Sterling Reports 2019 Third Quarter Results
THE WOODLANDS, TX
November 4, 2019
INCREASES 2019 ADJUSTED GUIDANCE TO REFLECT THE
IMMEDIATELY ACCRETIVE PLATEAU ACQUISITION
November 4, 2019 – Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or “the Company”) today announced financial results for the third quarter of 2019.
CONSOLIDATED THIRD QUARTER 2019 FINANCIAL RESULTS COMPARED TO THIRD QUARTER 2018:
CONSOLIDATED FINANCIAL POSITION, LIQUIDITY AND CASH FLOWS AT SEPTEMBER 30, 2019:
Third quarter 2019 revenues increased $0.4 million compared to the prior year quarter, primarily driven by a $3.2 million increase in residential construction. The slightly lower heavy civil revenues were consistent with our expectations.
Gross profit was $29.2 million in the third quarter of 2019, a decrease of $2.1 million from the prior year third quarter. Gross margin declined 72 basis points to 10.0%. This decrease reflects a lower margin revenue mix, driven by the completion of two large design-build projects at the end of 2018. The company expects the margin mix to improve with the ramp up of several large design-build projects in 2020. Additionally, margins within residential construction declined as a result of the expansion into the Houston market.
General and administrative expenses were $10.8 million in the third quarter of 2019, or 3.7% of revenues compared to $11.5 million or 3.9% of revenues in the third quarter of 2018, reflecting lower business development costs in the third quarter of 2019.
HEAVY CIVIL CONSTRUCTION BACKLOG HIGHLIGHTS
CEO REMARKS AND OUTLOOK
“We had another strong quarter with adjusted net income growth of 11%(1) compared to the third quarter of last year, on essentially flat top-line results,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “The 2019 third quarter was in-line with our expectations headed into the period and is exemplary of our strategy to consistently increase our bottom line as opposed to focusing on revenue growth. Our Heavy Civil revenues were down slightly compared to the same period last year, as a result of delays in the start of several large projects that we mentioned last quarter. We expect to see contribution from these projects in early 2020. Our backlog overall remains near record highs and most notably, margins in backlog improved in the third quarter, reflecting our disciplined bidding strategy.”
Mr. Cutillo continued, “Revenue in our Residential segment increased approximately 9% year over year, while operating margin declined 0.9%, due in large part to a mix shift. We have been ramping up our expansion into the Houston market, which has generated lower margins than our well-established operation in Dallas-Fort Worth as we build scale and efficiencies. As we continue to expand in the large and growing Houston market, we expect operating margins to improve. Looking at our residential business overall, we still foresee mid-single digit revenue growth and continued attractive margins in this segment.”
“In early October, we closed on our acquisition of Plateau, a leading provider of large-scale site infrastructure improvement contracting services that serves primarily large, blue-chip customers in the e-commerce, data center, distribution center and warehousing sectors,” remarked Mr. Cutillo. “This acquisition directly aligns with our strategic vision by diversifying Sterling into adjacent end markets with a focus on bottom line growth. Plateau not only positions us in exciting and quickly growing market segments, but also expands our geographic footprint into the highly attractive Southeastern United States. We expect this transaction to result in a significant boost to our profitability in 2020 and beyond and we are excited to ramp up our activities with the Plateau team.”
Mr. Cutillo concluded, “Despite the delayed starts on several large heavy civil projects, we continue to expect to reach our previously articulated full year 2019 targets on an organic basis. We are revising our guidance for the full year 2019 to reflect our expectations for the incremental contribution from Plateau. We now expect our 2019 revenues to be in the range $1.065 billion to $1.085 billion and GAAP net income attributable to Sterling common stockholders of $16 million to $17 million with weighted average shares of approximately 27.3 million. Our full year GAAP net income guidance includes acquisition related costs of approximately $4 million and approximately $9 million of early debt extinguishment cost related to the refinancing of our principle borrowing facility. We expect our full year adjusted net income attributable to Sterling common stockholders to be $29 million to $30 million(1), excluding the aforementioned acquisition related and early debt extinguishment costs.
Looking ahead to 2020, we expect substantial growth in our consolidated net income as we recognize a full year of Plateau contribution, work starts on the large heavy civil projects that were delayed in 2019, along with other projects in our combined backlog, and benefit from continued profitable growth in our residential business driven by continued expansion in Houston and ongoing market strength in Tealstone’s core Dallas-Fort Worth market.”
Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Tuesday, November 5, 2019 at 9:00 a.m. ET/8:00 a.m. CT. Interested parties may participate in the call by dialing (201) 493-6744 or (877) 445-9755. Please call in ten minutes before the conference call is scheduled to begin and ask for the Sterling Construction call. Following management’s opening remarks, there will be a question and answer session. Questions may be asked during the live call, or alternatively, you may e-mail questions in advance to Brigette.Wilcox@strlco.com.
To listen to a simultaneous webcast of the call, please go to the Company’s website at www.strlco.com at least fifteen minutes early to download and install any necessary audio software. If you are unable to listen live, the conference call webcast will be archived on the Company’s website for thirty days.
Sterling is a construction company that specializes in heavy civil infrastructure construction and infrastructure rehabilitation as well as residential construction projects. The Company operates primarily in Arizona, California, Colorado, Hawaii, Nevada, Texas and Utah, as well as other states in which there are feasible construction opportunities. Heavy civil construction projects include highways, roads, bridges, airfields, ports, light rail, water, wastewater and storm drainage systems, foundations for multi-family homes, commercial concrete projects and parking structures. Residential construction projects include concrete foundations for single-family homes.
IMPORTANT INFORMATION FOR INVESTORS AND STOCKHOLDERS
This press release contains “Non-GAAP” financial measures as defined under Regulation G of the amended U.S. Securities Exchange Act of 1934. The Company reports financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), but the Company believes that certain Non-GAAP financial measures provide useful supplemental information to investors regarding the underlying business trends and performance of the Company’s ongoing operations and are useful for period-over-period comparisons of those operations.
Non-GAAP measures include adjusted EPS and adjusted net income, in each case excluding the impacts of certain identified items. The excluded items represent items that the Company does not consider to be representative of its normal operations. The Company believes that these measures are useful measures for investors to review, because they provide a consistent measure of the underlying financial results of the Company’s ongoing business and, in the Company’s view, allow for a supplemental comparison against historical results and expectations for future performance. Furthermore, the Company uses each of these measures as measures of the performance of the Company’s operations for budgeting, forecasting, as well as employee incentive compensation. However, Non-GAAP measures should not be considered as substitutes for EPS, net income, or other data prepared and reported in accordance with GAAP and should be viewed in addition to the Company’s reported results prepared in accordance with GAAP.
The Company has included adjusted net income as a forecast non-GAAP measure in this press release and the Company believes this forward-looking financial estimate is within reasonable measure.
Reconciliations of these Non-GAAP financial measures and forecast Non-GAAP financial measures to the most comparable GAAP measures are provided in the tables included in this press release.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This press release contains statements that are considered forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our: business strategy; financial strategy; and plans, objectives, expectations, forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this press release, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this press release are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this press release are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in our filings with the U.S. Securities and Exchange Commission (“SEC”) and elsewhere in those filings. The forward-looking statements speak only as of the date made, and other than as required by law, we do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Sterling Construction Company, Inc.
Ron Ballschmiede, Chief Financial Officer
Investor Relations Counsel:
The Equity Group Inc.
Fred Buonocore, CFA 212-836-9607