Greetings, and welcome to the Sterling Infrastructure Second Quarter 2022 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded and all participants are in listen-only mode. There are accompanying slides on the Investor Relations section of the company's website. Before turning the call over to Joe Cutillo, Sterling'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. Please also note that management may reference EBITDA, adjusted EBITDA, adjusted net income, or adjusted earnings per share on this call, which are all financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP measures, financial measures in our earnings release issued yesterday afternoon. I will now turn the call over to Mr. Joe Cutillo. Thank you, sir. Please go ahead.

Thanks, Donna. Good morning, everyone, and thank you for joining Sterling's Second Quarter 2022 Earnings Call. I would like to start off by thanking all of our employees for delivering another record quarter, the Sterling way, and enabling us to increase our full-year earnings forecast in some very challenging times. The Sterling way is what defines our culture. It is an understanding that great results for our shareholders are critical, but alone, not enough. It is our responsibility to continuously look for better ways to protect our people, our environments, and give back to our communities. It's this culture, these values, that have enabled us to deliver multiple quarters of record results. This morning, I will cover the highlights of our second quarter and the strategic progress we have made. Then I will turn it over to Ron for his financial commentary, and I will finish with the market and full-year outlook. Let's start off with our most important asset, our people. In the quarter, we had zero lost time incidents. Our continued focus on the well-being of our employees helps ensure our colleagues go home safe every evening and makes us an industry leader in safety. Shifting to the strategic front in each one of our segments, the strategy and objectives we established six years ago remain the same and are focused on improving margins, reducing risk while building a platform for future accretive growth. This strategy continues to pay off as we have transformed the company into three different segments, and it will continue to pay off long into the future. Our E-Infrastructure segment has become both our highest revenue and highest margin segment. In the quarter, revenues were up 89% versus Q2 of the prior year and now represent 46% of our total revenue and 69% of our total segment operating income. The recent acquisition of Petillo has only made this segment stronger and added to our opportunities. Our second highest margin segment, Building Solutions, continued to see strong growth as its revenue grew 15% versus the prior year's second quarter and its segment operating income grew 44%. Building Solutions now represents 17% of our total revenue and 20% of our operating income. We saw significant growth in our expansion markets and combined now represent 18% of our residential revenue, up from 6% in the second quarter of 2021. Our Transportation Solutions business reduced in size in the quarter versus the prior year by approximately 6%, but delivered more earnings as our segment operating income improved 6.5%. Our continued shift away from low bid to alternative delivery highway, aviation, and rail projects continues to pay off. Our Transportation segment now represents 37% of our revenues and 11% of our segment operating income. All three segments delivered improved year-over-year operating income along with various other great results. For the quarter versus prior year, our revenue was up 27%. Our segment operating income was up 31% and our net income was up 29%. We grew our combined backlog to $1.73 billion, up 14% versus year-end 2021 and delivered $0.86 per share to our shareholders. The continued strong performance in the quarter and year-to-date has enabled us to increase our full-year net income guidance from a range of $83 million to $89 million to a range of $90 million to $96 million. With that, I'll turn it over to Ron to talk about our financials in more detail. Ron?

