STRL - Earnings call transcript Q3 2018 | Sterling Infrastructure, Inc.

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Operator

Greetings and welcome to the Sterling Construction Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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 introduce your host, Jennifer Maxwell, Director of Investor Relations. you. Thank

begin. may You

Jennifer Maxwell

the result Good Third everyone I'm Quarter today Ballschmiede, third be Christine. Executive Sterling's to and Officer; pleased us. Sterling's here Ron quarter our discuss XXXX Sterling's Earnings detailed follow company to Joe results with around and financial morning you, on Chief our Cutillo, joining Chief to will discussion that overall the markets. call Officer. the Welcome Joe will to up color the with performance with Thank Conference of Financial Ron quarter. the open commentary Call. of for the

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

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

Joe Cutillo

in all strategy. points. rain slightly, Versus the and rainfall the all the were Houston. good and our to rain year, an average challenges tested the of did the morning, of market plate felt had in the our Arizona, Dallas, up XX We another September met quarter, quarter. the Jennifer, the Austin-San say, And with we of we but Thanks, down our Antonio really We margin but even income storms in was almost places. XX%. of threw saw our quarter of of was team years our inches hit week. faced, job. month stepped am everyone. happy tropical and third of aftermath drench the up our to in had at employees had XX I nature XX The Fort great prior Worth days one of consecutive and grit and us, Gross In We basis X everything mother outstanding kitchen net We revenues strength expectations, up sink.

focuses Our our combined backlog almost We our points. in We $XX of million by over committed We to won of bottom backlog third to income strategy, the reducing this million. basis strategy X%. risk. hit margin and debt grew while our non-heavy combined our over cash the $XX XX%, The which and balance work combined. of quarters three first remain line XXXX more backlog the combined show results effectiveness reduced than of clearly and highway on diversifying our and our delivered quarter and growing net grew XX average margins the customers XX% saw grew

starts in -- market Now robust. record do a let's see slowing residential growing the Both residential, heavy little very down and bit either we backlog markets remain margins our heavy civil either in and our markets. market With anytime down about civil soon. record talk and not

Rocky side, the strong On throughout seeing Texas. heavy Mountains and we’re the growth civil

This federal we bill FAST our increase aviation in quarter to the to in Act is to In a highway focus heavy passed that XXXX. was were see addition, third bill as continue X-year for delighted market. we bill the equivalent in pass this

compared which and day people remain and states from. On relatively inflation. no Houston due side, relocating per in plus the to Housing growth the interest have markets both other Texas prices residential Dallas we’re to double-digit increased from seeing material the are rates low seen slowdown continued or X,XXX in

Amazon new one and the as named for quarter more it the I would the With over on headquarters. to full-year. In addition, recently you to to was details Ron Dallas the give that, Ron? of turn like finalists three

Ron Ballschmiede

good results. Thanks, morning. operating and strong pleased I Joe, am quarter to discuss another of

anniversary XXXX. the acquisition our of on Tealstone As April X, a reminder, celebrated we first

third units. results operating operating have our So consistent quarter

the our XXXX, nine in included month of the the gross to compared the in million in included margin third $XXX at XXXX million backlog and includes XXXX, was civil XXXX. highest history. at quarters XXXX. X% basis gross $X.XXX the low beginning XX backlog beginning of increase combined as second For Combined period, The of backlog heavy construction At in the of of results at three the acquisition September The bid XXXX. of September points and XX, are and unsigned awards, X.X% XX, -- was segment totaled from XXXX, all Sterling's beginning only backlog the margin the our $XXX quarters which up XX, September our billion, an XXXX. backlog, X.X% was from of in

