STRL - Earnings call transcript Q2 2019 | Sterling Infrastructure, Inc.

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Operator

Greetings, and welcome to the Sterling Construction Company's second quarter 2019 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

Before turning the call over to Joe Cutillo, Sterling Construction's Chief Executive Officer, I will read the Safe Harbor statement.

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

I to the turn Now call over would like to Joe Cutillo.

Joe Cutillo

unfortunately, by the from everyone, conditions, and quarter. our delayed has I'm they execute sure joining our market, their our severe thank second-quarter times multiple were multiple how active for morning, now, you Good And heard not alone. Brad. start weather to the especially significantly The weather ones. ability Thanks, impacted and Texas in peers, new you've the projects on heavy call. civil hampered

to residential Dallas. business XX the side, heavy In challenges in on our civil down in addition we the days incurred

losing rain total above As would have much plan forecast. and as included for of conservative we've to we days, in be a XX% a normal tried never days quarter's

result. came result, still significant making expectations, our did but areas a lower flat than in stop As in near year-over-year a the quarter not multiple achieved during and progress slightly we

miss to $X.X Versus cash net the over the gone For million. to our from exceed. and quarter $X.X a incremental million an income $X.X the would prior approximately delivered income grew That revenue with have slight highest-margin was of year, have was quarter, $XX million, year business. less million our $X.X and million our versus of our coming would prior million, down net $XX revenue SG&A million $XX.X of from

of $X.X new all-time more an and in the hit backlog record backlog importantly, billion hit combined of margins high over a X.X%. Our

our on critical our is of revenue bottom of our continue track overall risk. part have business for strategy or focused from other activities. XXXX from while XX% achieve our This the a on less civil to heavy reducing as came coming our our XX% heavy-highway revenues growing quarter to to our low-bid goal stay We of line,

legislation potential passed The Works even approved the Infrastructure a stronger. and the Our annual remain increase that the If as and full through Bill, five-year Senate transportation Public bridges of this whole and October approved on FAST Act strong called with expires extension the would the Senate Americas markets by XXXX, XX% bill to Transportation highways to Environmental spend was a policy and in by Committee. Act just by the become the XXXX. next

Even We lost first be our the progress net income be weather to move the outlook. some and the and with year. million. and quarter $XX to projects continued back is now million of Now from second quarter of starts all between days, in and delayed effort let's the temper and the full causing to from billion impact billion between expect accumulated $X.XXX employees to the great full-year the revenues the $X.XXX claw to us our new both and our $XX

the midpoint to that, year. the With see, our on a growth I'd is income double-digit going you high of solid quarter record turn to record and with net as full it into like this to details XXXX and we'd still though Even guidance to as XXXX. backlog like more give over margins not represents over Ron the

Ron?

Ron Ballschmiede

Thanks, Joe, good morning, and everybody.

with totaled low the the combined beginning XXXX margin second-quarter bid awards end was which an X.X%. of low take Let billion $X.XXX backlog our operating the overall compared Heavy backlog, backlog to of $XXX million Combined backlog construction million through civil includes results. bids unsigned at at the you year. our quarter me gross of $XXX -- awards and

gross backlog the with the together margin Sterling's backlog, reflects highest combined strongest combined history. This in

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

backlog was second XXXX, respectively. the half and and quarter of factor first Our for book-to-burn the XXX% XXX% combined

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

when the Heavy approximately second construction revenue. concrete Total a which the from X% prior-year XX% $X.X from was the slabs completed, of the $XX second-quarter civil recognizes the quarter. of accounted construction XXXX X% $XXX down our for quarter $X.X are million, grew XXXX. revenues or of prior-year decrease Residential revenue quarter second revenue million million, or Residential were XX% period. over construction, million XXXX of for revenues

heavy work. coming were in construction end lower revenue the work two increase increases heavy driven revenue venture aviation fully XXXX and substantially complete largely civil controlled highway increased joint of which XXXX. was by from were The large from These million of projects, by additional revenues construction $XX.X by offset

our the The in in revenues Texas unworkable backlog. our XX Additionally, and were negatively conditions with by severe weather construction inclement proceed in second-quarter days impacted decrease of XXXX second abnormal heavy to to notices revenues was delayed due weather components of quarter. civil residential

slabs weather adverse decreased XX%. These completed the quarter in by conditions

