Market Overview

Sterling Construction Company, Inc. Reports Strong 2018 Second Quarter Results

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Revenue up 9.1%, Net Income up 123%, Raises
Full Year Guidance Ranges

Sterling Construction Company, Inc. (NASDAQ:STRL) ("Sterling" or "the
Company") today announced financial results for the second quarter and
six months ended June 30, 2018.

Consolidated Second Quarter 2018 Financial
Results Compared to Second Quarter 2017:

  • Revenues grew 9.1% to $268.7 million compared to $246.4 million;
  • Gross margin was 11.7% of revenues compared to 10.2%;
  • Operating income was $12.1 million compared to $8.4 million;
  • Net income attributable to Sterling common stockholders was $8.2
    million compared to $3.7 million; and,
  • Net income per diluted share attributable to common stockholders was
    $0.30 compared to $0.13.

Consolidated Financial Position at June 30,
2018:

  • Cash and Cash Equivalents were $66.6 million;
  • Working capital totaled $114.1 million; and,
  • Total debt was $94.4 million.

Business Overview:

Second quarter 2018 revenues increased 9.1% compared to the prior year
quarter. Heavy civil construction revenues grew $14.1 million or 6.7%
over the second quarter of 2017 driven mainly by an increase in
commercial and aviation projects. Second quarter 2018 residential
construction revenues totaled $45.5 million, an increase of 22% over the
second quarter of 2017, driven by increasing demand from the Dallas-Fort
Worth market along with initial projects in the Houston area.

Gross profit was $31.5 million in the second quarter of 2018, an
increase of $6.3 million from the prior year second quarter. Gross
margin expanded by 150 basis points to 11.7% reflecting significant
improvement in heavy civil construction gross margin along with
continued strong profitability from our residential construction
business.

General and administrative expenses were $13.6 million in the second
quarter of 2018, or 5.1% of revenues compared to $12.8 million or 5.2%
in the second quarter of 2017.

Heavy Civil Construction Backlog Highlights:

  • Combined Backlog at June 30, 2018 was $1.041 billion, an increase from
    $995 million at December 31, 2017. Combined Backlog consists of $885
    million of backlog and $156 million of unsigned contracts as of June
    30, 2018 compared to $745 million and $250 million at December 31,
    2017, respectively. No residential construction is included in backlog;
  • Combined Backlog for June 30, 2018 included $31 million related to our
    two consolidated construction joint ventures compared to $78 million
    at the end of 2017, reflecting the substantial progress on these
    projects. This construction joint venture reduction in backlog has
    essentially been replaced with new backlog with 100% Sterling
    participation;
  • Gross margin on projects in Combined Backlog as of June 30, 2018
    averaged 8.8%, an increase from 8.3% at December 31, 2017; and,
  • Combined Backlog is comprised of approximately 65% heavy highway
    construction projects with the balance of 35% consisting mainly of
    commercial, aviation, water containment and treatment projects.

CEO Remarks and Outlook:

"Sterling delivered strong year-over-year growth on both the top and
bottom lines, with all of our businesses making positive contributions
in the second quarter," stated Joe Cutillo, Sterling's Chief Executive
Officer. "Our heavy civil operating income more than doubled. Our Rocky
Mountain heavy civil operation continues to execute very well against
large project awards received in recent years, and we are optimistic
about additional large opportunities in this market for the coming
quarters."

"The second quarter of 2018 marked the beginning of our second year with
the residential segment of our business, which grew significantly, and
highly profitably, from the same period last year. The Dallas-Fort Worth
housing market continues to remain very healthy and our expansion into
Houston is progressing on schedule. The combination of our residential
business's best-in-class operations and the persistent robust population
growth trend in Texas makes us increasingly confident in the multi-year
growth potential of this segment."

Mr. Cutillo continued, "Also noteworthy is our increased cash position,
which ended the quarter at nearly $67 million. Given our healthy cash
flow and increasingly strong balance sheet, we are well positioned to
pursue strategic uses of our cash as we work towards our target business
mix of approximately 50% non-heavy highway work."

Mr. Cutillo concluded, "Based on our strong second quarter results, our
current backlog and the macro outlook for our end markets and
geographies, we are raising guidance for 2018 revenues of between $1.030
billion and $1.045 billion and net income attributable to Sterling
common stockholders of between $24.0 million and $26.5 million, with
average common shares outstanding of 27.5 million. The midpoint of our
guidance implies year-over-year growth in revenues of more than 8% and
calls for an increase in net income in excess of 118% as compared to
2017. Our revenue expectations reflect growth in our residential
business of greater than 10%, and mid-single digit growth in our heavy
civil business, with our overall revenue mix continuing to migrate
towards higher margin work. Our outlook does not assume any major
positive changes in government investment in infrastructure, which would
likely enhance our growth forecast."

