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Sterling Reports Second Quarter 2021 Results

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Exceeds EPS Expectations

Delivers Record Cash Flow from Operating Activities

Increases 2021 Full Year Net Income Guidance

THE WOODLANDS, Texas, August 02, 2021--(BUSINESS WIRE)--Sterling Construction Company, Inc. (NasdaqGS: STRL) ("Sterling" or the "Company") today announced financial results for the second quarter 2021.

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

  • Revenues were $401.7 million compared to $400.0 million.

  • Net Income was $20.1 million compared to $18.2 million.

  • Diluted EPS was $0.69 compared to $0.65.

Consolidated Financial Position and Liquidity:

  • Cash and Cash Equivalents were $93.6 million at June 30, 2021.

  • Cash provided by operating activities was a record $91.5 million for the six months ended June 30, 2021.

  • Repayments of debt totaled $40.1 million for the six months ended June 30, 2021.

Heavy Civil and Specialty Services Backlog Highlights:

  • Backlog at June 30, 2021 was $1.57 billion, up from $1.18 billion at December 31, 2020.

  • Combined Backlog(1) at June 30, 2021 was $1.65 billion, up from $1.53 billion at December 31, 2020.

  • Combined Backlog(1) margin at June 30, 2021 was a record 12.2%, up from 11.8% at December 31, 2020.

(1) Combined Backlog includes Unsigned Low-bid Awards of $75.4 million and $356.9 million at June 30, 2021 and December 31, 2020, respectively.

The Company Increases 2021 Full Year Net Income Guidance to $55 million - $58 million.

CEO Remarks and Outlook

"Overall, we had a strong quarter and were able to overcome significant headwinds from weather, inflation and material supply issues to exceed our expectations," stated Joe Cutillo, Sterling’s Chief Executive Officer. "In our Heavy Civil segment, we had a nice improvement in operating income on lower revenue as we continue to shift away from low-bid heavy highway projects to alternative delivery work. Our Specialty and Residential segments had year-over-year revenue improvements, but operating income slightly declined due to the headwinds mentioned. Even with the challenges faced in this quarter, all of our segments delivered very strong bottom-line results in comparison to our prior exceptional financial performance in the second quarter of 2020."

"Our Specialty Services segment continues to see strong end-market growth and deliver impressive results. Our Backlog continued to grow in the quarter with key wins with our core customers. In addition, our geographic expansion enabled us to bring on new customers that are expanding their e-commerce efforts."

"In our Residential segment, we continue to see record demand; however, our operating income in our Residential segment was down slightly year-over-year due largely to inflation and supply chain pressures. In addition to the supply chain issues, the inordinately wet weather during the quarter hampered our throughput and caused negative productivity. That said, we remain optimistic as the demand for new homes in Texas continues to outpace the rest of the U.S. Provided that the weather-related issues subside, we expect to catch up lost opportunities from the second quarter in the third quarter. Lastly, we recently expanded our geographic footprint into Phoenix, a Top Ten housing market in the U.S. Though it is early in the expansion process, we are excited about the potential this market has for our long-term growth."

Mr. Cutillo continued, "Our Heavy Civil segment’s operating profit in terms of both dollars and margin was up, reflecting our continued shift away from low-bid heavy highway projects toward alternative delivery work. Alternative delivery project volumes were up this quarter as we moved out of the winter months. We expect that contributions from these projects will continue throughout the year. It is extremely satisfying to see the continued strong results of our multi-year strategy of shifting our project mix away from hard-bid heavy highway work towards alternative delivery jobs with higher margins and lower risk. These jobs allow us to leverage our experience, assets and skills to bring more value to our customers and shareholders."