Thanks, Joe, and good morning. I'm pleased to discuss our strong 2022 second quarter results and record quarterly performance. Our updated Investor Relations slide presentation has been posted to our website and includes additional financial details to help further understand our second quarter results. The presentation also provides additional modeling considerations, which underpin our 2022 revenue and earnings guidance. As you may recall, we closed on the Petillo acquisition on December 30, 2021, resulting in the inclusion of Petillo's financial results for all of 2022. Let me take you through our financial highlights, starting with our backlog metrics. At June 30, 2022, our backlog totaled $1,544 million, up $51 million over the beginning of the year. Our gross margin of this backlog was 12.6%, a 40 basis point increase over the beginning of the year. A higher proportion of our E-Infrastructure Solutions backlog grew this margin. Unsigned low bid awards at the end of the second quarter totaled $184 million; an increase from $23 million at the end of 2021. We finished the current quarter with a record combined backlog of $1.727 billion; a 14% increase over the end of 2021. Our gross profit in combined backlog was 12.5% compared to 12.2% at the beginning of the year. Our current quarter book-to-bill ratios were 1.06x for backlog and 1.26x for combined backlog. Revenue for the current quarter of 2022 totaled $511 million, up $109 million or 27% over the prior year quarter. Importantly, of this 27% second quarter revenue growth, $76 million or 19% of the revenue growth was driven by the late 2021 acquisition of Petillo with the balance of 8% organic revenue growth coming from Sterling. Including the Petillo results on a pro forma consolidated basis, Sterling's organic revenue growth in the second quarter was 12% and it was 15% in the first half of 2022. The current quarter E-Infrastructure Solutions organic growth of $34 million over the prior year quarter reflects the continued strong demand for distribution centers, datacenters, and warehouses across our East Coast footprint. Building Solutions revenue grew 15% over the comparable 2021 quarter, reflecting continued residential revenue growth in our core Dallas Fort Worth market and in our expanding footprints in Phoenix and Houston. In the current quarter, Phoenix and Houston accounted for 18% of our residential revenues compared to 6% in the comparable 2021 quarter. Transportation Solutions revenue was $191 million in the current quarter, a decrease of $11 million or 6% over the comparable year period. The decrease was primarily driven by lower aviation and consistent with our strategic intent, declining low bid heavy highway work. These declines were partially offset by increased water projects and higher alternative delivery revenues. We have increased our 2022 revenue guidance range to $1.865 billion to $1.885 billion from our previous range of $1.825 billion to $1.875 billion. Additionally, we increased our EPS guidance to a range of $2.95 to $3.15 from our initial 2022 guidance range of $2.69 to $2.88. Our current gross profit was $68 million, a decrease of $12 million over the 2021 quarter. Second quarter 2022 gross margin declined 60 basis points to 13.4% from the prior year quarter. This margin decline resulted from continuing supply chain challenges and inflationary pressures, which primarily impacts our E-Infrastructure and Building Solutions segments. These challenges principally began in the second quarter of 2021 and have continued to date. General and administrative expenses increased $7.6 million in the current quarter to $23.4 million. Over a third of this increase is attributable to the Petillo acquisition. We continue to expect our full-year G&A expense to be approximately 5% of revenues. Operating income for the current quarter was $41 million, an increase of $32.7 million over the 2021 quarter. Our current quarter operating margin was 8% compared to 8.1% in the prior year quarter. The decline is primarily as a result of the aforementioned supply chain and inflationary challenges, which continue to put pressure on our margins. Our current quarter effective income tax rate was 28%, which is consistent with our expectations for the full year. The net of all these items resulted in record second quarter net income of $26 million or $0.86 per share. The prior year quarter net income and EPS were $20.1 million and $0.69 per share, respectively. Our second quarter EBITDA totaled $54.3 million, an increase of 33% over the prior year quarter of $41 million. As a percent of revenues, EBITDA improved to 10.6% of revenues for the quarter, up from 10.2% in the prior year quarter and up from 9.7% in the first quarter of 2022. We've increased our 2022 EBITDA guidance to a range of $192 million to $202 million from our prior guidance range of $185 million to $200 million. Cash generated from operations for the first half of 2022 was $34.6 million compared to $91.6 million in the comparable 2021 period. The fluctuation principally reflects the very strong 2021 cash flow driven by the ramp-up of several new large alternative delivery projects, which were awarded and began working in the first half of 2021. And the significant 2022 organic revenue growth from our two fastest-growing segments, E-Infrastructure and Building Solutions. These two segments combined pro forma 2022 organic revenue growth was 26% in the second quarter and 27% for the first half of 2022. The first half cash flow from investing activities included $28 million of net CapEx and a $3 million payment of the final working capital adjustment for the Petillo acquisition. The CapEx increase reflects the increased E-Infrastructure Solutions activities, including the impact of the Petillo acquisition. Our full-year 2022 anticipated net CapEx continues to be in the $50 million to $55 million range. Finally, we repaid debt of $11.8 million in the first half of 2022. Now I'll turn the call back over to Joe.

