EX-99.1 2 strl_8-kxq32018xex991press.htm EXHIBIT 99.1 Exhibit


sterlinga02.jpg
FOR IMMEDIATE RELEASE

STERLING REPORTS STRONG 2018 THIRD QUARTER RESULTS
Delivers Year-Over-Year Net Income Growth of 25%
Combined Backlog Reaches $1.175 billion, Up 18% over December 31, 2017

THE WOODLANDS, TX – November 5, 2018 – Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or “the Company”) today announced financial results for the third quarter and nine months ended September 30, 2018.

Consolidated Third Quarter 2018 Financial Results Compared to Third Quarter 2017:
•
Revenues were $291.3 million compared to $304.2 million;
•
Gross margin was 10.8% of revenues compared to 10.1%;
•
Operating income was $14.4 million compared to $12.6 million;
•
Net income attributable to Sterling common stockholders was $8.9 million compared to $7.1 million; and,
•
Net income per diluted share attributable to common stockholders was $0.33 compared to $0.26.

Consolidated Financial Position at September 30, 2018:
•
Cash and Cash Equivalents were $89.3 million;
•
Working capital totaled $118.7 million; and,
•
Total debt was $81.4 million.

Business Overview:
Third quarter 2018 revenues decreased 4.3% compared to the prior year quarter. Heavy civil construction revenues decreased $8.7 million or 3.3% over the third quarter of 2017 driven by a $32.8 million revenue decline related to two majority owned construction joint venture projects that are nearing successful completion. The decline in construction joint venture projects was partially offset by higher commercial, aviation, and other heavy highway revenues in the third quarter of 2018. Third quarter 2018 residential construction revenues totaled $36.7 million, a decrease of 10.3% compared to the third quarter of 2017, are a result of record setting rainfall in Texas during the 2018 third quarter.

Gross profit was $31.5 million in the third quarter of 2018, an increase of $0.9 million from the prior year third quarter. Gross margin expanded by over 70 basis points to 10.8% reflecting significant improvement in heavy civil construction gross margin along with consistent strong margins from our residential construction business.

General and administrative expenses were $11.7 million in the third quarter of 2018, or 4.0% of revenues compared to $13.1 million or 4.3% in the third quarter of 2017.






Heavy Civil Construction Backlog Highlights:
•
Combined backlog at September 30, 2018 was $1.175 billion, an increase from $995 million at December 31, 2017. Combined backlog consists of $833 million of backlog and $342 million of unsigned contracts as of September 30, 2018 compared to $744 million and $250 million at December 31, 2017, respectively. No residential construction is included in backlog;
•
Gross margin on projects in combined backlog as of September 30, 2018 averaged 9.0%, an increase from 8.3% at December 31, 2017; and,
•
Combined backlog is comprised of approximately 70% heavy highway construction projects with the balance consisting mainly of commercial, aviation, water containment and treatment projects.

CEO Remarks and Outlook:
“Sterling generated 25% year-over-year growth in earnings during the third quarter despite severe weather in our Texas market,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “Record setting rainfall hampered the ability of our Texas heavy civil operation and, to an even greater extent our residential concrete construction business’s ability to execute on projects during August and September. The good news is, that even with around a month’s worth of consecutive rain in Houston, and even more in the Dallas area during the third quarter, we were able to hit our expectations for the period, which reflects the benefits of Sterling’s overall diversity with respect to geographies, end markets and construction capabilities.”

“Our strong year-over-year earnings growth reflects continued gross margin expansion relative to the prior year period for our heavy civil business resulting from a combination of our disciplined bid practices, increasing diversification of projects outside of heavy highway, more efficient execution on jobs and cost rationalization. Additionally, our SG&A as a percent of revenue is at a best in class level, providing us with significant operating leverage. On the project front, outside of our Texas market which was adversely impacted by the poor weather, all of our other geographies performed well with continued strong results coming out of our Rocky Mountain region. As of the end of the third quarter, our combined backlog was up by nearly 13% since the end of June as our bookings were excellent during the period. We announced several new project wins in a variety of end markets in recent months, including a very large joint venture project in Colorado with a contract value expected to exceed $200 million. We continue to see very robust markets with in our footprint including some future large projects in the Rocky Mountain region.”

‘With respect to our residential concrete construction operations, while operations were made difficult by the heavy rain during the third quarter, we are on track to make up the lost production in the fourth quarter, with more open foundation orders going into the fourth quarter than in the business’s history. While rising interest rates have translated into heightened concern over the future of the U.S. residential construction market, it’s important to understand that Dallas-Fort Worth, our primary residential market, has a growth outlook that far exceeds the national average, even with tempered expectations resulting from rising interest rates. Additionally, we are in the process of organically expanding this business and continue to penetrate the Houston market, another region with a favorable growth outlook, with our unique business model.”

Mr. Cutillo continued, “We continued to strengthen our balance sheet with our cash and cash equivalents rising to nearly $90 million as of the end of the third quarter. With our increasingly healthy liquidity situation and our outlook for consistent free cash flow, we are actively pursuing opportunities to enhance our organic growth through accretive M&A that can further our goal of reshaping our portfolio to an end-market mix of approximately 50% non-heavy highway work, which we expect to contribute to further margin expansion.”





