Greetings and welcome to the Sterling Construction Company's Fourth Quarter and Full-Year 2020 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded and all participants are in a listen-only mode. There are accompanying slides on the Investor Relations section of the company's website. Before turning the call over to Mr. Joe Cutillo, Sterling Construction's Chief Executive Officer, I will read the Safe Harbor statement. Some discussions made today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Sterling's most recent 10-K and 10-Q filings for a more complete description of Risk Factors that could affect these projections and assumptions. The company assumes no obligations to update forward-looking statements as a result of new information, future events or otherwise.

Thank you, Donna and good morning. I'd like to start by thanking everyone for joining today's call. Well 2020 is over, but will not soon be forgotten. All of our market studies, all of our operational planning, and all of our risk assessments were thrown out the window. Never in our wildest dreams did we imagine a global pandemic and the impacts it would have on all of us as we saw our everyday lives change overnight. We were banished to our homes. We closed our offices, our schools, and our stores. The everyday things we took for granted like stock grocery shelves, restaurants, and toilet paper were gone. No travel, no sports, and no entertainment. In the blink of an eye, we went from executing a well thought-out plan to navigating a ship in unchartered waters dealing with something completely unknown. It is in these times that leaders find out the true strength of their business and their people. We got to see firsthand how nimble our teams were, how they would react to new and abnormal conditions, and how they would continue to take care of our customers. We watched them go above and beyond to keep their fellow employees safe, as well as take care of those in need and their communities. For all leaders, 2020 was a year you either walked away proud or you walked away hoping to fight another day. I'm happy to say I'm walking away from 2020 prouder than ever, of the 3,000 Sterling employees, and their ability to band together, keep each other safe, take care of our customers, give back to our communities, and deliver another record year. So instead of spending any more time talking about the challenges we faced, I'd like to focus on the victories we had. Let's start with the most important one, the safety of our people. In 2020, we have the safest work environment in our history. In addition to implementing all new COVID-related protocols, to prevent or minimize the risk of transmission, we reduced our recordable incident rate by over 40% and our lost time incident rate by over 20%, making our lost time incident rate over 75% better than the industry average.

Thanks, Joe and good morning. I'm pleased to discuss our strong fourth quarter results and by almost all measures our record full-year performance. Our slide presentation, which has been posted to our website includes additional financial details to help understand our 2020 financial results. The presentation also provides modeling considerations, which underpin our 2021 revenue and earnings guidance.

Thanks, Ron. As much as I'd like to continue to talk about our 2020 results, it's time to move on to 2021. As we enter 2021, we're now in our sixth year of transforming our company and our culture. Our overall strategy and the three core elements remain exactly the same as we continue to focus on bottom line growth, while reducing risk and building a platform for accretive future growth.

Ladies and gentlemen, the floor is now open for questions. Our first question is coming from Zane Karimi of D.A. Davidson. Please go ahead.

I guess first-off, just how disruptive has the weather been in 1Q in Texas in particular? Were you guys able to work through any of that or how is that impact looking?

Yes. So January was relatively normal. February was a disaster to be honest. In March, we had a couple of beautiful days, it's back in the 70s and 80s, a little bit of rain, but March is off to a great start. I think the important thing is February; we'll hit both our Tealstone and our Plateau businesses in the month of February because weather continues in the Southeast. However, those are the two best areas for us to get hit with temporary weather issues because both of them have a combination of more makeup capacity. But more importantly, their customer base is going to require them to get back on schedule and back on time. So they will run full-out. And if we have a really good March, it should make up the majority of any hiccups in February, if not all of them, and certainly we will be there as we get into April, worst-case scenario. So February was tough. But I'll tell you, these guys are running 150 miles an hour when the weather's good and they'll catch-up.

Great, there. And then I guess when we're thinking then about Specialty Services, we're not looking like sort of 2021. How are those growth expectations really developing and how much work is out there in like data centers and distribution centers? What's the visibility at this stage?

Yes. The market continues to be very strong on, I'll call it all three levels, the smaller local warehousing and distribution, the larger e-commerce warehouse and distribution, and data centers. Frankly, the market is bigger today than we can take up and the growth rates. As we said, as we're exiting 2020, the great news is Plateau had a barnburner year in 2020. When we bought the business, we took a look at kind of the growth rates over the next three years and we anticipated about 6% to 8% growth of that business. They grew over 20% top-line last year versus their best year ever and ate up a lot of the human capital capacity they had in project management. So we very rapidly put in place a program not only to recruit but to train new Project Managers. They're going to be adding a fair number of Project Managers in 2021. And as those Project Managers come on, they think of it as somewhat of a program to bring them in and work under the best Project Managers so that they learn firsthand how to execute a Plateau way. As that capacity continues to increase; they'll be able to increase. But we think we're going to see kind of mid-single-digit growth in that business this year; the market would allow us to grow faster than that. Our biggest challenge is how fast can we ramp-up human capital to go after more of that market. So no concerns on the market right now, more of an internal, what I'll call resource capability issue and we're working diligently on that.

Great, thank you. I guess last one for me then, think about cash flow, can it be as strong as in 2020 or near the same level?

One of the challenges we face is that we will need to allocate some capital this year for Brinks trucks. However, we anticipate having a very strong cash flow this year. Ron can provide more insight, but there’s no reason to believe it will be significantly different from previous years.

Yes, that's the bottom line. Cash flow from operations and EBITDA is up, with EBITDA increasing almost in the mid-single digits, slightly higher than that. This growth will support the increased activities in our land development business, which requires regular fleet updates. In 2020, we spent just over $30 million, and we anticipate raising that to around $35 million. A significant portion of this investment comes from our land development segment within the Specialty Services Group. Additionally, the duration of our backlog is longer than ever, with at least five projects each exceeding $100 million in backlog. This positions us well to not only meet our revenue expectations but also enter 2022 in a strong position. We have sufficient capital to meet demand as we start these projects, which accounts for about $35 million of our EBITDA.

