8-K
Sterling Infrastructure, Inc. (STRL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM 8-K |
|---|
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 28, 2022
| STERLING CONSTRUCTION COMPANY, INC. | ||||||
|---|---|---|---|---|---|---|
| (Exact name of registrant as specified in its charter) | ||||||
| Delaware | 001-31993 | 25-1655321 | ||||
| (State or other jurisdiction of incorporation<br>or organization) | (Commission File Number) | (I.R.S. Employer<br>Identification No.) | ||||
| 1800 Hughes Landing Blvd.<br><br>The Woodlands, Texas | 77380 | |||||
| (Address of principal executive offices) | (Zip Code) | |||||
| Registrant’s telephone number, including area code: (281) 214-0777 | Securities registered pursuant to Section 12(b) of the Act: | |||||
| --- | --- | --- | ||||
| Common Stock, $0.01 par value per share | STRL | The NASDAQ Stock Market LLC | ||||
| (Title of Class) | (Trading Symbol) | (Name of each exchange on which registered) | Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | |||
| --- | --- | |||||
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR § 240.12b-2 of this chapter). | ||||
| --- | --- | |||||
| Emerging growth company | ☐ | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | |||
| --- | --- | |||||
| Item 2.02 | Results of Operations and Financial Condition. | |||||
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| On February 28, 2022, Sterling Construction Company, Inc. (the “Company”) issued a press release announcing financial results for the three and twelve months ended December 31, 2021. The copy of the press release is being furnished with this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.<br><br><br><br>The information provided in this Item 2.02 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, unless the registrant specifically states that the information is to be considered “filed” under the Exchange Act, nor shall it be incorporated by reference in any filing made by the Company pursuant to the Exchange Act or the Securities Act of 1933, as amended (the “Securities Act”), other than to the extent that such filing incorporates by reference any or all of such information by express reference thereto. | Item 7.01 | Regulation FD Disclosure. | ||||
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| On March 1, 2022, the Company will host a conference call to discuss the fourth quarter and full year 2021 results as well as corporate developments. The slides to be used during the conference call are being furnished with this Current Report on Form 8-K as Exhibit 99.2 and are incorporated herein by reference.<br><br><br><br>The information provided in this Item 7.01 shall not be deemed to be “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, unless the registrant specifically states that the information is to be considered “filed” under the Exchange Act, nor shall it be incorporated by reference in any filing made by the Company pursuant to the Exchange Act or the Securities Act, other than to the extent that such filing incorporates by reference any or all of such information by express reference thereto. |
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit Number | Description | ||||
|---|---|---|---|---|---|
| 99.1 | Press release, datedFebruary28, 2022 | ||||
| 99.2 | Presentation slides, dated March 1, 2022 | ||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||
| SIGNATURES | |||||
| --- | |||||
| Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. | STERLING CONSTRUCTION COMPANY, INC. | ||||
| --- | --- | --- | --- | ||
| Date: | February 28, 2022 | By: | /s/ Ronald A. Ballschmiede | ||
| Ronald A. Ballschmiede | |||||
| Chief Financial Officer |
Document
Exhibit 99.1
NEWS RELEASE
For Immediate Release:
February 28, 2022
Sterling Reports Record Fourth Quarter and Full Year 2021 Results
EPS Continues to Outpace Expectations
Delivered Record Full Year Operating Cash Flow
Provides 2022 Full Year Revenue and Net Income Guidance
THE WOODLANDS, TX – February 28, 2022 – Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or the “Company”) today announced financial results for the fourth quarter and full year 2021.
Fourth Quarter 2021 Results (as compared to Fourth Quarter 2020)
•Total Revenue of $401.3 million, an increase of 15.6%
•Net Income was $10.9 million, or $0.37 per diluted share, an increase of 87.3%; Adjusted Net Income(1) of $13.9 million or $0.47 per diluted share, an increase of 137.5%
•EBITDA(2) of $28.1 million, a decrease of 2.7%; Adjusted EBITDA(2) of $32.0 million, an increase of 10.7%
•Cash and Cash Equivalents totaled $81.8 million at December 31, 2021
•Total backlog at December 31, 2021 was $1.49 billion, an increase of 27.0%
For the three months ended December 31, 2021, the Company reported net income of $10.9 million, or $0.37 per diluted share, versus $5.8 million, or $0.20 per diluted share, in the fourth quarter 2020. Revenue increased by 15.6% on a year-over-year basis in the fourth quarter of 2021, supported by broad-based growth across the E-Infrastructure, Building and Transportation solutions segments. EBITDA increased 10.7% to $32.0 million in the fourth quarter of 2021, versus $28.9 million in the prior-year period. Fourth quarter Adjusted EBITDA benefited from strong revenue growth from each segment, partially offset by ongoing supply chain and inflation challenges.
For the full-year ended December 31, 2021, the Company reported net income of $62.6 million, or $2.15 per diluted share, versus $42.3 million, or $1.50 per diluted share, for 2020. Revenue increased by 10.8% on a year-over-year basis for the full-year 2021, driven by solid growth across all segments. Adjusted EBITDA increased 11.5% to $142.9 million for the full-year 2021, versus $128.1 million in the prior-year period. Full-year Adjusted EBITDA benefited from strong revenue growth from each segment and was partially offset by ongoing supply chain and inflation challenges that impacted gross margin realization.
Backlog at December 31, 2021 increased to $1.49 billion, versus $1.18 billion at the prior year-end period. The year-end 2021 backlog includes $210.6 million related to the late December 2021 acquisition of Petillo.
BUSINESS UPDATE
Sterling continued to successfully execute on a multi-year strategic business transformation during 2021. The management team remains focused on accelerating the business through an improved business mix, targeted margin expansion through high-growth vertical acquisitions, and through increased exposure within complementary adjacent markets, including two acquisitions in December.
(1) The Company defines Adjusted Net Income as GAAP net income attributable to Sterling’s common stockholders, excluding the Acquisition costs. See the “Non-GAAP Measures” and “Reconciliation of Non-GAAP Supplemental Adjusted Financial Data” sections below for more information.
(2) The Company defines EBITDA as GAAP net income attributable to Sterling’s common stockholders, adjusted for depreciation and amortization, net interest expense, taxes and net gain or loss on extinguishment of debt. The Company defines Adjusted EBITDA as EBITDA excluding the impact of acquisition related costs. See the “Non-GAAP Measures” and “EBITDA Reconciliation” sections below for more information.
