Record EBITDA (1)
Record Backlog of $1.2 billion and Backlog
Gross Margin of 12.7%
Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling”
or “the Company”) today announced financial results for the three
months ended March 31, 2020.
Consolidated First Quarter 2020 Financial Results Compared to
First Quarter 2019:
- Revenues were $296.7 million compared to $223.9 million;
- Gross margin was 11.9% of revenues compared to 8.7%;
- Plateau acquisition related costs totaled $0.5 million or $0.02
per diluted share;
- Net income attributable to Sterling common stockholders was
$3.1 million or $3.5 million on an adjusted basis(1) compared to
$1.8 million or $2.0 million on an adjusted basis(1);
- Net income per diluted share attributable to Sterling common
stockholders was $0.11 or $0.12 on an adjusted basis(1) compared to
$0.07;
- Cash flows from operations was $10.8 million, an improvement of
$30.0 million; and,
- Adjusted EBITDA(1) was $20.8 million compared to $9.0
million.
Consolidated Financial Position and Liquidity at March 31,
2020:
- Cash and Cash Equivalents were $73.9 million;
- Debt, net of cash totaled $385.1 million; and,
- Remaining availability of $25 million under our $75 million
Revolving Credit Facility.
Heavy Civil and Specialty Services Backlog Highlights
- Combined Backlog at March 31, 2020 was $1.43 billion, up from
$1.34 billion at December 31, 2019. Combined Backlog consists of
$1.19 billion of Backlog and $241 million of Unsigned Low-bid
Awards as of March 31, 2020 compared to $1.07 billion and $273
million at December 31, 2019, respectively. No residential
contracts are included in Backlog.
- Total margin in Backlog has increased approximately 120 basis
points, from 11.5% at December 31, 2019 to 12.7% at March 31, 2020.
Combined Backlog gross margin improved from 11.0% at December 31,
2019 to 12.1% at March 31, 2020.
Due to the uncertain future COVID-19 financial impacts over the
balance of the year, we have withdrawn our previously articulated
guidance until we have greater visibility.
CEO Remarks and Outlook
Sterling’s Chief Executive Officer, Joe Cutillo, stated, “I’m
very proud of our 3,000 employees and their ability to take care of
our customers, protect themselves and their families and adapt to a
rapidly changing environment associated with the COVID-19 pandemic.
Their hard work, ingenuity and quick actions enabled us to deliver
record first quarter results that were consistent with our
expectations heading into the quarter. Additionally, our first
quarter results were aligned with our strategic objectives to
continue to grow our bottom line profits faster than top line
revenue. Our recently acquired Plateau business, which is the
largest component of the Specialty Services segment, exceeded our
expectations in financial performance and booked over $100 million
of new business in the quarter. Our Residential operating income
was slightly lower than the prior year quarter due to heavy March
rains, but was up sequentially over the fourth quarter of 2019 as
we continue to expand into the Houston market. The Heavy Civil
segment saw the largest unfavorable productivity impact in the
first quarter related to the pandemic as customers and back offices
began to work virtually and new procedures and protocol were
developed and implemented into field operations. Despite the
COVID-19 pandemic headwinds, the Heavy Civil segment managed to
approach achieving our first quarter financial expectations.”
“As we look forward, all our segments have been deemed to be a
component of “Essential Critical Infrastructure” per the National
Cybersecurity and Infrastructure Agency. We have record backlogs in
both the Heavy Civil and Specialty Services segments and remain in
an enviable position versus many other businesses. However, we
expect to begin to see more significant impacts related to the
COVID-19 pandemic in the second and third quarters as our home
builder customers expect demand to slow, and new commercial
projects related to multifamily and offices may be delayed.”
Mr. Cutillo concluded, “Due to the anticipated slowdown in
project activity for our residential, multi-family and commercial
markets, along with the high potential of other unforeseen impacts,
we have decided to withdraw our previously articulated guidance
until we have greater visibility into these markets. Despite the
near-term challenges created by the COVID-19 pandemic, the profit
and cash flow generated by of each of our businesses in the first
quarter exemplify the continued execution of our strategy.
Importantly, we generated positive free cash flow in our seasonally
weak first quarter, and our liquidity position remains strong,
providing us with the financial flexibility to continue to execute
on our record combined backlog even if business conditions worsen,
and leaving us well prepared to resume the growth trajectory of our
bottom line when the economic environment normalizes.”
