Greetings and welcome to the Sterling Infrastructure Third Quarter 2023 Conference Call and Webcast. It is now my pleasure to introduce your host, Noelle Dilts, Vice President of Investor Relations and Corporate Strategy. Thank you. You may begin.

Thank you, Joanna. Good morning to everyone joining us, and welcome to Sterling Infrastructure's 2023 Third Quarter Earnings Conference Call and Webcast. I'm pleased to be here today to discuss our results with Joe Cutillo, Sterling's Chief Executive Officer, and Ron Ballschmiede, Sterling's Chief Financial Officer. Joe will open the call with an overview of the company and its performance in the quarter. Ron will follow that up with the detailed discussion of the financial results. After which Joe will provide a market and full year outlook. Then we will open the call up for questions. As a reminder, there are accompanying slides on the Investor Relations section of our website. Before turning the call over to Joe, 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 obligation to update forward-looking statements as a result of new information, future events, or otherwise. The financial information herein and discussions are related to the company's continuing operations. Please also note that management may reference EBITDA, adjusted EBITDA, adjusted net income, or adjusted earnings per share on the call, all of which are 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 financial measures in our earnings release issued yesterday afternoon. I'll now turn the call over to our CEO, Joe Cutillo.

Thanks, Noelle. Good morning, everyone, and thank you for joining Sterling's third quarter 2023 earnings call. I'd like to thank our Sterling team for another record quarter. Their hard work and dedication have allowed us to deliver 11 quarters of consecutive year-over-year net income growth. Our diluted earnings per share for the third quarter were $1.26. This represents a substantial 25% increase compared to our same period in 2022 and surpassed our internal projections. Revenue growth in the quarter was 13.7%, or 11.7% on an organic basis. Demand trends across our key markets remain strong. The best reflection of this is our backlog, which is up 42% from the beginning of the year and totaled over $2 billion. Our cash flow generation remains excellent. Operating cash flow in the quarter was $150 million, bringing our total cash position to $409 million at the end of the quarter. Our focus remains on deploying our cash into acquisitions that complement our current offerings and enhance our competitive position. We have intensified our targeting efforts and remain extremely active on this front. As we continue to expand our business both organically and through strategic acquisitions, we remain unwavering in our adherence to our guiding principles, the Sterling Way. These principles underscore our commitment to take care of our people, our environment, our investors, and our communities, while we work to build America's infrastructure. With a strong third quarter performance, year-to-date results, backlog position, and visibility into the fourth quarter, we are raising our full-year guidance. The midpoint of our increased earnings per share guidance would represent a 32% growth over 2022. Moving to our segments. E-Infrastructure Solutions backlog grew 48% from the beginning of the year to a new record of $891 million. We continue to see a strong pipeline of work related to data centers and the onshoring of manufacturing. We currently have line of sight into several large projects slated to bid in 2024 and 2025 in both of these markets. In the quarter, we did see a slight decline in Infrastructure Solutions revenue and margins relative to the prior year. This was driven by the timing of several new project starts and the continued softness in e-commerce distribution centers and small warehouses in the Northeast. Our Southeastern operations continued to show strong growth and margin expansion as we execute on large manufacturing and data center projects. The early start of large manufacturing projects in the Southeast has allowed the region to more than offset the softness in e-commerce distribution in small warehouses. This has not yet been the case in the Northeast, where we are just seeing the first large manufacturing opportunities emerge. In Transportation Solutions, revenue increased nearly 23% year-over-year and 28% sequentially. We are seeing very strong demand and margin growth across our entire geographic footprint. Awards in the quarter of $472 million drove backlog growth of 14% from the beginning of the year. Though the majority of backlog growth year-to-date is attributable to the highway market, aviation bid activity has picked up significantly, and we expect to hear final decisions on several projects in the fourth quarter. Transportation Solutions margin expanded 130 basis points, driving a 49% growth in operating income. Operating margins reached a new high of 7.5%. We believe we have an opportunity to continue to increase margins as long as the market remains robust. This is supported by the improving margin profile in our backlog. In Building Solutions, we grew revenue 41%, or 29% on an organic basis. On the residential side, we continued to significantly outperform the national market. Our revenue growth was 52% compared to an average increase of 7% for single-family home starts nationally in the third quarter. We remain confident that the dynamics in our markets and our strong customer relationships will drive sustained outperformance. Continued strong demand in multifamily and attractive margin opportunities enabled us to grow our commercial revenues by nearly 23%. Building Solutions operating profit margins remained strong at 11.3%, driving income growth of 38%. With that, I'd like to turn it over to Ron to give you more details on the quarter. Ron?

