Everus Construction Group, Inc.

Note 3 –Revenue from Contracts with Customers

Contract Estimates and Changes in Estimates

Changes in cost estimates on certain contracts can arise from, but not limited to, changes in productivity and performance expectations, availability of skilled labor in geographic locations of such projects, costs of labor and/or materials, changes in subcontractor productivity and performance, and extended overhead due to weather or other delays. These changes in estimates may result in the issuance of change orders, which can be approved or unapproved by the customer, or the assertion of contract claims. The Company recognizes amounts associated with change orders and claims as revenue if it is probable that the contract price will be adjusted and the amount of any such adjustment can be reasonably estimated. Change orders and claims are negotiated in the normal course of business and represent management's estimates of additional contract revenues that have been earned and are probable of collection.

As of September 30, 2026 and December 31, 2025, $62.0 million and $69.9 million, respectively, of unexecuted change orders were included in contract transaction price and in Contract assets or Contract liabilities, net on the unaudited condensed consolidated balance sheets. The Company was in the process of negotiating execution of these change orders in the normal course of business and the recognized amounts represent the Company’s best estimates of additional contract revenues for which it is not probable that a significant reversal of the revenue amounts will occur in the future.

As of September 30, 2026 and December 31, 2025, the Company recorded loss provisions of $1.0 million and $2.0 million, respectively, in Contract liabilities, net on the unaudited condensed consolidated balance sheets related to contracts that are still being completed and remain recorded.

As of September 30, 2026 and December 31, 2025, the Company had claim positions of $38.3 million and $25.8 million, respectively, that were excluded from the contract transaction price. The Company continues to evaluate these active claims, and there was no impact to operating income during the quarter.

The Company received notification in October 2023 from a customer that it was withholding payment of approximately $31.3 million on remaining outstanding billings, including retention, on a large project with a contract that was billed on a time and materials basis with no stated maximum price. The Company believed it had substantial defenses against these claims based upon the terms of the contract and that it had performed under the terms of the contract. Therefore, the Company believed collection of the remaining outstanding billings, including retention, was probable and, as a result, recognized the revenues from this project in its historical results. On September 21, 2026, the Company and the customer reached a resolution regarding the matter to settle the majority of outstanding billings. In connection with the resolution, the Company recognized a $7.6 million net benefit to gross profit due to changes in estimates under the contract during the third quarter of 2026. The Company also received a corresponding cash payment of $29.2 million in October 2026 related to the billing resolution.

Additionally, the cost-to-cost method of accounting requires the Company to make estimates about expected revenues and gross profit on each of its contracts in process. Changes in estimates may result from contract modifications, which affect the estimated progress of the related performance obligations. As a result, the Company recognizes additional revenues on a cumulative catch-up basis in the current period from performance obligations that were satisfied or partially satisfied in prior periods or the reversal of previously recognized revenues if the current estimated progress is less than the previous estimate. In some instances, contract modifications may occur after completion of work under the contract. Changes in estimates can also result in contract losses, which are recognized in full when they are determined to be probable and can be reasonably estimated.

Since these changes in estimates could significantly affect the Company’s profitability, the Company reviews and updates contract-related estimates regularly and recognizes adjustments in estimated gross profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact to gross profit is recognized in the period that the adjustment is identified. As such, future operating revenues and gross profit relating to contract performance are recognized using the adjusted estimates.

Changes in estimates associated with performance obligations that were satisfied or partially satisfied in prior periods positively net impacted operating revenues, and in turn gross profit, by $82.1 million and $168.3 million for the three and nine months ended September 30, 2026, respectively. As a result, net income was positively net impacted by $62.2 million and $125.9 million and diluted earnings per share (“EPS”) by $1.21 and $2.46, respectively.

Changes in estimates associated with performance obligations that were satisfied or partially satisfied in prior periods positively net impacted operating revenues, and in turn gross profit, by $51.6 million and $102.2 million for the three and nine months ended September 30, 2025, respectively. As a result, net income was positively net impacted by $37.9 million and $74.8 million and diluted EPS by $0.74 and $1.46, respectively.

For the three and nine months ended September 30, 2026, net changes in estimates pertaining to certain projects, each individually positively or negatively affecting profitability in excess of $1.0 million, positively net impacted operating revenues, and in turn gross profit, by $49.2 million and $113.9 million, respectively, which resulted in positive net impacts to net income of $37.3 million and $85.2 million and diluted EPS of $0.73 and $1.66, respectively.