Thanks, Ron. Now I'd like to take a few minutes to discuss our markets and the outlook for the rest of the year. Like most businesses, we continue to face additional inflation, supply chain shortages, and rising interest rates. Our teams are doing an excellent job addressing these challenges, but we expect them to persist throughout the remainder of 2022. The only drawback we experienced this quarter was a decline in our gross margin by 60 basis points, primarily due to material inflation and availability. For instance, our E-Infrastructure segment experienced an impact of over $5 million linked to increases in diesel prices this quarter. Fortunately, we are overcoming these obstacles by capitalizing on our strong markets and increasing our revenue. Examining each segment, our E-Infrastructure segment continues to demonstrate strong demand in e-commerce and datacenter activity. Additionally, we see more industrial and manufacturing opportunities entering the design phase that could yield substantial future prospects for us. These factors, along with our current backlog, give us significant confidence in what this segment will accomplish in the second half of 2022. Our Building Solutions segment also encountered robust demand across all markets this quarter. However, we noticed some inconsistencies in project starts late in the quarter in Dallas. For the latter half of the year, we are anticipating a slowdown in our Dallas market but expect continued growth in both our Houston and Phoenix markets. Although our core customers remain cautious, we have not observed major builders making significant concessions to attract new sales yet. We believe the latest interest rate hikes might prompt some of these actions in the latter half of the year. In our Transportation segment, we noticed a significant increase in bid activity during the latter part of the quarter and have begun to realize some benefits from the federal infrastructure bill. Our unprecedented multi-year backlog along with the recent bid activity places us in a strong position for the remainder of this year and beyond. In light of our performance in the first half of the year, our increased backlog, and the excellent execution by our teams, our raised full-year guidance reflects a 48% improvement in net income, a 42% increase in EPS, and a 19% rise in revenue compared to last year's performance. This is truly an extraordinary achievement amid these challenging times. With that, I'd like to open the floor for questions.

Our first question today is coming from Brent Thielman of D.A. Davidson.

Joe and Ron, regarding the residential segment of Building Solutions, it appears that you have a more cautious outlook on the Dallas market, but it sounds like growth is more promising in some other areas. Could you clarify your growth expectations for the second half of that segment?

Yes, let me talk high level about the market, and then Ron can give you more specifics on the numbers. A couple of drivers to our logic, Brent. First of all, if you take the Dallas market, we've got a relatively high market share, certainly compared to the Houston and Phoenix markets. So, we have the highest level of vulnerability if a slowdown occurs; it will hit us more in the Dallas market. In the Houston and Phoenix markets, though we are growing rapidly in both of them, we have such a low market share, any decrease in the overall market is highly unlikely to significantly impact us and hopefully, will bring some labor and material availability that will make it better for us so that we can actually pick up incremental revenue from our existing builders that would like us to do more today. So that small market share gives us a lot of room to continue growing not only in the second half but as we go into next year as well. Ron, do you want to add any color to the numbers?

Yes. I think each of those regions experienced some strong growth in the quarter. It's hard to predict. It's become a little bit bumpy in the Dallas Fort Worth area. We'll have a lot of action and a little bit of slowdown, then a lot of action. So, we still expect it to have some growth in the back half and certainly continue to grow in accelerated growth in our smaller markets, however getting to 18% of revenue coming from those tripled in the year in 12 months. So that's a pretty big boost for us, and we think that will continue for the demand.

Yes, we think the trends will continue like they are. And if you remember back, Brent, our strategy all along has not only been for growth but to position ourselves in some of these top markets with our top customers that when a slowdown occurred, we could leverage the market share growth and opportunity in those markets to offset the decline that we knew inevitably would happen with our market share in Dallas.

Got it. I appreciate that. Then on E-Infrastructure, maybe you guys could just address the concerns out there that maybe Amazon is slowing the pace of build-out, maybe what you're seeing, and are those concerns real for the business?

Yes. So, I think, look, Amazon had a tremendous amount of build during the pandemic. There are a couple of elements that I think may be a little confusing to people. First of all, Amazon lease-bought a combination of things, almost every speculative warehouse that was on the market, certainly through the Southeast where we're located at the time, and we saw similar things after purchasing Petillo. So, one of the things they're doing is everybody talks about them re-leasing these properties. Their intention all along was to move out of those properties into their mega centers or the more efficient centers. And we continued to see that as those centers get built out. In the Northeast, they've continued to run hard, and we really haven't seen much of an increase at all. We have seen some projects in the Southeast that were on the drawing board for next year that look like they're getting delayed or pushed, and we don't have, I'll call it, great details on what's going to happen with that. But on the opposite end of that, we continue to see other retailers that are behind the Amazons of the world, continuing to build out their E-Infrastructure strategies. And I've said this in the past, but our biggest project this year is not going to be an Amazon and our biggest project last year wasn't an Amazon; it was a line distribution center. So, there's a lot of other e-commerce activity that's going on. In addition, we are definitely seeing more and more activity in the early phases and some of it actually in the later phases in the manufacturing and industrial world, whether that's just basic warehousing for work-in-process goods or finished goods, but there are several new manufacturing facilities that are being built in the U.S. that are very sizable. And up in the Northeast, I'll tell you, if anything, that market, especially on the industrial side, continues to ramp up real-time. We're in the Southeast, we're seeing those projects in the design phase and coming out later this year.

