STRL - Earnings call transcript Q2 2018 | Sterling Infrastructure, Inc.

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Operator

Greetings, and welcome to Sterling Construction Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Jennifer Maxwell, Director of Investor Relations.

begin. may You

Jennifer Maxwell

today financial Good commentary would Rob. that second everyone our be joining earnings Executive Sterling’s discussion and Thank Chief and Officer; to market color Financial afternoon welcome with I Ron here to pleased like call. XXXX Joe trends. will for up performance you detailed overall call. Cutillo, conference Chief you, results Ron I’m to with provide to quarter Joe Sterling’s the the of follow with quarter. around of the Ballschmiede, us will Officer. on the the company Sterling’s

that, like up to Following the the would an with questions. overview of I language. open will begin Harbor Company’s call we Safe for

results refer from made that for risk Some of the could Sterling’s assumptions. discussions company to a With update projections of that these today and Actual otherwise. to differ like obligation today. more the of statements as out could may or a to to statements XX-K Please factors recent of forward-looking call affect way, statements. include The XX-Q information, most events, description filings complete Joe. over the result I’d and materially new future turn assumes no forward-looking

Joe Cutillo

know before. you Thanks, one it’s than proud off our every thank you the start you quarter. I been welcome, Sterling outstanding and I’d to am taking each of employees the Jennifer, how and today company like let ever to And all everyone. of call by saying for for farther another

added we both residential fronts heavy is safety, water versus performance all our year. started we’re with we In down And more say good an better and is saw were was system employees At on often far journey can news segments. so our our the of news. that from than start. $X the to go. bid lost table, this on we’ve the implemented accomplishment over down improvements great around we XXX attribute quarter, the XX%. safe on new buddy year. getting new prior impressive incidents ensure and recordable as that’s were and ultimately our employee This a productive And had we employees Starting to to civil And time As really billion our to where cooler, new jobs. our bid off just get the our XX%

we the jobs we strong This we backlog. the the maintaining to right our we our to is and and margin On won, are to able grow markets are jobs bid expectations. bid selecting financial improve have attribute around to continued discipline and in margins the our fulfill requirements the

business million directly executed was than of related ever. year-over-year income expectations. heavy better Our to our increase Over performance exceeding civil $X

Dallas residential strong to expectations. market our the the Dallas beat very remains and side, market On the continues

expanding progress Houston our have foundations. the XXX continued Tealstone into market We and under poured just

In an months agreement opportunities with we next to the pour reached several to foundations the months with XX over recently top one the along three addition, builders of XX growth U.S. additional hundred in way. Houston

great X%. these all revenue our grew second of result accomplishments, a quarter prior As year versus

XX.X%. Our gross hit margin

net share our to income $X.XX Our year we and increased versus delivered of earnings shareholders. prior XXX%, per

year. and detail be about I’d the to revenue both Ron? full With and you for down we our additional to the are are QX and turn in to it which announce ourselves year, $XX the like we performance that, to on third details positioned to more of cash Ron. strong pleased quarter. the grew over full and year, our the rest that In by we addition, give in million over to discussed raising for pay Based guidance quarter debt our outlook the our earnings Ron will more

Ron Ballschmiede

strong results. of Tealstone quarter XXXX XXXX, acquisition another Joe, Thanks, the We anniversary first-year to of our beginning first celebrated and X, afternoon, of essentially good April our – the pleased quarter. operating on second discuss everybody. anniversary I’m

in gross which consistent of So reflects the quarter combined $X,XXX,XXX,XXX we X.X% was backlog in the quarter. civil This now with an year June units XXXX, of million gross year. low-bid the periods. Combined with both backlog, at $XXX the beginning and combined includes million have the At our heavy backlog XX, opportunity to to operating quarter our overall over end discuss results unsigned at $XXX our segment our awards the operating totaled many of margin years. backlog backlog strongest compared margin prior

