flow is now $1.1 billion. We remain committed to our philosophy of balanced and disciplined capital allocation, which is demonstrated by our year-to-date activity as well as this morning's announcement that our Board of Directors has authorized an additional $500 million for the repurchase of our common stock. Through September 30th, we have invested nearly $800 million in acquisitions and returned $510 million to our shareholders through both share repurchases and dividends. These actions reflect our confidence in the long-term prospects of our business. And with that, I'll turn the call back over to Tony.

Thanks, Jason. I'm going to finish on slide 11 and 12 and go to the capital allocation point before I jump in. You can see all that on slide 12. Given our year-to-date performance and the visibility of our record RPOs, we are again raising our full-year 2026 guidance. We now expect earned revenue of between 20.6 and 21 billion and adjusted diluted earnings per share of between $34.50 and $35.50. This increase reflects the same demand across multiple sectors, our continued success in winning and executing large-scale projects, and our confidence in our operating teams. Although our acquisitions enhance long-term earnings, near-term earnings per share and operating income contribution is moderated by acquisition-related backlog amortization. Our integrations remain on track, and we are pleased with the strategic fit, build capabilities, and the teams we have added. Our outlooks assume continued strong execution and demand across our core end markets. We will remain disciplined on pricing, contract terms, project selection, and resource allocation. You know, our performance rests on four durable operating fundamentals that support growth. Marginz, and Cash Generation, and they really do serve as our long-term foundation for our compounding success. First, we invest in training and innovation, workforce development, prefabrication, virtual design and construction, or we refer to as VDC, and enhance project delivery methods to increase productivity, expand capacity, which ultimately strengthens our execution. We are supporting these capabilities with investments in our recruitment, development, software enhancements, leadership training, and new and expanded facilities. Second, we exercise disciplined contract and risk management. Our teams always balance customer service with rigorous project selection and execution, particularly on large and complex opportunities. Third, we believe our field leadership is a structural competitive advantage. The expertise of our foremen, general foremen, superintendents, project managers, and operating leaders drive safe, reliable execution and that supports repeat business with our customers. And finally, our balanced capital allocation strategy has supported long-term value creation. We are investing in organic growth, pursuing strategic acquisitions and returning cash to shareholders while preserving the financial flexibility to act on attractive opportunities. During the quarter, we did close on our acquisition of Schmidt Electric, headquartered in Austin, Texas, and Conley Electric, serving the Chicagoland area. We are very excited that they are part of our team. We do recognize the macro environment remains uncertain, including geopolitical conflict, supply chain disruptions, and policy and regulatory changes. Our approach is consistent. Serve our customers well, protect our contractual rights, manage overall risk, and execute through changing and challenging conditions. And we have done that very well over a very long period of time. You know, I'm going to close like I always do by thanking my MCOR teammates. Their commitment to our culture of mission first people always is the foundation of that success. With that, I will take questions and turn the call over to Dave to queue you up.

Thanks. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Adam Thalheimer with Thompson Davis. Please go ahead.

Hey, good morning, guys. Great quarter. Morning, Adam. Thank you. I wanted to start on the RPOs for business. Network and Communications, you said $8.74 billion. Based upon what you're seeing, the trends you're seeing, what are the expectations for growth there?

I mean, we're going to keep growing. And I always remind you, and I know, Adam, you know this, and this is no particular comment, growth can come in lumpy, but we see great opportunities across the country in all the markets we serve in the data center market. We're seeing it electrically, mechanically, and through fire life safety. We've seen no abatement of that demand, despite all the noise out in the market right now, pre-election. And we continue to work for the right people, the people that have long-term prospects, the big hyperscalers, and those that are serving the bigger hyperscalers is who we work for. We're not very much into the neocloud market and sort of the speculative building of data centers. So good market. We'll continue to be good. We are working off a larger number, so I think eventually you run into the law of large numbers. But I said that last year, too, and we doubled our growth.

Yeah, and I think the acquisitions we've made give us additional opportunities and additional geographies where maybe they weren't as exposed at the time of acquisition, and that gives us a play into the future.

Okay. Just as we think about the margin performance in the quarter and how we should think about that going forward as a comp, were there any headwinds from gasoline prices or diesel prices or other inflation in Q3?

