0001193125-26-206419
SEC filingQ2 revenue grew 6.1% to $702.9M driven by Maintenance Services, but gross margin contracted to 19.6% from higher subcontractor costs and depreciation, pressuring profitability and yielding negative free cash flow.
Revenue rose 6.1% to $702.9 million in Q2 FY2026 from $662.6 million prior year, primarily from increases in net service revenues that helped offset other cost pressures. This topline growth occurred amid seasonal strength in Maintenance Services, though specific segment breakdowns are not detailed here.
Gross profit decreased to $137.7 million from $147.5 million, with gross margin contracting to 19.6%. The decreases in gross profit and gross margin were primarily driven by increased subcontractor costs and depreciation expense, largely offset by increases in net service revenues and decreases in materials costs. This erosion pressured overall profitability despite revenue gains, as higher input costs outpaced topline expansion.
Operating income declined to $16.1 million from $22.3 million, yielding a 2.3% operating margin. While specific SG&A details are limited, management notes cost management initiatives delivered efficiencies from reduced business transformation and integration costs. These gains were partially offset by increased selling costs from investments in new sellers, helping to mitigate but not fully counteract gross margin compression.
Net income fell sharply to $1.7 million from $6.4 million, with diluted EPS worsening to -$0.08 from -$0.03. This reflects the combination of lower operating results and an increase in interest expense. The increase stemmed from decreased interest income due to lower cash and cash equivalents balances, combined with higher interest expense from interest rate derivative contracts and an elevated outstanding debt balance.
Cash flow from operating activities dropped to $82.3 million from $151.7 million. The decrease was partially offset by increases in non-cash adjustments to reconcile net loss to net cash provided by operating activities, along with a decrease in cash used by accounts payable and other operating liabilities. Capital expenditures increased to $113.5 million from $92.3 million, reflecting ongoing investments in operations, working capital, and growth needs. This drove free cash flow to -$31.2 million, as the decline in operating cash combined with higher capex usage. A substantial portion of liquidity needs arises from debt service, operations, working capital, and capital expenditures, underscoring the impact of these dynamics.
Overall, while revenue growth provided a positive foundation, margin pressures from subcontractors and depreciation, alongside cash flow challenges, defined the quarter's mixed performance.