Increases 2019 Adjusted Guidance to Reflect
the Immediately Accretive Plateau Acquisition
Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling”
or “the Company”) today announced financial results for the third
quarter of 2019.
Consolidated Third Quarter 2019 Financial Results Compared to
Third Quarter 2018:
- Revenues were $291.7 million compared to $291.3 million;
- Gross margin was 10.0% of revenues compared to 10.7%;
- Plateau acquisition related costs totaled $1.9 million or $0.07
diluted share(1);
- Net income attributable to Sterling common stockholders was
$8.0 million (GAAP basis) or $9.9 million (adjusted basis(1))
compared to $8.9 million, reflecting a growth in net income
attributable to Sterling common stockholders of 11% (adjusted
basis(1)); and,
- Net income per diluted share attributable to Sterling common
stockholders was $0.30 (GAAP basis) or $0.37 (adjusted basis(1))
compared to $0.33.
Consolidated Financial Position, Liquidity and Cash Flows at
September 30, 2019:
- Cash and Cash Equivalents were $76.5 million; and,
- Debt totaled $74.7 million.
Business Overview
Third quarter 2019 revenues increased $0.4 million compared to
the prior year quarter, primarily driven by a $3.2 million increase
in residential construction. The slightly lower heavy civil
revenues were consistent with our expectations.
Gross profit was $29.2 million in the third quarter of 2019, a
decrease of $2.1 million from the prior year third quarter. Gross
margin declined 72 basis points to 10.0%. This decrease reflects a
lower margin revenue mix, driven by the completion of two large
design-build projects at the end of 2018. The company expects the
margin mix to improve with the ramp up of several large
design-build projects in 2020. Additionally, margins within
residential construction declined as a result of the expansion into
the Houston market.
General and administrative expenses were $10.8 million in the
third quarter of 2019, or 3.7% of revenues compared to $11.5
million or 3.9% of revenues in the third quarter of 2018,
reflecting lower business development costs in the third quarter of
2019.
Heavy Civil Construction Backlog Highlights
- Combined backlog at September 30, 2019 was $1.2 billion, up
slightly from December 31, 2018. Combined backlog consists of
$881.4 million of backlog and $272.6 million of unsigned contracts
as of September 30, 2019 compared to $850.7 million and $292.7
million at December 31, 2018, respectively. No residential
construction contracts are included in backlog;
- Gross margin on projects in combined backlog as of September
30, 2019 averaged 9.3%, an increase from 9.1% at June 30, 2019 and
8.9% at December 31, 2018; and,
- Non-heavy highway revenues accounted for 43.5% of third quarter
of 2019 heavy civil construction revenues, compared to 40.3% in the
third quarter of 2018.
CEO Remarks and Outlook
“We had another strong quarter with adjusted net income growth
of 11%(1) compared to the third quarter of last year, on
essentially flat top-line results,” stated Joe Cutillo, Sterling’s
Chief Executive Officer. “The 2019 third quarter was in-line with
our expectations headed into the period and is exemplary of our
strategy to consistently increase our bottom line as opposed to
focusing on revenue growth. Our Heavy Civil revenues were down
slightly compared to the same period last year, as a result of
delays in the start of several large projects that we mentioned
last quarter. We expect to see contribution from these projects in
early 2020. Our backlog overall remains near record highs and most
notably, margins in backlog improved in the third quarter,
reflecting our disciplined bidding strategy.”
Mr. Cutillo continued, “Revenue in our Residential segment
increased approximately 9% year over year, while operating margin
declined 0.9%, due in large part to a mix shift. We have been
ramping up our expansion into the Houston market, which has
generated lower margins than our well-established operation in
Dallas-Fort Worth as we build scale and efficiencies. As we
continue to expand in the large and growing Houston market, we
expect operating margins to improve. Looking at our residential
business overall, we still foresee mid-single digit revenue growth
and continued attractive margins in this segment.”
“In early October, we closed on our acquisition of Plateau, a
leading provider of large-scale site infrastructure improvement
contracting services that serves primarily large, blue-chip
customers in the e-commerce, data center, distribution center and
warehousing sectors,” remarked Mr. Cutillo. “This acquisition
directly aligns with our strategic vision by diversifying Sterling
into adjacent end markets with a focus on bottom line growth.
Plateau not only positions us in exciting and quickly growing
market segments, but also expands our geographic footprint into the
highly attractive Southeastern United States. We expect this
transaction to result in a significant boost to our profitability
in 2020 and beyond and we are excited to ramp up our activities
with the Plateau team.”
Mr. Cutillo concluded, “Despite the delayed starts on several
large heavy civil projects, we continue to expect to reach our
previously articulated full year 2019 targets on an organic basis.
We are revising our guidance for the full year 2019 to reflect our
expectations for the incremental contribution from Plateau. We now
expect our 2019 revenues to be in the range $1.065 billion to
$1.085 billion and GAAP net income attributable to Sterling common
stockholders of $16 million to $17 million with weighted average
shares of approximately 27.3 million. Our full year GAAP net income
guidance includes acquisition related costs of approximately $4
million and approximately $9 million of early debt extinguishment
cost related to the refinancing of our principle borrowing
facility. We expect our full year adjusted net income attributable
to Sterling common stockholders to be $29 million to $30
million(1), excluding the aforementioned acquisition related and
early debt extinguishment costs.
