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Sterling Construction Company, Inc. Reports 2017 Third Quarter Results

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Increases 2017 Guidance

Sterling Construction Company, Inc. (NASDAQ:STRL) ("Sterling" or "the
Company") today announced financial results for the third quarter ended
September 30, 2017.

Consolidated Third Quarter 2017 Financial
Results Compared to Third Quarter 2016:

  • Revenues were $304.2 million compared to $205.6 million;
  • Gross margin was 10.1% of revenues compared to 8.1%;
  • Operating income was $12.6 million compared to $3.7 million;
  • Net income attributable to Sterling common stockholders was $7.1
    million compared to $2.4 million; and,
  • Net income per diluted share attributable to common stockholders was
    $0.26 compared to net income per diluted share of $0.10.

Consolidated Financial Position at September
30, 2017:

  • Cash and Cash Equivalents were $66.5 million;
  • Working capital totaled $84.8 million;
  • Total debt was $88.6 million.

Business Overview:

Third quarter 2017 revenues increased approximately 48% compared to the
prior year quarter. Heavy Civil Construction revenues grew $57.6 million
or 28% over the third quarter of 2016 driven by our large projects in
the Rocky Mountain market. The remainder of the increase in revenues was
primarily related to the Residential Construction acquisition which was
completed on April 3, 2017. Third quarter 2017 Residential Construction
revenues totaled $40.9 million compared to $37.2 million for the second
quarter of 2017. The residential markets continue to see steady growth
in the low double-digit range. Dallas housing starts increased 13% in
the third quarter of 2017 over the third quarter of 2016, while our
principal operating market for the Residential Construction business
continues to perform in excess of the aforementioned market growth rates.

Gross profit was $30.6 million in the third quarter of 2017, an increase
of $14.0 million from the prior year third quarter. Gross margin
expanded by 200 basis points to 10.1% primarily as a result of the
acquisition of Residential Construction which added approximately 160
basis points to gross margin in the third quarter with the balance
derived by higher gross margins from Heavy Civil Construction.

General and administrative expenses were $13.1 million in the third
quarter of 2017, or 4.3% of revenues compared to $9.1 million or 4.4% in
the third quarter of 2016. The increase was primarily the result of the
Residential Construction acquisition and increased recruiting and
pre-bid contract costs in the Company's Rocky Mountain market.

Heavy Civil Construction Backlog Highlights:

  • Total backlog at September 30, 2017 of $804 million was down 2% when
    compared to December 31, 2016 and down 12.9% from the second quarter
    of 2017, which is reflective of a 28% increase in Heavy Civil third
    quarter revenue over the prior year;
  • Total backlog at September 30, 2017 excludes $108 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 September 30, 2017 averaged
    8.4% as compared with 8.2% at December 31, 2016 and 8% at September
    30, 2016, while gross margin on the projects awarded in the third
    quarter of 2017 averaged approximately 9.5%.

CEO Remarks and Outlook:

"The Sterling Team was able to deliver another strong quarter in some
very adverse conditions," stated Joe Cutillo, Sterling's Chief Executive
Officer. "Even with the impact of one of the worst hurricanes in Texas
history, we were still able to improve our Heavy Civil performance, and
deliver strong top line and bottom line growth in the third quarter to
exceed our expectations. In addition to improved Heavy Civil
performance, our Residential Construction segment contributed
approximately $40 million in revenues as the business completed the
highest number of concrete slabs for a single quarter in its history. We
also executed well on some large projects in the Rocky Mountain region.
The net impact of Hurricane Harvey on our third quarter was not
significant as the productivity lost on Gulf Coast projects was largely
offset by emergency work that resulted from the storm related flooding.
Our backlog decreased compared to the end of the second quarter
reflecting the seasonal timing of bidding opportunities, along with the
delay of project lettings by TxDOT in the wake of Harvey, coupled with
our continued disciplined approach to bidding."

Mr. Cutillo continued, "We expect our fourth quarter results to remain
strong but follow our typical seasonal decline in both our Heavy Civil
and Residential Construction businesses. Given our strong year-to-date
performance and our expectations for the fourth quarter, we are raising
our guidance ranges for full year 2017 as follows:

  • Revenues of $915 million to $935 million, from $850 million to $880
    million;
  • Net income attributable to Sterling common stockholders of $11.0
    million to $12.5 million from $9.0 million to $11.0 million.

We expect our full year 2017 average common shares outstanding to be
approximately 26.6 million.