Conference Call:

Sterling's management will hold a conference call to discuss these
results and recent corporate developments on Thursday, August 2, 2018 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 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 construction company that specializes in heavy civil
construction and residential construction projects, primarily in
Arizona, California, Colorado, Hawaii, Nevada, Texas, Utah and other
states in which there are feasible construction opportunities. Our 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. Our 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.

(See Accompanying Tables)

 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

       

Three Months Ended
June 30,

Six Months Ended
June 30,

2018   2017 2018   2017
Revenues $ 268,734 $ 246,412 $ 491,226 $ 399,828
Cost of revenues (237,269 ) (221,207 ) (439,240 ) (365,336 )
Gross profit 31,465 25,205 51,986 34,492
General and administrative expenses (13,622 ) (12,812 ) (26,649 ) (23,416 )
Other operating expense, net (5,693 ) (4,037 ) (6,509 ) (4,508 )
Operating income 12,150 8,356 18,828 6,568
Interest income 201 44 330 85
Interest expense (3,111 ) (2,984 ) (6,199 ) (3,096 )
Loss on extinguishment of debt   (755 )   (755 )
Income before income taxes and noncontrolling interests in earnings 9,240 4,661 12,959 2,802
Income tax expense (98 ) (98 ) (138 ) (125 )
Net income 9,142 4,563 12,821 2,677
Noncontrolling interests in earnings (966 ) (901 ) (2,158 ) (1,272 )
Net income attributable to Sterling common stockholders $ 8,176   $ 3,662   $ 10,663   $ 1,405  
 
Net income per share attributable to Sterling common stockholders:
Basic $ 0.30 $ 0.14 $ 0.40 $ 0.05
Diluted $ 0.30 $ 0.13 $ 0.39 $ 0.05
 
Weighted average number of common shares outstanding used in
computing per share amounts:
Basic 26,887 26,978 26,881 25,972
Diluted 27,125 27,336 27,162 26,409
 
 

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)

       
June 30,
2018
December 31,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 66,585 $ 83,953
Receivables, including retainage 164,465 133,931
Costs and estimated earnings in excess of billings on uncompleted
contracts
36,388 37,112
Inventories 1,613 4,621
Receivables from and equity in construction joint ventures 11,766 11,380
Other current assets 9,066   7,529  
Total current assets 289,883 278,526
Property and equipment, net 51,726 54,406
Goodwill 85,231 85,231
Intangibles, net 43,618 44,818
Other assets, net 227   317  
Total assets $ 470,685   $ 463,298  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 96,384 $ 97,457
Billings in excess of costs and estimated earnings on uncompleted
contracts
58,304 62,374
Current maturities of long-term debt 826 3,978
Income taxes payable 88 81
Accrued compensation 13,096 9,054
Other current liabilities 7,063   9,348  
Total current liabilities 175,761   182,292  
Long-term liabilities:
Long-term debt, net of current maturities 85,749 86,160
Members' interest subject to mandatory redemption and undistributed
earnings
47,837 47,386
Other long-term liabilities 1,246   1,271  
Total long-term liabilities 134,832   134,817  
Commitments and contingencies (Note 9)
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, 27,064,428 and 27,051,468 shares issued
271 271
Additional paid in capital 232,265 231,183
Retained deficit (79,458 ) (90,121 )

Total Sterling common stockholders' equity

153,078 141,333
Noncontrolling interests 7,014   4,856  
Total equity 160,092   146,189  
Total liabilities and equity $ 470,685   $ 463,298  
 

Segment Results

The following table presents total revenue and income from operations by
reportable segment for the three and six months ended June 30, 2018 and
2017 (in thousands):

       
Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
Revenue
Heavy Civil Construction $ 223,284 $ 209,194 $ 410,524 $ 362,610
Residential Construction 45,450   37,218   80,702   37,218
Total Revenue $ 268,734   $ 246,412   $ 491,226   $ 399,828
 
Operating Income
Heavy Civil Construction $ 6,380 $ 3,141 $ 8,340 $ 1,667
Residential Construction 5,770   5,215   10,488   4,901
Total Operating Income $ 12,150   $ 8,356   $ 18,828   $ 6,568
 

The following table presents total assets by reportable segment at June
30, 2018 and December 31, 2017:

      June 30,
2018
  December 31,
2017
Assets
Heavy Civil Construction $ 343,559 $ 354,090
Residential Construction 127,126   109,208
Total Assets $ 470,685   $ 463,298

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