For the three and nine months ended September 30, 2025, net changes in estimates pertaining to certain projects, each individually positively or negatively affecting profitability in excess of $1.0 million, positively net impacted operating revenues, and in turn gross profit, by $21.0 million and $46.4 million, respectively, which resulted in positive net impacts to net income of $15.4 million and $34.0 million and diluted EPS of $0.30 and $0.67, respectively.

The changes in estimates resulted from changes in performance estimates due to revisions to total estimated costs and/or anticipated contract value and from the mitigation of risks and contingencies as projects progressed to completion. The changes in estimates were made in the ordinary course of business and there were no changes that resulted in material amounts that should have been recognized in a prior period.

Disaggregation of Revenue

In the following tables, revenues are disaggregated by contract type and customer type for each reportable segment. The Company believes this level of disaggregation best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. The cost reimbursable contract type includes time and material, time and equipment and cost reimbursable plus fee contracts. For more information on the Company’s reportable segments, refer to Note 13 – Segment Information.

The following tables present revenue disaggregated by contract type:

The following table presents revenue disaggregated by customer type:

Uncompleted Contracts and Contract Assets and Contract Liabilities, Net

Costs, estimated earnings and billings on uncompleted contracts were summarized as follows as of:

The timing of invoicing to customers does not necessarily correlate with the timing of revenues being recognized under the cost-to-cost method of accounting. Contracts from contracting services usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Contracts from contracting services are billed as work progresses in accordance with agreed-upon contractual terms. A variance in timing of the billings in comparison to the timing of revenue recognition may result in contract assets or contract liabilities.

Contract assets consist of unbilled revenue and retainage. Unbilled revenue represents revenues recognized in excess of amounts received or billable, excluding retainage. Such amounts will be billed as standard contract terms allow, usually based on various measures of performance or achievement. Retainage represents amounts that have been contractually invoiced to customers and where payments have been partially withheld pending the achievement of certain milestones, satisfaction of other contractual conditions, or completion of the project. Contract assets are not considered a significant financing component as they are intended to protect the customer in the event the Company does not perform on its obligations under the contract.

Contract liabilities consist of deferred revenues, which are amounts receivable or billable in excess of revenues, excluding retainage. Contract liabilities also consist of accrued loss provision and the effect of retainage, as applicable. Contract liabilities decrease as revenue is recognized from the satisfaction of the related performance obligation. Contract liabilities are not considered to have a significant financing component as they are used to meet working capital requirements that generally are higher in the early stages of a contract and are intended to protect the Company from the other party failing to meet its obligations under the contract.

The Company classifies Contract assets and Contract liabilities, net that may be settled after one year from the balance sheet date as current, consistent with the timing of the Company’s project operating cycle.

Contract assets and Contract liabilities, net consisted of the following as of:

Total retainage was $222.4 million and $182.1 million as of September 30, 2026 and December 31, 2025, respectively, with the components broken out in the table above.

The following table presents the opening and closing balances of contract assets (liabilities) as of:

Contract assets and contract liabilities fluctuate period to period based on various factors, including, but not limited to, changes in the number and size of projects in progress at period end; variability in billing and payment terms, such as up-front or advance billings, interim or milestone billings, or deferred billings; variability in billing of retainage and the satisfaction of the specified condition; unexecuted change orders and contract claims recognized as revenues and impacts from acquisitions. The primary driver of the difference between the Company's opening and closing contract assets and contract liabilities balances is the timing of the Company's billings, including retainage, in relation to its performance of work, as well as the impact from acquisitions.

The Company recognized a net increase in revenues of $19.3 million and $288.3 million for the three and nine months ended September 30, 2026, respectively, related to previously recognized deferred revenues that were included in contract liabilities as of December 31, 2025. The Company recognized a net increase in revenues of $12.7 million and $146.4 million for the three and nine months ended September 30, 2025, respectively, related to previously recognized deferred revenues that were included in contract liabilities as of December 31, 2024.

Remaining Performance Obligations

Remaining performance obligations include unrecognized revenues that the Company reasonably expects to be realized from the uncompleted portion of services to be performed under job-specific contracts to the extent management believes additional contract revenues will be earned and are deemed probable of collection. The majority of the Company's contracts for contracting services have an original duration of less than one year.

As of September 30, 2026 and December 31, 2025, the aggregate amount of the transaction price allocated to the Company's remaining performance obligations was $4.78 billion and $2.80 billion, respectively. The table below shows additional information regarding the Company’s remaining performance obligations as of September 30, 2026, including an estimate of when the Company expects to recognize its remaining performance obligations as revenues:

Businesses acquired during the nine months ended September 30, 2026 contributed estimated remaining performance obligations of $635.3 million as of September 30, 2026, included within the E&M segment detailed above.