Sterling Infrastructure(STRL) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The condensed consolidated financial statements for June 30, 2025, reflect strong financial performance, asset growth, and strategic cash flow activities Condensed Consolidated Statements of Operations The statements of operations show significant increases in revenues, gross profit, and net income for the periods ended June 30, 2025 Condensed Consolidated Statements of Operations (In thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $614,468 | $582,822 | $1,045,417 | $1,023,182 | | Gross profit | 143,140 | 112,743 | 237,980 | 189,647 | | Operating income | 104,564 | 72,734 | 160,640 | 114,859 | | Net income attributable to Sterling common stockholders | 70,991 | 51,879 | 110,468 | 82,927 | | Basic EPS | $2.33 | $1.68 | $3.62 | $2.68 | | Diluted EPS | $2.31 | $1.67 | $3.59 | $2.66 | Condensed Consolidated Balance Sheets The balance sheets indicate growth in cash, total assets, and stockholders' equity from December 2024 to June 2025 Condensed Consolidated Balance Sheets (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $699,373 | $664,195 | | Accounts receivable | 347,661 | 247,050 | | Contract assets | 51,778 | 55,387 | | Total current assets | 1,132,299 | 1,021,880 | | Total assets | $2,160,890 | $2,016,774 | | Accounts payable | $159,259 | $130,420 | | Contract liabilities | 553,171 | 508,846 | | Total current liabilities | 796,231 | 741,958 | | Total liabilities | 1,249,517 | 1,190,296 | | Total stockholders' equity | 911,373 | 826,478 | | Total liabilities and stockholders' equity | $2,160,890 | $2,016,774 | Condensed Consolidated Statements of Cash Flows Cash flow statements show stable operating cash, increased investing and financing outflows, and a lower net change in cash Condensed Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $170,311 | $170,561 | | Net cash used in investing activities | (66,477) | (45,381) | | Net cash used in financing activities | (68,656) | (56,758) | | Net change in cash, cash equivalents, and restricted cash | 35,178 | 68,422 | | Cash, cash equivalents and restricted cash at end of period | $699,373 | $539,985 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased, driven by net income and stock-based compensation, partially offset by stock repurchases Condensed Consolidated Statements of Changes in Stockholders' Equity (In thousands) | Metric | Balance at December 31, 2024 | Balance at June 30, 2025 | | :-------------------------------- | :--------------------------- | :----------------------- | | Total Sterling Stockholders' Equity | $808,081 | $881,745 | | Noncontrolling Interests | 18,397 | 29,628 | | Total Stockholders' Equity | $826,478 | $911,373 | | Activity (Six Months Ended June 30, 2025) | Amount ($ thousands) | | :---------------------------------------- | :------------------- | | Net income | 42,591 | | Stock-based compensation | 6,976 | | Repurchase of common stock | (43,846) | | Issuance of stock | 496 | | Shares withheld for taxes | (5,768) | Note 1. Nature of Operations Sterling Infrastructure, Inc. operates three specialized segments: E-Infrastructure, Transportation, and Building Solutions, across various US regions - Sterling Infrastructure, Inc. operates through three segments: E-Infrastructure Solutions (large-scale site development), Transportation Solutions (infrastructure and rehabilitation projects), and Building Solutions (residential and commercial concrete foundations, plumbing, surveys)[20] Note 2. Basis of Presentation and Significant Accounting Policies Financial statements adhere to GAAP, consolidating subsidiaries, using equity method for RHB, and detailing key accounting estimates and new pronouncements - The company's Condensed Consolidated Financial Statements are presented in accordance with GAAP, consolidating all wholly owned subsidiaries and controlled entities. Effective January 1, 2025, the company no longer consolidates Road and Highway Builders, LLC (RHB) and now uses equity method accounting for its 50% interest[21][28] - Contract assets decreased by $3.6 million, and contract liabilities increased by $44.3 million compared to December 31, 2024, primarily due to a decrease in retainage for assets and timing of advance billings for liabilities[27] - Sterling acquired Drake Concrete, LLC in the first quarter of 2025 for $25 million in cash plus a four-year earn-out opportunity, strengthening its Building Solutions segment in the Dallas-Fort Worth market[29] - New accounting pronouncements, ASU 2023-09 (Improvements to Income Tax Disclosure) and ASU 2024-03 (Disaggregation of Income Statement Expenses), are expected to affect financial statement disclosures but not the company's results of operations or financial position[31][32] Note 3. Revenue from Customers RPOs increased to $2.01 billion, with E-Infrastructure driving revenue growth, while other segments declined due to RHB deconsolidation and market shifts Remaining Performance Obligations (RPOs) by Segment (In thousands) | Segment | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | E-Infrastructure Solutions RPOs | $1,249,711 | $1,032,109 | | Transportation Solutions RPOs | 714,983 | 622,085 | | Building Solutions RPOs - Commercial | 44,001 | 39,029 | | Total