At one time, with the size we were five, eight years ago, it would have mattered a lot more. I think the headwind from that is de minimis because we also are very good at going out and adjusting our bill rates mainly in mechanical service, which is where the majority of the gasoline is used. So was it a headwind? I would say marginally, Jason.

Yeah, I think on an annual basis, round numbers, we use 20 million gallons of gasoline and diesel. So the way I think about it is every dollar increase is a $20 million impact to us if we don't pass those costs along. But to Tony's point, we're doing a good job passing along. So I would say at least 50% of the increase is getting passed on to customers.

I mean, the ones that don't are then being captured really and project pricing through the project managers and then form it back into the jobs or in some general condition on a job. So we're pretty good. Like Jason said, 50% to 75% getting on. You never get it all back. But the flip side, you don't reduce your prices immediately, so it catches on the other side when prices come down for a little bit.

And then, Jason, just any quick thoughts on cash from ops and Q4? You've still got a lot of... You still have a lot of accounts receivable that could flip in Q4.

I think for us, nothing's changed in terms of the way we view long-term cash generation, right? So somewhere between net income and up to 80% to 85% of operating income on a full-year basis. So for this year, that puts you somewhere around $1.5 to $1.7 billion of operating cash flow. Great. For the full year. Thanks, guys. Okay, thanks. Thanks, Adam.

And the next question comes from Brent Thielman with Oppenheimer. Please go ahead.

Hey, thanks. Congrats. Good morning. Hey, Tony, this massive growth in data center RPOs, is it fair to say it's all happening still within your kind of your core markets? Is any of this kind of a product of you moving maybe what we call a little further from the home markets into untraditional areas?

I think 75% of it is still in our core markets, but we are expanding. We are expanding in Texas. Even pre-Schmidt acquisition, mechanically, we've expanded in Texas. We are serving mechanically some of the more rural markets in Texas. That's part of this. But in general, it's our core markets growing and building out or within 30, 40 miles of our core markets.

Okay. And then look, as this gets towards, the data centers get toward, looks like 50% of your combined construction segment revenue here pretty quickly. I guess I want to get your view whether there's a balance in terms of mix of markets and customers you want to maintain, or is it simply move the teams to go after the best returning opportunities for the business right now?

I think it's both, Brent, the reality, right? We have built in Diversity of Demand because not all our end markets, not all our geographic markets have data center capability. We still have a fairly significant business in California, and really the data center business in California is de minimis. We have a fairly significant business across all of New York State and New England. The data center business across New York State, none there right now because of the moratorium, but the data center business in New England, New York State, and even New Jersey is de minimis. So we have built-in diversity, but even within markets where we have strong data center demand, we are very cognizant that we still need to serve especially our core healthcare customers and some of our institutional customers and our manufacturing customers. So we are very cognizant of having the ability to spread across all, and quite fortunately, we've been able to do very creative things with our workforce to make that happen, to include things like the work on those sites four or five days a week, and if they want to pick up overtime, They can come over on a scope of work and work on the data center site on the weekend to pick up extra hours. But, you know, there is no magic number to any of this. I think it starts with we have long-term customers. We have built-in diversity. We have long-term customers in markets that have data center demand. We're going to continue to serve. But then on balance, we're going to make the right mixed management opportunity because we are contractors over the next one- to three-year period about how we'll serve the market and how we'll maximize return for our shareholders.

And if you're asking about the data center space in particular, if we have a concentration risk there, I would say we're not tied to one or two customers. It's fairly diverse. And if you look year to date, data centers are about a third of our revenues and that third of our revenues is split up amongst numerous companies.

Yeah, but even there, Brent, in the data center market, Jason makes a good point. One, we have diversity, not only of trade, but in geographies and in customers. But the other thing that we have also is we have more people that want to work with us. I don't want to say people are just like, you know, we can do what we want. We have more data center constructors that want to work with us than we can serve. So we do have the ability to be selective about who we'll work for, what kind of work we'll do. It's always important when you think about data centers, still the majority of our mix still tilts towards cloud storage data centers and cloud computing data centers. and I think it's going to be that way for at least the next year, year and a half.

Okay.

Excellent. Maybe this last one. Tony, a lot of your peers talk about, you know, sort of developing physical capacity in MEP, whether you call it prefab or whether you call it modular. You've been doing a lot of that for a long time. Maybe you could just talk about what your plans are within your business on that side. Are you doing expansions? Are you building that out? Maybe just to clarify what it is you do there as well.

