Sterling Reports Second Quarter 2021 Results

THE WOODLANDS, Texas–()–Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or the “Company”) today announced financial results for the second quarter 2021.

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

  • Revenues were $401.7 million compared to $400.0 million.
  • Net Income was $20.1 million compared to $18.2 million.
  • Diluted EPS was $0.69 compared to $0.65.

Consolidated Financial Position and Liquidity:

  • Cash and Cash Equivalents were $93.6 million at June 30, 2021.
  • Cash provided by operating activities was a record $91.5 million for the six months ended June 30, 2021.
  • Repayments of debt totaled $40.1 million for the six months ended June 30, 2021.

Heavy Civil and Specialty Services Backlog Highlights:

  • Backlog at June 30, 2021 was $1.57 billion, up from $1.18 billion at December 31, 2020.
  • Combined Backlog(1) at June 30, 2021 was $1.65 billion, up from $1.53 billion at December 31, 2020.
  • Combined Backlog(1) margin at June 30, 2021 was a record 12.2%, up from 11.8% at December 31, 2020.

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

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

CEO Remarks and Outlook

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

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

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

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

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

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

Conference Call

Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Tuesday, August 3, 2021 at 9:00 a.m. ET/8:00 a.m. CT. Interested parties may participate in the call by dialing (201) 493-6744 or (877) 445-9755. Please call in ten minutes before the conference call is scheduled to begin and ask for the Sterling Construction call. To coincide with the conference call, Sterling will post a slide presentation at www.strlco.com on the Investor Presentations & Webcast section of the Investor Relations tab. Following management’s opening remarks, there will be a question and answer session.

To listen to a simultaneous webcast of the call, please go to the Company’s website at www.strlco.com at least fifteen minutes early to download and install any necessary audio software. If you are unable to listen live, the conference call webcast will be archived on the Company’s website for thirty days.

About Sterling

Sterling Construction Company, Inc. operates through a variety of subsidiaries within three segments specializing in Heavy Civil, Specialty Services and Residential projects in the United States (the “U.S.”), primarily across the southern U.S., the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. Heavy Civil includes infrastructure and rehabilitation projects for highways, roads, bridges, airfields, ports, light rail, water, wastewater and storm drainage systems. Specialty Services projects include land development activities (including site excavation and drainage, drilling and blasting for excavation), foundations for multi-family homes, parking structures and other commercial concrete projects. Residential projects include concrete foundations for single-family homes. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society’s quality of life.

Important Information for Investors and Stockholders

Non-GAAP Measures

This press release may contain “Non-GAAP” financial measures as defined under Regulation G of the amended U.S. Securities Exchange Act of 1934. The Company reports financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), but the Company believes that certain Non-GAAP financial measures provide useful supplemental information to investors regarding the underlying business trends and performance of the Company’s ongoing operations and are useful for period-over-period comparisons of those operations.

Non-GAAP measures may include adjusted net income, adjusted EPS, EBITDA and adjusted EBITDA, in each case excluding the impacts of certain identified items. The excluded items represent items that the Company does not consider to be representative of its normal operations. The Company believes that these measures are useful for investors to review, because they provide a consistent measure of the underlying financial results of the Company’s ongoing business and, in the Company’s view, allow for a supplemental comparison against historical results and expectations for future performance. Furthermore, the Company uses each of these to measure the performance of the Company’s operations for budgeting, forecasting, as well as employee incentive compensation. However, Non-GAAP measures should not be considered as substitutes for net income, EPS, or other data prepared and reported in accordance with GAAP and should be viewed in addition to the Company’s reported results prepared in accordance with GAAP.

If applicable, reconciliations of Non-GAAP financial measures to the most comparable GAAP measures will be provided in this press release.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains statements that are considered forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about: potential risks and uncertainties relating to the ongoing COVID-19 pandemic, including the duration of the COVID-19 pandemic (including new and emerging strains and variants), additional actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to address its impact, including the distribution, effectiveness and acceptance of vaccines, and the potential ongoing or further negative impact of the COVID-19 pandemic on the global economy and financial markets; our business strategy; our financial strategy; our industry outlook; and our plans, objectives, expectations, forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this press release, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this press release are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this press release are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in our filings with the U.S. Securities and Exchange Commission and elsewhere in those filings. Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made. The forward-looking statements speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise, notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2021

 

2020

 

2021

 

2020

Revenues

$

401,666

 

