STERLING INFRASTRUCTURE INC

Previous wording

E-Infrastructure Solutions—Our E-Infrastructure Solutions business is driven by our customers’ investments in the development of advanced manufacturing centers, data centers, e-commerce distribution centers and warehouses. We foresee significant growth opportunities tied to the implementation of multi-year capital deployment plans by customers in the data center, electric vehicle (EV), battery, solar, food, and semiconductor manufacturing markets. We have been awarded several large projects related to investments in EV and solar products. We anticipate continued strong demand from these and other technology sectors, supported by Federal government investment initiatives and incentives. Additionally, we continue to benefit from activity related to multiphase hyperscale data center development, driven by demand related to Artificial Intelligence (AI) and other emerging technologies. While the majority of our end customers are demonstrating strong performance, in 2023 we experienced a decline in large e-commerce distribution center and small warehouse activity. We expect these markets will remain subdued through 2024.

Current wording

E-Infrastructure Solutions—Our E-Infrastructure Solutions business is driven by our customers’ investments in the development of data centers, advanced manufacturing centers, e-commerce distribution centers and warehouses. We foresee significant growth opportunities tied to the implementation of multi-year capital deployment plans by customers in the data center, electric vehicle (EV), battery, solar, food and semiconductor manufacturing markets. We have been awarded several large projects related to investments in EV and solar products. We anticipate continued strong demand from these and other technology sectors, supported by Federal government investment initiatives and incentives. Additionally, we continue to benefit from activity related to multiphase hyperscale data center development, driven by demand related to Artificial Intelligence (AI) and other emerging technologies. While the majority of our end customers are demonstrating strong performance, in 2023 we experienced a decline in large e-commerce distribution center and small warehouse activity. We expect these markets will remain subdued through 2024.

Previous wording

The Company’s margin in Backlog has increased to 15.6% at March 31, 2024 from 15.2% at December 31, 2023 and the Combined Backlog margin increased to 15.5% at March 31, 2024 from 15.4% at December 31, 2023, driven by a greater mix of E-Infrastructure Solutions backlog and an improved backlog margin mix within Transportation Solutions.

Current wording

At June 30, 2024, our Backlog was $2.10 billion, as compared to $2.07 billion at December 31, 2023, with a book-to-burn ratio of 1.0X for the six months ended June 30, 2024. The Company’s margin in Backlog has increased to 16.0% at June 30, 2024 from 15.2% at December 31, 2023, driven by a greater mix of E-Infrastructure Solutions backlog and an improved backlog margin mix within Transportation Solutions.

Previous wording

Unsigned Awards were $67.6 million at March 31, 2024 and $303.2 million at December 31, 2023. Combined Backlog totaled $2.42 billion and $2.37 billion at March 31, 2024 and December 31, 2023, respectively, with a book-to-burn ratio of 1.1X for the three months ended March 31, 2024.

Current wording

Unsigned Awards were $347.2 million at June 30, 2024 and $303.2 million at December 31, 2023. Combined Backlog totaled $2.45 billion and $2.37 billion at June 30, 2024 and December 31, 2023, respectively, with a book-to-burn ratio of 1.1X for the six months ended June 30, 2024.

Previous wording

Consolidated financial highlights for the three months ended March 31, 2024 and 2023 are as follows:

Current wording

Consolidated financial highlights for the three and six months ended June 30, 2024 and 2023 are as follows:

Previous wording

Revenues—Revenues were $440.4 million for the first quarter of 2024, an increase of $36.8 million, or 9.1%, compared with the first quarter of 2023. The increase was driven by a $37.8 million increase in Transportation Solutions and a $20.3 million increase in Building Solutions, partly offset by a $21.4 million decrease in E-Infrastructure Solutions.

Current wording

Revenues—Revenues were $582.8 million for the second quarter of 2024, an increase of $60.5 million, or 11.6%, compared to the second quarter of 2023. The increase was driven by an $81.7 million increase in Transportation Solutions, partly offset by an $18.8 million decrease in E-Infrastructure Solutions and a $2.4 million decrease in Building Solutions.

Previous wording

Gross profit and margin—Gross profit was $76.9 million for the first quarter of 2024, an increase of $15.2 million, or 24.6%, compared to the first quarter of 2023. The Company’s gross margin as a percentage of revenue increased to 17.5% in the first quarter of 2024, as compared to 15.3% in the first quarter of 2023. The increases were driven by the aforementioned higher volume, an improved project margin mix across all segments, and the inclusion of the Texas plumbing business acquired in late 2023.

Current wording

Gross profit was $189.6 million for the six months ended June 30, 2024, an increase of $35.6 million, or 23.1%, compared to the six months ended June 30, 2023. The Company’s gross margin as a percentage of revenue increased to 18.5% for the six months ended June 30, 2024, as compared to 16.6% for the six months ended June 30, 2023. The increases were driven by the aforementioned higher volume, an improved project margin mix across all segments, and the inclusion of the Texas plumbing business acquired in late 2023.

