STRL Sterling Infrastructure Inc

Strong Performance by Core Heavy Civil Business Enhanced by Acquisition

Sterling Construction Company, Inc. (NasdaqGS:STRL) (“Sterling” or “the Company”) today announced financial results for the second quarter ended June 30, 2017.

Second Quarter 2017 Financial Results Compared to Second Quarter 2016:

• Revenues were $246.4 million compared to $189.6 million;
• Gross margin was 10.2% of revenues compared to 8.2%;
• Operating income was $8.4 million compared to $3.4 million;
• Net income attributable to Sterling common stockholders was $3.7 million compared to $2.0 million;
• The second quarter net income attributable to Sterling common stockholders was negatively impacted by non-recurring transactions and facility rationalization costs of approximately $2.6 million; and,
• Net income per diluted share attributable to common stockholders was $0.13 compared to net income per diluted share of $0.09.

Heavy Civil Construction Backlog Highlights:

• Total backlog at June 30, 2017 of $923 million was up 12.1% from December 31, 2016, and increased 13.9% compared to the second quarter of 2016;
• Total backlog at June 30, 2017 excluded $76 million of projects where the Company was the apparent low bidder but the contract had not yet been signed; and,
• Gross margin on projects in backlog as of June 30, 2017 averaged 8.4% as compared with 8.2% at December 31, 2016 and 7.8% at June 30, 2016, while gross margin on the projects awarded in the second quarter of 2017 averaged approximately 9.0%.

Residential Construction Highlights:

The residential markets continue to see steady growth in the low double-digit range. Dallas housing starts increased 13% in the second quarter of 2017 compared to the second quarter of 2016.

Business Overview:

Second quarter 2017 revenues increased approximately 30.0% compared to the prior year quarter due principally to the $42.5 million incremental contribution from the April 2017 acquisition of Tealstone. Heavy Civil revenues grew 7.3% driven principally by a ramp up in a new construction joint venture project by our Utah subsidiary.

Gross profit was $25.2 million in the second quarter of 2017, an increase of $9.7 million from the prior year second quarter. Gross margin expanded by 200 basis points to 10.2% primarily related to the Tealstone acquisition.

General and administrative expenses were $12.8 million in the second quarter of 2017, or 5.2% of revenues compared to $8.7 million or 4.6% in the second quarter of 2016. Approximately $1.9 million of the second quarter increase relates to the recurring G&A expense of Tealstone. The increase in G&A expense as a percent of revenues reflects the acceleration of our former CEO’s unvested shares, and increased recruiting and pre-bid contract costs in our Utah market.

Capital expenditures for the second quarter of 2017 were $3.1 million compared with $3.7 million for the same period in 2016.

Financial Position at June 30, 2017:

• Cash and cash equivalents were $60.1 million.
• Working capital totaled $73.4 million.
• Total debt was $89.2 million.

CEO Remarks:

“Sterling had a strong second quarter, which exceeded our expectations going into the period and increased our cash position significantly,” stated Joe Cutillo, Sterling Construction’s Chief Executive Officer. “Our acquisition of Tealstone at the beginning of the quarter was an important step in the transformation of our business and was immediately accretive. This business has provided us with a higher margin revenue stream with minimal integration challenges. Beyond the near-term benefits, Tealstone gives us a strong market position in residential and commercial concrete construction in a rapidly growing market, and a pathway for meaningful expansion into adjacent markets.”

Mr. Cutillo continued, “Our core business continued to improve in the second quarter, which led to healthy revenue growth and solid gross margins. We remain focused on further improving the profitability of our Texas business through cost reductions and process improvements. Our team made meaningful progress on these goals in the second quarter. Our backlog remained relatively flat compared with the end of the first quarter as we saw slightly lower total bid activity and we stuck to our disciplined bidding approach. However, the macro environment continues to provide a steady stream of project opportunities, and we remain vigilant in pursuing only those projects where our confidence in our ability to execute at our target margin level is high.”

Guidance for 2017:

Mr. Cutillo continued, “We continue to expect 2017 revenues to be between $850 million and $880 million, and our net income attributable to Sterling common stock holders to be between $9 million and $11 million. We expect our full year 2017 average common shares outstanding to be approximately 27 million.”

Conference Call:

Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Wednesday, August 2, 2017 at 09:00 a.m. ET/8:00 a.m. CT. Interested parties may participate in the call by dialing (201) 493-6744 or (877) 445-9755 ten minutes before the conference call is scheduled to begin, and asking for the Sterling 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 infrastructure, water infrastructure, and residential and commercial concrete projects in Texas, Utah, Nevada, Colorado, Arizona, California, Hawaii and other states in which there are construction opportunities. Its heavy civil construction projects include highways, roads, bridges, airfields, ports, light rail, water, wastewater and storm drainage systems and multi-family homes, commercial projects and parking structures. Its residential concrete projects include concrete foundations for single-family homes.