"Our balance sheet, which has been a key area of focus, continued to improve in the second quarter. We generated cash flow from operations of $91.5 million, which we deployed to pay down $40.1 million of debt and invested $22.2 million in capital expenditures. With our enhanced liquidity position during the second quarter, we were able to amend our Credit Agreement. The amendment decreased the interest rate on our loan by two percentage points and reduced our future mandatory quarterly payments from $12.5 million to $4.1 million through March 2023. Although we expect to pay more than our mandatory quarterly payments as we continue to focus on reducing our debt level, we feel that this amendment, and its unanimous approval by our syndicate, is indicative of the progress we have made in terms of profitability and cash flow generation. The amended agreement also provides us with even more financial flexibility, allowing us to continue to execute on our organic growth strategy and evaluate accretive acquisition opportunities. We continue to track acquisition opportunities that could add scale to our existing operations or add a new, margin accretive business segment adjacent to our core business. With respect to infrastructure funding, we are still optimistic that the current administration will pass a bill this year, as the FAST Act extension expires in September. As funding increases, we believe this will only enhance our positive long-term outlook."

Mr. Cutillo concluded, "Despite inflation, supply chain pressures and weather-related challenges this quarter, our first-half performance, elevated Backlog, strong end-market fundamentals in all three of our business segments and our enhanced financial profile make us confident in our ability to continue delivering shareholder value. Accordingly, we have updated our guidance to reflect our expectation for 2021 net income attributable to Sterling common stockholders to be between $55 million to $58 million."

Conference Call

Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Tuesday, August 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 at www.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, airfields, ports, light rail, water, wastewater and storm drainage systems. Specialty Services projects include land development activities (including site excavation and drainage, drilling and blasting for excavation), 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.

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, 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, including the duration of the COVID-19 pandemic (including new and emerging strains and variants), additional actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to address its impact, including the distribution, effectiveness and acceptance of vaccines, and the potential ongoing or further negative impact of the COVID-19 pandemic on the global economy and financial markets; 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 June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Revenues

$

401,666

$

400,038

$

716,982

$

696,726

Cost of revenues

(345,419

)

(340,439

)

(615,703

)

(601,882

)

Gross profit

56,247

59,599

101,279

94,844

General and administrative expense

(15,829

)

(18,451

)

(32,928

)

(36,055

)

Intangible asset amortization

(2,866

)

(2,866

)

(5,732

)

(5,703

)

Acquisition related costs

(139

)

(612

)

Other operating expense, net

(4,832

)

(5,097

)

(7,144

)

(7,325

)

Operating income

32,720

33,046

55,475

45,149

Interest income

12

24

26

123

Interest expense

(5,737

)

(7,557

)

(11,741

)

(15,360

)

Gain on extinguishment of debt, net

1,401

1,064

Income before income taxes

28,396

25,513

44,824

29,912

Income tax expense

(8,179

)

(7,248

)

(12,939

)

(8,432

)

Net income

20,217

18,265

31,885

21,480

Less: Net income attributable to noncontrolling interests

(161

)

(55

)

(1,274

)

(155

)

Net income attributable to Sterling common stockholders

$

20,056

$

18,210

$

30,611

$

21,325

Net income per share attributable to Sterling common stockholders:

Basic

$

0.70

$

0.65

$

1.08

$

0.77

Diluted

$

0.69

$

0.65

$

1.06

$

0.76

Weighted average common shares outstanding:

Basic

28,582

27,941

28,433

27,794

Diluted

29,054

27,957

28,878

27,887

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

SEGMENT INFORMATION

(In thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

% of

Revenues

2020

% of

Revenues

2021

% of

Revenues

2020

% of

Revenues

Revenues

Heavy Civil

$

203,153

50

%

$

220,448

55

%

$

350,207

49

%

$

376,063

53

%

Specialty Services

151,904

38

%

135,703

34

%

275,992

38

%

240,426

35

%

Residential

46,609

12

%

43,887

11

%

90,783

13

%

80,237

12

%

Total Revenues

$

401,666

$

400,038

$

716,982

$

696,726

Operating Income

Heavy Civil

$

4,404

2.2

%

$

3,896

1.8

%

$

5,494

1.6

%

$

274

0.1

%

Specialty Services

22,907

15.1

%

23,246

17.1

%

39,084

14.2

%

34,360

14.3

%

Residential

5,409

11.6

%

6,043

13.8

%

10,897

12.0

%

11,127

13.9

%

Subtotal

32,720

8.1

%

33,185

8.3

%

55,475

7.7

%

45,761

6.6

%

Acquisition related costs

(139

)

