Document

“We had another great quarter, nearly doubling our net income year-over-year and further enhancing our financial position through strong free cash flow generation,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “The third quarter was yet another example of the effectiveness of our strategic focus on diversifying into higher margin, higher value add, lower risk work in terms of producing growth in bottom line results. I’d like to thank all of our nearly 3,000 employees for their hard work and dedication to the company throughout this unusual year. Their commitment to our shared vision has enabled us to achieve record results for the first nine months of the year, while at the same time upholding our COVID-19 protocols in order to keep our team safe and healthy.”

“Our Specialty Services segment, which is comprised primarily of our Plateau operations, once again delivered an outstanding bottom line performance reflecting its team’s consistent and highly effective project execution. Plateau continues to enjoy strong backlog given the market demand for their highly specialized capabilities for large distribution and data centers and warehousing customers. Our Residential segment capitalized on the recovery in the Texas home building market and continued its healthy growth, delivering year-over-year improvement in revenues and operating profit. The expansion of our Residential segment into the Houston market is progressing as scheduled and this large metropolitan area is well on its way to becoming a meaningful percentage of our overall slab count. Our Heavy Civil segment results were off modestly from last year’s third quarter due largely to a charge for increased estimated cost to complete the construction of three separate bridges in Texas and a shift in mix in the quarter. We expect to see an improved mix of revenues in the coming quarters as we ramp up on several of the attractive design-build and non-heavy highway projects we’ve booked in recent months,” continued Mr. Cutillo.

“We are very pleased with our liquidity position and cash generation. As of September 30, 2020, we have generated over $90 million of cash flow from operations and have reduced our total debt by $40.4 million (or $67.3 million, net of cash), while investing $20.5 million of capital expenditures, net of proceeds. We remain comfortable with our capital structure and believe that we have more than adequate financial flexibility to pursue new opportunities and continue our profitable growth. We expect to have a further reduction of debt over the balance of 2020, which will allow us to enter 2021 from a position of further improved financial strength,” added Mr. Cutillo.

Mr. Cutillo concluded, “Looking ahead, despite the pandemic-related uncertainty persisting in the U.S. economy, we are maintaining our full year 2020 guidance for revenues of between $1.415 billion and $1.430 billion and 2020 net income attributable to Sterling common stockholders of between $41 million and $44 million, excluding acquisition related costs of $1 million to $2 million, compared to $24.5 million of Adjusted Net Income in 2019. We expect our full year 2020 diluted average common shares outstanding to be approximately 28.1 million.”

Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Tuesday, November 3, 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.

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 segments 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.

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.

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 duration of the COVID-19 pandemic and its ongoing or further negative impact on global economic conditions; our business strategy; our financial strategy; and our 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.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues	$	383,458	$	291,699	$	1,080,184	$	779,734
Cost of revenues	(333,542)		(262,483)		(935,424)		(705,519)
Gross profit	49,916		29,216		144,760		74,215
General and administrative expense	(15,154)		(10,239)		(51,209)		(32,302)
Intangible asset amortization	(2,866)		(600)		(8,569)		(1,800)
Acquisition related costs	(401)		(1,896)		(1,013)		(2,158)
Other operating expense, net	(2,664)		(4,366)		(9,989)		(9,936)
Operating income	28,831		12,115		73,980		28,019
Interest income	23		331		146		986
Interest expense	(7,177)		(3,024)		(22,537)		(8,988)

Income before income taxes	21,677		9,422		51,589		20,017
Income tax expense	(6,280)		(913)		(14,712)		(1,782)
Net income	15,397		8,509		36,877		18,235
Less: Net income attributable to noncontrolling interests	(240)		(552)		(395)		(635)
Net income attributable to Sterling common stockholders	$	15,157	$	7,957	$	36,482	$	17,600

Net income per share attributable to Sterling common stockholders:
Basic	$	0.54	$	0.30	$	1.31	$	0.67
Diluted	$	0.54	$	0.30	$	1.30	$	0.66

Weighted average common shares outstanding:
Basic	28,003		26,365		27,832		26,359
Diluted	28,233		26,637		27,986		26,661


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		% of Revenue	2019		% of Revenue	2020		% of Revenue	2019		% of Revenue
Revenue
Heavy Civil	$	201,078	52%	$	218,894	75%	$	577,141	54%	$	569,635	73%
Specialty Services	139,971		37%	32,863		11%	380,397		35%	91,436		12%
Residential	42,409		11%	39,942		14%	122,646		11%	118,663		15%
Total Revenue	$	383,458		$	291,699		$	1,080,184		$	779,734