Thanks, Joe, and good morning. I am pleased to discuss our third quarter performance. Let me take you through our financial highlights, starting with our backlog metrics. At the end of the quarter, our backlog totaled a record $2.01 billion, an increase of $596 million from the beginning of the year. The gross margin of this backlog was 15.2%, a 90 basis point improvement from the beginning of the year. Higher Transportation and E-Infrastructure backlog margins drove this improvement. Unsigned awards at the end of the third quarter totaled $375 million. Substantially all of our unsigned awards relate to our Transportation Solutions segment. We expect to have the majority of unsigned awards to move into backlog by the end of the year. We finished the quarter with combined backlog of $2.386 billion, a $696 million increase from the beginning of the year. Our gross margin in the combined backlog was 14.9%, an increase of 70 basis points from the beginning of the year. The 14.9% gross margin is the highest level in Sterling's history. Our year-to-date 2023 backlog book-to-bill ratio was very strong at 1.5x for both backlog and combined backlog. Revenue for the current quarter was $560 million, up $67 million over the 2022 quarter. As a result of our strong backlog and our opportunities across each of our markets, our updated increased full-year revenue guidance is now between $1.99 billion and $2.05 billion. Consolidated gross profit was $92 million in the quarter, an increase of $12 million over the prior year period. Gross margins increased to 16.4%, or 30 basis points over the prior year quarter. General and administrative expense was $25 million for the quarter, an increase of $3 million when compared to the same quarter of the prior year. The increase was driven by general inflation, increased revenue-related incremental costs, and G&A related to the late 2022 Arizona Slab acquisition. We continue to expect our full-year G&A expense to be approximately 5% of revenues. Operating income for the quarter was $57 million, an increase from $49 million, or 15% over the prior year quarter. Our third quarter operating margin increased to 10.2%, from 10% in the third quarter of 2022. Our effective income tax rate for the third quarter was 25.7%. Our tax rate benefited from increased tax deductions related to stock-based compensation. We continue to expect our full-year 2023 effective income tax rate to be approximately 27%. The net effect of all these items resulted in record third quarter net income of $39.4 million, or $1.26 per diluted share, compared to $30.7 million, or $1.01 per diluted share, in the third quarter of 2022. With our year-to-date 2023 strong performance and the strength of each of our key markets, we have increased our full-year 2023 net income guidance to $128 million to $132 million. Our EPS guide is now $4.10 to $4.23 per diluted share from our prior EPS range of $4 to $4.20 per diluted share. EBITDA for the quarter totaled $71.2 million, an increase of 16% over the prior year quarter. EBITDA margins improved to 12.7%, up from 12.5% in the prior year quarter. Our updated 2023 guidance for EBITDA is now $252 million to $260 million for the year. Our consolidated cash balance increased by $228 million from the beginning of the year to $409 million at the end of the third quarter. Our cash balance exceeds our total debt of $358 million by $51 million. Cash flow from operating activities for the nine months ended September 30, 2023, was a very strong $331 million compared to $138 million in the prior year period. The operating cash flow improvement was driven by the significant organic growth of each of our segments, as well as favorable improvements in our working capital. Cash used in investing activities was $25.6 million for the nine months ended September 30, 2023, compared to $47.8 million for the 2022 period. The decrease was driven by the timing of net capital expenditures, offset by the first quarter receipt of $14 million from the late 2022 Myers divestiture. We expect full-year capital expenditures to be $50 million to $55 million, reflecting the strong organic growth of our E-Infrastructure Solutions segment. Cash flow from financing activities was an $81 million cash outflow for the nine months ended September 30, 2023, primarily from debt repayments of $77 million. The debt reductions include voluntary early debt payments totaling $53 million. Considering the diversity and strength of our portfolio of businesses, our strong liquidity position and our very comfortable EBITDA leverage, we are well prepared to take advantage of additional opportunities in 2023 and beyond. Now I'll turn the call back over to Joe.