Previous wording

Contracts in progress that were not substantially complete totaled approximately 230 and 210 at March 31, 2024 and 2023, respectively. These contracts are of various sizes, of different expected profitability and in various stages of completion. The nearer a contract progresses toward completion, the more visibility the Company has in refining its estimate of total revenues (including incentives, delay penalties and change orders), costs and gross profit. Thus, gross profit as a percentage of revenues can increase or decrease from comparable and subsequent quarters due to variations among contracts and depending upon the stage of completion of contracts.

Current wording

Contracts in progress that were not substantially complete totaled approximately 220 at both June 30, 2024 and 2023, respectively. These contracts are of various sizes, of different expected profitability and in various stages of completion. The nearer a contract progresses toward completion, the more visibility the Company has in refining its estimate of total revenues (including incentives, delay penalties and change orders), costs and gross profit. Thus, gross profit as a percentage of revenues can increase or decrease from comparable and subsequent quarters due to variations among contracts and depending upon the stage of completion of contracts.

Previous wording

General and administrative expenses—General and administrative expenses were $27.3 million, or 6.2% of revenue, for the first quarter of 2024, compared to $23.3 million, or 5.8% of revenue, for the first quarter of 2023. The Company anticipates that general and administrative expense will be approximately 5% of revenue for the full year 2024.

Current wording

General and administrative expense—General and administrative expenses were $27.9 million, or 4.8% of revenue, for the second quarter of 2024, compared to $24.0 million, or 4.6% of revenue, for the second quarter of 2023. General and administrative expenses were $55.2 million, or 5.4% of revenue, for the six months ended June 30, 2024, compared to $47.4 million, or 5.1% of revenue, for the six months ended June 30, 2023. The increases reflect incremental G&A from the Texas plumbing business acquired in late 2023, growth, and inflation. The Company anticipates that general and administrative expense will be approximately 5% of revenue for the full year 2024.

Previous wording

Other operating expense, net—Other operating expense, net, includes 50% of earnings and losses related to members’ interest of our consolidated 50% owned subsidiary, earn-out and other miscellaneous operating income or expense. Members’ interest earnings are treated as an expense and increase the liability account. The change in other operating expense, net, was an increase of $1.3 million over the prior year first quarter. Members’ interest earnings increased by $0.3 million during the first quarter of 2024 to $2.1 million from $1.9 million in the first quarter of 2023 and earn-out expense increased to $1.0 million during the first quarter of 2024, compared to none in the first quarter of 2023.

Current wording

The change in other operating expense, net, for the second quarter of 2024 was an increase of $3.6 million over the prior year second quarter. Members’ interest earnings increased by $2.6 million during the second quarter of 2024 to $6.8 million from $4.2 million in the second quarter of 2023 and earn-out expense increased to $1.0 million during the second quarter of 2024, compared to none in the second quarter of 2023.

Previous wording

Interest, net—Interest, net was $0.8 million for the first quarter of 2024, compared to $5.6 million for the first quarter of 2023. The decrease is driven by higher interest income due to increased interest rates in 2024 on our growing cash balance.

Current wording

Interest, net—Combined interest expense and income was a net expense of $0.2 million for the second quarter of 2024, compared to a net expense of $5.5 million for the second quarter of 2023, and was a net expense of $1.0 million for the six months ended June 30, 2024, compared to a net expense of $11.1 million for the six months ended June 30, 2023. The three and six months ended June 30, 2024 decreases were driven by higher interest income due to increased interest rates in 2024 on our growing cash balance.

Previous wording

Income taxes—The effective income tax rate was 18.4% for the first quarter of 2024. The rates varied from the statutory rate primarily as a result of state income taxes, non-deductible compensation and other permanent differences. The Company incurred a $2.9 million tax rate benefit in the first quarter of 2024 for increased tax deductions related to stock compensation. The Company anticipates an effective income tax rate for the full year 2024 of approximately 25%. See Note 11 - Income Taxes for more information.

Current wording

Income taxes—The effective income tax rate was 24.8% for the second quarter of 2024 and 22.4% for the six months ended June 30, 2024. The rates varied from the statutory rate primarily as a result of non-deductible compensation, state income taxes and other permanent differences. The Company incurred a $0.5 million and $3.4 million tax rate benefit for the three and six months ended June 30, 2024, respectively, for increased tax deductions related to stock compensation. The Company anticipates an effective income tax rate for the full year 2024 of approximately 25%. See Note 11 - Income Taxes for more information.

Previous wording

Revenues—Revenues were $184.5 million for the first quarter of 2024, a decrease of $21.4 million, or 10.4%, compared to the first quarter of 2023. The decrease was primarily driven by delays due to inclement weather and lower volume from warehouses and advanced manufacturing projects, partly offset by higher volume from data centers.

Current wording

Revenues—Revenues were $241.3 million for the second quarter of 2024, a decrease of $18.8 million, or 7.2%, compared to the second quarter of 2023, and revenues were $425.8 million for the six months ended June 30, 2024, a decrease of $40.2 million, or 8.6%, compared to the six months ended June 30, 2023. The decreases were primarily driven by lower volume from warehouses and other small projects, the timing of advanced manufacturing projects, and delays due to inclement weather in the first quarter, partly offset by higher volume from data centers.