Segment realignment. With the December 30, 2021 acquisition of Petillo, Sterling realigned its operating groups to reflect management’s present oversight of operations. After realignment, Sterling’s operations consist of three reportable segments: Transportation Solutions, E-Infrastructure Solutions and Building Solutions, with the commercial business reclassified from the previously reported Specialty Services operating group into the newly formed Building Solutions operating group. We incur expenses at the corporate level that relate to our business as a whole. Certain of these amounts have been charged to our business segments by various methods, largely on the basis of usage, with the unallocated remainder reported in the “Corporate” line.
Solidify the base. Since 2016, Sterling has improved bid discipline to reduce the likelihood of underperforming project margins. As a result of this key risk reduction objective, heavy highway backlog gross margin has improved to 9.5% as of December 31, 2021, up from 4% prior to 2016. The Company expects gross margins to continue improving, reflecting the improved mix of work.
Grow high margin products. During the last five years, Sterling’s project mix shifted from low-bid heavy highway projects to alternative delivery projects and other higher margin work. This shift has resulted in low-bid heavy highway revenue reducing from 79% of total revenue in 2016 to 19% as of December 31, 2021.
Expansion into adjacent markets. Sterling is committed to a programmatic acquisition strategy; one that creates new platforms within higher-margin, specialty end markets that serve to broaden its portfolio of products, services and customers. Sterling has pursued platform acquisitions which are accretive to our financial results and with gross margin profiles at or above 15%. Since 2017, the Company has created its E-Infrastructure Solutions and Building Solutions segments with the significant acquisitions of Plateau, Petillo and Tealstone. A higher-value business mix, together with disciplined expense management, positions Sterling as one of the largest specialty site development companies in the Northeastern and Mid-Atlantic U.S.
The Company Provides Full Year 2022 Revenue and Net Income Guidance:
•Revenue of $1.825 billion to $1.875 billion
•Net Income of $83 million to $89 million
•EPS of $2.69 to $2.88
•EBITDA of $185 million to $200 million
CEO Remarks and Outlook
“Throughout 2021, we continued to execute our multi-year strategic business transformation that prioritizes profitable growth, higher-margins and reduced risk. We closed the year with solid fourth quarter results despite the ongoing supply-chain challenges. Our E-Infrastructure and Building Solutions represented 51% of revenue and 86% of our segment operating income in the fourth quarter, consistent with our focus on developing a higher-margin sales mix within our highest growing markets. We announced new E-Infrastructure project awards for both Plateau and Petillo, bringing our total E-Infrastructure Solutions backlog to $433 million,” stated Joe Cutillo, Sterling’s Chief Executive Officer.
“Full year revenues of $1.58 billion exceeded our initial and our third quarter updated guidance and were up 10.8% from the prior year. Our E-Infrastructure Solutions segment accounted for 30% of revenues, up from 28%, our Building Solutions segment represented 20%, up from 19% in the prior year, and our Transportation Solutions segment contributed 50% of revenues, compared with 53% in the prior year,” continued Mr. Cutillo.
“During 2021 Sterling generated $152 million in cash flows from operations, an increase of 25% versus prior year. This allowed us the flexibility to pay down $48 million of debt, invest $43 million in net capital expenditures, and fund part of the Petillo and Kimes acquisitions. Our focus on paying down our debt enabled us to significantly reduce our interest expense, which totaled $19 million for the year, compared with $29 million during the prior year.”
Mr. Cutillo concluded, “Entering 2022, we remain highly optimistic on the outlook for our business as we look out over the next year, driven by a combination of market share gains and accelerating demand across our higher margin markets. We view the continued investment in new data centers and e-commerce distribution centers as a benefit to our E-Infrastructure Solutions segment. Our Building Solutions segment’s expansion into new markets is a direct result of the demand from our customers needing our services in new markets. In our Transportation Solutions segment we remain disciplined in our shift to alternative delivery and design build heavy highway and aviation projects, and focus on margin improvement opportunities with the recently released federal infrastructure programs. Taken all together, we anticipate another year of strong financial performance in 2022 driven by the continued execution of our strategic vision.”
Conference Call
Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Tuesday, March 1, 2022 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 Transportation, E-Infrastructure and Building Solutions in the United States (the “U.S.”), primarily across the Southern, Northeastern and Mid-Atlantic U.S., the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems. E-Infrastructure Solutions projects develop advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Building Solutions projects include residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs and other concrete work. 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 and our communities, our customers and our investors – that is The Sterling Way.
Joe Cutillo, CEO, “We build and service the infrastructure that enables our economy to run, our people to move and our country to grow.”
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.
Reconciliations of Non-GAAP financial measures to the most comparable GAAP measures are provided in the tables included within 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: 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.