Really helpful, Joe. Maybe just lastly, some of the challenges around inflation, like material availability, I assume that encompasses sort of concrete allocations there.

Yes. Concrete is probably one of the biggest ones that impact all of our businesses. Each one of the segments has some unique nuances with particular products in particular markets. But right now, concrete is on allocation across the U.S., not only to us, but to everybody. And there's talk of another increase in September, end of August, beginning of September. So, it continues to hamper impact and put tremendous pressure not only on the pricing associated with it but the productivity that you lose. And when you look at the quarter, those 60 basis points that we lost; frankly, we were pleasantly surprised that our teams were able to hold on and only lose 60 basis points with some of the huge inflation that we saw. We saw fuel prices soar in the quarter on the East Coast. Not only were we paying $1 to $2 a gallon more than what we thought was going to be the peak, we had availability issues for several weeks where we were struggling to even get fuel, and we were actually transporting it multiple states with our own trucks or with hired trucks just to get fuel to our job sites. So, it was impactful. That's the bad news. The good news is it's in our numbers, and we had a great quarter. Without it, we would have had just a monumental quarter, frankly.

Yes, Joe, I guess the question I had is those issues become more pronounced this quarter? Or are you just trying to factor in some conservatism around the guidance with respect to possibility that these issues could get worse?

I believe the situation has certainly deteriorated for us in the second quarter, and I expect concrete conditions to worsen in the third quarter as well. Discussions are ongoing regarding multiple furnaces, as the main issue with concrete is cement powder. Several furnaces are anticipated to come back online around September, which could help relieve some pressure on the overall concrete supply. However, I anticipate challenges continuing into the third quarter, with hopes that the fourth quarter might stabilize. I don’t foresee any significant setbacks, and we will maintain our position. When it comes to materials like PVC or ductile pipe, we're seeing timelines of 8 to 12 months, depending on the market and type, and I don't expect this to change. Our teams have improved in predicting these timelines for projects, although it still impacts our productivity, they have been better at addressing these challenges moving forward. In terms of lumber, which we don't utilize heavily, we've noticed a slight decrease, which is encouraging. Looking ahead to the third and fourth quarters, I believe we might experience some relief or positives concerning fuel costs, as we've seen some progress in recent weeks. This should provide us with a slight benefit.

The next question is coming from Sean Eastman of KeyBanc.

Good morning. This is Alex on for Sean. Can you talk about the infrastructure margins into the second half? I guess the margin compression in the first half makes sense given Petillo's the mix and supply chain wasn't as challenging back then. But the comps in the second half get easier. So, is there any reason we shouldn't expect margin improvement into the back half of the year?

Yes. We've experienced a mix of inflation and some seasonal effects in the first half of the year. Ron, could you provide additional insights and details on the margin?

Yes. As we mentioned in the first quarter, when we analyze the addition of Petillo, we find that the margins for similar work between Petillo and Plateau are quite alike. However, Petillo undertakes a bit more lower-margin work, mainly due to customer requests. This results in a couple of percentage points impact compared to the 2021 period, and this trend will likely continue as it's inherent to that business. Additionally, productivity plays a significant role, along with fuel costs. The productivity issues are tied to long lead times and shortages, which forced the company to scale back, leading to decreased efficiency due to extended equipment downtime. I don’t anticipate a dramatic improvement in the second half until supply chain pressures begin to ease, which we have not yet observed in that business this year.

And it's interesting to see the activity pick up around the infrastructure package. Can you talk a little bit about when we could start to see new awards hit the backlog and maybe revenues? And secondly, can you just refresh us on how you plan to balance the revenue growth in the Transportation Solutions segment against margin improvement? And what your strategy would be?

Yes, we have started to see some money flow, and states are approaching their new fiscal year soon. As a result, bid activity has increased. However, we won't see much of that impact this particular year. There may be a slight effect, but it won't be significant.

From a revenue standpoint.