 

$

400,038

 

 

$

716,982

 

 

$

696,726

 

Cost of revenues

(345,419

)

 

(340,439

)

 

(615,703

)

 

(601,882

)

Gross profit

56,247

 

 

59,599

 

 

101,279

 

 

94,844

 

General and administrative expense

(15,829

)

 

(18,451

)

 

(32,928

)

 

(36,055

)

Intangible asset amortization

(2,866

)

 

(2,866

)

 

(5,732

)

 

(5,703

)

Acquisition related costs

 

 

(139

)

 

 

 

(612

)

Other operating expense, net

(4,832

)

 

(5,097

)

 

(7,144

)

 

(7,325

)

Operating income

32,720

 

 

33,046

 

 

55,475

 

 

45,149

 

Interest income

12

 

 

24

 

 

26

 

 

123

 

Interest expense

(5,737

)

 

(7,557

)

 

(11,741

)

 

(15,360

)

Gain on extinguishment of debt, net

1,401

 

 

 

 

1,064

 

 

 

Income before income taxes

28,396

 

 

25,513

 

 

44,824

 

 

29,912

 

Income tax expense

(8,179

)

 

(7,248

)

 

(12,939

)

 

(8,432

)

Net income

20,217

 

 

18,265

 

 

31,885

 

 

21,480

 

Less: Net income attributable to noncontrolling interests

(161

)

 

(55

)

 

(1,274

)

 

(155

)

Net income attributable to Sterling common stockholders

$

20,056

 

 

$

18,210

 

 

$

30,611

 

 

$

21,325

 

 

 

 

 

 

 

 

 

Net income per share attributable to Sterling common stockholders:

 

 

 

 

 

 

 

Basic

$

0.70

 

 

$

0.65

 

 

$

1.08

 

 

$

0.77

 

Diluted

$

0.69

 

 

$

0.65

 

 

$

1.06

 

 

$

0.76

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

Basic

28,582

 

 

27,941

 

 

28,433

 

 

27,794

 

Diluted

29,054

 

 

27,957

 

 

28,878

 

 

27,887

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

SEGMENT INFORMATION

(In thousands)

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2021

 

% of

Revenues

 

2020

 

 

% of

Revenues

 

2021

 

% of

Revenues

 

2020

 

 

% of

Revenues

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heavy Civil

$

203,153

 

 

50

%

 

$

220,448

 

 

 

55

%

 

$

350,207

 

 

49

%

 

$

376,063

 

 

 

53

%

Specialty Services

151,904

 

 

38

%

 

135,703

 

 

 

34

%

 

275,992

 

 

38

%

 

240,426

 

 

 

35

%

Residential

46,609

 

 

12

%

 

43,887

 

 

 

11

%

 

90,783

 

 

13

%

 

80,237

 

 

 

12

%

Total Revenues

$

401,666

 

 

 

 

$

400,038

 

 

 

 

 

$

716,982

 

 

 

 

$

696,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Heavy Civil

$

4,404

 

 

2.2

%

 

$

3,896

 

 

 

1.8

%

 

$

5,494

 

 

1.6

%

 

$

274

 

 

 

0.1

%

Specialty Services

22,907

 

 

15.1

%

 

23,246

 

 

 

17.1

%

 

39,084

 

 

14.2

%

 

34,360

 

 

 

14.3

%

Residential

5,409

 

 

11.6

%

 

6,043

 

 

 

13.8

%

 

10,897

 

 

12.0

%

 

11,127

 

 

 

13.9

%

Subtotal

32,720

 

 

8.1

%

 

33,185

 

 

 

8.3

%

 

55,475

 

 

7.7

%

 

45,761

 

 

 

6.6

%

Acquisition related costs

 

 

 

 

(139

)

 

 

 

 

 

 

 

 

(612

)

 

 

 

Total Operating Income

$

32,720

 

 

8.1

%

 

$

33,046

 

 

 

8.3

%

 

$

55,475

 

 

7.7

%

 

$

45,149

 

 

 

6.5

%

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

 

June 30,
2021

 

December 31,
2020

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

93,630

 

 

$

66,185

 

Accounts receivable

211,529

 

 

177,424

 

Contract assets

86,184

 

 

84,975

 

Receivables from and equity in construction joint ventures

18,011

 

 

16,653

 

Other current assets

24,738

 

 

16,306

 

Total current assets

434,092

 