| Company Contact:<br><br>Sterling Construction Company, Inc.<br><br>Ron Ballschmiede, Chief Financial Officer<br><br>281-214-0777 | Investor Relations Contact:<br><br>The Equity Group Inc.<br><br>Jeremy Hellman, CFA<br><br>212-836-9626 |
|---|
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Revenues | $ | 401,335 | $ | 347,228 | $ | 1,581,766 | $ | 1,427,412 |
| Cost of revenues | (345,661) | (300,619) | (1,367,009) | (1,236,043) | ||||
| Gross profit | 55,674 | 46,609 | 214,757 | 191,369 | ||||
| General and administrative expense | (25,941) | (20,206) | (78,506) | (71,415) | ||||
| Intangible asset amortization | (2,866) | (2,867) | (11,464) | (11,436) | ||||
| Acquisition related costs | (3,877) | (13) | (3,877) | (1,026) | ||||
| Other operating expense, net | (3,209) | (2,611) | (13,623) | (12,600) | ||||
| Operating income | 19,781 | 20,912 | 107,287 | 94,892 | ||||
| Interest income | 13 | 15 | 52 | 161 | ||||
| Interest expense | (3,688) | (6,840) | (19,348) | (29,377) | ||||
| Gain (loss) on extinguishment of debt, net | — | (301) | 2,032 | (301) | ||||
| Income before income taxes | 16,106 | 13,786 | 90,023 | 65,375 | ||||
| Income tax expense | (4,625) | (7,759) | (24,900) | (22,471) | ||||
| Net income | 11,481 | 6,027 | 65,123 | 42,904 | ||||
| Less: Net income attributable to noncontrolling interests | (573) | (203) | (2,478) | (598) | ||||
| Net income attributable to Sterling common stockholders | $ | 10,908 | $ | 5,824 | $ | 62,645 | $ | 42,306 |
| Net income per share attributable to Sterling common stockholders: | ||||||||
| Basic | $ | 0.38 | $ | 0.21 | $ | 2.19 | $ | 1.52 |
| Diluted | $ | 0.37 | $ | 0.20 | $ | 2.15 | $ | 1.50 |
| Weighted average common shares outstanding: | ||||||||
| Basic | 28,818 | 28,043 | 28,600 | 27,859 | ||||
| Diluted | 29,756 | 29,019 | 29,101 | 28,195 |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
SEGMENT INFORMATION
(In thousands)
(Unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | % of<br>Revenues | 2020 | % of<br>Revenues | 2021 | % of<br>Revenues | 2020 | % of<br>Revenues | |||||
| Revenues | ||||||||||||
| Transportation Solutions | $ | 195,477 | 48% | $ | 176,683 | 51% | $ | 795,582 | 50% | $ | 753,824 | 53% |
| E-Infrastructure Solutions | 127,183 | 32% | 100,408 | 29% | 468,784 | 30% | 397,253 | 28% | ||||
| Building Solutions | 78,675 | 20% | 70,137 | 20% | 317,400 | 20% | 276,335 | 19% | ||||
| Total Revenues | $ | 401,335 | $ | 347,228 | $ | 1,581,766 | $ | 1,427,412 | ||||
| Operating Income | ||||||||||||
| Transportation Solutions | $ | 4,718 | 2.4% | $ | 3,791 | 2.1% | $ | 21,514 | 2.7% | $ | 14,439 | 1.9% |
| E-Infrastructure Solutions | 18,734 | 14.7% | 16,903 | 16.8% | 80,478 | 17.2% | 76,522 | 19.3% | ||||
| Building Solutions | 9,175 | 11.7% | 6,366 | 9.1% | 32,564 | 10.3% | 30,441 | 11.0% | ||||
| Segment Operating Income | 32,627 | 8.1% | 27,060 | 7.8% | 134,556 | 8.5% | 121,402 | 8.5% | ||||
| Corporate | (8,969) | (6,135) | (23,392) | (25,484) | ||||||||
| Acquisition related costs | (3,877) | (13) | (3,877) | (1,026) | ||||||||
| Total Operating Income | $ | 19,781 | 4.9% | $ | 20,912 | 6.0% | $ | 107,287 | 6.8% | $ | 94,892 | 6.6% |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
| December 31,<br>2021 | December 31,<br>2020 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 81,840 | $ | 66,185 |
| Accounts receivable | 232,153 | 177,424 | ||
| Contract assets | 83,310 | 84,975 | ||
| Receivables from and equity in construction joint ventures | 16,896 | 16,653 | ||
| Other current assets | 20,492 | 16,306 | ||
| Total current assets | 434,691 | 361,543 | ||
| Property and equipment, net | 204,316 | 126,668 | ||
| Operating lease right-of-use assets, net | 24,520 | 16,515 | ||
| Goodwill | 259,791 | 192,014 | ||
| Other intangibles, net | 303,223 | 244,887 | ||
| Other non-current assets, net | 4,455 | 11,067 | ||
| Total assets | $ | 1,230,996 | $ | 952,694 |
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 144,982 | $ | 95,201 |
| Contract liabilities | 127,932 | 114,019 | ||
| Current maturities of long-term debt | 28,230 | 77,434 | ||
| Current portion of long-term lease obligations | 8,841 | 7,588 | ||
| Accrued compensation | 22,803 | 18,013 | ||
| Other current liabilities | 18,972 | 9,629 | ||
| Total current liabilities | 351,760 | 321,884 | ||
| Long-term debt | 428,588 | 291,249 | ||
| Long-term lease obligations | 15,831 | 8,958 | ||
| Members’ interest subject to mandatory redemption and undistributed earnings | 55,115 | 51,290 | ||
| Deferred tax liability, net | 14,656 | — | ||
| Other long-term liabilities | 4,819 | 10,584 | ||
| Total liabilities | 870,769 | 683,965 | ||
| Stockholders’ equity: | ||||
| Common stock | 298 | 283 | ||
| Additional paid in capital | 280,274 | 256,423 | ||
| Treasury stock | — | (1,445) | ||
| Retained earnings | 79,918 | 17,273 | ||
| Accumulated other comprehensive loss | (1,723) | (5,264) | ||
| Total Sterling stockholders’ equity | 358,767 | 267,270 | ||
| Noncontrolling interests | 1,460 | 1,459 | ||
| Total stockholders’ equity | 360,227 | 268,729 | ||
| Total liabilities and stockholders’ equity | $ | 1,230,996 | $ | 952,694 |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Twelve Months Ended December 31, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 65,123 | $ | 42,904 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 34,201 | 32,785 | ||
| Amortization of debt issuance costs and non-cash interest | 2,242 | 3,193 | ||
| Gain on disposal of property and equipment | (1,396) | (1,495) | ||
| (Gain) loss on debt extinguishment | (2,032) | 301 | ||
| Deferred taxes | 21,428 | 19,439 | ||
| Stock-based compensation expense | 11,771 | 11,643 | ||
| Change in fair value of interest rate swap | (32) | 265 | ||
| Changes in operating assets and liabilities | 20,289 | 11,876 | ||
| Net cash provided by operating activities | 151,594 | 120,911 | ||
| Cash flows from investing activities: | ||||
| Acquisitions, net of cash acquired | (180,911) | — | ||
| Capital expenditures | (46,651) | (32,864) | ||
| Proceeds from sale of property and equipment | 4,113 | 2,373 | ||
| Net cash used in investing activities | (223,449) | (30,491) | ||
| Cash flows from financing activities: | ||||
| Cash received from credit facility | 140,000 | — | ||
| Repayments of debt | (48,273) | (77,745) | ||
| Distributions to noncontrolling interest owners | (2,477) | (432) | ||
| Debt issuance costs | (1,340) | — | ||