"Looking beyond 2017, we expect to benefit from a macro environment that
continues to provide a steady stream of heavy civil project
opportunities across our geographies. Additionally, for our residential
business, we anticipate that the Dallas-Fort Worth Metroplex will
continue growing at low double digit percentages and we are on track to
begin an expansion of our Residential Construction operations in the
Houston market in the first half of 2018. Collectively, we expect these
factors to lead to top-line growth in the mid-to-high single digits
which, combined with our leveragable cost structure and our shifting mix
towards higher margin business should lead to margin expansion and
increased cash flow. As a result, we anticipate that our balance sheet
will further strengthen, providing us with greater financial flexibility
to reinvest in our business and pursue attractive growth opportunities."

Conference Call:

Sterling's management will hold a conference call to discuss these
results and recent corporate developments on Tuesday, October 31, 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 Construction 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.

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 
 

Three Months Ended

 

Nine Months Ended

September 30,

September 30,

2017   2016 2017   2016
Revenues $ 304,219 $ 205,629 $ 704,047 $ 521,778
Cost of revenues (273,588 ) (189,007 ) (638,924 ) (486,065 )
Gross profit 30,631 16,622 65,123 35,713
General and administrative expenses (13,129 ) (9,146 ) (36,545 ) (27,888 )
Other operating expense, net (4,863 ) (3,804 ) (9,371 ) (7,238 )
Operating income 12,639 3,672 19,207 587
Interest income 107 15 192 19
Interest expense (3,576 ) (491 ) (6,672 ) (2,176 )
Loss on extinguishment of debt     (755 )  
Income (loss) before income taxes and earnings attributable to
noncontrolling interests
9,170 3,196 11,972 (1,570 )
Income tax expense (344 ) (41 ) (469 ) (68 )
Net income (loss) 8,826 3,155 11,503 (1,638 )
Noncontrolling owners' interests in earnings of subsidiaries and
joint ventures
(1,694 ) (740 ) (2,966 ) (1,252 )
Net income (loss) attributable to Sterling common stockholders $ 7,132   $ 2,415   $ 8,537   $ (2,890 )
 
Net income (loss) per share attributable to Sterling common
stockholders:
Basic $ 0.27 $ 0.10 $ 0.33 $ (0.12 )
Diluted $ 0.26 $ 0.10 $ 0.33 $ (0.12 )
 
Weighted average number of common shares outstanding used in
computing per share amounts:
Basic 26,486 25,003 25,787 23,915
Diluted 26,920 25,365 26,260 23,915
 

Segment Results

 
 

Three Months Ended

 

Nine Months Ended

September 30,

September 30,

2017   2016 2017   2016
Revenue
Heavy Civil Construction $ 263,278 $ 205,629 $ 625,887 $

521,778

 

Residential Construction 40,941     78,160    
Total Revenue $ 304,219   $ 205,629   $ 704,047   $ 521,778  
 
Operating Income
Heavy Civil Construction $ 6,960 $ 3,672 $ 8,627 $ 587
Residential Construction 5,679     10,580    
Total Operating Income $ 12,639   $ 3,672   $ 19,207   $ 587  
 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 
 

September 30,

 

December 31,

2017

2016

(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 66,541 $ 42,785
Contracts receivable, including retainage 149,052 84,132
Costs and estimated earnings in excess of billings on uncompleted
contracts
43,384 32,705
Inventories 2,093 3,708
Receivables from and equity in construction joint ventures 9,069 7,130
Other current assets 9,654   5,448  
Total current assets 279,793 175,908
Property and equipment, net 59,464 68,127
Goodwill 85,277 54,820
Intangibles 45,200
Other assets, net 3,301   2,968  
Total assets $ 473,035   $ 301,823  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 100,565 $ 67,097
Billings in excess of costs and estimated earnings on uncompleted
contracts
63,368 64,100
Current maturities of long-term debt 986 3,845
Income taxes payable 280 78
Accrued compensation 14,566 5,322
Other current liabilities 15,188   6,150  
Total current liabilities 194,953   146,592  
Long-term liabilities:
Long-term debt, net of current maturities 88,619 1,549
Member's interest subject to mandatory redemption and undistributed
earnings
46,329 45,230
Other long-term liabilities 595   362  
Total long-term liabilities 135,543   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; 38,000,000 shares
authorized, 27,023,143 and 24,987,306 shares issued
270 250
Additional paid in capital 231,848 208,922
Retained deficit (93,201 ) (101,738 )
Total Sterling common stockholders' equity 138,917 107,434
Noncontrolling interests 3,622   656  
Total equity 142,539   108,090  
Total liabilities and equity $ 473,035   $ 301,823  

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