Mr. Cutillo concluded, “Based on booking trends, market strength, continued mix shift, reduced cost and improved execution, we expect another strong growth year in 2019 and will provide more specifics around our 2019 outlook when we report fourth quarter 2018 results. 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 Tuesday, November 6, 2018 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 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 infrastructure construction and infrastructure rehabilitation as well as residential construction projects, primarily in Arizona, California, Colorado, Hawaii, Nevada, Texas, Utah and 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.

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.

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


(See Accompanying Tables)

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS




(Amounts in thousands, except per share data)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
$
291,266

 
$
304,219

 
$
782,492

 
$
704,047

Cost of revenues
(259,735
)
 
(273,588
)
 
(698,975
)
 
(638,924
)
Gross profit
31,531

 
30,631

 
83,517

 
65,123

General and administrative expenses
(11,707
)
 
(13,129
)
 
(38,356
)
 
(36,545
)
Other operating expense, net
(5,452
)
 
(4,863
)
 
(11,960
)
 
(9,371
)
Operating income
14,372

 
12,639

 
33,201

 
19,207

Interest income
274

 
107

 
604

 
192

Interest expense
(3,067
)
 
(3,576
)
 
(9,265
)
 
(6,672
)
Loss on extinguishment of debt
—

 
—

 
—

 
(755
)
Income before income taxes and noncontrolling interests in earnings
11,579

 
9,170

 
24,540

 
11,972

Income tax expense
(1,413
)
 
(344
)
 
(1,551
)
 
(469
)
Net income
10,166

 
8,826

 
22,989

 
11,503

Noncontrolling interests in earnings
(1,251
)
 
(1,694
)
 
(3,409
)
 
(2,966
)
Net income attributable to Sterling common stockholders
$
8,915

 
$
7,132

 
$
19,580

 
$
8,537

 
 
 
 
 
 
 
 
Net income per share attributable to Sterling common stockholders:
 

 
 

 
 

 
 

Basic
$
0.33

 
$
0.27

 
$
0.73

 
$
0.33

Diluted
$
0.33

 
$
0.26

 
$
0.72

 
$
0.33

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding used in computing per share amounts:
 
 
 

 
 

 
 

Basic
26,908

 
26,486

 
26,893

 
25,787

Diluted
27,295

 
26,920

 
27,174

 
26,260










STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
(Unaudited)
 
September 30,
2018
 
December 31,
2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
89,336

 
$
83,953

Receivables, including retainage
160,247

 
133,931

Costs and estimated earnings in excess of billings on uncompleted contracts
40,275

 
37,112

Inventories
3,140

 
4,621

Receivables from and equity in construction joint ventures
11,521

 
11,380

Other current assets
8,857

 
7,529

Total current assets
313,376

 
278,526

Property and equipment, net
52,196

 
54,406

Goodwill
85,231

 
85,231

Intangibles, net
43,018

 
44,818

Other assets, net
343

 
317

Total assets
$
494,164

 
$
463,298

LIABILITIES AND EQUITY
 
 
 

Current liabilities:
 
 
 

Accounts payable
$
106,271

 
$
97,457

Billings in excess of costs and estimated earnings on uncompleted contracts
63,964

 
62,374

Current maturities of long-term debt
3,014

 
3,978

Income taxes payable
279

 
81

Accrued compensation
14,866

 
9,054

Other current liabilities
6,275

 
9,348

Total current liabilities
194,669

 
182,292

Long-term liabilities:
 

 
 

Long-term debt, net of current maturities
78,424

 
86,160

Members' interest subject to mandatory redemption and undistributed earnings
48,844

 
47,386

Deferred taxes
1,299

 
—

Other long-term liabilities
1,230

 
1,271

Total long-term liabilities
129,797

 
134,817

Commitments and contingencies (Note 10)
 
 
 
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, 27,068,353 and 27,051,468 shares issued
271

 
271

Additional paid in capital
233,056

 
231,183

Retained deficit
(70,544
)
 
(90,121
)
Total Sterling common stockholders’ equity
162,783

 
141,333

Noncontrolling interests
6,915

 
4,856

Total equity
169,698

 
146,189

Total liabilities and equity
$
494,164

 
$
463,298








Segment Results
The following table presents total revenue and income from operations by reportable segment for the three and nine months ended September 30, 2018 and 2017 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue
 

 
 

 
 

 
 

Heavy Civil Construction
$
254,544

 
$
263,278

 
$
665,068

 
$
625,887

Residential Construction
36,722

 
40,941

 
117,424

 
78,160

Total Revenue
$
291,266

 
$
304,219

 
$
782,492

 
$
704,047

 
 
 
 
 
 
 
 
Operating Income
 

 
 

 
 

 
 

Heavy Civil Construction
$
9,191

 
$
6,960

 
$
17,488

 
$
8,627

Residential Construction
5,181

 
5,679

 
15,713

 
10,580

Total Operating Income
$
14,372

 
$
12,639

 
$
33,201

 
$
19,207

 
The following table presents total assets by reportable segment at September 30, 2018 and December 31, 2017: 
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Heavy Civil Construction
$
363,058

 
$
354,090

Residential Construction
131,106

 
109,208

Total Assets
$
494,164

 
$
463,298