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

of Just for and which our which were $XX expectations million backlog, which than with are concrete does of a lower Residential not guidance. reflecting short-term was the revenue of performance backlog the foundations, annual X.X% than accounted XX% residential our 'XX, construction consistent construction, civil the revenues comprised QX in that reminder our projects. Consolidated report entirely two for our less cycle $XXX typically the quarter or figures quarter, weeks. XXXX is of heavy third million, third

to over quarter The expectations, the $X.X civil QX year. revenues was XXXX and the decline a segment nearing heavy revenues. X.X% majority-owned two million are from quarter joint other reflected or heavy projects prior million declined 'XX. construction venture decline aviation attributable higher revenue highway the that offset revenue of third of our of our $XX of with construction million Our $XX completion. heavy is over XXXX residential Consistent primarily lower construction by successful decrease The XX.X% third by civil commercial, revenues partially

XX% ventures, revenue during decreased number will third believe quarter, in offset XXXX foundations approximately be residential impact year-over-year which the of revenues drove complete of same of decline quarter $XX the which poured. million XXXX construction we in the to The rainfall essentially XX% revenues the record reflect -- fourth in in by drove Texas a We quarter. expect which decrease the attributable construction that stronger joint setting substantially

the of expense million design, delivery for the decline higher periods, remain our and residential the advantages in activities in of Dallas, its continuing and consistent commercial driven XXXX profit and construction The XXXX quarter $XX.X execution result markets, quarter million significant a of and of causes quarter. past to million -- margins alternative projects heavy gross prior other a in for Fort and increased heavy order. substantially number us to $XXX,XXX news on improved lower aviation entering dollar an from of of good record substantial Worth difficult significant of favorable As with comparable cost Gross combined grew several was build foundations XX.X%. basis quarter. strong reflect quarter with an weather revenues, Houston was completion projects. construction third the $XX.X Despite $XX.X G&A XXXX pre-bid in fourth year margin by housing prior compared of reflecting civil attributable related mix was rain delayed XX The year increase activities record the variable the the points QX the model. the margin quarter. Gross projects, operating third quarter, the principally to G&A

members' the from G&A a for in of X% Other increase XXXX million, attributable As expense XX operating in will basis was prior up of XXXX million, higher our operating $X.X expectations, was quarter. The approximately percent an primarily $XX.X of driven expense interest comparable XX% to subsidiaries, up. higher is the interest owned of from result the quarter. We expense spending that our points in million from $XXX,XXX the quarter The believe XXXX full-year decreased principally be quarter by $X.X expense members the consolidated revenues, third increase other decrease earnings expense XXXX. to XXXX. lower third our driving

of the of quarters. margins in quarter million, from the borrowings, down XXXX operating in residential construction XXXX third by X.X% operating construction of of the XXXX in of was residential million the decline heavy XX.X% heavy Heavy quarter. accounted lower segment from construction an third while by and to XXXX totaled million margins. million XX.X% to $X.X operating income in Both lower while third -- $XXX,XXX over year-over-year $X.X the due for quarter. construction to from construction rates. XXXX income higher Our improved interest QX standpoint, improvement, Interest to while $XX.X declined third the civil XXXX residential the for quarter XXXX million, an operating From expense period, comparable offset the improvement solid for X.X% improved and respective construction 'XX The due was revenue. somewhat delivered XXXX civil operating its revenue $X.X $X.X quarter

share As our XXXX. quarter We be our second to increase balance the interest increase deferred in quarter million third the for -- will last per we of million incrementally in in half income discussed in or $X.X $X.X recorded in The tax income noncash incremental XXXX. $X.XX expected of expected this earnings position. XXXX tax fourth the reported we of of the quarter noncash changes tax call, our of income by expense expense

our total income million. slightly full-year to expect XXXX than $X expense less tax We

down quarter $XXX,XXX million comparable from Finally, expense totaled quarter. for of our the $X.X noncontrolling XXXX owners interest third XXXX, the

share of the of interest per total owners $X.X the net increase September net XXXX. approximately net totaled September full-year third the The ended trailing for resulted of $X.XX months XXXX $XX.X third months million income million for quarter quarter XXXX. noncontrolling million from shares. million, XXXX We ended of per the or XX over diluted significant XX, XXXX, $XX in all expect million compared $XX.X a of to net XX of items these EBITDA $X.X our trailing to or XX, the EBITDA diluted effect income $X.XX of income

million, the ended quarter $XX.X with the at venture Moving XXXX cash balance the of third of owned cash XXXX. of XXXX generally cash a construction includes components of to quarter of $XX.X million million. cash $XX.X $XX.X balance quarter balance of sheet. of to consolidated third available our XX% compared joint million end $XX.X The and cash million second our We of subsidiary