| Other | (4) | 9,837 | ||
| Net cash provided by (used in) financing activities | 87,906 | (68,340) | ||
| Net change in cash, cash equivalents, and restricted cash | 16,051 | 22,080 | ||
| Cash, cash equivalents, and restricted cash at beginning of period | 72,642 | 50,562 | ||
| Cash, cash equivalents, and restricted cash at end of period | 88,693 | 72,642 | ||
| Less: restricted cash (Other current assets) | (6,853) | (6,457) | ||
| Cash and cash equivalents at end of period | $ | 81,840 | $ | 66,185 |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
HISTORICAL QUARTERLY SEGMENT INFORMATION
(In thousands)
(Unaudited)
| With the December 30, 2021 acquisition of Petillo, the Company realigned its operating groups to reflect management’s present oversight of operations. After realignment, the Company’s operations consist of three reportable segments: Transportation Solutions, E-Infrastructure Solutions and Building Solutions, with the commercial business reclassified from the previously reported Specialty Services operating group into the newly formed Building Solutions operating group. Additionally, costs attributable to corporate operations are now reported on the “Corporate” line. The following tables present our 2021 and 2020 quarterly revenue and income from operations adjusted to reflect our operating group realignment and to conform to our 2021 presentation: | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 Quarters Ended | ||||||||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | Total | ||||||||||||||||||
| Revenues | ||||||||||||||||||||||
| Transportation Solutions | $ | 147,054 | $ | 203,153 | $ | 249,898 | $ | 195,477 | $ | 795,582 | ||||||||||||
| E-Infrastructure Solutions | 96,572 | 123,743 | 121,286 | 127,183 | 468,784 | |||||||||||||||||
| Building Solutions | 71,690 | 74,770 | 92,265 | 78,675 | 317,400 | |||||||||||||||||
| Total Revenues | $ | 315,316 | $ | 401,666 | $ | 463,449 | $ | 401,335 | $ | 1,581,766 | ||||||||||||
| Operating Income | ||||||||||||||||||||||
| Transportation Solutions | $ | 2,666 | $ | 4,796 | $ | 9,334 | $ | 4,718 | $ | 21,514 | ||||||||||||
| E-Infrastructure Solutions | 17,812 | 24,714 | 19,218 | 18,734 | 80,478 | |||||||||||||||||
| Building Solutions | 7,361 | 6,790 | 9,238 | 9,175 | 32,564 | |||||||||||||||||
| Segment Operating Income | 27,839 | 36,300 | 37,790 | 32,627 | 134,556 | |||||||||||||||||
| Corporate | (5,084) | (3,580) | (5,759) | (8,969) | (23,392) | |||||||||||||||||
| Acquisition related costs | — | — | — | (3,877) | (3,877) | |||||||||||||||||
| Total Operating Income | $ | 22,755 | $ | 32,720 | $ | 32,031 | $ | 19,781 | $ | 107,287 | 2020 Quarters Ended | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||
| March 31 | June 30 | September 30 | December 31 | Total | ||||||||||||||||||
| Revenues | ||||||||||||||||||||||
| Transportation Solutions | $ | 153,286 | $ | 222,777 | $ | 201,078 | $ | 176,683 | $ | 753,824 | ||||||||||||
| E-Infrastructure Solutions | 78,574 | 103,310 | 114,961 | 100,408 | 397,253 | |||||||||||||||||
| Building Solutions | 64,828 | 73,951 | 67,419 | 70,137 | 276,335 | |||||||||||||||||
| Total Revenues | $ | 296,688 | $ | 400,038 | $ | 383,458 | $ | 347,228 | $ | 1,427,412 | ||||||||||||
| Operating Income (Loss) | ||||||||||||||||||||||
| Transportation Solutions | $ | (1,285) | $ | 7,263 | $ | 4,670 | $ | 3,791 | $ | 14,439 | ||||||||||||
| E-Infrastructure Solutions | 13,630 | 23,573 | 22,416 | 16,903 | 76,522 | |||||||||||||||||
| Building Solutions | 7,438 | 8,950 | 7,687 | 6,366 | 30,441 | |||||||||||||||||
| Segment Operating Income | 19,783 | 39,786 | 34,773 | 27,060 | 121,402 | |||||||||||||||||
| Corporate | (7,207) | (6,601) | (5,541) | (6,135) | (25,484) | |||||||||||||||||
| Acquisition related costs | (473) | (139) | (401) | (13) | (1,026) | |||||||||||||||||
| Total Operating Income | $ | 12,103 | $ | 33,046 | $ | 28,831 | $ | 20,912 | $ | 94,892 |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Reconciliation of Non-GAAP Supplemental Adjusted Financial Data (1)
(In thousands, except per share data)
(Unaudited)
| The Company reports its financial results in accordance with GAAP. This press release also includes several Non-GAAP financial measures as defined under the SEC’s Regulation G. The following tables reconcile certain Non-GAAP financial measures used in this press release to comparable GAAP financial measures. | ||||||
|---|---|---|---|---|---|---|
| Three Months Ended December 31, 2021 | ||||||
| As Reported (GAAP) | Adjustment | Adjusted<br>(Non-GAAP) | ||||
| Revenues | $ | 401,335 | $ | — | $ | 401,335 |
| Cost of revenues | (345,661) | — | (345,661) | |||
| Gross profit | 55,674 | — | 55,674 | |||
| General and administrative expense | (25,941) | — | (25,941) | |||
| Intangible asset amortization | (2,866) | — | (2,866) | |||
| Acquisition related costs | (3,877) | 3,877 | — | |||
| Other operating expense, net | (3,209) | — | (3,209) | |||
| Operating income | 19,781 | 3,877 | 23,658 | |||
| Interest income | 13 | — | 13 | |||
| Interest expense | (3,688) | — | (3,688) | |||
| Income before income taxes | 16,106 | 3,877 | 19,983 | |||
| Income tax expense | (4,625) | (930) | (5,555) | |||
| Net income | 11,481 | 2,947 | 14,428 | |||
| Less: Net income attributable to noncontrolling interests | (573) | — | (573) | |||
| Net income attributable to Sterling common stockholders | $ | 10,908 | $ | 2,947 | $ | 13,855 |
| Net income per share attributable to Sterling common stockholders: | ||||||
| Basic | $ | 0.38 | $ | 0.10 | $ | 0.48 |
| Diluted | $ | 0.37 | $ | 0.10 | $ | 0.47 |
| Weighted average common shares outstanding: | ||||||
| Basic | 28,818 | 28,818 | ||||
| Diluted | 29,756 | 29,756 | ||||
| (1) The summary unaudited adjusted financial data is presented excluding the costs of acquiring Petillo and Kimes, net of tax. This presentation is considered a Non-GAAP financial measure, which the Company believes provides a better indication of our operating results prior to the excluded items. |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Reconciliation of Non-GAAP Supplemental Adjusted Financial Data (1)
(In thousands, except per share data)
(Unaudited)
| The Company reports its financial results in accordance with GAAP. This press release also includes several Non-GAAP financial measures as defined under the SEC’s Regulation G. The following tables reconcile certain Non-GAAP financial measures used in this press release to comparable GAAP financial measures. | ||||||