XXX% months of factor combined XXXX the heavy of and Our was book-to-burn XXX% civil for XXXX. for quarter second the six backlog first

a backlog heavy of that civil are our reminder, projects. entirely figures Just comprised

second accounted Fort which of the X% increased heavy the prior million lesser quarter second weeks. XX% applicable quarter balance or than extent, short-term growth quarter Total The in residential XX% increase indicative higher of from points and quarter. civil over The quarter area, was revenue expense to revenue revenues, for close our $XX.X increase heavy margin revenue attributable the alternative margin principally foundations, a Our of Gross for higher second was of X% quarter-over-quarter favorable heavy $XX over XX.X%. The the second by increase report to $XXX the primarily the an backlog, does subsidiaries. our quarter. revenues, year aviation of second to an and aviation-related the and commercial growth in the out design-build in delivery underlying pre-bid two project civil million one $XX.X G&A higher of residential attributable Houston million activities which XXXX of driven our XX% Gross revenue is other the typically not The commercial growth activities approximately to to for concrete substantially second substantial expansion is business, in segment civil owned segment, into residential revenues increased residential space. the was XXXX million with XXX the reflects $X.X the dollar $XX the quarter, mix million to Worth by cycle performance prior was of G&A to in compared improved of less prospects. area. XXXX. profit XXXX basis grew which and completion and XXXX Dallas, the quarter. for in by of increase and million, quarter grew The of $XX.X of a was reflecting than the million

interest by expense original full reduction XX, expectations other XXXX, acquisition-related points we and increase million G&A from XX and year, revenues. The to revenue, and member’s attributable XXXX operating $X.X XXXX. point was The be the second year consolidated believe of percent expense consists the June of a the [indiscernible] updated principally in higher offset interest partially earn-out X% incurred million, in This XXXX, increased the in million, second XXXX is expectations XXXX – Based primarily X% $XX quarter XXXX. quarter. and approximately million in XX from guidance. the through decreased operating quarter comparable higher for Other expense increase an from result earn-out increase As results costs basis for decrease will our on increase our of was the of $X.X up $X of stronger expense, basis our costs. members to

essentially the million second residential. segment accounted of From comparable operating XX% half to standpoint, expect with expected and an of year-to-date the tax income operating the second for This fourth income income over was $X.X to interest $XXX,XXX, incremental last expense expense XX% our quarter million, totaled provision an XXXX with the flat second income – our the tax income the in for operating $XX.X combined quarter. for total attributable the of million, Well, heavy third prior year tax in is civil XXXX year. non-cash improvement, we position tax balance Our to quarter to changes provide quarter. deferred the expected $X.X – of third only the quarter-over-quarter an in related period. $X.X the XXXX improvement expense income Net the million is to in of additional in

the XXXX, $X XXXX. quarter up totaled slightly interest from non-controlling second the quarter million of for of second Finally,

We continue $X owners’ to year. approximately expect to our interest the total non-controlling million for total

XXXX resulted XX, of to and second or million diluted second net $X.X totaled million $XX.X all $XX.X of the income four the June these quarters $X.X quarter a XXXX. of income four XXXX per million, million significant $X.XX increase effect from ended ended net XX, of share quarters compared share. XXXX over per EBITDA of for the June EBITDA Another of $X.XX items income quarter net a in the

Moving to of of July, million term year operating improve the XXXX. consolidated $XX the $X XX% and – The we cash our cash and our venture’s subsidiary prepayments ended of XX.X%. trends, full we seasonal the made with bringing throughout at million million our $XX.X to loan XXXX, we the a flow seven an our balance includes to end $XX.X to operating year XX, the components our In prepayment from of approximate Consistent consolidated position generally of balance cash cash, of available the of of million, million million $XX.X of compared quarter $XX.X quarter construction of of first $XX.X June million cash joint cash our owned sheet, and increase for income. expect to additional our first XXXX. million, with balance cash $XX.X to activities total months continue almost

revenue quarter seen between $XX.X release, earnings common have have to and to we our million. our $X,XXX,XXX,XXX. second Finally, for $X,XXX,XXX,XXX shareholders raised attributable million as net you we in $XX And guidance between our Sterling’s to income and raised

believe backlog will our in prospects. quarters guidance outstanding continue performance for our and revenue increase shares million and We and year reflects XX.X year that the of for two The first the shares. fully strong business our to quality the of net diluted our approximate income

included initial Additionally, $X.X tax our million net tax expense previously. our the income of incremental which income includes This guidance was described guidance. net in I the not provision, new income income XXXX impact

to Now, the call turn over back Joe. I’ll

Joe Cutillo

our the again, Again, increase was reiterate, than few robust fronts. $XX.X million years earnings backlogs Thanks, quarter driven year-over-year is on is $XX second Sterling our growing with and a pleased company ago. million. quarterly performance This it of to our truly very today like short year-to-date would performance the guidance all by a I strong consecutive and different XXth we Rob. markets, of our improvement. just year-end to are outstanding

expand and it be we’d into happy execute the continue take on Our and future. will with questions. it is strategy solid, to that, your And move is to we as we proven

Operator

question-and-answer Thielman proceed conducting At Brent this time, session. question. we’ll first question comes Our Please [Operator a from with Davidson. your D.A. Instructions] be with

Brent Thielman

Good afternoon, and quarter. Thanks. great

Joe Cutillo

Thanks.