Operating Income
Heavy Civil	$	2,405	1.2%	$	7,420	3.4%	$	2,679	0.5%	$	11,020	1.9%
Specialty Services	21,474		15.3%	1,371		4.2%	55,834		14.7%	3,284		3.6%
Residential	5,353		12.6%	5,220		13.1%	16,480		13.4%	15,873		13.4%
Subtotal	29,232		7.6%	14,011		4.8%	74,993		6.9%	30,177		3.9%
Acquisition related costs	(401)			(1,896)			(1,013)			(2,158)
Total Operating Income	$	28,831	7.5%	$	12,115	4.2%	$	73,980	6.8%	$	28,019	3.6%


	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	72,593	$	45,733
Accounts receivable, including retainage	271,342		248,247
Costs and estimated earnings in excess of billings	55,310		42,555
Receivables from and equity in construction joint ventures	13,802		9,196
Other current assets	14,171		11,790
Total current assets	427,218		357,521
Property and equipment, net	121,534		116,030
Operating lease right-of-use assets	17,250		13,979
Goodwill	192,014		191,892
Other intangibles, net	247,754		256,323
Deferred tax asset, net	16,589		26,012
Other non-current assets, net	153		183
Total assets	$	1,022,512	$	961,940

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	127,336	$	137,593
Billings in excess of costs and estimated earnings	126,986		85,011
Current maturities of long-term debt	57,476		42,473
Current portion of long-term lease obligations	7,624		7,095
Income taxes payable	2,251		1,212
Accrued compensation	24,328		13,727
Other current liabilities	11,368		6,393
Total current liabilities	357,369		293,504
Long-term debt	335,237		390,627
Long-term lease obligations	9,668		6,976
Members’ interest subject to mandatory redemption and undistributed earnings	50,798		49,003
Other long-term liabilities	10,124		619
Total liabilities	763,196		740,729
Stockholders’ equity:
Common stock	283		283
Additional paid in capital	254,860		251,019
Treasury Stock, at cost	(2,651)		(6,142)
Retained earnings (deficit)	11,449		(25,033)
Accumulated other comprehensive loss	(6,313)		(209)
Total Sterling stockholders’ equity	257,628		219,918
Noncontrolling interests	1,688		1,293
Total stockholders’ equity	259,316		221,211
Total liabilities and stockholders’ equity	$	1,022,512	$	961,940


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	36,877	$	18,235
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	24,639		12,288
Amortization of debt issuance costs and non-cash interest	2,489		2,375
Gain on disposal of property and equipment	(1,042)		(466)
Deferred taxes	10,946		1,561
Stock-based compensation expense	7,961		2,489
Change in interest rate hedge	251		—
Changes in operating assets and liabilities	8,828		(28,005)
Net cash provided by operating activities	90,949		8,477
Cash flows from investing activities:
Capital expenditures	(22,088)		(7,871)
Proceeds from sale of property and equipment	1,557		1,265
Net cash used in investing activities	(20,531)		(6,606)
Cash flows from financing activities:

Repayments of debt	(52,695)		(10,435)
Distributions to noncontrolling interest owners	—		(5,900)
Purchase of treasury stock	—		(3,201)
Other borrowings	9,137		100
Net cash used in financing activities	(43,558)		(19,436)
Net change in cash and cash equivalents	26,860		(17,565)
Cash and cash equivalents at beginning of period	45,733		94,095
Cash and cash equivalents at end of period	$	72,593	$	76,530


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, 2020
	As Reported (GAAP)		Adjustment		Adjusted (Non-GAAP)
Revenues	$	383,458	$	—	$	383,458
Cost of revenues	(333,542)		—		(333,542)
Gross profit	49,916		—		49,916
General and administrative expense	(15,154)		—		(15,154)
Intangible asset amortization	(2,866)		—		(2,866)
Acquisition related costs	(401)		401		—
Other operating expense, net	(2,664)		—		(2,664)
Operating income	28,831		401		29,232
Interest income	23		—		23
Interest expense	(7,177)		—		(7,177)
Income before income taxes	21,677		401		22,078
Income tax expense (2)	(6,280)		(116)		(6,396)
Net income	15,397		285		15,682
Less: Net income attributable to noncontrolling interests	(240)		—		(240)
Net income attributable to Sterling common stockholders	$	15,157	$	285	$	15,442

Net income per share attributable to Sterling common stockholders:
Basic	$	0.54	$	0.01	$	0.55
Diluted	$	0.54	$	0.01	$	0.55

Weighted average common shares outstanding:
Basic	28,003				28,003
Diluted	28,233				28,233

(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 $6,396 includes non-cash federal income tax expense of $4,839.


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	(10,239)		—		(10,239)
Intangible asset amortization	(600)		—		(600)
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 (2)	(913)		(184)		(1,097)
Net income	8,509		1,712		10,221
Less: Net income attributable to noncontrolling interests	(552)		—		(552)
Net income attributable to Sterling common stockholders	$	7,957	$	1,712	$	9,669

Net income per share attributable to Sterling common stockholders:
Basic	$	0.30	$	0.07	$	0.37
Diluted	$	0.30	$	0.06	$	0.36

Weighted average common shares outstanding:
Basic	26,365				26,365
Diluted	26,637				26,637

(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 $1,097 includes non-cash federal income tax expense of $984.