Conference Call
Sterling’s management will hold a conference call to discuss
these results and recent corporate developments on Tuesday, May 5,
2020 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., (“Sterling” or “the
Company”), a Delaware corporation, is a construction company that
has been involved in the construction industry since its founding
in 1955. The Company operates through a variety of subsidiaries
within three operating groups 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 construction
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.
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 net income, adjusted EPS 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.
Reconciliations of these 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: the scope and duration
of the COVID-19 pandemic and its continuing impact on national and
global economic conditions; and 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.
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per
share data)
(Unaudited)
Three Months Ended March
31,
2020
2019
Revenues
$
296,688
$
223,949
Cost of revenues
(261,443
)
(204,446
)
Gross profit
35,245
19,503
General and administrative expense
(17,604
)
(11,889
)
Intangible asset amortization
(2,837
)
(600
)
Acquisition related costs
(473
)
—
Other operating expense, net
(2,228
)
(2,294
)
Operating income
12,103
4,720
Interest income
99
364
Interest expense
(7,803
)
(3,060
)
Income before income taxes
4,399
2,024
Income tax expense
(1,184
)
(163
)
Net income
3,215
1,861
Less: Net income attributable to
noncontrolling interests
(100
)
(46
)
Net income attributable to Sterling common
stockholders
$
3,115
$
1,815
Net income per share attributable to
Sterling common stockholders:
Basic
$
0.11
$
0.07
Diluted
$
0.11
$
0.07
Weighted average common shares
outstanding:
Basic
27,736
26,377
Diluted
27,992
26,723
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
SEGMENT INFORMATION
(In thousands)
(Unaudited)
Three Months Ended March
31,
2020
% of Revenue
2019
% of Revenue
Revenue
Heavy Civil
$
155,615
53%
$
150,505
67%
Specialty Services
104,723
35%
30,679
14%
Residential
36,350
12%
42,765
19%
Total Revenue
$
296,688
$
223,949
Operating Income (Loss)
Heavy Civil
$
(3,622
)
(2.3)%
$
(2,147
)
(1.4)%
Specialty Services
11,114
10.6%
1,048
3.4%
Residential
5,084
14.0%
5,819
13.6%
Subtotal
12,576
4.2%
4,720
2.1%
Acquisition related costs
(473
)
—
Total Operating Income
$
12,103
4.1%
$
4,720
2.1%
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except per
share data)
(Unaudited)
March 31, 2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents
$
73,905
$
45,733
Accounts receivable, including
retainage
221,268
248,247
Costs and estimated earnings in excess of
billings
54,791
42,555
Receivables from and equity in
construction joint ventures
10,789
9,196
Other current assets
10,335
11,790
Total current assets
371,088
357,521
Property and equipment, net
117,818
116,030
Operating lease right-of-use assets
14,790
13,979
Goodwill
191,892
191,892
Other intangibles, net
253,486
256,323
Deferred tax asset, net
27,149
26,012
Other non-current assets, net
172
183
Total assets
$
976,395
$
961,940
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable
$
123,172
$
137,593
Billings in excess of costs and estimated
earnings
79,293
85,011
Current maturities of long-term debt
50,211
42,473
Current portion of long-term lease
obligations
7,410
7,095
Income taxes payable
1,656
1,212
Accrued compensation
14,187
13,727
Other current liabilities
10,403
6,393
Total current liabilities
286,332
293,504
Long-term debt
408,828
390,627
Long-term lease obligations
7,465
6,976
Members’ interest subject to mandatory
redemption and undistributed earnings
49,186
49,003
Other long-term liabilities
5,654
619
Total liabilities
757,465
740,729
Stockholders’ equity:
Common stock, par value $0.01 per share;
38,000 shares authorized, 28,282 and 28,290 shares issued, 27,966
and 27,772 shares outstanding
283
283
Additional paid in capital
250,689
251,019
Treasury Stock, at cost: 316 and 518
shares
(4,247
)
(6,142
)
Retained deficit
(21,918
)
(25,033
)
Accumulated other comprehensive loss
(7,270
)
(209
)
Total Sterling stockholders’ equity
217,537
219,918
Noncontrolling interests
1,393
1,293
Total stockholders’ equity
218,930
221,211
Total liabilities and stockholders’
equity
$
976,395
$
961,940