Thanks, Ron. As we sit here today, there appears to be no end in sight to the growing need to build and revitalize America's infrastructure. We play a critical role in building the manufacturing plants that are reshoring production to the U.S., the data infrastructure that enables today's way of life, the highways, the bridges, and the airports that connect this, and the homes we live in. In E-Infrastructure Solutions, we continue to see a robust pipeline of large manufacturing projects tied to electric vehicles, batteries, semiconductors, and pharma, both in our current footprint and other potential geographies. We anticipate continued strength in data centers as current capacity represents only a fraction of what will be needed to support artificial intelligence and other emerging technologies. We believe that the e-commerce and small warehouse markets will remain soft through 2024, but pick back up in 2025. These dynamics support strong growth opportunities over a multi-year period for E-Infrastructure solutions. In Transportation Solutions, we think we're now in a market environment where we can accelerate growth relative to historical levels as long as margins remain at current levels or higher. In Building Solutions, we continue to see strong residential activity in our markets and our customers remain bullish as we enter into 2024. In addition, multifamily starts remain robust and margin opportunities are strong. With our very healthy cash flow and balance sheet, we continue to look hard at acquisitions in E-Infrastructure and Building Solutions. We're proud of how far we've come but even more excited about the opportunities ahead of us. We believe that the build-out of U.S. infrastructure will remain strong over the next 3 to 5 years. With our visibility into the fourth quarter and a record backlog, we are confident in our increased guidance and are positioned for an even better 2024. With that, I'd like to turn it over for questions.

The first question comes from Brent Thielman at D.A. Davidson.

I guess first question, Joe, you talked about it a bit in the closing comments there, but this sort of drag from the e-commerce projects, some of the steps in the Northeast, you mentioned it will carry through 2024. How should we think about that impacting your ability to get the E-Infrastructure business still to those kind of long-term compound growth rates you talked about for the business, I guess, 9% to 12%?

Yes, we remain confident in our projections. Let me provide a bit more detail about the second quarter. On a positive note, we experienced favorable weather and our teams worked diligently, finishing some projects ahead of schedule. Consequently, our second quarter results were excellent. However, we attempted to start other jobs earlier in the third quarter, which didn’t happen, alongside some projects being delayed. This situation primarily affected the Northeast, where the entire revenue drop occurred. As a result, we experienced some impact on indirect absorption relative to our usual run rate. Looking ahead, while e-commerce distribution centers, particularly Amazon, have slowed down—for reference, we usually have five projects underway and currently have only one—this is anticipated to improve once small warehouse activity in the private sector picks up in the Northeast and Southeast. Although financing issues have softened that side, the Southeast is seeing manufacturing jobs begin sooner than expected, originally projected for 2024 or 2025. Conversely, jobs in the Northeast are just starting to be launched. The key difference between achieving high single-digit growth versus strong double-digit growth hinges on securing just one or two of these jobs. Currently, we see potential for three to five of these jobs coming into play as we approach 2024 and 2025, and we are confident about winning our share, which will position us well once those significant projects begin in the Northeast. The Southeast continues to grow robustly, while the major projects in the Northeast are lagging.

Okay. That's helpful, Joe. And yes, I guess the large project that you mentioned, plan to bid '24, '25. Are these as big as the record booking that you recently announced, just looking maybe for a little more context relative to that or just to see the year-to-date, Joe.

Yes, these projects are all multibillion-dollar projects, similar to what we're currently working on. They do vary in size and scope to some degree, but they are indeed large projects. Additionally, our backlog is currently up over 40 percent compared to the beginning of the year, indicating a very strong backlog position. I want to emphasize that we shouldn't let a couple of quarters of decline overshadow the real growth and opportunities that are present.

Yes. Understood. And then on Building Solutions, I mean, pretty solid growth here considering the environment. You were more optimistic as the year sort of developed around that business. Certainly, things have picked up. But I guess with mortgage rates continuing to climb, is that having any impact on the KPIs that you sort of track internally slab growth rates, etc.? Just any measure you'd point to that positivity there in light of that.

Yes. I would say that the strategy we implemented a couple of years ago for the downturn is really paying off. We are not only taking advantage of growing markets, but we are also continuing to grow market share in the Houston and Phoenix markets to offset the overall declines. Both of those markets, along with Dallas, remain strong. We are outperforming the general market significantly, which is very positive. One encouraging observation is that we have noticed a decrease in the size of slabs. This means we need to produce more slabs to achieve the same revenue. However, when we look at the margins on these smaller slabs compared to the older larger ones, we have managed to maintain our margins.

Okay. Commercial, this is just...