declined As profit our the the million X.X%. you in record second saw quarter, a the million in weather was XXX slabs once to of in $XX.X likely points completed XXXX for to $X.X release, returned decrease all-time we an Gross completed by from July quarter. earnings normal. basis margin Gross

lower our and and heavy in prior $XX.X $XX.X The was other activities XXXX attributable compared million higher primarily mix quarter margin G&A quarter. of projects. margin our lower to margin projects. decreased decrease margin the was -- by and the civil alternative lower residential driven design a from pre-bid second civil revenues quarter-over-quarter heavy highest construction -- million expense our was prior-year XXXX construction for to segment quarter The of for build

expense As down X.X% our from decreased basis to comparable period. XX a points, revenues, or XXXX of percent second-quarter G&A our XXXX

of was XXXX for result XXXX $X.X decrease the $X.X the The Other operating lower decrease and expense the million second interest of expenses. from earn-out was comparable members' million, quarter. primarily a of quarter

$XX.X an segment quarter. residential standpoint, civil was of million, for second accounted of construction. operating income XXXX construction quarter quarter-over-quarter the balance the a heavy attributable of approximately with the XXXX from to Our million operating decrease operating income From $XXX,XXX decline $X for comparable the

quarter of expense for from XXXX in the interest million the prior-year Net million, period. $X.X $X.X down was second

quarter tax expense additional the to second $XXX,XXX, Our period. reflects in prior-year expense. noncash XXXX increased The $XXX,XXX increase year's prior compared of income tax --

the XXXX, XXXX second-quarter joint non-controlling earlier. owners Finally, construction the interest $XXX,XXX I by completion declined of late the mentioned projects large in reflecting venture which

in increase $XX.X a for compared XXXX prior-year net all income period and June ended XX months income effect per $XX.X of million net $X.XX EBITDA $X.XX of trailing $X.X June million, XX resulted to The second-quarter of for share net the per of ended of $X.X XXXX. income these million net diluted an the or share. XX, months million XXXX, XX, the totaled

ended We cash sorry, million with -- Moving compared the to first quarter $XX.X of quarter. to $XX.X million our the I'm of sheet. XXX end at balance the

of components construction The to million in flow we full-year consolidated XXXX. the of our cash is of XX, our The approximate -- at generally $XX.X historical remaining of cash our includes Our $XX year, construction balance balance was joint debt XX% throughout from and balance grow our income. operating cash attributable consolidated $X.X seasonal owned trends, recent ventures. million, and XX, June June the Consistent net the cash expect of activities our 'XX, our years. million operating with to highest cash available cash to subsidiaries

between $XX the second earlier, we billion and projects caused in mentioned and expectations. $X.XXX Joe as several heavy starts delayed To quarter guidance. be us temper our from weather of has inclement million we revenues full-year our to a the lower reiterate our revenue expect guidance, represents previous experienced reduction billion. to The revised civil full-year guidance $X.XXX midpoint-to-midpoint Finally, XXXX

Additionally, $XX our million net our to million to $XX guidance of expect million XXXX be compared $XX to million. we to income net income prior $XX

outstanding Our to million diluted shares approximately -- million I'm be for is XX.X weighted $XX.X average common shares XXXX. sorry, expected

Joe. the I'll call Now turn back to

Joe Cutillo

us well for the lower though adverse as come in made, the quarter in future. as outlook away the come the the about Even Ron. weather progress caused we we've expectation, our very optimistic than Thanks, to

record at with record Our an with backlog high remains -- margins. all-time average a

diligently for we to continues grow cash lever ways free it. look Our to as

month. Our heavy When With into adjacent space. that, come. you with into see you resilient highway Sterling started the diversifying happy new our number progress the completed more record make stronger, slabs a to account, residential years we to in for be these is take outside markets business that success And business third take and a factors quarter of of positioned we'd your a of all to continue for many questions.