STERLING CONSTRUCTION COMPANY,
INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March
31,
2020
2019
Cash flows from operating
activities:
Net income
$
3,215
$
1,861
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization
8,285
4,302
Amortization of debt issuance costs
1,022
833
Gain on disposal of property and
equipment
(393
)
(38
)
Deferred taxes
913
141
Stock-based compensation expense
2,234
1,021
Loss on interest rate hedge
171
—
Changes in operating assets and
liabilities
(4,676
)
(27,362
)
Net cash provided by (used in) operating
activities
10,771
(19,242
)
Cash flows from investing
activities:
Capital expenditures
(7,354
)
(3,814
)
Proceeds from sale of property and
equipment
512
137
Net cash used in investing activities
(6,842
)
(3,677
)
Cash flows from financing
activities:
Borrowings on revolving credit
facility
30,000
—
Repayments of long-term debt
(5,082
)
(5,610
)
Distributions to noncontrolling interest
owners
—
(5,100
)
Purchase of treasury stock
—
(3,201
)
Other
(675
)
(501
)
Net cash provided by (used in) financing
activities
24,243
(14,412
)
Net change in cash and cash
equivalents
28,172
(37,331
)
Cash and cash equivalents at beginning of
period
45,733
94,095
Cash and cash equivalents at end of
period
$
73,905
$
56,764
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 March 31,
2020
As Reported (GAAP)
Adjustment
Adjusted (Non-GAAP)
Revenues
$
296,688
$
—
$
296,688
Cost of revenues
(261,443
)
—
(261,443
)
Gross profit
35,245
—
35,245
General and administrative expense
(17,604
)
—
(17,604
)
Intangible asset amortization
(2,837
)
—
(2,837
)
Acquisition related costs
(473
)
473
—
Other operating expense, net
(2,228
)
—
(2,228
)
Operating income
12,103
473
12,576
Interest income
99
—
99
Interest expense
(7,803
)
—
(7,803
)
Income before income taxes
4,399
473
4,872
Income tax expense (2)
(1,184
)
(99
)
(1,283
)
Net income
3,215
374
3,589
Less: Net income attributable to noncontrolling interests
(100
)
—
(100
)
Net income attributable to Sterling common stockholders
$
3,115
$
374
$
3,489
Net income per share attributable to Sterling common stockholders:
Basic
$
0.11
$
0.02
$
0.13
Diluted
$
0.11
$
0.01
$
0.12
Weighted average common shares outstanding:
Basic
27,736
—
27,736
Diluted
27,992
—
27,992
(1)
The summary unaudited adjusted financial
data is presented excluding the costs of acquiring 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.
(2)
Adjusted Non-GAAP income tax expense of
$1,283 includes non-cash federal income tax expense of $1,012.
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 March 31,
2019
As Reported (GAAP)
Adjustment
Adjusted (Non-GAAP)
Revenues
$
223,949
$
—
$
223,949
Cost of revenues
(204,446
)
—
(204,446
)
Gross profit
19,503
—
19,503
General and administrative expense
(11,889
)
—
(11,889
)
Intangible asset amortization
(600
)
—
(600
)
Other operating expense, net
(2,294
)
—
(2,294
)
Operating income
4,720
—
4,720
Interest income
364
—
364
Interest expense
(3,060
)
—
(3,060
)
Income before income taxes
2,024
—
2,024
Income tax (expense) benefit
(163
)
141
(22
)
Net income
1,861
141
2,002
Less: Net income attributable to
noncontrolling interests
(46
)
—
(46
)
Net income attributable to Sterling common
stockholders
$
1,815
$
141
$
1,956
Net income per share attributable to
Sterling common stockholders:
Basic
$
0.07
$
—
$
0.07
Diluted
$
0.07
$
—
$
0.07
Weighted average common shares
outstanding:
Basic
26,377
—
26,377
Diluted
26,723
—
26,723
(1)
The summary unaudited adjusted financial
data is presented excluding the non-cash taxes. 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 March
31,
2020
2019
Net income attributable to Sterling common
stockholders
$
3,115
$
1,815
Depreciation
5,448
3,702
Amortization
2,837
600
Interest expense, net of interest
income
7,704
2,696
Income tax (benefit) expense
1,184
163
EBITDA (1)
20,288
8,976
Acquisition related costs
473
—
Adjusted EBITDA (2)
$
20,761
$
8,976
(1)
The Company defines EBITDA as GAAP net
income (loss) attributable to Sterling common stockholders,
adjusted for depreciation and amortization, net interest expense,
taxes, and loss on extinguishment of debt.
(2)
Adjusted EBITDA excludes the impact of
acquisition related costs.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200504005750/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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