Brent Thielman

great bit that dilute market The lower that that definitely but the from margin’s some here, that? is for the year, any somewhat? last firing Houston growth Is residential reason a in business little investments

Joe Cutillo

I’ll let Sure, Brent, for Ron you. that answer

Ron Ballschmiede

since – we’ve better now. pieces that. been slowly Sure. of about two have right it’s breakeven expansion the bit two in Houston, quarters, is first little breakeven, There’s the ramping One up the for than

you of we to in as as processes get to ramping advantage Joe the the and in So XXXX. margin of to those additional performance with or that double-digit of XXXX earlier the volumes range – new mentioned that in work recall, call, the Also, the down territory up we significantly and to should compared be raising Tealstone expectation be Dallas. at least the earns earnings earn-out take

Our fair is up going earn-out expense amount. a

it combination points increase Gross For top a operating two all works. some pretty because I dollar or the out historically income. basis flattens $X.XX XX where of But earn-out on those don’t at profit how much – mind great, the few of that’s is of been, we that within me, so. that’s of every has keep of

So real close. it’s

Brent Thielman

Okay. when said foundations, hundred that customer stay you then start does and went that new the And Houston the up? several operation ramping with

Joe Cutillo

August, the time September in up ramping start frame. That’ll

Brent Thielman

Okay.

more could material see that by increase margins business you So XQ? in from

Joe Cutillo

that out does growing exactly really in us That’s Yes. and in manner. the – is what that right. it to agreement cover Houston business business for us, a those profitable With overheads enables really start

Brent Thielman

heavy solid, year, on Okay. you And obviously, performance or of on. emphasis improvements, could then, frame, good pass civil on looking sort last I one a of at I from I’ll versus could, kind the more margins, just I it if mean work? bucket it The been much of highway Geneva company just focus has work, the versus out guess, how really nonheavy

Joe Cutillo

can adjacent was mix three the – the Ron, but details, some – of two got combination tailwinds it and of the got more helping progress more us, on more we combination we’ve impact we’ve have of some bid improve year-to-date. real these nice we’ve highway as a our in into to of improved actually margins table we as mix on top we existing have million Yes, and $X give And the side. heavy truly continue at seen about execution related the to of then, I the And that, mentioned, projects. markets,

Ron Ballschmiede

the As project the the doing that of we’ve to getting XX of – by to for added bottom rest a making And the movements some half on been – result that I has XX finish probably of nice half years, points is civil working margin. a and basis couple line is mentioned, civil of business backlog to that we’re by a a or work. work really highway heavy represented towards and strategic we’re objective mix, the our adjacent of space about heavy to

and feels impact good on pace our what But and the what hit do out time couple of that changing to say vice We’re to and see next do starting during not say there would years. of frame. but be versa. going mix you it yet, to we’re that to – we’re the you’re And that’s over

Joe Cutillo

and it’s it bit it we gets fantastic. from it And scary as out clicking laid when well. exactly had Yes, that the actually – it’s a along But strategy. performing it’s sometimes works – little

Ron Ballschmiede

Thank you.

Okay, back in queue.

Operator

comes your question. Instructions] with Our KeyBanc next from [Operator Eastman Capital proceed Sean Please Markets. with question

Sean Eastman

civil, great on quarter. in margin Congrats a everyone. great. great it’s Hi, Really heavy

Joe Cutillo

you. Thank

Sean Eastman

to So on heavy I start that just conversation. continue that civil margin, wanted just on

margin this did guys jump some you quarter. and also, commercial aviation. press then, in nice So and in up talk the the about nicely And pretty to seemed backlog release, increases

just traction of assume, what there there? wondering and the aviation been if and guys there, sort sort over So some of sort I’m side. commercial And some winning have incremental I you been just there’s connection of targeting is on

Ron Ballschmiede

Sure.

