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Sterling Reports Third Quarter 2021 Results

EPS Continues to Outpace Expectations

Increases 2021 Full Year Revenue and Net Income Guidance

Delivered Record YTD Operating Cash Flow

Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or the “Company”) today announced financial results for the third quarter 2021.

Consolidated Third Quarter 2021 Financial Results Compared to Third Quarter 2020:

  • Revenues were $463.4 million compared to $383.5 million.
  • Net Income was $21.1 million compared to $15.2 million.
  • Diluted EPS was $0.72 compared to $0.54.

Consolidated Financial Position and Liquidity:

  • Cash and Cash Equivalents were $117.7 million at September 30, 2021.
  • Cash provided by operating cash flow was a record $135.7 million for the nine months ended September 30, 2021.
  • Repayments of debt totaled $44.2 million for the nine months ended September 30, 2021.

Heavy Civil and Specialty Services Backlog Highlights:

  • Backlog at September 30, 2021 was $1.41 billion, up from $1.18 billion at December 31, 2020, while Backlog gross margin improved from 12.0% to 12.3%, over the respective periods.
  • Combined Backlog(1) was $1.53 billion at both September 30, 2021 and December 31, 2020, while Combined Backlog gross margin improved from 11.8% to 12.1%, over the respective periods.

The Company Increases 2021 Full Year Revenue and Net Income Guidance:

  • Revenue of $1.510 billion to $1.520 billion
  • Net Income of $61 million to $64 million

     

CEO Remarks and Outlook

“The third quarter was a strong quarter, exceeding our Net Income and EPS expectations,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “We were able to deliver another outstanding quarter despite the headwinds from inflation and the supply chain. Our diverse portfolio of end customers and geographies, coupled with the strength of our end markets, were the drivers that enabled us to offset these headwinds. In our Heavy Civil sector, operating income almost tripled that of Q3 2020, driven by revenue growth in aviation and alternative delivery heavy highway projects. Our Specialty Services sector saw year-over-year revenue growth but a decline in operating income driven by inflation and supply chain delays. Our Residential sector delivered both record revenue and income driven by continued strong demand in the Texas market and the recent expansion into Phoenix.”

“In addition to the great earnings results from our operating units, the third quarter also benefited from reduced interest expense and a lower income tax expense.”

Mr. Cutillo continued, “Our year-to-date cash flow continues to generate record cash flow from operations of $135.7 million, of which $44.2 million was deployed to pay down debt while we invested $37.2 million in net capital expenditures.”

Mr. Cutillo concluded, “The strategic steps we have taken to align our business with long-term growth markets such as e-infrastructure, residential, and the continuing shift within our Heavy Civil sector towards higher-margin lower risk projects have continued to pay off and have us well-positioned to continue this momentum going forward. As a result, we are raising our full-year 2021 revenue guidance to be between $1.510 billion to $1.520 billion and 2021 net income attributable to Sterling common stockholders to be between $61 million to $64 million.”

Conference Call

Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Wednesday, November 3, 2021 at 9:00 a.m. ET/8:00 a.m. CT. Interested parties may participate in the call by dialing (201) 493-6744 or (877) 445-9755. Please call in ten minutes before the conference call is scheduled to begin and ask for the Sterling Construction call. To coincide with the conference call, Sterling will post a slide presentation at www.strlco.com on the Investor Presentations & Webcast section of the Investor Relations tab. Following management’s opening remarks, there will be a question and answer session.

To listen to a simultaneous webcast of the call, please go to the Company’s website atwww.strlco.com at least fifteen minutes early to download and install any necessary audio software. If you are unable to listen live, the conference call webcast will be archived on the Company’s website for thirty days.

About Sterling

Sterling Construction Company, Inc. operates through a variety of subsidiaries within three segments specializing in Heavy Civil, Specialty Services and Residential projects in the United States (the “U.S.”), primarily across the southern U.S., the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. Heavy Civil includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems. Specialty Services projects include site development activities, foundations for multi-family homes, parking structures and other commercial concrete projects. Residential projects include concrete foundations for single-family homes. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society’s quality of life. Caring for our people, our investors, our customers and our communities – that is The Sterling Way. This is why we use recycled materials, reclaim water and stockpile the aggregate from our projects. Moreover, from water delivery systems and transportation systems to community service initiatives, like facilitating the construction of homes for disabled veterans, Sterling always puts people first.

Important Information for Investors and Stockholders

Non-GAAP Measures

This press release may contain “Non-GAAP” financial measures as defined under Regulation G of the amended U.S. Securities Exchange Act of 1934. The Company reports financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), but the Company believes that certain Non-GAAP financial measures provide useful supplemental information to investors regarding the underlying business trends and performance of the Company’s ongoing operations and are useful for period-over-period comparisons of those operations.