XXXX. million provided of September $XX.X ended nine XXXX, months from million the operating net comparable the flow for Our activities $X.X XX, cash compared period to for totaled

months year activities the trends, cash flows of in our fourth operating operating totaled for our nine an exceed we quarter CapEx of $X.X first made continue the to million, and from loan expect XXXX. July for our increase period. the our Consistent In consolidated million to our full-year to cash to projected the with prepayment July first income. 'XX million for balance historical million XXXX, in seasonal the $X of to comparable $XX.X quarters three XXXX total compared prepayments additional growth term almost XXXX Our $X.X of we bringing --

I Now to will turn back over Joe. it

Joe Cutillo

quarter, employees I Rob. to X,XXX impressive consecutive plus improvement. all want quarterly thank for Sterling and year-over-year XXth our Thanks, the another

which over This quarter our markets. by the margins were points. net XX%, increase combined We to approximately really value and overcoming our backlog demonstrated reduced we backlog our increased share. year, while position. $X.XX tax a our $X.XX positive our XX% cash as income while strategy We as weather to the XX while per able strength to well increasing basis headwinds, debt Versus increasing cash and combined robustness net XX%, prior of our were our of the

remainder XXXX performance would markets, believe open the some of of outstanding the love for be of on with health to With the we and that, And strength XXXX and up it I our very will remain yet our another year. questions. bullish

Operator

Thank Thank you. [Operator you. Instructions]

Afzal Our Tahira of from line KeyBanc. question comes question. with proceed first your Please with the

Tahira Afzal

Great and you congratulations. Thank Hi. quarter.

Joe Cutillo

Thank Tahira. you,

Tahira Afzal

could from when question, Joe, backlog I high and you're anything first on really mid growth that burn the there and do outlook, seems you rough the is very to having guess, I really single-digit rate revenue which the year? math seeing next upbeat, stop

Joe Cutillo

see year XX% backlog the next on on what that residential see the to growing and we’ve the market the markets still we in Based side. XX% Dallas there, we

of of heavy to the X% probably really to the will increase would than commercial couple backlog can closer then we’ve design-build say, wins a component say, X%. project And are be similar the X%. the on our We depending based alternative that we we’ve delivery, side. how will X% on on highway, because I be recent it -- they’re would nice it. a see fast -- And

in off can depends So those much they on the how pull it just how of into kick fast year. XXXX and we

Tahira Afzal

Got it.

some Okay. the movement you Joe. over a And I see this bill take assume infrastructure potential there? -- into doesn’t What to civil were if play,

Joe Cutillo

assumes about talking right. incremental we Everything that's Yes, no infrastructure are bill.

happening. in first However, didn't happens. the airport what passed today see a would we and talking everything anticipated the about, to and is and is going the the so very through. to was bill election appears quarter will elections midst that bill And of surprised were be day, the everybody really what until a of that, see XXXX, We that, to that be pleasantly after positive happen bill. right There in water is transportation surprise. Senate, the Congress seems that I

keep crossed. going So optimistic let's of chance first that year, half through. our still of am we’ve fingers good in next I the something a

Tahira Afzal

Got it.

can one tight Joe. through, To is What Okay, labor? will support? see the growth last of extent question, ask we how you go may. And I a if organic kind rate I bill

Joe Cutillo

date, the with the very rates, but support to -- heavy side, labor residential been honest, we able residential growth be let's go side. we’re the to civil then start labor the getting civil, I Yes, will we’ve seeing market to Heavy the will on tight. --

labor seeing are on inflation some We the rates.