|---|---|---|---|---|---|---|
| Three Months Ended December 31, 2020 | ||||||
| As Reported (GAAP) | Adjustment | Adjusted<br>(Non-GAAP) | ||||
| Revenues | $ | 347,228 | $ | — | $ | 347,228 |
| Cost of revenues | (300,619) | — | (300,619) | |||
| Gross profit | 46,609 | — | 46,609 | |||
| General and administrative expense | (20,206) | — | (20,206) | |||
| Intangible asset amortization | (2,867) | — | (2,867) | |||
| Acquisition related costs | (13) | 13 | — | |||
| Other operating expense, net | (2,611) | — | (2,611) | |||
| Operating income | 20,912 | 13 | 20,925 | |||
| Interest income | 15 | — | 15 | |||
| Interest expense | (6,840) | — | (6,840) | |||
| Loss on extinguishment of debt | (301) | — | (301) | |||
| Income before income taxes | 13,786 | 13 | 13,799 | |||
| Income tax expense | (7,759) | (4) | (7,763) | |||
| Net income | 6,027 | 9 | 6,036 | |||
| Less: Net income attributable to noncontrolling interests | (203) | — | (203) | |||
| Net income attributable to Sterling common stockholders | $ | 5,824 | $ | 9 | $ | 5,833 |
| Net income per share attributable to Sterling common stockholders: | ||||||
| Basic | $ | 0.21 | $ | — | $ | 0.21 |
| Diluted | $ | 0.20 | $ | — | $ | 0.20 |
| Weighted average common shares outstanding: | ||||||
| Basic | 28,043 | 28,043 | ||||
| Diluted | 29,019 | 29,019 | ||||
| (1) The summary unaudited adjusted financial data is presented excluding the costs of integrating Plateau, net of tax. This presentation is considered a Non-GAAP financial measure, which the Company believes provides a better indication of our operating results prior to the excluded items. |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Reconciliation of Non-GAAP Supplemental Adjusted Financial Data (1)
(In thousands, except per share data)
(Unaudited)
| The Company reports its financial results in accordance with GAAP. This press release also includes several Non-GAAP financial measures as defined under the SEC’s Regulation G. The following tables reconcile certain Non-GAAP financial measures used in this press release to comparable GAAP financial measures. | ||||||
|---|---|---|---|---|---|---|
| Twelve Months Ended December 31, 2021 | ||||||
| As Reported (GAAP) | Adjustment | Adjusted<br>(Non-GAAP) | ||||
| Revenues | $ | 1,581,766 | $ | — | $ | 1,581,766 |
| Cost of revenues | (1,367,009) | — | (1,367,009) | |||
| Gross profit | 214,757 | — | 214,757 | |||
| General and administrative expense | (78,506) | — | (78,506) | |||
| Intangible asset amortization | (11,464) | — | (11,464) | |||
| Acquisition related costs | (3,877) | 3,877 | — | |||
| Other operating expense, net | (13,623) | — | (13,623) | |||
| Operating income | 107,287 | 3,877 | 111,164 | |||
| Interest income | 52 | — | 52 | |||
| Interest expense | (19,348) | — | (19,348) | |||
| Gain on extinguishment of debt | 2,032 | — | 2,032 | |||
| Income before income taxes | 90,023 | 3,877 | 93,900 | |||
| Income tax expense | (24,900) | (930) | (25,830) | |||
| Net income | 65,123 | 2,947 | 68,070 | |||
| Less: Net income attributable to noncontrolling interests | (2,478) | — | (2,478) | |||
| Net income attributable to Sterling common stockholders | $ | 62,645 | $ | 2,947 | $ | 65,592 |
| Net income per share attributable to Sterling common stockholders: | ||||||
| Basic | $ | 2.19 | $ | 0.10 | $ | 2.29 |
| Diluted | $ | 2.15 | $ | 0.10 | $ | 2.25 |
| Weighted average common shares outstanding: | ||||||
| Basic | 28,600 | 28,600 | ||||
| Diluted | 29,101 | 29,101 | ||||
| (1) The summary unaudited adjusted financial data is presented excluding the costs of acquiring Petillo and Kimes, net of tax. This presentation is considered a Non-GAAP financial measure, which the Company believes provides a better indication of our operating results prior to the excluded items. |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Reconciliation of Non-GAAP Supplemental Adjusted Financial Data (1)
(In thousands, except per share data)
(Unaudited)
| The Company reports its financial results in accordance with GAAP. This press release also includes several Non-GAAP financial measures as defined under the SEC’s Regulation G. The following tables reconcile certain Non-GAAP financial measures used in this press release to comparable GAAP financial measures. | ||||||
|---|---|---|---|---|---|---|
| Twelve Months Ended December 31, 2020 | ||||||
| As Reported (GAAP) | Adjustment | Adjusted<br>(Non-GAAP) | ||||
| Revenues | $ | 1,427,412 | $ | — | $ | 1,427,412 |
| Cost of revenues | (1,236,043) | — | (1,236,043) | |||
| Gross profit | 191,369 | — | 191,369 | |||
| General and administrative expense | (71,415) | — | (71,415) | |||
| Intangible asset amortization | (11,436) | — | (11,436) | |||
| Acquisition related costs | (1,026) | 1,026 | — | |||
| Other operating expense, net | (12,600) | — | (12,600) | |||
| Operating income | 94,892 | 1,026 | 95,918 | |||
| Interest income | 161 | — | 161 | |||
| Interest expense | (29,377) | — | (29,377) | |||
| Loss on extinguishment of debt | (301) | — | (301) | |||
| Income before income taxes | 65,375 | 1,026 | 66,401 | |||
| Income tax expense | (22,471) | (353) | (22,824) | |||
| Net income | 42,904 | 673 | 43,577 | |||
| Less: Net income attributable to noncontrolling interests | (598) | — | (598) | |||
| Net income attributable to Sterling common stockholders | $ | 42,306 | $ | 673 | $ | 42,979 |
| Net income per share attributable to Sterling common stockholders: | ||||||
| Basic | $ | 1.52 | $ | 0.02 | $ | 1.54 |
| Diluted | $ | 1.50 | $ | 0.02 | $ | 1.52 |
| Weighted average common shares outstanding: | ||||||
| Basic | 27,859 | 27,859 | ||||
| Diluted | 28,195 | 28,195 | ||||
| (1) The summary unaudited adjusted financial data is presented excluding the costs of integrating Plateau, net of tax. This presentation is considered a Non-GAAP financial measure, which the Company believes provides a better indication of our operating results prior to the excluded items. |
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
EBITDA RECONCILIATION
(In thousands)
(Unaudited)
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Net income attributable to Sterling common stockholders | $ | 10,908 | $ | 5,824 | $ | 62,645 | $ | 42,306 |
| Depreciation and amortization | 8,865 | 8,146 | 34,201 | 32,785 | ||||
| Interest expense, net of interest income | 3,675 | 6,825 | 19,296 | 29,216 | ||||