Operator

Davidson. comes Brent instructions] from question D.A. of go Thielman Thank you. ahead. Please today Our [Operator first

Brent Thielman

any other of of simply Great. bit a sounds to of guess, shifted guess, involved Thanks. is weather factors question cause the start-up the the I right. larger jobs morning. Good delay on there a has it are I or the where like some there? kind civil

Joe Cutillo

released related to the that's factors us delays. really getting no worry that part if There's or that, anything about Yes. not question, of like the jobs weather

You get of things can that imagine, whole take generally place. to utilities the started There's before we on of jobs, right can that ways. bunch have activities moved, be like a there's

that as well. not activities place So the we're taking days those generally, working are

to of get design that caused for job We it in saw out is Hawaii right? on. mating is, job what then we the that months, into then And did pushed changes a we we'll in the is pushes continue So saw Hawaii quarter. have But things bird it out it the jobs a change are that just progress the that with those some it. that kind pushed issues couple and pushed get and the season, which another working they're So, that. design for three of

Brent Thielman

improvement the then looks environment bidding, what guess, of activity? margin versus And bid Joe. of in to general maybe you're work the Thanks, do the Okay. that, in shift backlog, much easier attribute like gross in I just how terms type in you

Joe Cutillo

this, less as see continue the of migrate Ron certainly Yes. low-bid projects We highway, give civil and but a heavy to you I'll on lift heavy different backlog to a help let the weather. out categories. I'll couple we

initiative Rocky other in Mount areas is even is our The delivery and going heavy the helping thing of part within predominantly alternative projects. strategic highway, to we're that's us

margins. tend at margins as higher the and more design bid and the make eight a customer that to result, table bid the upon value more provide manage can better a lot and add people to takes efficiently CMGC effectively So projects than traditional day. and the end lowest builds, the those We

We've those really it. are two driving in pricing. market-driven things I'll what's what slight upticks call So seen really

those categories. Ron, But to that? anything to the fall driving what's of would have you add share two dominant it do under

Ron Ballschmiede

No.

thirds I side. design keys. are a think the in think those combined the in work slipping that of And I our backlog, those unsigned. it's That two are bit delivery alternative our jobs two of one still still is is the

to project pushing but pretty also 'XX going in progress later ramps started that at late good it 'XX it's really second in and project in either when But it back earlier but be then progress when or finish we're up, making point -- it And than or -- $XXX going. good -- we will we And second it's making this forward the year, across million the thought, going maybe starts the this line. the quarters announced time. quarter, on late

Joe Cutillo

little broader And add Yes. a just than bit Brent, that. to

the it in it. of a they had is do all fatigue to great recovery. some One really back They raining had with is and Dallas, the the Tealstone quarter for rough about -- positive a the things cut that quarter we nothing can way

remained really the their is message margins same. that important of fundamentally But part the

we're of mix just also trying to we smooth variation and it margin, as helped the some So vulnerability quarter, broaden to our to that of or products, this not out the out. portfolio but month, only month from to quarter take of raise continue

Ron Ballschmiede

Teal had business, just And I our residential would add, business, nice Texas but a the commercial had. associate same day residential in challenges they the business to who going weather for have we tend as predominantly

grow help thought side didn't what grow by we the So would quarter. it that in certainly heavy the civil

Brent Thielman

some talk too that high That's be helpful. XXXX? that are think could could gain you Okay. yet just about Houston how do guess, to And rollout, soon? progress would of, is it question year? starting this I Or the the visibility other be, my into you kind you on

Joe Cutillo

little same and We and had It's the egg kind issues get a quarter had collaborate. hard But get go you, It's the Yes. worked on of down. in we're I the worked had. the XXXX. would to on in crews fundamental as Dallas it chicken, crews Houston tell and

Houston in the month, of that month. month in July, in slabs most we believe, of I part we've in record, However, done the XX a which one that particular caught is,

that So said. we're ramp add and market, ramp-up continuing everything it's continue to We're The to crews. very we've with It's see -- that consistent getting up. just to that Houston still optimistic. consistency

Brent Thielman

Okay, you. it great. pass I'll Thank on.

Ron Ballschmiede

Brent. you, Thank

Operator

Please question go Tahira Afzal from KeyBanc. of ahead. next is The

Sean Eastman

Hi, Tahira is today. team, Sean for this on

seeing just I Texas question next it civil? outside tie to hoping me highway, of is backlog update for also to just couple the first of get just the the The you're heavy kind of expecting on in maybe be of pipeline specifically over just to heavy then, was may trend what through outside you're together, And of quarters? end how prospect an And 'XX?