Great. Thank you very much. And I'll jump back into queue.

Thank you. Our next question is coming from Sean Eastman of KeyBanc. Please go ahead.

Hi, guys. This is Alex on for Sean. Congrats on the great year.

Thanks.

The Heavy Civil margins exceeded our expectations based on our model. I would like to understand how you anticipate these margins will develop in 2021 compared to the levels we observed a few years ago. Additionally, what is the potential for overall margin expansion within this segment at this time?

Yes, I'll start at a high-level; let Ron give you some more details. But we anticipate the margins will continue to tick-up and get better as we go into 2021 in the Heavy Civil for a combination of a multitude of reasons. One is that low bid shift; Sean that we've been working on diligently continues to shrink the LION's share of our projects backlog, not only our multi-year, but our alternative delivery. And the margins on those are usually three to four points higher in general. So we'll see those start to kick in. We'll continue to shrink the low bid and you get the, I'll call it the product mix impact to that and will continue to grow as we go into 2021. Ron, you want to give any more detail on that?

Yes, I think it's like Joe said, pretty much movement in mix, which is consistent with what we're trying to do. And I think to hit off questions on growth in that side as we continue to shrink low bid revenues, so give or take about 5% of our $30 million and some lower low bid revenues expected in 2021 and 2020. Obviously, that reduces our lowest margin returns, type of work. And then with the start-up and continuing to ramp-up these large jobs are all alternative delivery type delivery projects. So that by itself will continue to help that mix improve.

And I think the other thing; the one last thing I'll say is we saw a little bit of low in the back half of last year on some of the aviation. And we've got some nice projects that we've won. And that's picking up as we go into 2021. And that margin is obviously much better than the heavy highway across the board. So we've got some good tailwinds in multiple areas to continue that trend into 2021, Sean.

Great. And then I just wanted to ask about how sustainable the Specialty Services margins are around this 14% operating income levels that you guys posted in 2020. And then where you see this trending over the next couple of years and what are the biggest challenges would be?

Yes. I don't think we'll see significant increases or spikes. It's always tough to maintain margins rather than losing them. However, I believe they will remain fairly stable based on the current bidding activities and projects we are involved in. So I would say it's more or less status quo. I don't expect a major increase or decrease.

And one last one for me, I'm taking a look at the EBITDA and EPS guidance ranges. And is there anything to point out that could swing the results from the high-end of the range to low end of the range, just understanding the major swing factors would be a helpful discussion?

Well, I think a couple of things that would drive the range is we come into the year, we put the guidance together we don't have 100% of our year-locked and loaded. Now the nice thing is we just announced a very nice job, a couple of days ago. I'll tell you we're working diligently on two or three other really, really nice jobs for us in multiple sectors. And if those parts hit and we don't see any big pushes of projects or any major weather as we get into the back half of the year, that swings us up to that top-end. If a couple of those parts don't hit, then we've got some risk in the back half of the year that could swing us down towards that bottom.

Yes. And I'd mention that great unsigned work entering into 2021 and well over 70% of that is going to be or already is under contract and meaning that we're in a turning curve, already, that's faster than we thought a month ago when we finished up our planning process. So that helps us feel good about the ranges we have and then we'll have to wait and see what this, everything from the economy, infrastructure builds everything else what it does for the balance of 2021. But I think there probably is upside there as both the downsides just because you're well over in the mid-60s, almost 70% of our revenues are coming out of backlog in the Heavy Civil side of that. And, as Joe mentioned, the backlog or the business at Plateau continues to be strong.

I would say this, Sean, after a year of a pandemic, which I would have never thought of, knew of, or even heard of, you're a little bit cautious. But I feel by far the best at this point in time in a year that I've ever felt since being here on our abilities and outlook for the entire year.

Thank you. Our next question is a follow-up coming from Zane Karimi of D.A. Davidson. Please go ahead.

Hey, Joe, Ron, one more time. Could you talk a little bit more about M&A and how focused are you right now pursuing acquisitions and do you see more opportunity expanding your existing businesses organically into new territories?

We are actively getting back into the mergers and acquisitions space. We've been examining a large number of deals, and the reality is that we're very selective. We may evaluate hundreds of opportunities before we decide to move forward. It's important for us to be choosy. We've positioned ourselves well in terms of our balance sheet and debt, making us ready for either several small acquisitions or a significant one. However, timing and finding the right deal are crucial; it must be beneficial and strategic for us and involve great people. The process always seems to take longer than anticipated, but we are diligently looking. On the expansion front, Plateau has made progress by moving into Tennessee and is now exploring opportunities in Northern Virginia and Baltimore. They will continue to expand geographically. Meanwhile, Tealstone still has substantial growth potential in the Houston market. This year, we are assessing two additional markets and planning when to enter them. If I had to predict, I believe 2022 will be the year we start that process, but we aim to do the necessary groundwork in 2021. The Austin market is very strong right now, presenting a relatively straightforward expansion option since it's within Texas and close to Dallas and Houston. We're also considering other rapidly growing markets based on requests from key customers for us to explore potential expansions there.

Thank you. At this time, I'd like to turn the floor back over to Mr. Cutillo for closing comments.

Thank you, Donna. Thanks again everyone for joining our call today. If you have any follow-up questions or wish to schedule a call, please refer to the contact information provided in the press release associated with our Investor Relations Group at Sterling, or our partners at The Equity Group. Thanks again everybody and have a great day.

Ladies and gentlemen, thank you for your participation and interest in Sterling Construction. You may now disconnect your lines and log-off the webcast and have a wonderful day.