Non-GAAP measures may include adjusted net income, adjusted EPS, EBITDA and adjusted EBITDA, in each case excluding the impacts of certain identified items. The excluded items represent items that the Company does not consider to be representative of its normal operations. The Company believes that these measures are useful for investors to review, because they provide a consistent measure of the underlying financial results of the Company’s ongoing business and, in the Company’s view, allow for a supplemental comparison against historical results and expectations for future performance. Furthermore, the Company uses each of these to measure the performance of the Company’s operations for budgeting and forecasting, as well as employee incentive compensation. However, Non-GAAP measures should not be considered as substitutes for net income, EPS, or other data prepared and reported in accordance with GAAP and should be viewed in addition to the Company’s reported results prepared in accordance with GAAP.

If applicable, reconciliations of Non-GAAP financial measures to the most comparable GAAP measures will be provided in this press release.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains statements that are considered forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about: potential risks and uncertainties relating to the ongoing COVID-19 pandemic; our business strategy; our financial strategy; our industry outlook; and our plans, objectives, expectations, forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this press release, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this press release are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this press release are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in our filings with the U.S. Securities and Exchange Commission and elsewhere in those filings. Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made. The forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise, notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2021

 

2020

 

2021

 

2020

Revenues

$

463,449

 

 

$

383,458

 

 

$

1,180,431

 

 

$

1,080,184

 

Cost of revenues

(405,645)

 

 

(333,542)

 

 

(1,021,348)

 

 

(935,424)

 

Gross profit

57,804

 

 

49,916

 

 

159,083

 

 

144,760

 

General and administrative expense

(19,637)

 

 

(15,154)

 

 

(52,565)

 

 

(51,209)

 

Intangible asset amortization

(2,866)

 

 

(2,866)

 

 

(8,598)

 

 

(8,569)

 

Acquisition related costs

 

 

(401)

 

 

 

 

(1,013)

 

Other operating expense, net

(3,270)

 

 

(2,664)

 

 

(10,414)

 

 

(9,989)

 

Operating income

32,031

 

 

28,831

 

 

87,506

 

 

73,980

 

Interest income

13

 

 

23

 

 

39

 

 

146

 

Interest expense

(3,919)

 

 

(7,177)

 

 

(15,660)

 

 

(22,537)

 

Gain on extinguishment of debt, net

968

 

 

 

 

2,032

 

 

 

Income before income taxes

29,093

 

 

21,677

 

 

73,917

 

 

51,589

 

Income tax expense

(7,336)

 

 

(6,280)

 

 

(20,275)

 

 

(14,712)

 

Net income

21,757

 

 

15,397

 

 

53,642

 

 

36,877

 

Less: Net income attributable to noncontrolling interests

(631)

 

 

(240)

 

 

(1,905)

 

 

(395)

 

Net income attributable to Sterling common stockholders

$

21,126

 

 

$

15,157

 

 

$

51,737

 

 

$

36,482

 

 

 

 

 

 

 

 

 

Net income per share attributable to Sterling common stockholders:

 

 

 

 

 

 

 

Basic

$

0.74

 

 

$

0.54

 

 

$

1.81

 

 

$

1.31

 

Diluted

$

0.72

 

 

$

0.54

 

 

$

1.79

 

 

$

1.30

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

28,710

 

 

28,003

 

 

28,527

 

 

27,832

 

Diluted

29,213

 

 

28,233

 

 

28,927

 

 

27,986

 

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

SEGMENT INFORMATION

(In thousands)

(Unaudited)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2021

 

% of

Revenues

 

2020

 

% of

Revenues

 

2021

 

% of

Revenues

 

2020

 

% of

Revenues

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heavy Civil

$

249,898

 

 

54%

 

$

201,078

 

 

52%

 

$

600,105

 

 

51%

 

$

577,141

 

 

54%

Specialty Services

148,256

 

 

32%

 

139,971

 

 

37%

 

424,248

 

 

36%

 

380,397

 

 

35%

Residential

65,295

 

 

14%

 

42,409

 

 

11%

 

156,078

 

 

13%

 

122,646

 

 

11%

Total Revenues

$

463,449

 

 

 

 

$

383,458

 

 

 

 

$

1,180,431

 

 

 

 

$

1,080,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heavy Civil

$

7,174

 

 

2.9%

 

$

2,405

 

 

1.2%

 

$

12,668

 

 

2.1%

 

$

2,679

 

 

0.5%

Specialty Services

17,932

 

 

12.1%

 

21,474

 

 

15.3%

 

57,016

 

 

13.4%

 

55,834

 

 

14.7%

Residential

6,925

 

 

10.6%

 

5,353

 

 

12.6%

 

17,822

 

 

11.4%

 

16,480

 

 

13.4%

Subtotal

32,031

 

 

6.9%

 

29,232

 

 

7.6%

 

87,506

 

 

7.4%

 

74,993

 

 

6.9%

Acquisition related costs

 

 

 

 

(401)

 

 

 

 

 

 

 

 

(1,013)

 

 

 

Total Operating Income

$

32,031

 

 

6.9%

 

$

28,831

 

 

7.5%

 

$

87,506

 

 

7.4%

 

$

73,980

 

 

6.8%

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

 

September 30,

2021

 

December 31,

2020

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

117,702

 

 

$

66,185

 

Accounts receivable

218,683

 

 