(612

)

Total Operating Income

$

32,720

8.1

%

$

33,046

8.3

%

$

55,475

7.7

%

$

45,149

6.5

%

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

June 30,
2021

December 31,
2020

Assets

Current assets:

Cash and cash equivalents

$

93,630

$

66,185

Accounts receivable

211,529

177,424

Contract assets

86,184

84,975

Receivables from and equity in construction joint ventures

18,011

16,653

Other current assets

24,738

16,306

Total current assets

434,092

361,543

Property and equipment, net

142,015

126,668

Operating lease right-of-use assets, net

16,609

16,515

Goodwill

192,014

192,014

Other intangibles, net

239,155

244,887

Deferred tax asset, net

7,817

Other non-current assets, net

3,305

3,250

Total assets

$

1,027,190

$

952,694

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

137,934

$

95,201

Contract liabilities

141,236

114,019

Current maturities of long-term debt

23,186

77,434

Current portion of long-term lease obligations

7,942

7,588

Accrued compensation

27,134

18,013

Other current liabilities

8,810

9,629

Total current liabilities

346,242

321,884

Long-term debt

303,531

291,249

Long-term lease obligations

8,783

8,958

Members’ interest subject to mandatory redemption and undistributed earnings

56,488

51,290

Deferred tax liability, net

3,956

Other long-term liabilities

9,420

10,584

Total liabilities

728,420

683,965

Stockholders’ equity:

Common stock

286

283

Additional paid in capital

253,467

256,423

Treasury stock, at cost

(1,445

)

Retained earnings

47,884

17,273

Accumulated other comprehensive loss

(3,641

)

(5,264

)

Total Sterling stockholders’ equity

297,996

267,270

Noncontrolling interests

774

1,459

Total stockholders’ equity

298,770

268,729

Total liabilities and stockholders’ equity

$

1,027,190

$

952,694

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended June 30,

2021

2020

Cash flows from operating activities:

Net income

$

31,885

$

21,480

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

Depreciation and amortization

16,707

16,541

Amortization of debt issuance costs and non-cash interest

1,264

1,762

Gain on disposal of property and equipment

(437

)

(598

)

Gain on debt extinguishment, net

(1,064

)

Deferred taxes

11,294

6,223

Stock-based compensation expense

3,850

6,196

Change in fair value of interest rate swap

(51

)

272

Changes in operating assets and liabilities

28,044

451

Net cash provided by operating activities

91,492

52,327

Cash flows from investing activities:

Capital expenditures

(22,150

)

(14,574

)

Proceeds from sale of property and equipment

690

769

Net cash used in investing activities

(21,460

)

(13,805

)

Cash flows from financing activities:

Repayments of debt

(40,072

)

(22,644

)

Distributions to noncontrolling interest owners

(1,959

)

Other

(602

)

9,067

Net cash used in financing activities

(42,633

)

(13,577

)

Net change in cash, cash equivalents, and restricted cash

27,399

24,945

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

72,642

50,562

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

100,041

75,507

Less: restricted cash (Other current assets)

(6,411

)

(4,895

)

Cash and cash equivalents at end of period

$

93,630

$

70,612

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

EBITDA RECONCILIATION

(In thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Net income attributable to Sterling common stockholders

$

20,056

$

18,210

$

30,611

$

21,325

Depreciation and amortization

8,402

8,256

16,707

16,541

Interest expense, net of interest income

5,725

7,533

11,715

15,237

Income tax expense

8,179

7,248

12,939

8,432

Gain on extinguishment of debt, net

(1,401

)

(1,064

)

EBITDA (1)

$

40,961

$

41,247

$

70,908

$

61,535

(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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210802005711/en/

Contacts

Sterling Construction Company, Inc.
Ron Ballschmiede, Chief Financial Officer
281-214-0800

Investor Relations Counsel:
The Equity Group Inc.
Fred Buonocore, CFA 212-836-9607
Mike Gaudreau 212-836-9620

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