Yes, 100% we're expanding. The way we think about it is what demand do we have to support that? Typically, we're building for ourselves. We do have the opportunity with a couple of the hyperscalers to build modules. and the difference between us and one of our peers is we're not building buildings and then putting them on tractor trailers and moving them out. We're building piping modules, piping racks, hack units, things like that. We typically have done it for ourselves. We have done it for them to have other people install. I think that's gonna become more of what we do. It won't ever be a significant amount of our revenue, but we will service that market. I think pragmatically, once we are doing that on a job, They will then ask us to expand and do the installation so that will actually grow geographic areas too. But no, we're expanding. We're expanding some of our traditional shops and traditional locations. But we'll add over the next two quarters a couple fab shops that will be fab only serving multiple mCorp companies and also the external market. And then the other thing to always think about with us, one of the reasons people sell their companies to us is a lot of times they have good fab capability. others don't have great fab capability. And as a result of that, we help them with best practice learning and build the right fab shop for them to grow in the future.

Okay. Thanks for taking the question. Appreciate it. You bet.

And the next question comes from Justin Hawk with Bayard. Please go ahead.

Great. So, yeah, I wanted to ask, I feel like this has been a a question on kind of across the space. But on the cash flow, the net contract liabilities balance went up a pretty decent amount, I guess, on some of the advanced billings on some of these earlier stage projects. But I guess, Jason, maybe you could just talk about the sustainability of that, given that you've had such rapid growth and that's obviously a very favorable working capital dynamic. But to the extent that growth I don't know, moderates or maybe just doesn't grow at the same pace, how that would potentially reverse if so.

Sure. Sure. So, I mean, you're right. Some of the growth that we saw this quarter in contract liabilities just goes hand in hand with the growth we've seen in backlog or RPO. And that's typical. The flip side, though, is we still do have A significant investment in working capital in the form of unbilled and accounts receivable. And so if growth were to slow, you are going to see that start to liquidate, and you're going to see that turn into cash flow. And to some extent, that's part of what drove this quarter's cash flow in industrial. We had fairly strong growth last quarter in industrial. We were up nearly 30%. This quarter, revenues were relatively flat. You saw the flip of that favorably impacting cash flow. So in a period where growth slows for us, We've historically spit off a lot of cash, and I think that would happen again.

And it's always important to know, billings in advance doesn't mean we're getting all cash in advance.

Some of that is offset by the increase in AR. Some of it is just advanced billings that haven't been collected yet. Some of it is deposits. So it's a combination of both.

Sure. All right. No, that makes sense. And then I guess maybe my second one here would just, obviously the margins are really good this quarter, and the outlook's higher. On the mechanical side, you talked about the The mix impacts, you know, I think you guys have been talking about that for a while, but just curious if you could quantify, you know, how much maybe that's weighing on the margins and also, you know, to what extent does that continue? When do we get to a point, and I guess it can change all the time, but assuming, you know, the mix stays at the same level, when does that kind of anniversary?

I think the level we're running at today is where we're going to be running for probably the next 12 months or so, right? So there's been the... There's been a year-over-year decline in mechanical margin because of the mix shift. I think as we enter 27, that decline goes away. I think the margins are around this level. Again, if you look at a rolling 12 to 24-month average for mechanical, that puts you in the 12 to 12.5% margin range. I think that's where we're going to be for some time.

Yeah, because I think the more AI data centers become part of the mechanical mix, the designs on those are so much more dynamic. And also, that's sort of a The contracting method of choice for one of the big customers we work with, and that's not going to change. We're not going to seek to change it because it is so dynamic. These are still really good gross margin jobs. They're really good jobs, and they contribute pretty significant margin dollars, which is really, you've heard me say this before, the margins we're operating in now, we're much more in the quest for margin dollars than margin percentages.

Yep. Yeah. Okay. All right. Thank you very much.

And the next question comes from Brian Brophy with Stiefel. Please go ahead.

Yeah. Thanks. Good morning. Appreciate you taking the question and great quarter. Just following up your answer to Brent's question, it sounds like you're leaning more into fab-only capacity here relative to what you've talked about in the past. So I guess I'm just curious as to what changed. Is this a Reflection of the Demand Environment, something else, and how you're thinking about managing risk given the incremental fixed costs.