Looking ahead to 2020, we expect substantial growth in our
consolidated net income as we recognize a full year of Plateau
contribution, work starts on the large heavy civil projects that
were delayed in 2019, along with other projects in our combined
backlog, and benefit from continued profitable growth in our
residential business driven by continued expansion in Houston and
ongoing market strength in Tealstone’s core Dallas-Fort Worth
market.”
Conference Call
Sterling’s management will hold a conference call to discuss
these results and recent corporate developments on Tuesday,
November 5, 2019 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.
Following management’s opening remarks, there will be a question
and answer session. Questions may be asked during the live call, or
alternatively, you may e-mail questions in advance to
Brigette.Wilcox@strlco.com.
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 is a construction company that specializes in heavy
civil infrastructure construction and infrastructure rehabilitation
as well as residential construction projects. The Company operates
primarily in Arizona, California, Colorado, Hawaii, Nevada, Texas
and Utah, as well as other states in which there are feasible
construction opportunities. Heavy civil construction projects
include highways, roads, bridges, airfields, ports, light rail,
water, wastewater and storm drainage systems, foundations for
multi-family homes, commercial concrete projects and parking
structures. Residential construction projects include concrete
foundations for single-family homes.
Important Information for Investors and Stockholders
Non-GAAP Measures
This press release contains “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 include adjusted EPS and adjusted net income,
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 measures 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 measures as measures of
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 EPS,
net income, 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.
The Company has included adjusted net income as a forecast
non-GAAP measure in this press release and the Company believes
this forward-looking financial estimate is within reasonable
measure.
Reconciliations of these Non-GAAP financial measures and
forecast Non-GAAP financial measures to the most comparable GAAP
measures are provided in the tables included 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 our: business strategy;
financial strategy; and 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 (“SEC”) and
elsewhere in those filings. The forward-looking statements speak
only as of the date made, and other than as required by law, we do
not intend to publicly update or revise any forward-looking
statements as a result of new information, future events or
otherwise. These cautionary statements qualify all forward-looking
statements attributable to us or persons acting on our behalf.
(1) Adjusted basis excludes costs related to the acquisition of
Plateau. See the “Reconciliation of Non-GAAP Supplemental Adjusted
Financial Data” section below for more information.
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per
share data)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenues
$
291,699
$
291,266
$
779,734
$
782,492
Cost of revenues
(262,483
)
(259,987
)
(705,519
)
(700,333
)
Gross profit
29,216
31,279
74,215
82,159
General and administrative expense
(10,839
)
(11,455
)
(34,102
)
(36,998
)
Acquisition related costs
(1,896
)
—
(2,158
)
—
Other operating expense, net
(4,366
)
(5,451
)
(9,936
)
(11,960
)
Operating income
12,115
14,373
28,019
33,201
Interest income
331
274
986
604
Interest expense
(3,024
)
(3,066
)
(8,988
)
(9,265
)
Income before income taxes
9,422
11,581
20,017
24,540
Income tax expense
(913
)
(1,413
)
(1,782
)
(1,551
)
Net income
8,509
10,168
18,235
22,989
Less: Net income attributable to
noncontrolling interests
(552
)
(1,251
)
(635
)
(3,409
)
Net income attributable to Sterling common
stockholders
$
7,957
$
8,917
$
17,600
$
19,580
Net income per share attributable to
Sterling common stockholders:
Basic
$
0.30
$
0.33
$
0.67
$
0.73
Diluted
$
0.30
$
0.33
$
0.66
$
0.72
Weighted average common shares
outstanding:
Basic
26,365
26,908
26,359
26,893
Diluted
26,637
27,295
26,661
27,174
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
SEGMENT INFORMATION
(In thousands)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
% of Total
2018
% of Total
2019
% of Total
2018
% of Total
Revenues
Heavy Civil Construction
$
251,757
86
%
$
254,544
87
%
$
661,071
85
%
$
665,068
85
%
Residential Construction
39,942
14
%
36,722
13
%
118,663
15
%
117,424
15
%
Total Revenues
$
291,699
$
291,266
$
779,734
$
782,492
Operating Income
Heavy Civil Construction
$
8,692
62
%
$
9,148
64
%
$
14,253
47
%
$
17,488
53
%
Residential Construction
5,319
38
%
5,225
36
%
15,924
53
%
15,713
47
%
Subtotal
14,011
14,373
30,177
33,201
Acquisition related costs
(1,896
)
—
(2,158
)
—
Total Operating Income
$
12,115
$
14,373
$
28,019
$
33,201
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except per
share data)
(Unaudited)
September 30, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