177,424

 

Contract assets

85,498

 

 

84,975

 

Receivables from and equity in construction joint ventures

21,656

 

 

16,653

 

Other current assets

22,483

 

 

16,306

 

Total current assets

466,022

 

 

361,543

 

Property and equipment, net

148,444

 

 

126,668

 

Operating lease right-of-use assets, net

17,470

 

 

16,515

 

Goodwill

192,014

 

 

192,014

 

Other intangibles, net

236,289

 

 

244,887

 

Deferred tax asset, net

 

 

7,817

 

Other non-current assets, net

4,078

 

 

3,250

 

Total assets

$

1,064,317

 

 

$

952,694

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

142,740

 

 

$

95,201

 

Contract liabilities

141,236

 

 

114,019

 

Current maturities of long-term debt

21,239

 

 

77,434

 

Current portion of long-term lease obligations

8,314

 

 

7,588

 

Income taxes payable

306

 

 

 

Accrued compensation

34,801

 

 

18,013

 

Other current liabilities

9,088

 

 

9,629

 

Total current liabilities

357,724

 

 

321,884

 

Long-term debt

299,923

 

 

291,249

 

Long-term lease obligations

9,306

 

 

8,958

 

Members’ interest subject to mandatory redemption and undistributed earnings

54,766

 

 

51,290

 

Deferred tax liability, net

10,287

 

 

 

Other long-term liabilities

9,218

 

 

10,584

 

Total liabilities

741,224

 

 

683,965

 

Stockholders’ equity:

 

 

 

Common stock

288

 

 

283

 

Additional paid in capital

255,313

 

 

256,423

 

Treasury stock, at cost

 

 

(1,445)

 

Retained earnings

69,010

 

 

17,273

 

Accumulated other comprehensive loss

(2,923)

 

 

(5,264)

 

Total Sterling stockholders’ equity

321,688

 

 

267,270

 

Noncontrolling interests

1,405

 

 

1,459

 

Total stockholders’ equity

323,093

 

 

268,729

 

Total liabilities and stockholders’ equity

$

1,064,317

 

 

$

952,694

 

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended

September 30,

 

2021

 

2020

Cash flows from operating activities:

 

 

 

Net income

$

53,642

 

 

$

36,877

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

25,336

 

 

24,639

 

Amortization of debt issuance costs and non-cash interest

1,756

 

 

2,489

 

Gain on disposal of property and equipment

(1,176)

 

 

(1,042)

 

Gain on debt extinguishment, net

(2,032)

 

 

 

Deferred taxes

17,413

 

 

10,946

 

Stock-based compensation expense

5,690

 

 

7,961

 

Change in fair value of interest rate swap

(41)

 

 

251

 

Changes in operating assets and liabilities

35,154

 

 

10,134

 

Net cash provided by operating activities

135,742

 

 

92,255

 

Cash flows from investing activities:

 

 

 

Capital expenditures

(39,315)

 

 

(22,088)

 

Proceeds from sale of property and equipment

2,093

 

 

1,557

 

Net cash used in investing activities

(37,222)

 

 

(20,531)

 

Cash flows from financing activities:

 

 

 

Repayments of debt

(44,184)

 

 

(52,695)

 

Distributions to noncontrolling interest owners

(1,959)

 

 

 

Other

(603)

 

 

9,137

 

Net cash used in financing activities

(46,746)

 

 

(43,558)

 

Net change in cash, cash equivalents, and restricted cash

51,774

 

 

28,166

 

Cash, cash equivalents, and restricted cash at beginning of period

72,642

 

 

50,562

 

Cash, cash equivalents, and restricted cash at end of period

124,416

 

 

78,728

 

Less: restricted cash (Other current assets)

(6,714)

 

 

(6,135)

 

Cash and cash equivalents at end of period

$

117,702

 

 

$

72,593

 

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

EBITDA RECONCILIATION

(In thousands)

(Unaudited)

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2021

 

2020

 

2021

 

2020

Net income attributable to Sterling common stockholders

$

21,126

 

 

$

15,157

 

 

$

51,737

 

 

$

36,482

 

Depreciation and amortization

8,629

 

 

8,098

 

 

25,336

 

 

24,639

 

Interest expense, net of interest income

3,906

 

 

7,154

 

 

15,621

 

 

22,391

 

Income tax expense

7,336

 

 

6,280

 

 

20,275

 

 

14,712

 

Gain on extinguishment of debt, net

(968)

 

 

 

 

(2,032)

 

 

 

EBITDA (1)

$

40,029

 

 

$

36,689

 

 

$

110,937

 

 

$

98,224

 

 

 

 

 

 

 

 

 

(1) The Company defines EBITDA as GAAP net income attributable to Sterling common stockholders, adjusted for depreciation

and amortization, net interest expense, taxes, and net gain on extinguishment of debt.

 

Contacts

Sterling Construction Company, Inc.

Ron Ballschmiede, Chief Financial Officer

281-214-0777

Investor Relations Counsel:

The Equity Group Inc.

Jeremy Hellman, CFA

212-836-9626

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