Thanks. So for us, think about fixed costs. We lease the facilities. We have the capital in it. And these are long-term, I would say geographically advantaged locations we're going to. So if there is a fixed cost turnabout, we will get out of less productive facilities long-term and go to these. Secondarily, nothing's really changed in how we think about it. We have one or two customers who like what we've done on the work that we do and see the fabrication that we do. And in places where we don't have installation capability, they'd like us to support them on how they are going to build out longer term. Like I said, we're not going to be looking to build buildings and put them on trailers with a bunch of other people's equipment and ship them to job sites. That's not what we do. What we do is take the capability we have, whether it be on some of the substation packages we do or even things like that and also some of the work we do on piping packages and then serve the market more broadly which also allows us to absorb the fixed cost in the facilities we have. So not a shift in what we do, responding to our customers and being supportive of them.

And I think even if we made some larger investments in that space, CapEx for us is still going to be 1% or less of revenue. Still in terms of investment not significantly. Because it's really tied to the revenue growth.

Understood. That's really helpful. And then you touched on some of the SG&A leverage you're seeing. Curious how much runway is left there. And part of the reason I'm curious is that it's been less of a margin driver for you guys in the past, despite some of the really healthy top line growth we've seen over the past, call it, five years. I guess I'm just curious if something has structurally changed there in how you're managing costs on that line. Thanks.

Not really. We are getting some efficiencies, right? with Favorable Mix. Large projects, and because we're shifting more to large project mix, we do absorb more SG&A doing that. Also, nothing structural. It'd be probably small into this, but the positive of GMP contracts is you can absorb more through general conditions of your SG&A overhead into those contracts than you may get right on a fixed price contract. Nothing very much structurally. I just think it's the mix of large project work Thank you for joining us.

And the next question comes from Ari Jaroslawicz with UBS. Please go ahead.

Yeah, thank you. Good morning. Just on the high-tech manufacturing vertical, still seeing that not really accelerating yet, but it does look like it's nearing an inflection point. Just wondering how you're thinking about growth within that specific market sector.

We remain pretty excited about growth in that market sector. The first phase usually comes in a lump, and then thereafter, it gets awarded in smaller packages. but clearly there's a couple sites that we're pretty excited about. We are participating in. One of those companies is expanding to another geography and they want us to be part of it. And we'll balance that specific market sector against other markets and opportunities in that market, specifically data centers at times. And whether there's a big data center build, we'll balance between the two of them over a two-year period. We have the capability. We're good at it. But it's not always the best use of our resources in a given one or two-year period.

And I also think you can see it starting to flip in our favor now. If you look, combined construction year-to-date, that sector is down $162 million, but in the quarter, the decrease was only $6 million. So I think this is the first quarter in a while where we actually saw the semiconductor revenues increase. It's just being offset by a bit of a decline in some of the EV work that we do. So For the second quarter, relatively flat, if you will, in high tech. We're starting to see semis come back.

For the bottom line, it's another job, another sector, and we balance it against everything else.

Right, okay, that makes sense. And I guess, touching, you're continuing on that thread, and similar to what you mentioned before, I know not every operating unit that you guys have is working on data centers. So just, you know, if we were to see a broader reacceleration in non-res spending, How should we think about how that could impact your business? How much the business has kind of more room to grow with better end markets?

I mean, we've grown, if you go look at our RPOs, and you look at the growth in those RPOs outside of data centers, it's pretty stunning, right? Health care RPOs up 31% year over year. Water and wastewater up 38% year over year. Institutional RPOs up 25% year-over-year. Manufacturing and industrial RPOs up 10% year-over-year. Really, the only, and I think commercial is down 1%, 2%. We've had pretty good success with our RPOs, and that is the precursor for growth in subsequent periods. I will serve those markets, especially in the non-data center markets, but A lot of times when you look at, especially at the healthcare specifically and manufacturing and industrial, we're balancing that a lot of cases in some markets against data centers. And so I don't want to, and we haven't really seen a deceleration for the most part in those markets that we serve. So will we benefit from it? I think if you're going to see non-reds grow more broadly based on what we've seen in our business, that will likely come in traditional commercial markets. That'll be more so in warehousing and then just more commercial aftermarket with building restacks, energy efficiency, and things like that. All right.