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 per share data)

(Unaudited)

 

Three Months EndedJune 30,

 

Six Months EndedJune 30,

2017     2016 2017   2016 Revenues $ 246,412 $ 189,582 $ 399,828 $ 316,149 Cost of revenues   (221,207 )   (174,039 )   (365,336 )   (297,058 ) Gross profit 25,205 15,543 34,492 19,091 General and administrative expenses (12,812 ) (8,657 ) (23,416 ) (18,742 ) Other operating income (expense), net   (4,037 )   (3,505 )   (4,508 )   (3,434 ) Operating income (loss) 8,356 3,381 6,568 (3,085 ) Interest income 44 1 85 4 Interest expense (2,984 ) (812 ) (3,096 ) (1,685 ) Loss on extinguishment of debt   (755 )   --   (755 )   --   Income (loss) before income taxes and earnings attributable to noncontrolling interests 4,661 2,570 2,802 (4,766 ) Income tax expense   (98 )   (27 )   (125 ) )   (27 ) Net income (loss) 4,563 2,543 2,677 (4,793 ) Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures   (901 )   (520 )   (1,272 )   (512 ) Net income (loss) attributable to Sterling common stockholders $ 3,662 $ 2,023 $ 1,405   $ (5,305 )   Net income (loss) per share attributable to Sterling common stockholders: Basic $ 0.14 $ 0.09 $ 0.05 $ (0.25 ) Diluted $ 0.13 $ 0.09 $ 0.05 $ (0.25 )   Weighted average number of common shares outstanding used in computing per share amounts: Basic 26,978 22,762 25,972 21,261 Diluted 27,336 22,959 26,409 21,261        

 

Segment Results

 

 

Three Months EndedJune 30,

Six Months EndedJune 30,

      2017     % of

Total

        2016     % of

Total

  2017     % of

Total

        2016     % of

Total

Revenue         Heavy Civil Construction $ 209,194 85% 189,582 100% $ 362,610 91% 316,149 100% Residential Construction 37,218 15%   -- 0% 37,218 9%   -- 0% Total Revenue $ 246,412   189,582 $ 399,828   316,149   Operating Income Heavy Civil Construction $ 3,141 38% 2,023 100% $ 1,668 25% (3,085 ) 100% Residential Construction   5,215 62%   -- 0%   4,901 75%   -- 0% Total Operating Income $ 8,356   2,023 $ 6,569   (3,085 )  

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

 

June 30,2017

December 31,2016

(Unaudited)   ASSETS Current assets: Cash and cash equivalents $ 60,058 $ 42,785 Contracts receivable, including retainage 137,913 84,132 Costs and estimated earnings in excess of billings on uncompleted contracts 40,588 32,705 Inventories 3,521 3,708 Receivables from and equity in construction joint ventures 7,463 7,130 Other current assets   11,206   5,448 Total current assets 260,749 175,908 Property and equipment, net 61,275 68,127 Goodwill 90,971 54,820 Intangibles 39,490 -- Other assets, net   2,968   2,968 Total assets $ 455,453 $ 301,823 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 89,468 $ 67,097 Billings in excess of costs and estimated earnings on uncompleted contracts 76,916 64,100 Current maturities of long-term debt 1,039 3,845 Income taxes payable 179 78 Accrued compensation 12,022 5,322 Other current liabilities   7,699   6,150 Total current liabilities   187,323   146,592 Long-term liabilities: Long-term debt, net of current maturities 88,125 1,549

Member’s interest subject to mandatory redemption and undistributed

 

 

earnings

46,346

45,230

Other long-term liabilities   473   362 Total long-term liabilities   134,944   47,141   Commitments and contingencies   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, 27,027,542 and 24,987,306 shares issued 270 250 Additional paid in capital 231,321 208,922 Retained deficit   (100,333 )   (101,738 ) Total Sterling common stockholders’ equity 131,258 107,434 Noncontrolling interests   1,928   656 Total equity   133,186   108,090 Total liabilities and equity $ 455,453 $ 301,823

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Sterling Construction Company, Inc.Jennifer Maxwell, 281-951-3560Director of Investor RelationsorInvestor Relations Counsel:The Equity Group Inc.Fred Buonocore, CFA 212-836-9607orKevin Towle, 212-836-9620