Revises Guidance to
Reflect Slower than Anticipated Turnaround in Texas Sterling
Division
Sterling’s Four Other
Businesses Performing at or Above Expectations
Average Gross Margin
in Backlog Continues to Improve
Strengthened Balance
Sheet and Improved Liquidity
Sterling Construction Company, Inc. (NasdaqGS:STRL) (“Sterling”
or “the Company”) today announced financial results for the third
quarter ended September 30, 2016.
Third Quarter 2016 Financial Results
Compared to Third Quarter 2015:
- Revenues grew 16.8% to $205.6 million
compared to $176.0 million;
- Gross margin was 8.3% of revenues
compared to gross margin of 8.2%;
- Operating income was $3.7 million
compared to $2.4 million;
- Net income attributable to Sterling
common stockholders was $2.4 million compared to $0.3 million;
and,
- Net income per share attributable to
common stockholders was $0.10 compared to $0.01.
Third Quarter 2016 Backlog
Highlights:
- Total backlog at September 30, 2016 of
$820 million was up 7.8% from December 31, 2015 and was up 14.2%
from the third quarter of 2015;
- Total backlog at September 30, 2016
excluded $94 million of projects where the Company was the apparent
low bidder but the contract had not yet been signed; and,
- Gross margin of projects in backlog as
of September 30, 2016 averaged 8.0% as compared with 6.5% the end
of the third quarter of 2015, while expected gross margin of the
projects awarded in the first nine months of 2016 averaged more
than 8.5%.
Business Overview:
Third quarter 2016 revenues increased 16.8% compared to the
third quarter of 2015 driven by increased project activity with the
majority of this increase due to a substantial ramp up of two
projects in process by Sterling’s Utah Subsidiary construction
joint ventures.
Gross profit was $17.0 million in the third quarter of 2016
compared to $14.5 million in the prior year third quarter,
reflecting the strong revenue increase combined with a small
improvement in gross margin compared to the prior year quarter as
the proportion of zero or near zero margin projects has diminished
this year.
General and administrative expenses were $9.6 million in the
third quarter of 2016, or 4.7% of revenues compared to $11.1
million or 6.3% in the third quarter of 2015. The decrease in
G&A expense as a percentage of revenues reflects the higher
level of revenues in the third quarter of 2016, along with a
decrease in employee benefit costs and the non-recurring employee
severance costs paid in the third quarter of 2015.
Other operating expense, net totaled $3.8 million in the third
quarter of 2016 compared to $1.0 million in the third quarter of
the prior year. The increase in expense was primarily due to higher
noncontrolling interest expense, driven by the combined increase in
income generated by the Company’s two partially owned
subsidiaries.
Financial Position at September 30,
2016:
- Cash and cash equivalents was $43.0
million.
- Working capital totaled $40.6
million.
- Total debt was reduced to $11.6
million.
- Tangible net worth was $59.6
million.
CEO Remarks:
Paul J. Varello, Sterling’s CEO, commented, “We generated
revenues in the third quarter that were in-line with our
expectations heading into the period, and meaningfully stronger
than in the third quarter of 2015. Net income, however, was below
our expectations as our Texas subsidiary (TSC) continued to lag in
profitability. While TSC has been making headway in burning off its
low margin legacy backlog and beginning to execute more of its
higher margin contracts, both have occurred at a slower pace than
we’d previously forecast as a result of challenging weather
conditions in the first half of the year and slower ramp up of new
work driven by owner delays. Fortunately, this drag was partially
offset by strong performances by our other business units, which
enabled us to deliver year-over-year improvement on our bottom
line. We are also very pleased with our increasing average margin
in backlog, which reflects our selective and more disciplined
bidding process and improved project execution.”
Mr. Varello continued, “We also made meaningful progress in our
goal to diversify our project mix towards more profitable
opportunities. While road and highway building will always be an
important part of our business, we believe that we have the
combination of experience, capability and reputation to win new
awards at attractive margins in existing and adjacent markets. As
an example, we were pleased with the sizeable airport projects we
announced in Arizona and Utah earlier this month and expect to add
similar projects in the coming quarters. Overall, the bidding
landscape throughout our operating geographies continues to look
favorable and, given the federal and state funding outlook, we
expect the volume and pace of project lettings to continue its
current momentum for the balance of 2016 and into 2017. As a
result, we are optimistic that our strategy of selectively bidding
projects that give us the greatest opportunity to improve
profitability will remain successful in the coming year.”
“During the third quarter we deployed proceeds of our May 2016
equity offering to reduce our debt. We also strengthened our
balance sheet with cash provided by operating activities of
approximately $9 million. Given our improved cash balance and
liquidity, we intend to refinance our asset-based credit facility
with a lower cost, higher capacity, revolving credit line which
will further strengthen our financial position to support future
growth. We maintain our original target of the first half of 2017
to complete this refinancing.”
Mr. Varello concluded, “Turning to our outlook for the remainder
of 2016, the majority of our business units are performing at
expected levels, which makes us confident in our previously
announced guidance for full year 2016 revenues. This extrapolates
to fourth quarter revenue in the range of $150 million to $170
million. As mentioned previously, however, our Texas business has
not recovered as rapidly as we originally anticipated, and remains
below our targets from a profitability standpoint. As a result, we
are revising our outlook for the balance of 2016 and now expect our
net income for the fourth quarter, one of our seasonally slowest
quarters, to approximate breakeven. Our focus remains on gross
margin improvement and tight G&A cost controls to further
enable us to grow our bottom line. In summary, we are continuing to
make progress with Sterling’s turnaround, and expect to deliver
additional improvements for the balance of 2016 and into 2017.”