Appreciate the color. Thank you.

And the next question comes from Tim Mulroney with William Blair. Please go ahead.

Yeah, thanks. Good morning. I know you highlighted some regions where You're doing a lot of work that has nothing to do with data centers, but I'm curious, with all the political rhetoric around data center moratoriums and other regulations around data center construction, I'm curious if you've seen any change in project schedules or pushouts of the pipelines in the regions where you are very large and dense in data center work.

No. So, no, because I think most of what's going to get built in the next two or three years aren't subject to that rhetoric. That rhetoric, they're permitting things and trying to develop things for 18 to 24, 36 months out. But also, I think a lot of that rhetoric wasn't grounded in fact. And as facts become more aware and people, the people wanting to build and permitting things, become more engaged in the local communities and start talking about the benefits. I think the rhetoric will die down, and I think there'll be a lot of rhetoric that will die down magically between November 3rd and November 30th post-election.

I think it's just- Magically. Got it. Okay. Thank you, Tony. That's very clear. Thank you for walking me through that. And then on the data center So I'm sticking with that. I thought I heard you say in the prepared remarks, I want to make sure I heard that right, that the majority of work you're doing today is still on cloud-based data centers, presumably contrasted with the large liquid-cooled AI data centers. I just want to make sure I heard you correctly, and if so, I did. Okay. So as you look into the backlog, what do you think that mix will look like a year or two from now? I still don't have a good sense for that.

It's hard for us to do because as they get bigger, I think the distinction starts to go away a little bit. We definitely know when we're building an AI training model data center. We know that. I mean, we know what's going on there. We know what it's connected to. When you get to the mixed use ones, we're less clear. I think two things will be true. Even the cloud storage is getting bigger and more resource intensive. And it's pretty clear when it's an AI training module one. The question is sort of the ones that cope between both of them. But I think, look, because they're so much larger and the contracts are bigger, I would say today we're probably 65% to 70% cloud and 30% AI. That'll probably get to more 50-50 in the future. And where you really see that is mechanical. That's where we know the difference and see the difference.

The AI is definitely driving a bigger piece of the growth right now in mechanical, hence the 130% year-over-year increase in data center revenues for mechanical. But still, on balance, more of our revenues are coming from cloud.

Yeah, and it's even shifted more in electrical. Agreed. It's coming from cloud.

Okay. Okay. Really helpful. I'll jump back in queue. Thanks, guys. Congrats on another quarter.

One follow-up on that, though, right?

Yeah.

You've noted the political discussion and all this stuff has been around AI data centers, very targeted, right? And I'm not sure people really understand all the things we just talked about.

Yeah, that's why I was asking, Tony, because I see, you know, the proposed moratoriums by some of these candidates are like for the large data centers, not the cloud-based ones. So I was curious about that as well. But it sounds like broadly you expect a lot of this to die down after November 4th.

Well, especially one of them, they can do all the moratoriums they want, but they're one senator of 100, regardless of what they want. Understood.

Thank you very much.

Yes.

And the next question comes from Manish Samaya with Cantor.

Please go ahead. Thank you for taking my question. Hello, Tony, Jason, and Lucas. Congrats on a strong quarter. I wanted to ask on the margins that are embedded in new awards. Obviously, we see mechanical, and I think, Jason, you kind of went through the math that that should improve awards. with the current contract structure shifting. But more specifically, I wanted to know about the electrical, if that 13% is sustainable and how we should sort of think about that going forward.

So, to be very clear, we didn't say that we thought mechanical margins would Thank you for joining us. that they know that this is a baseline for their margins going forward and they only improve from there, must be running one project. It must be a one project or two project contractor. Because with 12,000 projects, we couldn't possibly do that. So over a long period of time, we've been very clear with all of our analytical community and our buy side. Margins move in bands. We are in a very good band structurally. We continue to execute very well. We are very much now focused on margin dollars. Could we expand from here? Yeah, we could get more SG&A leverage a little bit. Could we have a couple quarters where we have close-offs that are more favorable? Sure, we could. We could also have quarters where we're starting up more difficult work and they seem a little more depressed because we have a release contingency. So I think any responsible contractor talks about margins and bands and talks about growth the same way. And I think that's why we have so much credibility over a very long period of time when we addressed this subject.