| Income tax expense | 4,625 | 7,759 | 24,900 | 22,471 | ||||
| (Gain) loss on extinguishment of debt, net | — | 301 | (2,032) | 301 | ||||
| EBITDA (1) | $ | 28,073 | $ | 28,855 | $ | 139,010 | $ | 127,079 |
| Acquisition related costs | 3,877 | 13 | 3,877 | 1,026 | ||||
| Adjusted EBITDA (2) | $ | 31,950 | $ | 28,868 | $ | 142,887 | $ | 128,105 |
| (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 or loss on extinguishment of debt. | ||||||||
| (2) Adjusted EBITDA excludes the impact of acquisition related costs. |
strl_fy2021xpresentation
We build and service the infrastructure that enables our economy to run, our people to move and our country to grow. 4TH QUARTER AND FULL YEAR Earnings call March 1, 2022
2S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 This presentation contains, and the officers and directors of the Company may from time to time make, statements that are considered forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. 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: 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 presentation, 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 presentation 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 presentation 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. This presentation may contain the financial measures: adjusted net income, EBITDA, adjusted EBITDA, and adjusted EPS, which are not calculated in accordance with U.S. GAAP. If presented, a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure will be provided in the Appendix to this presentation. DISCLOSURE: Forward-Looking Statements
Sterling returns value by accelerating through an improved business mix, targeted margin expansion within high-growth verticals, and increased exposure within complementary adjacent markets. 3S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 WHAT’S the Sterling Story? A story of successful execution of multi-year strategic business transformation since 2016; born of a strategy and vision that levers our entrepreneurial spirit and our customer-centric culture. Since 2016, our Strategic Elements have remained our blueprint for reducing risk, improving margins, and consistently outperforming peers. Sterling’s Three Fundamental Strategic Elements: Solidify the Base | Grow High-Margin Products | Expansion into Adjacent Markets
4S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 WHY Sterling? Strategic Elements: Solidify the Base | Grow High-Margin Products | Expansion into Adjacent Markets Key Objectives: Bottom-line Growth | Risk Reduction | Exceed Peer Performance Execution of our strategy Entrepreneurial spirit driving solid returns Customer-centric culture Meeting the future demands of infrastructure with a portfolio of service offerings serving key end markets Platform of higher-margin lower-risk work Solid growth and diversification strategies Geographically positioned in the right markets Executing growth strategy results in 5-year revenue CAGR of 18% Strong management delivering consistent track record that meets or beats estimates Continued performance and sustainability of multi-year strategic business transformation Improved business mix Highly respected and profitable stable of subsidiary companies Margin expansion within high-growth verticals Increased exposure within complementary adjacent markets Executing growth strategy results in 5-year EBITDA CAGR of 66% Focused Growth Results Efficient Sterling builds value for investors seeking high margins, healthy cash flow, proven performance and strong operational execution. Sterling exceeded S&P 500 by 131.4% Five Year Stock Price Performance Sterling vs S&P 500
5S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 WHO is Sterling? Sterling offers a customer-centric, market-focused portfolio of goods and services geographically positioned in the right markets E-Infrastructure Solutions Develop advanced, large-scale site development systems & services for data centers, e-commerce distribution centers, commercial, warehousing, transportation, energy and more. Building Solutions Residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs and other concrete work Transportation Solutions Infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems We are a market-leading infrastructure service provider of e-infrastructure, building and transportation solutions. Highest margins: 60% of our segment profits Fastest growing: 18% revenue growth in 2021 2nd highest margins: 24% of our segment profits 2nd fastest growing: 15% revenue growth in 2021 Consistent margins & disciplined Revenue growth of 6% in 2021 M a r g i n a n d g r o w t h p e r c e n t a g e s b a s e d o n F Y 2 0 2 1 / F Y 2 0 2 0 R e v e n u e s a n d O p e r a t i n g I n c o m e Strategic Elements: Solidify the Base | Grow High-Margin Products | Expansion into Adjacent Markets Key Objectives: Bottom-line Growth | Risk Reduction | Exceed Peer Performance
2015 Margins Transformational Evolution Continues Creating a Leading Infrastructure Service Provider 6 Strategic Execution | Proven Results | Strong Growth Heavy Civil Business Margins 9.3% 0 2 4 6 8 10 12 14 16 18 20 + Margins 6.1% Strategic Vision Introduced Next 5 years2015 2016 2017 2018 2019 - 2021 1. Solidify the Base 7-8% 2. Grow High- Margin Product 50/50 Split at 12% margins Heavy Civil & Residential = 2 Service Offerings Tealstone Acquisition Margins 10.6% 3. Expansion into Adjacent Markets 15% margins Continue Strategic Vision Objectives 1, 2 & 3 Plateau Acquisition Heavy Civil + Residential + Specialty = Diversified Service Offerings Margins 20% Current organic growth rate 16% with remainder from organic and strategic acquisitions Executing to the Next Level of Growth E-Infrastructure Solutions Building Solutions Transportation Solutions Petillo & Kimes 2021 Acquisitions Strategic Elements: Solidify the Base | Grow High-Margin Products | Expansion into Adjacent Markets Key Objectives: Bottom-line Growth | Risk Reduction | Exceed Peer Performance S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 2021 Blended MarginMargins 13.6% 2024 - 2026 Blended Margin Threefold margin improvement in 6 years