From a revenue perspective, we'll observe our backlog. We are booking for next year, and most of this will begin in the first or second quarter of next year, depending on the specific projects and activities. As we move ahead, our strategy remains unchanged; we expect slow growth in the transportation segment while aiming for higher margins. If the market improves with better pricing and we achieve margins of 12% or more on projects, we would consider growing at a faster pace than our usual 3% to 5%. However, our current plan is to maintain that 3% to 5% growth, and I would prefer to focus on increasing margins by one or two percentage points before pursuing any significant growth beyond those targets.

Got it. And the last question from me is on the operating cash flow. It seems like you guys will come in lower than the operating profit target this year, the normalized target. Can you just talk about why this is coming in softer than expected? And do you think you guys can return to a more normalized conversion rate next year?

Certainly. The situation in 2021 is significant. Our cash flow from operations was higher than our operating income. This can happen occasionally, but it’s not sustainable annually. This was mainly due to us securing about $700 million in large projects in the first quarter of 2021, which we have been working on, with some contracts lingering unsigned for nearly a year. By the time these projects made it to our backlog, we were prepared to initiate them. We accelerated the work on these four major projects in the first half of the year and maintained that pace, eventually leveling off by year-end. The cash flow cycle tends to favor new projects, whether it's mobilization or acquiring funds to order materials and hire contractors. That was the key factor. Additionally, the cash cycle for our E-Infrastructure business is longer. With organic growth between 20% and 30% year-over-year, this affects our working capital. Based on our projections, we expect operating cash flow to be around $100 million this year. Analyzing the difference from last year, over half of that change, about 60%, stems from the ramp-up of new projects throughout 2021, while the remainder is attributed to increased working capital demands in the E-Infrastructure segment due to that significant growth each quarter.

The next question is coming from Brian Russo of Sidoti.

Just to follow up on the Transportation segment and your comments earlier that you're starting to see activity pick up around the infrastructure build. Could you share with us maybe what regions of the country you're seeing that activity or the types of projects you think will get funded first? And then your expectations for the competitive bidding for those projects?

Yes. So, the three areas we saw the largest pickup in activities are in our Rocky Mountain region. So, through the Rocky Mountains. We saw a big pickup in Nevada. We also saw a big pickup in Texas. Now, the competitive landscape in each one of those is very different. In Texas, we will take less advantage of that just as we continue to move away from the low bid heavy highway segment, the majority of Texas bids are low-bid at this point in time. So, we'll see less impact. Through the Rocky Mountain states, that tends to be more of alternative delivery, which is what we like to do. These are more design-build or value-added projects, and the competitive landscape of those because it starts with qualifications is different and not as broad whereas in Texas, it's not uncommon for us to see 10 or 12 people bidding a job. In alternative delivery, you'll usually have two or three teams that bid a job. So, a much different dynamic. In Nevada, we own our own bids and do more milling and paving type operations and third work through the Nevada market. Thus, we get a competitive advantage on a lot of those jobs just with the material availability and the logistics of us having those bids and material available very closely. So, that's a competitive landscape, but we tend to have the jobs we're going after a competitive advantage on a lot of those.

Okay. Great. And one more question. Are you seeing any early signs of manufacturing reshoring and what end markets might that be occurring? And then do you see any impact to your businesses from the Ship Act and expansion of ship manufacturing, I would imagine mostly in the Pacific Northwest?

Yes, yes. So, harder for us to do stuff in the Pacific Northwest; not really set up there. But we have seen certainly in the Northeast and through the Southeast, multiple manufacturing sites on the drawing boards. There are a couple of very large projects in the Mid-Atlantic and Southeast that are in the early phases for onshoring. And we're also seeing not only manufacturing itself, but with the leaning out of the supply chain over the last 20 years, the good news is it ran highly effective and highly efficient. The bad news is, when you have a major hiccup like a pandemic or an entire country taking out the supply chain cycle, it shuts the whole thing down. So, we're seeing companies looking at building and putting in more warehousing for either work-in-process inventory or finished goods that they're keeping that buffer in place.

Ladies and gentlemen, this brings us to the end of the question-and-answer session. I would like to turn the floor back over to Mr. Cutillo for closing comments.

Thanks, Donna. I would once again like to thank all our employees for their commitment and dedication. Without their hard work and perseverance, we would not be able to continue to deliver the record quarter-after-quarter results we've delivered. If after this call, you have any follow-up questions or wish to schedule a call, please contact Mary and our Investor Relations group or our partners at the Equity Group. Their contact information can be found in the press release. Thanks, everybody. I appreciate it, and have a great day.

Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.