$
76,530
$
94,095
Accounts receivable, including
retainage
160,512
145,026
Costs and estimated earnings in excess of
billings
67,602
41,542
Inventory
2,386
3,159
Receivables from and equity in
construction joint ventures
14,651
10,720
Other current assets
11,065
8,074
Total current assets
332,746
302,616
Property and equipment, net
48,584
51,999
Operating lease right-of-use assets
14,589
—
Goodwill
85,231
85,231
Other intangibles, net
40,617
42,418
Other non-current assets, net
202
309
Total assets
$
521,969
$
482,573
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable
$
110,624
$
99,426
Billings in excess of costs and estimated
earnings
61,533
62,407
Current maturities of long-term debt
12,238
2,899
Current portion of long-term lease
obligations
7,492
—
Income taxes payable
214
318
Accrued compensation
14,576
9,448
Other current liabilities
6,982
4,676
Total current liabilities
213,659
179,174
Long-term debt
62,489
79,117
Long-term lease obligations
7,191
—
Members’ interest subject to mandatory
redemption and undistributed earnings
51,272
49,343
Deferred taxes
3,011
1,450
Other long-term liabilities
1,088
1,229
Total liabilities
338,710
310,313
Stockholders’ equity:
Preferred stock, par value $0.01 per
share; 1,000 shares authorized, none issued
—
—
Common stock, par value $0.01 per share;
38,000 shares authorized, 27,049 and 27,064 shares issued, 26,476
and 26,597 shares outstanding
271
271
Additional paid in capital
234,309
233,795
Treasury Stock, at cost: 573 and 467
shares
(6,581
)
(4,731
)
Retained deficit
(47,334
)
(64,934
)
Total Sterling stockholders’ equity
180,665
164,401
Noncontrolling interests
2,594
7,859
Total stockholders’ equity
183,259
172,260
Total liabilities and stockholders’
equity
$
521,969
$
482,573
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September
30,
2019
2018
Cash flows from operating
activities:
Net income
$
18,235
$
22,989
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
12,288
12,511
Amortization of deferred debt costs
2,375
2,427
Gain on disposal of property and
equipment
(466
)
(466
)
Deferred tax expense
1,561
1,299
Stock-based compensation expense
2,489
2,181
Changes in operating assets and
liabilities
(28,005
)
(14,695
)
Net cash provided by operating
activities
8,477
26,246
Cash flows from investing
activities:
Capital expenditures
(7,871
)
(9,533
)
Proceeds from sale of property and
equipment
1,265
1,499
Net cash used in investing activities
(6,606
)
(8,034
)
Cash flows from financing
activities:
Repayments of long-term debt
(10,435
)
(11,298
)
Distributions to noncontrolling interest
owners
(5,900
)
(1,350
)
Purchase of treasury stock
(3,201
)
—
Other
100
(181
)
Net cash used in financing activities
(19,436
)
(12,829
)
Net change in cash and cash
equivalents
(17,565
)
5,383
Cash and cash equivalents at beginning of
period
94,095
83,953
Cash and cash equivalents at end of
period
$
76,530
$
89,336
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
CONDENSED 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 September
30, 2019
As Reported (GAAP)
Adjustment
Adjusted (Non-GAAP)
Revenues
$
291,699
$
—
$
291,699
Cost of revenues
(262,483
)
—
(262,483
)
Gross profit
29,216
—
29,216
General and administrative expense
(10,839
)
—
(10,839
)
Acquisition related costs
(1,896
)
1,896
—
Other operating expense, net
(4,366
)
—
(4,366
)
Operating income
12,115
1,896
14,011
Interest income
331
—
331
Interest expense
(3,024
)
—
(3,024
)
Income before income taxes
9,422
1,896
11,318
Income tax expense
(913
)
—
(913
)
Net income
8,509
1,896
10,405
Less: Net income attributable to
noncontrolling interests
(552
)
—
(552
)
Net income attributable to Sterling common
stockholders
$
7,957
$
1,896
$
9,853
Percent change in net income attributable
to Sterling common stockholders compared to the three months ended
September 30, 2018 amount of $8,917
(11
)%
11
%
Net income per share attributable to
Sterling common stockholders:
Basic
$
0.30
$
0.07
$
0.37
Diluted
$
0.30
$
0.07
$
0.37
Weighted average common shares
outstanding:
Basic
26,365
26,365
26,365
Diluted
26,637
26,637
26,637
(1) The summary unaudited adjusted
financial data is presented excluding the costs of acquiring
Plateau. This presentation is considered a non-GAAP financial
measure, which the Company believes provides a better indication of
our operating results prior to the acquisition.
Forward-Looking Twelve Months
Ended December 31, 2019
Forecast (GAAP)
Adjustment(1)
Adjusted (Non-GAAP)
Net income attributable to Sterling common
stockholders (Low Estimate)
$
16,000
$
13,000
$
29,000
Net income attributable to Sterling common
stockholders (High Estimate)
$
17,000
$
13,000
$
30,000
(1) The adjustment includes estimated full
year acquisition related costs of approximately $4 million and
approximately $9 million of early debt extinguishment cost related
to the refinancing of our principle borrowing facility.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191104005973/en/
Sterling Construction Company, Inc. Ron Ballschmiede, Chief
Financial Officer 281-214-0800
Investor Relations Counsel: The Equity Group Inc. Fred
Buonocore, CFA 212-836-9607
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