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.

	Nine Months Ended September 30, 2020
	As Reported (GAAP)		Adjustment		Adjusted (Non-GAAP)
Revenues	$	1,080,184	$	—	$	1,080,184
Cost of revenues	(935,424)		—		(935,424)
Gross profit	144,760		—		144,760
General and administrative expense	(51,209)		—		(51,209)
Intangible asset amortization	(8,569)		—		(8,569)
Acquisition related costs	(1,013)		1,013		—
Other operating expense, net	(9,989)		—		(9,989)
Operating income	73,980		1,013		74,993
Interest income	146		—		146
Interest expense	(22,537)		—		(22,537)
Income before income taxes	51,589		1,013		52,602
Income tax expense (2)	(14,712)		(289)		(15,001)
Net income	36,877		724		37,601
Less: Net income attributable to noncontrolling interests	(395)		—		(395)
Net income attributable to Sterling common stockholders	$	36,482	$	724	$	37,206

Net income per share attributable to Sterling common stockholders:
Basic	$	1.31	$	0.03	$	1.34
Diluted	$	1.30	$	0.03	$	1.33

Weighted average common shares outstanding:
Basic	27,832				27,832
Diluted	27,986				27,986

(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 $15,001 includes non-cash federal income tax expense of $11,235.


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.

	Nine Months Ended September 30, 2019
	As Reported (GAAP)		Adjustment		Adjusted (Non-GAAP)
Revenues	$	779,734	$	—	$	779,734
Cost of revenues	(705,519)		—		(705,519)
Gross profit	74,215		—		74,215
General and administrative expense	(32,302)		—		(32,302)
Intangible asset amortization	(1,800)		—		(1,800)
Acquisition related costs	(2,158)		2,158		—
Other operating expense, net	(9,936)		—		(9,936)
Operating income	28,019		2,158		30,177
Interest income	986		—		986
Interest expense	(8,988)		—		(8,988)
Income before income taxes	20,017		2,158		22,175
Income tax expense (2)	(1,782)		(192)		(1,974)
Net income	18,235		1,966		20,201
Less: Net income attributable to noncontrolling interests	(635)		—		(635)
Net income attributable to Sterling common stockholders	$	17,600	$	1,966	$	19,566

Net income per share attributable to Sterling common stockholders:
Basic	$	0.67	$	0.07	$	0.74
Diluted	$	0.66	$	0.07	$	0.73

Weighted average common shares outstanding:
Basic	26,359				26,359
Diluted	26,661				26,661

(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 $1,974 includes non-cash federal income tax expense of $1,753.


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.

	Year Ended December 31, 2019
	As Reported (GAAP) (2)		Adjustment		Adjusted (Non-GAAP)
Revenues	$	1,126,278	$	—	$	1,126,278
Cost of revenues	(1,018,484)		—		(1,018,484)
Gross profit	107,794		—		107,794
General and administrative expense	(49,200)		—		(49,200)
Intangible asset amortization	(4,695)				(4,695)
Acquisition related costs	(4,311)		4,311		—
Other operating expense, net	(11,837)		—		(11,837)
Operating income	37,751		4,311		42,062
Interest income	1,142		—		1,142
Interest expense	(16,686)		—		(16,686)
Loss on extinguishment of debt	(7,728)		7,728		—
Income before income taxes	14,479		12,039		26,518
Income tax expense	26,216		(27,398)		(1,182)
Net income	40,695		(15,359)		25,336
Less: Net income attributable to noncontrolling interests	(794)		—		(794)
Net income attributable to Sterling common stockholders	$	39,901	$	(15,359)	$	24,542

Net income per share attributable to Sterling common stockholders:
Basic	$	1.50	$	(0.58)	$	0.92
Diluted	$	1.47	$	(0.57)	$	0.90

Weighted average common shares outstanding:
Basic	26,671				26,671
Diluted	27,119				27,119

(1) The summary unaudited adjusted financial data is presented excluding the costs of acquiring Plateau (including related refinancing) and 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.
(2) Includes a fourth quarter charge for a legacy project of $10.2 million or $0.36 per diluted share based on 28,201 weighted average common shares outstanding in the quarter.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income attributable to Sterling common stockholders	$	15,157	$	7,957	$	36,482	$	17,600
Depreciation and amortization	8,098		3,815		24,639		12,288
Interest expense, net of interest income	7,154		2,693		22,391		8,002
Income tax (benefit) expense	6,280		913		14,712		1,782
EBITDA (1)	36,689		15,378		98,224		39,672
Acquisition related costs	401		1,896		1,013		2,158
Adjusted EBITDA (2)	$	37,090	$	17,274	$	99,237	$	41,830

(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.


Contact: 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 Mike Gaudreau 212-836-9620