That's helpful. And then, Tony, obviously you gave really good color on the end markets and the diversity of growth coming from those markets. As we think about backlog and RPOs, it sounds to me like it may not be the best indicator of all the work that you have ahead of you because obviously orders tend to be lumpy, etc. So what are some of the other measures we should look at in understanding the true potential of Amcor or any other company for that matter?

Yeah, I think you always have to be careful, right? We've always been very rigorous in how we talk about forward-looking, right? We've always done RPOs when it all converted about seven, eight years ago. was a very easy walkover to us from backlog to RPOs. We don't make up backlog and say it's only contracted work. It's only, you know, the not cancelable portion of service agreements. It's only approved change orders. We don't, you know, say, well, we know we've done with this customer, you know, this oil and gas customer. We know that we've done this work forever and the turnaround is projected at that. We also know it's all T&M work and that scope can change. We don't say, hey, we're on one site. They promised us buildings two and three. It has the same scope. So, therefore, we're going to give you an RPO number, which is accounting-based. But here's what our real backlog of future opportunity looks like. I think backlog is a pretty good indicator of future awards. What it doesn't capture, and I think you correctly pointed out, is what's the potential for us to grow on some of these sites. And I've always just always been careful, right? We have very little work that's canceled. We actually have very little work that we're promised that gets delayed. But I think we've sort of had this construct for a while of how we communicate, and it's worked very well for us because it's all in the known. And I think we'll keep it that way. I think when you think about future demand, the way I think about it is if these end markets continue to grow like they have, we expect to grow in excess of those end markets. We are the largest specialty subcontractor doing data center work. Could it approach 50% of our construction revenue? Sure, it could for a period of time. That's not by design. That's not holding people up. That's literally mixed managing over probably 17 or 20 different discrete and geographic markets. And in looking for the best opportunities while continuing to serve our core customers that we've had for a long time. So I think if you believe in the data center growth and you look at non-res, I think a great construct is what we've said before to the market. If non-res grows X, we're going to grow probably most times 600 basis points above that as a company overall. And our construction business could be somewhere between 700 and 900 basis points above that. And that's, I think, the best contract to think about it because that captures everything. and that's pretty healthy growth and I think probably the last couple years we would even skew a little higher above the non-res growth but we're giving you a five-year look at the world, not just a two-year look at the world.

Okay, super helpful, Tony. And then just lastly, obviously you've had a number of acquisitions this year which will entail some purchase accounting, backlog amortization, etc. in 27 but I guess what I wanted to gather was How should we think about EBITDA accretion becoming EPS accretion when it comes to these acquisitions? I mean, you know, what's the timeframe and, you know, I guess what are the indicators, et cetera, that we should think about? Thank you.

I guess the best thing to think about for the newly acquired businesses, particularly Schmidt & Connolly, is that the backlog that we acquired, that amortization period is roughly 16 to 17 months. So that's with us. Really through the end of 27. And so I think probably what's helpful for everyone on the call is just to give you a sense of what we expect for amortization, both in Q4 and then into 27. So you can obviously see what our amortization is year to date in our 10Q. But if you look at Q4, our expectation is 35.3 million of amortization. It's about 20.1 in electrical, 7.7 in mechanical, 4.4 in building, and 3 in industrial. and then in 2027, our estimate's about 128 million. It's about 76 in electrical, 25 in mechanical, 17 in building and 10 in industrial. And I think if you look at those numbers relative to the year to date, 26 plus the estimate I just gave you for fourth quarter, you'll be able to see what the impact in 27 is from the incremental amortization. That's just from acquisitions that we've already... That's the ones that we've announced and have today, yes.

And I think... You're right to think about EBITDA also. I mean, I think, you know, my perfect world, that would be a gap number because there's no crap usually in that. But EBITDA, then we do gap earnings. We figure you're smart enough to figure out the benefit. Of course, everything always comes out in cash. And I think across the sector for a very long period of time, we've been the leading cash generator as a percentage of net income or over percentage of net income. And I think that's where the rubber really hits the road, right?

Right. Okay. Wonderful. Thank you, Tony and the team. I appreciate all the comments and good luck.

Yep.

And the next question comes from Sanjita Jain with KeyBank Capital Markets. Please go ahead.