In terms of our commercial business, I often overlook discussing it because it represents a smaller portion of our overall operations. However, we've experienced significant margin growth and promising opportunities in this area. A couple of years ago, we reduced our commercial business to a much smaller scale than it is now. Despite that, our margins have remained robust, and activity in the multifamily sector is very strong in the markets we serve, with an increase of over 20 percent.

Got it. Just the last one to ask about the significant cash generation this quarter and year-to-date, it seems you are benefiting from considerable advanced payments. Will this reverse significantly in 2024, resulting in cash flow that aligns more with your historical conversion rates?

Certainly, while each project has its unique aspects, our largest project still has more than four quarters of work remaining. We anticipate that some of these large jobs will begin with similar cash flow characteristics, specifically concerning the timing of billings and collections. Therefore, I don't foresee significant variability across our major contractor segments in transportation and infrastructure. I believe the situation will remain favorable for an extended period due to the presence of these large projects. Currently, we seem to be at a plateau, and I don't expect any dramatic declines.

The next question comes from Brian Russo at Sidoti.

Can you remind us about the margin differences between Plateau in the Southeast and Petillo in the Northeast? It could be due to factors like union versus nonunion status, labor force, or the scope of work. As activity increases in the Northeast, will you be able to maintain the margin profile primarily established by the hyperscale data center and reshoring efforts in the Southeast?

Yes, I'll address some of that and let Rod contribute. Brian, we can expect to have about a 4-point lower margin in the Northeast compared to the Southeast as long as the project scope remains the same. This is primarily because our customers in the Northeast prefer to work with fewer contractors due to union regulations. When comparing site development on a like-for-like basis, the margins are fairly similar. However, we undertake a significant amount of concrete work, including curb and gutter and paving parking lots, which is required in the Northeast but we've avoided in the Southeast because the margins are considerably lower there. Regarding E-Infrastructure, we need to consider the normalized blended average of the two businesses in that segment, which should be around 15.5%. Plateau typically has a slightly higher margin, while Petillo is a bit lower, and when you average those with revenue and project mix, that’s where it lands.

During the quarter, the situation was worsened by slower revenue volumes for the month. Approximately one-third of our revenues come from the Northeast, while two-thirds come from the Southeast. The Southeast experienced good margin growth. However, when revenues dropped nearly 20% in the month, primarily offset by the Southeast, we faced around $1 million to $3 million in unrecovered overhead. As we improve our operations, this should recover as we prepare for larger projects, addressing the timing and issues we've previously mentioned. The margin swing resulted in a 4% increase in the third quarter. The positive aspect is that our highest margins increased, while our lowest margins saw a slight decline, resulting in an acceptable overall outcome.

Okay. Very helpful. And then just to switch gears on transportation, if I recall, in the second quarter, you were able to pivot some of your crews and equipment to support an E-Infrastructure project in the Rocky Mountains. Just wondering, given all the activity that we're seeing in that region. Are you positioned to continue to do that and just go where the margins are?

Yes. I think there are a couple of points to make. First, that project has performed exceptionally well. It has gone so well that the general contractor involved has brought us into a manufacturing facility in Idaho related to food products. We are also exploring additional projects with them as they plan to undertake a few more. Therefore, if opportunities arise, we will continue to redirect those resources to what I refer to as the E-Infrastructure sector, which includes data centers, manufacturing, and similar areas. The team has done an excellent job, and just as importantly, they are very enthusiastic about expanding into this market and are working hard to achieve that. As we look ahead to 2024 and 2025, we hope to not only see a significant presence in projects in the Southeast but also to start expanding into the Northeast, which will allow us to broaden our reach with those key customers.

Okay. Great. And then just lastly, the Unsigned Awards mostly in the Transportation Solutions segment. Are those still mostly comprised of highway work? Or is that where we're starting to see the aviation projects pick up in the unsigned bids?

Yes, I believe the focus is mainly on roads, highways, and bridges. There are a few smaller projects in the aviation sector that are pending final approvals. Larger aviation opportunities are likely to be awarded this year, but the work will probably carry into 2024, which we anticipate will occur. There are some promising projects currently in development.

At this time, I will now turn the call back over to Joe Cutillo for closing comments.

Thank you. Thanks again, everyone, for joining our call today. If you have any follow-up questions or wish to schedule a call, please feel free to contact Noelle Dilts. Her contact information can be found in our press release. I want to thank everybody for participating, and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.