7S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Strategic Vision Directs Next Growth Stage Solid Service Offerings Significant Growth Potential E-Infrastructure Solutions Develop advanced, large-scale site development systems and services • Highest margins in portfolio • Fastest growing segment • Quick turn lower risk projects • Expanded geographic footprint covering East Coast We are levering the foundation we have built to take Sterling to a whole new level Strategic Elements: Solidify the Base | Grow High-Margin Products | Expansion into Adjacent Markets Key Objectives: Bottom-line Growth | Risk Reduction | Exceed Peer Performance Building Solutions Concrete foundations for single-family & multi-family homes, parking structures, elevated slabs and other concrete work • 2nd highest margins • 2nd fastest growing segment • Low risk • Low CAPEX • Fast cash cycles • Expanded footprint in Texas & Arizona Transportation Solutions Highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems • Recurring revenue • Steady consistent growth • Moderate CAPEX • Strong cash flow • Enhanced business mix
8S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 E-Infrastructure Solutions Expansion Expanding our geographic footprint into: New Jersey Maryland New York Pennsylvania STRL’s 2021 Footprint: Alabama Florida Georgia Kentucky Mississippi North Carolina South Carolina Tennessee Virginia West Virginia Strategic Elements: Solidify the Base | Grow High-Margin Products | Expansion into Adjacent Markets Key Objectives: Bottom-line Growth | Risk Reduction | Exceed Peer Performance Strategic Acquisition Investment Highlights • Positions Sterling to be an industry leader of e-infrastructure specialty site development services • Vertical integration in our highest margin, fastest growing segment • Expansion of geographic footprint to cover blue-chip customers in all major East Coast markets • Strong cultural alignment with an abundance of entrepreneurial spirit • Enables cross-selling of broader capabilities and adjacent service offerings across geographies G r o w i n g r o s t e r o f T o p E n d - C u s t o m e r s
9S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 GOVERNANCE & ETHICS • Our commitment to an ethical culture starts at the highest level with oversight from our Board of Directors & Executive Leadership Team • Our Chief Compliance Officer leads the ethics and compliance activities Our Core Values: Safety, Respect and Trust, Excellence, Integrity DIVERSITY, EQUITY & INCLUSION A shared vision and mission. Our company is made up of many diverse races, cultures, backgrounds, and genders. We welcome all employees and cherish each as an integral part of our excellence. Every employee brings a unique perspective and we value them not only as people, but also for how they contribute to Sterling’s mission. Our diverse workforce as of 12/31/21: Employee Diversity FY 2021 Hispanic 47.1 % White 44.2 % Black 4.0 % Pacific Islander 2.5 % Other 2.2 % SAFETY Award: 2020 American Road and Transportation Builders National Safety Award • 2020 was the safest work environment in our company’s history • We are now 75% better than the industry average for lost time incidents • Our Lost Time Rate (LTR) through 9/30/21 was 0.04 At Sterling, we understand that what we do has an immediate and significant positive impact on improving human conditions. • We build our businesses around meeting the needs of the people we serve providing innovative infrastructure solutions and services for the betterment of our investors, customers, employees and society • Everything we do focuses on the needs of our ever-growing society today and tomorrow • Taking care of our employees, customers, the environment and our communities is what we do every day The Sterling Way
10S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Sterling’s Strategic Vision Delivers Another Record Fourth Quarter & Full Year 2021 Results Expand into Adjacent Markets • Programmatic acquisition strategy • New platforms in higher-margin, specialty end markets • Broadened portfolio of products, services & customers • Pursuit of platform acquisitions accretive to financial results with gross margin profiles at or above 15% • Project mix shift from low-bid heavy highway to alternative delivery projects & other higher margin work • Low-bid heavy highway revenue reduced from 79% of total revenue in 2016 down to 19%(2) Grow High-Margin Products • Improved bid discipline • Reduced underperforming margins • Disciplined expense management • Enhanced business mix • Heavy highway backlog gross margin improved to 9.5%(1) Solidify the Base Since 2016, we have remained committed to our Strategic Elements resulting in continuous record growth, margin improvements, and increased customer and shareholder value. • EPS outpacing expectations • Record YTD Operating Cash Flow ( 1 ) H e a v y h i g h w a y b a c k l o g g r o s s m a r g i n a n d ( 2 ) L o w - b i d h e a v y h i g h w a y r e v e n u e a s o f D e c e m b e r 3 1 , 2 0 2 1 . ( 3 ) S e e A d j . E B I T D A R e c o n c i l i a t i o n o n p a g e 2 6 . NASDAQ STRL Shares out 28.8M HQ The Woodlands, TX Market cap $865.9M Employees ~3,000 Revenues $1,527.7M Segments E-Infrastructure Solutions Building Solutions Transportation Solutions Adj. EBITDA(3) $142.9M Projects underway ~200 Backlog $1,493M Strategic Elements: Solidify the Base | Grow High-Margin Products | Expansion into Adjacent Markets Key Objectives: Bottom-line Growth | Risk Reduction | Exceed Peer Performance
11S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1( 1 ) S e e A d j . N e t I n c o m e a n d A d j . D i l u t e d E P S R e c o n c i l i a t i o n o n p a g e 2 2 . Strong management and effective execution of strategic focus delivered another solid quarter despite significant headwinds plaguing the market Revenues: $401.3 million Adj. Net Income(1): $13.9 million Adj. Diluted EPS(1): $0.47 • Backlog: $1.49 billion with 12.2% margin at December 31, 2021 • Combined Backlog: $1.52 billion with 12.2% margin at December 31, 2021 • Cash & Cash Equivalents: $81.8 million at December 31, 2021 • Cash from operations: $151.6 million for the twelve months ended December 31, 2021 Strong bottom-line results from all sectors Transportation Solutions Building Solutions E-Infrastructure Solutions • Strong results from continued shift away from low-bid to alternative delivery, aviation and rail projects • Alternative delivery project volumes were up • Texas had a record number of slabs poured in the year, with total slabs poured up 24% over 2020 • Expansion into Phoenix • Market remains strong with significant activity in e-commerce, warehousing and data centers • Expansion into new geographies with core customers and new opportunities with new customers Fourth Quarter 2021 Results