putting escalators compensate We our bids sizable some to for are in to jobs. in multiyear that

So -- side, civil very, on are but we very just the heavy okay tight.

residential the Fort in shape Dallas, the side, very are markets. good On in we Worth

the right the Our rate acceptance. factor of we've customers, had Houston customer to market is not growth great in limiting now

As more labor can a business matter for. than of fact, we we’ve get

on but more now, market. to can this labor bring some in Houston meeting So week good we rate the a on faster strategies we A a right a that at and enhance top in have, U.S. companies the three you up have problem when bring volume, just it's actually other more take to crews as frustrating public the can. you problem out asking more you great trying customers, fast you're have as to and and very

Tahira Afzal

it. Got

much, you very Okay. Thank Joe.

Joe Cutillo

Thanks, Tahira.

Operator

next Our your with proceed line Instructions] the Please question. D.A. question Davidson. [Operator comes with of from Bill Newby

William Newby

very a guys Good on and congrats quarter. morning, strong

Ron Ballschmiede

Bill. Thanks,

Joe Cutillo

it. Thanks, one, through but a Bill. challenging was It we got

William Newby

a or will segment. expecting. above what this were well -- guess, on Joe, with the do can shift does does guess what -- from we way the barring what guys I this now, highway we business of this is start away right the work, the margins I high-end civil operating more perspective? a had Right. the of mean is were that significant that you I heavy from in kind represent margin mean, I we

Joe Cutillo

No.

right, which are three We starting to are the -- hopefully, -- elements. understand this people is is strategy,

of execution continuing civil, of are On continuing to heavy the to the see we heavy highway execution side, go performance and to improve margins cost reduce on up.

all and movement at 'XX go in through forward. of concerned tighter the the side to hope to third we XXXX, again the In a hopefully, it we months we quarter, will we're go highway I addition, of that end as the market X for gets we movement in and into fourth little side you, and tighter, quarter. the were quarter, paying raised saw months. again We tell and see the third highway up pricing so first the X flat seeing are pricing XXXX in continued the because heavy the as we attention heavy close on went as

would, continues better will news. should faster it up that that’s rate. and to will said double in we the whether be highway we're on the where The In it. like through, as of -- improving we it's to exactly I gets focus we evaluate addition, happening margin It's growing we're the getting margin continue the is, into, or news it starting digits, business, executing, to enhancing low if the on we it's of heavy call come top see less to fruits what highway XX% and that's and that some the of in good increase of mix, a

grow We highway than heavy opportunity business. to have the enough more

very We revenue on continue to not focus be growth and margin, selective there.

Ron Ballschmiede

rain, don't add, in would of I highway gets the quarter. our poor segment nasty And I heavy raining seasonality. forget our the over should with Even revenues its about element Texas, in say, of the quarter, XX%

overhead, we And beat etcetera. bit helps our volume the -- quarter about in highway course, in we revenue. say of first a heavy because XX% therefore, take quarter business where that our a quarter. the of hit fourth of absorbing of So our on up I get is

only caution don't look projector. my the at go-forward just quarter is So a as

rolling quarters think be for the still civil will I well won't because think go what every in off seasonal double four still a we back take in But heavy we or heavy phenomenon. that you to total, the digits full-year's, margin percentages civil. of repeat quarter

William Newby

of in margin revenue. fair on the expansion Houston of Tealstone lower that. one, I understand of or guess, I is to I guess, the from kind side despite lightening drag one two? that sustain Yes, business. right. great compared guys it the that the see Right, And to Is you business the say kind then, to

Ron Ballschmiede

think don’t there I in lower calculation. The much Yes, a results percentage sort revenue The lower reality of perverse. is earnout was drag.