Previous wording

Revenues—Revenues were $149.0 million for the first quarter of 2024, an increase of $37.8 million, or 34.0%, compared to the first quarter of 2023. The increase was driven by higher heavy highway, aviation and other non-highway services revenue.

Current wording

Revenues—Revenues were $232.8 million for the second quarter of 2024, an increase of $81.7 million, or 54.1%, compared to the second quarter of 2023, and revenues were $381.7 million for the six months ended June 30, 2024, an increase of $119.5 million, or 45.6%, compared to the six months ended June 30, 2023. The increases were driven by higher heavy highway, aviation and other non-highway services revenue.

Previous wording

Operating Income—Operating income was $8.1 million, or 5.5% of revenue, for the first quarter of 2024, an increase of $2.8 million, compared to $5.3 million, or 4.8% of revenue, for the first quarter of 2023. The increases in operating income and margin were driven by an improved project margin mix and the aforementioned higher revenue.

Current wording

Operating Income—Operating income was $15.4 million, or 6.6% of revenue, for the second quarter of 2024, an increase of $5.6 million, compared to $9.9 million, or 6.5% of revenue, for the second quarter of 2023. Operating income was $23.6 million, or 6.2% of revenue, for the six months ended June 30, 2024, an increase of $8.4 million, compared to $15.2 million, or 5.8% of revenue, for the six months ended June 30, 2023. The increases in operating income and margin were driven by an improved project margin mix and the aforementioned higher revenue.

Previous wording

Operating Activities—During the three months ended March 31, 2024, net cash provided by operating activities was $49.6 million, compared to net cash provided by operating activities of $49.1 million for the three months ended March 31, 2023. Improvements in cash flows provided by operating activities were primarily driven by higher operating income and changes in our accounts receivable, net contracts in progress and accounts payable balances (collectively, “Contract Capital”), as discussed below.

Current wording

Operating Activities—During the six months ended June 30, 2024, net cash provided by operating activities was $170.6 million, compared to net cash provided by operating activities of $181.1 million for the six months ended June 30, 2023. Cash flows provided by operating activities were primarily driven by higher operating income and changes in our accounts receivable, net contracts in progress and accounts payable balances (collectively, “Contract Capital”), as discussed below.

Previous wording

Changes in Contract Capital—The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital. The changes in components of Contract Capital during the three months ended March 31, 2024 and 2023 were as follows:

Current wording

Changes in Contract Capital—The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital. The changes in components of Contract Capital during the six months ended June 30, 2024 and 2023 were as follows:

Previous wording

During the three months ended March 31, 2024, the change in Contract Capital was $1,822, which was primarily driven by the E-Infrastructure Solutions segment due to the increased size and duration of its projects in progress. The Company’s Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects.

Current wording

During the six months ended June 30, 2024, the change in Contract Capital was $29,784, which was primarily driven by the E-Infrastructure Solutions segment due to the increased size and duration of its projects in progress. The Company’s Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects.

Previous wording

Investing Activities—During the three months ended March 31, 2024, net cash used in investing activities was $21.0 million, compared to net cash provided of $6.5 million in the three months ended March 31, 2023. The net cash used was driven by $22.4 million for purchases of capital equipment, partly offset by $2.4 million of cash proceeds from the sale of property and equipment. Capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment.

Current wording

Investing Activities—During the six months ended June 30, 2024, net cash used in investing activities was $45.4 million, compared to net cash used of $16.3 million in the six months ended June 30, 2023. The net cash used was driven by $51.3 million for purchases of capital equipment, partly offset by $6.9 million of cash proceeds from the sale of property and equipment. Capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment.

Previous wording

Financing Activities—During the three months ended March 31, 2024, net cash used in financing activities was $19.7 million, compared to net cash used of $35.1 million for the three months ended March 31, 2023. The financing cash outflow was primarily driven by $13 million for withholding taxes paid on the net share settlement of vested equity awards and $6.6 million of repayments on the Term Loan Facility.

Current wording

Financing Activities—During the six months ended June 30, 2024, net cash used in financing activities was $56.8 million, compared to net cash used of $71.9 million for the six months ended June 30, 2023. The financing cash outflow was primarily driven by $30.1 million for the repurchase of common stock, $13.3 million for withholding taxes paid on the net share settlement of vested equity awards, and $13.1 million of repayments on the Term Loan Facility.

Previous wording

At March 31, 2024, there was approximately $217 million of construction work to be completed on unconsolidated construction joint venture contracts, of which approximately $106 million represented our proportionate share. Due to the joint and several liability under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint venture partners would be responsible for completion of the outstanding work. As of March 31, 2024, we are not aware of any situation that would require us to fulfill responsibilities of our joint venture partners pursuant to the joint and several liability under our contracts.

Current wording

At June 30, 2024, there was approximately $195 million of construction work to be completed on unconsolidated construction joint venture contracts, of which approximately $96 million represented our proportionate share. Due to the joint and several liability under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint venture partners would be responsible for completion of the outstanding work. As of June 30, 2024, we are not aware of any situation that would require us to fulfill responsibilities of our joint venture partners pursuant to the joint and several liability under our contracts.