 

361,543

 

Property and equipment, net

142,015

 

 

126,668

 

Operating lease right-of-use assets, net

16,609

 

 

16,515

 

Goodwill

192,014

 

 

192,014

 

Other intangibles, net

239,155

 

 

244,887

 

Deferred tax asset, net

 

 

7,817

 

Other non-current assets, net

3,305

 

 

3,250

 

Total assets

$

1,027,190

 

 

$

952,694

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

137,934

 

 

$

95,201

 

Contract liabilities

141,236

 

 

114,019

 

Current maturities of long-term debt

23,186

 

 

77,434

 

Current portion of long-term lease obligations

7,942

 

 

7,588

 

Accrued compensation

27,134

 

 

18,013

 

Other current liabilities

8,810

 

 

9,629

 

Total current liabilities

346,242

 

 

321,884

 

Long-term debt

303,531

 

 

291,249

 

Long-term lease obligations

8,783

 

 

8,958

 

Members’ interest subject to mandatory redemption and undistributed earnings

56,488

 

 

51,290

 

Deferred tax liability, net

3,956

 

 

 

Other long-term liabilities

9,420

 

 

10,584

 

Total liabilities

728,420

 

 

683,965

 

Stockholders’ equity:

 

 

 

Common stock

286

 

 

283

 

Additional paid in capital

253,467

 

 

256,423

 

Treasury stock, at cost

 

 

(1,445

)

Retained earnings

47,884

 

 

17,273

 

Accumulated other comprehensive loss

(3,641

)

 

(5,264

)

Total Sterling stockholders’ equity

297,996

 

 

267,270

 

Noncontrolling interests

774

 

 

1,459

 

Total stockholders’ equity

298,770

 

 

268,729

 

Total liabilities and stockholders’ equity

$

1,027,190

 

 

$

952,694

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended June 30,

 

2021

 

2020

Cash flows from operating activities:

 

 

 

Net income

$

31,885

 

 

$

21,480

 

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

 

 

 

Depreciation and amortization

16,707

 

 

16,541

 

Amortization of debt issuance costs and non-cash interest

1,264

 

 

1,762

 

Gain on disposal of property and equipment

(437

)

 

(598

)

Gain on debt extinguishment, net

(1,064

)

 

 

Deferred taxes

11,294

 

 

6,223

 

Stock-based compensation expense

3,850

 

 

6,196

 

Change in fair value of interest rate swap

(51

)

 

272

 

Changes in operating assets and liabilities

28,044

 

 

451

 

Net cash provided by operating activities

91,492

 

 

52,327

 

Cash flows from investing activities:

 

 

 

Capital expenditures

(22,150

)

 

(14,574

)

Proceeds from sale of property and equipment

690

 

 

769

 

Net cash used in investing activities

(21,460

)

 

(13,805

)

Cash flows from financing activities:

 

 

 

Repayments of debt

(40,072

)

 

(22,644

)

Distributions to noncontrolling interest owners

(1,959

)

 

 

Other

(602

)

 

9,067

 

Net cash used in financing activities

(42,633

)

 

(13,577

)

Net change in cash, cash equivalents, and restricted cash

27,399

 

 

24,945

 

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

72,642

 

 

50,562

 

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

100,041

 

 

75,507

 

Less: restricted cash (Other current assets)

(6,411

)

 

(4,895

)

Cash and cash equivalents at end of period

$

93,630

 

 

$

70,612

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

EBITDA RECONCILIATION

(In thousands)

(Unaudited)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2021

 

2020

 

2021

 

2020

Net income attributable to Sterling common stockholders

$

20,056

 

 

$

18,210

 

 

$

30,611

 

 

$

21,325

 

Depreciation and amortization

8,402

 

 

8,256

 

 

16,707

 

 

16,541

 

Interest expense, net of interest income

5,725

 

 

7,533

 

 

11,715

 

 

15,237

 

Income tax expense

8,179

 

 

7,248

 

 

12,939

 

 

8,432

 

Gain on extinguishment of debt, net

(1,401

)

 

 

 

(1,064

)

 

 

EBITDA (1)

$

40,961

 

 

$

41,247

 

 

$

70,908

 

 

$

61,535

 

(1) The Company defines EBITDA as GAAP net income attributable to Sterling common stockholders, adjusted for depreciation and amortization, net interest expense, taxes, and net gain on extinguishment of debt.

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