RPOs | $2,008,695 | $1,693,223 | - Approximately 78% of RPOs are expected to be recognized as revenue during the next twelve months[33] Revenues by Major End Market (In thousands) | End Market | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | E-Infrastructure Solutions Revenues | $310,406 | $241,312 | $528,669 | $425,788 | | Transportation Solutions Revenues | 196,797 | 232,775 | 317,458 | 381,744 | | Building Solutions Revenues | 107,265 | 108,735 | 199,290 | 215,650 | | Total Revenues | $614,468 | $582,822 | $1,045,417 | $1,023,182 | - RHB's revenue of $73.9 million (three months) and $112.4 million (six months) was included in 2024 Transportation Solutions and Total Revenues but is excluded in 2025 due to deconsolidation[34] - Changes in contract estimates resulted in net revenue increases of $42.0 million and $72.5 million for the three and six months ended June 30, 2025, respectively, compared to $30.8 million and $52.4 million for the same periods in 2024[36] Note 4. 50% Owned Subsidiary Sterling deconsolidated RHB on January 1, 2025, now using the equity method, impacting revenue consolidation and income reporting - Sterling deconsolidated Road and Highway Builders, LLC (RHB) on December 31, 2024, and began using equity method accounting for its 50% interest starting January 1, 2025. Consequently, RHB's revenue is no longer included in Sterling's consolidated revenue[28][37] RHB's Financials and Sterling's Share (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | RHB's Revenues | $61,321 | $73,947 | $104,767 | $112,411 | | RHB's Income before tax | $11,865 | $14,520 | $19,940 | $19,611 | | Sterling's Revenues (consolidated) | $— | $73,947 | $— | $112,411 | | Sterling's Income before tax (from RHB) | $3,785 | $7,260 | $5,677 | $9,806 | - Sterling's portion of income before tax from RHB for 2025 includes $1.9 million (3 months) and $3.7 million (6 months) of intangible asset amortization and $0.3 million (3 months) and $0.6 million (6 months) of depreciation expense related to the basis difference from deconsolidation[37] Note 5. Construction Joint Ventures Consolidated VIEs showed strong growth, while unconsolidated JVs saw revenue decline; the company acknowledges joint venture risks Summary Consolidated VIE Information (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $99,481 | $42,257 | $149,338 | $70,882 | | Operating income | $16,535 | $5,270 | $22,471 | $10,520 | | Net income | $17,668 | $5,916 | $24,527 | $11,688 | Unconsolidated Joint Ventures (Noncontrolling Interest) (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $15,258 | $23,467 | $34,884 | $36,748 | | Income before tax | $2,641 | $2,495 | $2,804 | $4,117 | | Sterling's Revenues | $6,104 | $11,372 | $13,954 | $17,785 | | Sterling's Income before tax | $1,057 | $1,220 | $1,122 | $1,967 | - The company is exposed to risks in joint ventures, including partners' inability or unwillingness to provide their share of capital or complete obligations, and potential joint and several liability for partners' failures[41] Note 6. Property and Equipment Net property and equipment increased to $244.8 million, primarily due to construction and transportation equipment, with slightly higher depreciation Property and Equipment, Net (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Construction and transportation equipment | $413,686 | $386,946 | | Buildings and improvements | 20,662 | 20,476 | | Land | 2,168 | 2,168 | | Office equipment | 3,994 | 3,772 | | Total property and equipment | 440,510 | 413,362 | | Less accumulated depreciation | (195,700) | (176,567) | | Total property and equipment, net | $244,810 | $236,795 | Depreciation Expense (In thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30, | $13,086 | $12,645 | | Six Months Ended June 30, | $25,574 | $24,606 | Note 7. Other Intangible Assets Acquired finite-lived intangible assets increased to $413.9 million, mainly customer relationships and trade names, with a slight rise in amortization expense Acquired Finite-Lived Intangible Assets (Gross Carrying Amount, In thousands) | Category | June 30, 2025 | December 31, 2024 | Weighted Average Life (Years) | | :-------------------- | :------------ | :---------------- | :---------------------------- | | Customer relationships | $354,990 | $333,183 | 24 | | Trade names | 58,877 | 58,877 | 23 | | Total | $413,867 | $392,060 | 23 | Intangible Amortization Expense (In thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30, | $4,536 | $4,280 | | Six Months Ended June 30, | $9,039 | $8,577 | Note 8. Debt Total debt decreased to $300.5 million; a new credit agreement extended maturity, increased the revolving facility, and adjusted term loan payments Outstanding Debt (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Term Loan Facility | $300,000 | $317,188 | | Revolving Credit Facility | — | — | | Other debt | 467 | 554 | | Total debt | 300,467 | 317,742 | | Less - Current maturities of long-term debt | (15,162) | (26,423) | | Less - Unamortized debt issuance costs | (2,255) | (1,421) | | Total long-term debt | $283,050 | $289,898 | - On June 5, 2025, the company entered into an Amended and Restated Credit Agreement, extending the Credit Facility maturity to June 5, 2028, increasing the Revolving Credit Facility