So that more the you on okay threshold pennies the to percentage more a pennies majority It's of which keep we is go each us. with earnout -- than Once basis, dollar, earnings. not, to of go course. up above

making does -- So seller job a us -- you just and the what we are get quarter. very heavy knockdown two. operating fabulous when of both doing returns They're when performing is both two They -- near or returns the said. we're were we're though like us you -- That's collectively like and book into just we that the math.

we going to So that’s Nothing of really do high operating forward. XXs down impact with as the to that go performance. XX

Joe Cutillo

few earnout there we a paying both are ever you are money. collectively a actually more the margins we're hear slightly will times making out lot that happier we say one because and with So me of lower more

So …

Ron Ballschmiede

phenomenon. same XX-XX [indiscernible] is Unfortunately, causing our subsidiary

we expense. means are $X which partners, that just into me. with about million other we else coming before is our million talk $X.X math increase million that The operating we’ve our [indiscernible] to somewhere $X.X give me hear You fine in

William Newby

seasonally or Got is still quarter? saw of -- on out about it. that a I you Yes, on that you fourth side? sense. down business, that mean, the can I should revenue XQ think cadence in we with move push it. from -- I see in guess, XQ -- sustain I kind And staying the revenue Got the mean, makes it we it guess that given what should how you did into

Joe Cutillo

Yes, fourth in dip Mountains. will quarter weather because the QX there's always our just no Rocky question, versus of

So are okay? that mandatory that always shut down, projects have We to happen. will

if about it doesn't nice the fourth it However, away, is go look gets thing our at take quarter, work a the we just pushed.

residential going have starts October on the great. So record side, we was quarter. weather the into fourth not

a of matter As bad fact, was as it as September.

the I have what have in if we’re abnormal side However, reason we to we’ve we’ve caveat maintaining news range good is to row November little civil no guidance capacity enough and or compared December the execute weather and is normally or is, are the And and six days The and both in the within in to heavy very November November, of seeing. guidance. in had that a only five enough work stay residential the rain. December of

will hit is enough, right and I the After there. predict the and guidance, be say will I still both We do can to we out September get the we’ve there. capacity can't and all backlog but October,

Ron Ballschmiede

there, would revenue -- the follow Yes, what’s into the back quarter. seasonal will fourth historically

are guidance by I basis are could quarter we fourth quarter guess, So say -- doing math. -- one we

revenue we expect far so QX to being quarter. than less of first QX then followed strongest QX, much XX%, wise the how can history It's by the followed tell quarter by by revenue slowest and hit. You the

that will -- will that continue. So trend

William Newby

I appreciate queue. will I right. jump All guys. it back Right. in

Joe Cutillo

Thank you.

Operator

your question DeCoursey with of Our comes line Canaccord the John proceed Please question. with next Genuity.

John DeCoursey

Hey, guys. the quarter. on Congratulations

systems you that? answered, how 'XX the is Some projects and expect sooner the coming when late does bidding this than so [technical on then go you my present of specifically of project difficulty] getting this been have to kind or kind -- of hoping Is bill? touch of commence out it and more this start big opportunity just of really an do all could questions of

Joe Cutillo

airport the am John? are You you talking Is said about you after, that broke Bill. -- correct, I assuming

John DeCoursey

That's correct. Yes.

Joe Cutillo

them the what like airport do highway bill, full ramped we’ve is it and XX is to to Yes, seen before do, just just this speed. like the get ensures does kind months the bill, to -- the projects. these going X things running Monday Federal be the at airports But of available is up highway what for

the before show we sustainability, don’t However, happens, I continuing hit a around tell grow, to will we over the be to seeing know of see to this X% next years that at the significant and all will you, market more of grow three four X% will couple airport the last years. even increase, over that X% and it projections we’ve been

John DeCoursey

guys. Thanks, back the I great. will in queue. Okay, jump

Joe Cutillo

Okay.

Operator

Cutillo, for Mr. the [Operator over this floor Instructions] at questions back would we’ve turn no I closing further like time. to comments. now to you

Joe Cutillo

for everyone call again, Thanks our today. joining

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

Sterling Infrastructure (STRL) 10 Nov 182018 Q3 Earnings call transcript