12S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Quarterly Consolidated and Segment Results ( 1 ) S e e A d j . E B I T D A R e c o n c i l i a t i o n o n p a g e 2 6 . ($ in millions) Q4 2021 Q4 2020 Revenues $ 401.3 $ 347.2 Gross Profit 55.7 46.6 G&A Expense (25.9) (20.2) Intangible Amortization (2.9) (2.9) Acquisition Related Costs (3.9) — Other Operating Expense, Net (3.2) (2.6) Operating Income 19.8 20.9 Interest, Net (3.7) (6.8) Loss on Extinguishment of Debt, Net — (0.3) Income Tax Expense (4.6) (7.8) Less: Net Income Attributable to NCI (0.6) (0.2) Net Income to STRL $ 10.9 $ 5.8 Diluted EPS $0.37 $0.20 Adjusted EBITDA (1) $ 32.0 $ 28.9 ($ in millions) Q4 2021 Q4 2020 Transportation Solutions Revenue $ 195.5 $ 176.7 Operating Income $ 4.7 $ 3.8 Operating Margin 2.4 % 2.2 % E-Infrastructure Solutions Revenue $ 127.2 $ 100.4 Operating Income $ 18.7 $ 16.9 Operating Margin 14.7 % 16.8 % Building Solutions Revenue $ 78.7 $ 70.1 Operating Income $ 9.2 $ 6.4 Operating Margin 11.7 % 9.1 %
13S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Full Year Consolidated and Segment Results ( 1 ) S e e A d j . E B I T D A R e c o n c i l i a t i o n o n p a g e 2 6 . ($ in millions) 2021 2020 Revenues $ 1,581.8 $ 1,427.4 Gross Profit 214.8 191.4 G&A Expense (78.5) (71.4) Intangible Amortization (11.5) (11.4) Acquisition Related Costs (3.9) (1.0) Other Operating Expense, Net (13.6) (12.6) Operating Income 107.3 94.9 Interest, Net (19.3) (29.2) Gain (Loss) on Extinguishment of Debt, Net 2.0 (0.3) Income Tax Expense (24.9) (22.5) Less: Net Income Attributable to NCI (2.5) (0.6) Net Income to STRL $ 62.6 $ 42.3 Diluted EPS $2.15 $1.50 Adjusted EBITDA (1) $ 142.9 $ 128.1 ($ in millions) 2021 2020 Transportation Solutions Revenue $ 795.6 $ 753.8 Operating Income $ 21.5 $ 14.4 Operating Margin 2.7 % 1.9 % E-Infrastructure Solutions Revenue $ 468.8 $ 397.3 Operating Income $ 80.5 $ 76.5 Operating Margin 17.2 % 19.3 % Building Solutions Revenue $ 317.4 $ 276.3 Operating Income $ 32.6 $ 30.4 Operating Margin 10.3 % 11.0 %
14S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Increased EBITDA and Cash Flow Drives Liquidity Strategy We expect to pursue strategic uses of our liquidity, such as, strategic acquisitions, investing in capital equipment and managing leverage. Capital allocation focus • Long-term shareholder value • Complementing organic growth in existing and new markets • Strong cash flow profile provides flexibility and drives liquidity strategy Forward Looking EBITDA Debt Coverage Ratio Sterling is comfortable with a forward looking debt/EBITDA coverage ratio of +/-2.5X. 5-Year Credit Facility $447M Term Loan Borrowings $75M Revolving Credit Facility (Undrawn) Key Cash Flow Considerations FY 2022 Est. FY 2021 Cash flows from Operations $140M to $150M $151.6M Net CAPEX $50M to $55M $42.5M • Cash at December 31, 2021 was $81.8 million • 2022 EBITDA guidance: $185M to $200M • Expected additional 2022 noncash expenses: $38M to $41M (NOL utilization, stock-based compensation, noncash interest expense, etc.) • 2022 – 2023 scheduled term loan debt payments total $55.1M
15S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Sterling Ron Ballschmiede, Chief Financial Officer Mary Morley, Investor Relations Sterling Construction Company, Inc. Tel: (281) 214-0777 The Equity Group Inc. Jeremy Hellman Tel: (212) 836-9626 jhellman@equityny.com Contact Us
16S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Appendix
17S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Strategy Driving Profitable Growth
18S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Realigned Quarterly Segments With the December 30, 2021 acquisition of Petillo, the Company realigned its operating groups to reflect management’s present oversight of operations. After realignment, the Company’s operations consist of three reportable segments: Transportation Solutions, E- Infrastructure Solutions and Building Solutions, with the commercial business reclassified from the previously reported Specialty Services operating group into the newly formed Building Solutions operating group. Additionally, costs attributable to corporate operations are now reported on the “Corporate” line. The segment information for the prior periods presented has been recast to conform to the current presentation.
19S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Realigned Quarterly Segments (Continued)
20S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 2022 Modeling Considerations* * I n m i l l i o n s e x c e p t f o r E P S a n d p e r c e n t a g e s . Revenue $1,825 to $1,875 Gross Margin ~14.5% G&A Expense as % of Revenue ~5.0% Three Year Revenue Growth Expectations:Other Operating Expense Net $12 to $14 JV Non-Controlling Interest Expense $2 to $3 Transportation Solutions 3% to 5% Effective Income Tax Rate 28% to 29% E-Infrastructure Solutions 5% to 7% Net Income $83 to $89 Building Solutions 7% to 9% Diluted EPS $2.69 to $2.88 Expected Dilutive Shares Outstanding 30.9 EBITDA $185 to $200
21S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 2022 Modeling Considerations Continued* * I n M i l l i o n s e x c e p t f o r p e r c e n t a g e s . NON-CASH ITEMS FY 2022 Expectations FY 2021 Depreciation $34 to $36 $22.7 Intangible Amortization $15 to $16 $11.5 Debt Issuance Cost Amortization $2 to $3 $2.2 Stock-based Compensation $5 to $7 $11.8 Income Tax Expense (Federal) 25% of Pretax Income $19.4 OTHER ITEMS FY 2022 Expectations FY 2021 Interest Expense, including Debt Issuance $19 to $21 $19.3 CAPEX, net of disposals $50 to $55 $42.5
22S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Reconciliation of Non-GAAP Supplemental Adjusted Financial Data*(1) * I n T h o u s a n d s
23S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Reconciliation of Non-GAAP Supplemental Adjusted Financial Data*(1) * I n T h o u s a n d s
24S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Reconciliation of Non-GAAP Supplemental Adjusted Financial Data*(1) * I n T h o u s a n d s
25S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 Reconciliation of Non-GAAP Supplemental Adjusted Financial Data*(1) * I n T h o u s a n d s
26S t e r l i n g : F o u r t h Q u a r t e r & F u l l Y e a r 2 0 2 1 EBITDA Reconciliation* * I n T h o u s a n d s