Joe Cutillo

Yes. Well, We significant welcome very stable, or changes markets the back, any other. see have Sean. very one The don't way consistent. been

got bill. remains got robust. afternoon a new a this market highway on I've I've -- call The unfortunate, think highway We that this later

glimpses DOTs of with used into tomorrow year remember, year September. know a them going although this we're -- their into year, than lot more next their So fiscal to very we're we at But ends budgets optimistic XXXX, starting because I going see in today.

next strong bill very the highway expand. last drive was and Aviation is into and projects. year, year looks has aviation at continues side. -- passed on more to that more continued the The going to Everything end it grow side aviation of

robust looks us. very So for that market

of side last is all in the weather is right kinds week. We now. markets away, down of We're just and buzz kind that. housing The our There's on interest there. and biggest residential slowing plugging dropped news just rates the issue in consistent saw the very all

activities. see kind of we boost of think, go. some the I'll We've and hoping we're steady the from recent quo, to been as We it, call status a

should that I backlog thing earlier. grow a think degree, continue some big kicked our the slightly off is back of year. could half change to through that, The to a the project little So if

rates we projects. that other what this before it don't run fill some of rest any year. I'll through track we and historical heard the from But the with call significant see We've change

Sean Eastman

quarter guys side, dislocation. the like weather the on it margin Okay, then great. despite looks good able in And maintain second residential pretty to you were a the

I'm how just thinking high margin I'm XX% we've the how just kind on out, progression you level kind from then how guys been of this based So building wondering about be should seeing? that? manage Houston's wondering And residential of we

Joe Cutillo

lot a and that subcontract but bit -- showed is, you because a of us hope when believe like margins don't that said maintain ability I of in little first, the was fact, not I to Well, the think Yes. element downturn, we a people see because a of model what when I really know And of that market, it the of had about we first downturn. weather. the We quarter that we hand true. that Tealstone

back the majority goes piece Tealstone business the piece where the -- labor Sean, model, to of subcontracted. of the labor the It is

foot. we're not not by paying. And paid So pouring, we square the if that we're

margins, why. costs we're we inefficiencies We as when bit the is It And going a So premium. market. have get out. start-up to at get they work, hours to and Houston, The you this and some in that ineffectiveness little increased back new certainly the exactly model. work of into subcontract cost really to us stuff like doesn't go

major But movements continue I inch a margins the be lower Those over consistent or going that. call little plus the any don't minus, something in say, relatively a Dallas are but I'd than see with margins half to it, like where markets or are, are there. they point time, to up.

down. of Now for pressure I'm and long on know sure market back see where we'll it's tough. someday, a all hope the to we time. that's will pricing, some we housing But period slow see that

Ron Ballschmiede

margin solid pay. to it's Even Unfortunately, of And small field some of good what are the to hard performance them seeing it's of our in when very lot a And in are give a performance-based describe, the workforce variable that cost. in raining. fixed add. portion are for out subcontractors easy I would pretty you're that's staying the

point can, side. like as really that puts the as than less labor our to material plus subcontractors by we -- both income just efficient and at great a that. the right And we We both it It by drives and XX side operating be point along a minus behavior -- consistent on people on internal our of or actually.

Sean Eastman

Very of the to quarter the on kind is to we Tealstone guess, our to helpful. we in quarter kind day leverage I understand what take what model, SG&A lastly, relative that there. flex because of the SG&A saw line So I this an extent? this wanted just labor saw

Joe Cutillo

is No. down. large projects. big talk and Most gross three profit up of in falls we pretty just about that's cost and working Tealstone we was factor last The significant that were year, on the

backlog. of is One them in

hoping one there our some One to is there have Rocky the was going peaking and not out still on -- be still work of in them of combined we're outside on out. in that one more added but We working Mountain. to backlog. is Actually,

those we money a to getting on spend and across finish those line. fair lumpy, tend to So be tend to amount of

So get didn't on out we news, perfect have last still was that. line. we across as we're We there a supposed of in year working across whole just couple we're at to right finish of now, four Good that there. finish one on have lot storm. a a working to once line But have to get sort

Ron Ballschmiede

would us. the be would timing a a quarter, for saw Yes. that -- at It's we time lot of Generally, year. same we one last just several see obligate

Sean Eastman

Got time. it. the Thanks Really for helpful. so much

Joe Cutillo

Sean. Thanks,

Operator

this like time. Cutillo There are would for to additional remarks. no Joe closing call to the turn at I questions back

Joe Cutillo

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

partners at please a provided to our follow-up you, the or have information The at relations you Thank associated our with Equity questions day. or Group. have any a everybody, contact release press great If investor the and schedule to in refer wish Sterling call, group

Operator

today's This conference. concludes

participation. disconnect for this your time. Thank your lines at may you You

Sterling Infrastructure (STRL) 9 Aug 192019 Q2 Earnings call transcript