Tealstone acquisition most think the had for the element that of includes the the Sterling recall, that commercial side and good, of as some The of Texas – it and I of improved drove that very the is in Tealstone think I work is, commercial of business last them, former highway Group where work large acquisition. Tealstone historical to forgot large it but the on of the business, that the revenue both the backlog business. prior generated earnings year-over-year [indiscernible] that Commercial if part the question your And amount majority two had basis, construction you heavy-highway owners we we consolidated the heavy very revenue. of that joint recall, I ventures, a other so the very market rest were year of – the a we

generated is those of timing going was and So by projects of revenue by the little mix, and one finished to one the and the substantially be other done very end year.

shift So including other percentage there’s highway these some mix that just happened the by in space work, commercial aviation. that of adjacent versus and heavy

Joe Cutillo

win – Yes, backlog and margins as understand backlog, but that there’s challenging continue is as to it a one to that takes the of come good people for is, off for you to new higher burn we things while old at through. remember,

and margins margins if those a little to starting projects, you’re with you the from year, improved inch-up on work So more we’re associated throughout get continue and the that. – we’re uplift starting to see remember year, starting to we more last to

news we – – to right as the And right to all go we is, said, those the good execution. the table, are mix, at, continue the bid And the piece now, at improve direction. continue the to we win we’re get in third continues the – that mix drivers what So of better. the is,

Sean Eastman

me some talking guys from next large sense. then were Makes is great. being about optimistic Okay, on And just, you opportunities.

I expect half? outstanding in of have referencing sight to just it region And how your I an play to out think get you the the line hoping of guys you press on there? the update you back kind Mountain on, bids were what in Rocky release. was

Joe Cutillo

north that all is, million, the would of be year. some news design good second are the done. of the project The relatively the one on quarter going were and nice is small. in design-build It the the it’s bids it’s of to We Yes, so $XXX just first successful – there when of large jobs. is piece, set total phase

that, win in to to particular phase, that the so, joint it’s design – announcing, a $XXX be it’s once on finalized, and we’ll be quarter venture the tune have a of about and the or probably going all million. We first after

Sean Eastman

Okay.

be will booking? a of – XQ that So more be that will

Joe Cutillo

Yes. the in all year, the done quarter paperwork assuming likely. then we’ll are gets contracts back most Designs Yes, this of it’s first signed and of the half rest the once done in project, announce finalized. the

Sean Eastman

Okay, great. And then…

Joe Cutillo

or bidding that And in at $XXX million we’ll the then year, – the back projects $XXX have of million be we Rocky on the Mountain. still of half

Sean Eastman

Okay, a are out TxDot some are backlog another good starting second as great. Could opportunities of some that release there? seeing be curious the Texas, sort in just big – jobs? focus, know, And half? to bidding I momentum of things about but you it’s Has not driver

Joe Cutillo

quarter about Yes, think I in Texas. the that of there will the won Again, our we’ve jobs TxDOT that we’ve we have everybody share types behind. job thing we – been bid. the first – I of plenty – been complaining in is to like tell able you, being

try So we will very backlog got the market be has TxDOT to and X.X the those jobs know so. if came it in very of to it we’ll selective – there’s margins. plenty go great it pent in stuff the a or And of we’ve on market, up, to there’s for solid out. nothing we be worry, Texas But that continue maximize years after lot next and our backlog Texas

Sean Eastman

in me, the Okay, some flow you guys good quarter. great. lastly from And had cash then,

in debt a third position quarter. I think of mentioned, you’re Ron more in the some paying down

be to an the in your capital coming update terms putting of what going there you plans where Just are get to are allocation, wanted quarters, on cash?

Joe Cutillo

Sure.

Ron? talk to about that, want You

Ron Ballschmiede

Sure.

$XX So our down of million paid payment, in our year, we July facility. over including just this

a do to quarter what look time these forward we decide take allocation. kind and on we think, of as I the debt at one

to grow started. of pretty to for group huge of get continue these time example opportunities with investment and internally dollars We a our investment market, residential not that’s look the business, management expansion both good the up to a for particularly is the of it and but of

services, our time. probably to space to – monetizing, look that’s that. opportunities, want the great we we’re blackboard some number point one So will. at thing this on on, Always in that continue type that’s to adjacent other focusing But powder you at if keep do to nothing

our our is we’re into to what invest to evaluate forward a go and other which and the something cash, we to most that. we if as If thresholds not, generate going requirements continue – things, including the large look have to in, when fit we’ll to we we’ll half, back we others. that’s So many, do alternatives typically requirements, on debt and many at of we’ll do continue find

Sean Eastman

Okay, Thanks guys again. Nice right. great. and the for All responses, congratulations job.

Joe Cutillo

Sean. Thanks,

Operator

next is your Our D.A. from proceed question. question Brent with with Please Thielman Davidson.