Conference Call:
Sterling’s management will hold a conference call to discuss
these results and recent corporate developments on Monday, October
31, 2016 at 4:30 p.m. ET/3:30 p.m. CT. Interested parties may
participate in the call by dialing (201) 493-6744 or (877) 445-9755
ten minutes before the conference call is scheduled to begin, and
asking for the Sterling Construction call.
To listen to a simultaneous webcast of the call, please go to
the Company’s website at www.strlco.com at least 15 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 30 days.
Sterling is a leading heavy civil construction company that
specializes in the building and reconstruction of transportation
and water infrastructure projects in Texas, Utah, Nevada, Colorado,
Arizona, California, Hawaii, and other states in which there are
construction opportunities. Its transportation infrastructure
projects include highways, roads, bridges, airfields, ports and
light rail. Its water infrastructure projects include water,
wastewater and storm drainage systems.
This press release includes certain statements that fall within
the definition of “forward-looking statements” under the Private
Securities Litigation Reform Act of 1995. Any such statements are
subject to risks and uncertainties, including overall economic and
market conditions, federal, state and local government funding,
competitors’ and customers’ actions, and weather conditions, which
could cause actual results to differ materially from those
anticipated, including those risks identified in the Company’s
filings with the Securities and Exchange Commission. Accordingly,
such statements should be considered in light of these risks. Any
prediction by the Company is only a statement of management’s
belief at the time the prediction is made. There can be no
assurance that any prediction once made will continue thereafter to
reflect management’s belief, and the Company does not undertake to
update publicly its predictions or to make voluntary additional
disclosures of nonpublic information, whether as a result of new
information, future events or otherwise.
(See Accompanying Tables)
STERLING CONSTRUCTION COMPANY, INC.
& SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Amounts in thousands, except share and
per share data)
(Unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2016 2015 2016
2015 Revenues $ 205,629 $ 176,000 $ 521,778 $ 471,107
Cost of revenues (188,597 ) (161,542 )
(484,827 ) (454,374 ) Gross profit 17,032 14,458 36,951
16,733 General and administrative expenses (9,575 ) (11,119 )
(29,221 ) (32,320 ) Other operating income (expense), net
(3,785 ) (958 ) (7,143 ) 1,128
Operating income (loss) 3,672 2,381 587 (14,459 ) Interest income
15 32 19 464 Interest expense (491 ) (1,087 ) (2,176 ) (2,103 )
Loss on extinguishment of debt -- -- --
(240 )
Income (loss) before income taxes and
earnings attributable to noncontrolling interests
3,196 1,326 (1,570 ) (16,338 ) Income tax (expense) benefit
(41 ) 39 (68 )
8 Net income (loss) 3,155 1,365 (1,638 ) (16,330 )
Noncontrolling owners’ interests in earnings of subsidiaries and
joint ventures (740 ) (1,109 ) (1,252 )
(2,948 ) Net income (loss) attributable to Sterling common
stockholders $ 2,415 $ 256
$
(2,890
)
$
(19,278
) Net income (loss) per share attributable to Sterling
common stockholders: Basic and diluted $ 0.10 $ 0.01 $ (0.12 ) $
(1.00 ) Weighted average number of common shares outstanding
used in computing per share amounts: Basic 25,002,964 19,627,674
23,914,688 19,269,123 Diluted 25,364,881 19,627,674 23,914,688
19,269,123
STERLING CONSTRUCTION COMPANY, INC.
& SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Amounts in thousands, except share and
per share data)
September 30,2016
December 31,2015
(Unaudited)
ASSETS Current assets: Cash and cash
equivalents $ 43,021 $ 4,426 Contracts receivable, including
retainage 105,415 82,112 Costs and estimated earnings in excess of
billings on uncompleted contracts 31,989 26,905 Inventories 4,000
2,535 Receivables from and equity in construction joint ventures
9,469 12,930 Other current assets 6,170 6,013 Total
current assets 200,064 134,921 Property and equipment, net 70,363
73,475 Goodwill 54,820 54,820 Other assets, net 2,968
2,949 Total assets $ 328,215 $ 266,165
LIABILITIES AND
EQUITY Current liabilities: Accounts payable $ 76,861 $ 58,959
Billings in excess of costs and estimated earnings on uncompleted
contracts 61,896 30,556 Current maturities of long-term debt 4,653
4,856 Income taxes payable 63 67 Accrued compensation 10,412 5,977
Other current liabilities 5,545 3,896 Total current
liabilities 159,430 104,311 Long-term liabilities:
Long-term debt, net of current maturities 6,952 15,324 Member’s
interest subject to mandatory redemption and undistributed earnings
46,466 50,438 Other long-term liabilities 911 338
Total long-term liabilities 54,329 66,100 Commitments
and contingencies (Note 5) Equity: Sterling stockholders’ equity:
Preferred stock, par value $0.01 per share; 1,000,000 shares
authorized, none issued -- -- Common stock, par value $0.01 per
share; 28,000,000 shares authorized, 25,002,964 and 19,753,170
shares issued 250 198 Additional paid in capital 208,435 188,147
Retained deficit (95,390 ) (92,500 ) Total Sterling
common stockholders’ equity 113,295 95,845 Noncontrolling interests
1,161 (91 ) Total equity 114,456 95,754
Total liabilities and equity $ 328,215 $ 266,165
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161031006040/en/
Sterling Construction Company, Inc.Jennifer Maxwell, Director of
Investor Relations281-951-3560orInvestor Relations
Counsel:The Equity Group Inc.Fred Buonocore 212-836-9607Kevin
Towle 212-836-9620
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