Great. Thanks for taking my question. I just have one. And I know this was alluded to earlier on SemiTab. It looks like a lot of activity is upcoming in the in the quarters ahead. And I just want to see how you guys see allocating resources to that end market versus you did in the first cycle of the build-out because you're in a very different place now with all this data center-led demand.

We will participate. Where we have real capability is broadly we have real capability with fire life safety. We will participate broadly with fire life safety. Electrical, really across it a little less so, maybe a little bit in one of the states, Arizona, and maybe Oregon a little bit. But outside of that, less so. Mechanically, Arizona, potentially upstate New York, and potentially with one of the customers moving into Texas will participate there. You know, these are all, right, you win or you don't. And we're positioned to continue winning well on a couple of these sites. and then we're putting together good estimates and good potential to maybe participate in the others or get a carve out of scope of the work we want to do. We'll sure know this time next year we'll know how successful or whether we diverted resources other places based on pricing.

Thanks. That's it for me. Thank you.

And the next question comes from Adam Bubbas with Goldman Sachs. Please go ahead.

Hi, good morning. I know we're only at Q3 here, but with backlog up 47% year over year, can you just talk about visibility you have on growth in 2027, how you're thinking about range of outcomes, and what's your current assessment of your ability to grow headcount over the next 12 months to meet the demand that's in your backlog?

So I'll start there. We wouldn't have taken the job if we didn't think we could put the resources from field supervision through craft labor on those jobs. We put a manpower plan together whenever we even estimate work to figure out how we'll slot in with what we have available and what we're going to be able to recruit. As far as 27, I mean, look, I think you go back to the long-term trends that Jason talked about and I talked about today about our ability to outgrow non-res. I think that's the best we'll give you on 27. We've been pretty rigorous about not providing forward-looking guidance on the year ahead. You guys are pretty smart to figure it out.

And then I wanted to talk about your Virginia exposure. I think it's your top market. We've seen some slowdown in announcements in that market, and Loudoun County recently enacted a pause on data centers. How are you thinking about The trajectory of incremental awards in Virginia, and just more broadly, how you think through your regional mix evolving over the next year or two?

Look, we're bullish on Virginia. Loudoun County is one county, and I fully expect by the middle of next year, we'll be continuing to see new awards in Loudoun County. I think the reality of Loudoun County was it's booked for the next two or three years anyway, and so... I think it was probably a pause to say, okay, where else are we going to build in the county? They probably were waiting for some power to be provided anyway. Virginia will remain a great market for us. Texas will remain a great market for us. Ohio will remain a great market for us. Iowa will remain a great market for us. Georgia will remain a great market for us. Oklahoma, I'm only providing a few. We have many, many more markets than that. But I'm just hitting some of the hot buttons where people have talked about this openly. Pennsylvania will be involved also. I think some of it actually made a lot of sense. In a way, I've talked about it to the team, and I think collectively, you know, if you put our top 100 data center people in a room, they would agree. Some of it actually will elongate the cycle, and that will be a good thing. And some of it was a – I think some of the thought behind some of the executive order stuff made a lot of sense. I think there was a fair amount of phantom demand in Texas. and wasn't a fan of the man with us because of who we serve. But there were other things that people wanted to get us involved with. It would be like, that's not going to be real anytime soon, or you really don't have a plan there. You're just trying to sort of put a stake in the ground. So I think some of it's been thoughtful. And, of course, the whole thing's been full of misinformation. I venture to say this. I think if you put, so the tax benefits that's happening as a result of these data centers and put 100 school superintendents in a market with the local people. I think when they understood what's available to them and how it can really allow them to build the schools, pay the teachers and the cops and the firefighters and build out world-class facilities like they've done in Loudoun County and like they've done in Louisiana, like they've done in other markets we serve, I think you'll find that these things will get built. They won't get built everywhere, but I think we'll build the capacity, and it being MCOR, were well positioned anywhere that matters if they're going to build them.

Great. Appreciate all the color.

This concludes our question and answer session. I would like to turn the conference back over to Tony Guzzi for any closing remarks.

Thank you all very much. Thanks for your interest. Thanks for the preparation. I guess we won't talk again until we'll see some of you when we're out and about talking to your by-side people. Ben General, won't see you. Have a great holiday season, and I hope you all stay healthy, and we'll talk to you again in February collectively. Thanks. Bye.

The conference has concluded. Thank you for attending today's presentation. You may now disconnect.