Brent Thielman

of look much and portion backlog, looking XX as et commercial months Thanks. or as as I as there prospects these at XX guess, XX some on the growth or the ago, highway next as appealing over going they seen Ron, the aviation, is Joe of months the you’ve back… non-heavy areas, were you cetera, various there,

Joe Cutillo

growing rates the matter the of those some in higher as the of highway, than or space they’re much at even you into when start Xx. Yes, airport looking commercial to heavy fact, X.X space, a markets,

out projects, that space. to we we’ll opportunities, continue So grow see and tremendous tremendous

end highway to commercial with non-heavy by – revenue have as continue especially, we’re the we of would feel XX% some If well into activities, that we business. Houston these on and we of track Tealstone other comfortable as right for pretty as coming expand from said that, remember, XXXX, you our

what those interested of to to could areas So to looking a top back reiterate add before, just just going where, and if at that little – on in were organically. step do portfolio, be we invest that’s the and we we of our bit are but said Ron kind and – Ron as what would adding

Ron Ballschmiede

it, add hundred bid – about and and just Joe have million described large way in think is, think other prove – dollars we one, good we just the as I a think these to that quarter. I some to the opportunities there of half very several fourth to in, element nice

that will our up So jack we – and course, highway of will heavy work.

As heavy Rocky That’s a it of burns work. fine, the plus area is that couple highway Mountain in years. most over

we on going So the we’re will. backlog just not pipeline, XX-XX may to go to a that split may through on revenue or jobs. more if we’re multi-six XX% figure because achieve going focus getting and [indiscernible] of add you some And

Joe Cutillo

residential to the not line. put as also other appear The of as And piece overall backlog to be part fast overall – the and it never nearly grow that bigger portfolio, our grow, too a under and will will bottom is, we’ll that. as the company continues

Brent Thielman

Okay, great. Thank you.

Operator

Paul Please question. Instructions] Varello, next is with from question Our proceed [Operator Private Investor. your

Paul Varello

your on shows I has paid quarter plan. really congratulations having way sticking your are Guys, a The you a think really plan strategy to doing great working it, off. how such it and and great

As of to you hold guys to great spite seem know doesn’t I’m in a large XXX,XXX stockholder and why explain, you Can your price I stock shares. performance, move? all plus continue the

Joe Cutillo

wish Paul. I an easy had I answer,

market down of not Our undervalued is everyone. to some of has in little outperform, but we slow react. we a as – little and little total to only out the been continue think expectations bit the sector there our And in a we’re peers to compared candidly a

line. the a quarter about it’s talking quarter in properly. to than row that. row helped objective in maybe we path down, we’re exceed the going of more to much tremendous a or maintain XXth XXth everybody, what us strategy. we we really simple, the focused tell Our bottom meet line is will is continue has stay or And the continue or the staying certainly And returns, get top to have before on And valued to the continue the XXth

Paul Varello

to question, changing you because leave of backlog business to XX-XX get rather you doesn’t Joe. housing stay spread going built came it consider that business revenue for that the way? given up Great. reason. last you, earlier, skewed than if fact good the it’s One into always really the ever it profits metric Thank your the Would for

Joe Cutillo

blended the which split low shooting That’s That’s on this we starting is, more for do high where call, the properly, the highway to can the you really double-digits revenue, project X% what single margins. XX.X%-plus margins residential gross And really what next profit. the more on bottom of to And takes we’re to line over what and X% years, you heavy if from on and XX-XX it’s move put it they growth are you is are very to where to, the really XX%-plus ultimately, rate and talk I’ll rapidly. does quickly we margin, our the the couple and the digits, the right. that – accelerates if it

Paul Varello

All right. the you, and Beautiful. thank Again, Sterling on to you team. congratulations everybody

Joe Cutillo

Paul. you, Thank

Operator

time. [Operator further this Instructions] comments. call the Joe back I’d to at Cutillo are for There turn like to no questions closing

Joe Cutillo

call joining today. for everyone, again, Thanks, our

Director And a wish of press The the found If contact please Their bottom feel contact at Maxwell, thanks, be free our a can Jennifer to of have Investor information the or schedule our and Equity great release. you again, call, Relations, to evening. partners at everybody, Group.

Operator

concludes conference. today’s This

You may disconnect we your your for you thank lines at time, and participation. this

Sterling Infrastructure (STRL) 2 Aug 182018 Q2 Earnings call transcript