to $150 million, and adjusting Term Loan Facility quarterly payments to 1.25% of the initial principal amount[44][45] - The weighted average interest rate for the six months ended June 30, 2025, was approximately 5.88% per annum[46] - The company incurred $1.4 million of fees related to the amendment and restatement of the Credit Facility in the second quarter of 2025[49] - As of June 30, 2025, the company was in compliance with all restrictive and financial covenants[50] Note 9. Lease Obligations Total operating lease liabilities decreased to $44.9 million, covering equipment and office space, with operating lease costs as the largest component Total Operating Lease Liabilities (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $44,470 | $52,668 | | Current portion of long-term lease obligations | 18,202 | 20,498 | | Long-term lease obligations | 26,729 | 32,455 | | Total operating lease liabilities | $44,931 | $52,953 | Lease Expense (In thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $5,780 | $5,684 | $11,529 | $11,375 | | Short-term lease cost | $7,062 | $6,718 | $12,792 | $10,902 | | Total finance lease cost | $39 | $78 | $78 | $156 | Note 10. Commitments and Contingencies The company maintains various commitments and performance guarantees, and does not anticipate material financial impact from current legal proceedings - The company obtains standby letters of credit for insurance and bonding on construction contracts, indemnifying Travelers for any losses incurred[53][54] - Management does not believe that the outcome of current legal proceedings will have a material impact on the Condensed Consolidated Financial Statements[56] Note 11. Income Taxes Income tax expense increased, with effective tax rates of 25.7% and 25.9% due to non-deductible items, and a full-year estimate of 26% Income Tax Expense (In thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Current tax expense | $22,598 | $15,952 | $37,028 | $22,039 | | Deferred tax expense | 4,764 | 2,000 | 5,414 | 3,517 | | Income tax expense | $27,362 | $17,952 | $42,442 | $25,556 | - The effective income tax rate for the three and six months ended June 30, 2025, was 25.7% and 25.9%, respectively, primarily due to non-deductible compensation, state income taxes, and other permanent differences[57] - The company has a UTP liability of $6.7 million, including penalties and interest, which is fully offset by an indemnification receivable[59] Note 12. Stock Incentive Plan and Other Equity Activity Stock-based compensation expense increased, and the company repurchased 340 thousand shares for $43.8 million under a $200 million program Stock-Based Compensation Expense (In thousands) | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30, | $5,247 | $4,273 | | Six Months Ended June 30, | $11,591 | $8,321 | - The company repurchased 340 thousand shares of its common stock for $43.8 million during the six months ended June 30, 2025, under a program authorizing repurchases of up to $200 million, which expires on December 5, 2025[64] Note 13. Earnings Per Share Basic and diluted EPS significantly increased for both periods ended June 30, 2025, driven by higher net income Net Income Per Share Attributable to Sterling Common Stockholders | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to Sterling common stockholders ($ thousands) | $70,991 | $51,879 | $110,468 | $82,927 | | Basic EPS | $2.33 | $1.68 | $3.62 | $2.68 | | Diluted EPS | $2.31 | $1.67 | $3.59 | $2.66 | Note 14. Supplemental Cash Flow Information Changes in operating assets and liabilities resulted in a $7.5 million net cash outflow, a shift from prior year inflow, driven by receivables and contracts Changes in Operating Assets and Liabilities (In thousands) | Category | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Accounts receivable | $(94,143) | $(122,343) | | Contracts in progress, net | 47,138 | 123,540 | | Receivables from and equity in construction joint ventures | (2,157) | 12,039 | | Receivable from affiliate | 23,232 | — | | Other current and non-current assets | (5,398) | (2,037) | | Accounts payable | 24,524 | 16,548 | | Accrued compensation and other liabilities | (663) | 16,063 | | Members' interest subject to mandatory redemption and undistributed earnings | — | (5,297) | | Changes in operating assets and liabilities | $(7,467) | $38,513 | Note 15. Related Party Transactions Related party transactions include $4.0 million in property leases, with a $32.1 million RHB receivable collected and a $2.5 million affiliate receivable outstanding - The company has property leases with management of certain subsidiaries, with an annual cost of approximately $4.0 million[67] - A receivable from RHB of approximately $32.1 million at December 31, 2024, was fully collected in the first quarter of 2025[67] - At June 30, 2025, the company had a receivable from an affiliate of approximately $2.5 million attributable to RHB operating costs paid on its behalf[67] Note 16. Segment Information E-Infrastructure Solutions drove strong revenue and operating income growth, while Transportation and Building Solutions saw varied performance, and corporate G&A increased Segment Revenues (In thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | E-Infrastructure Solutions | $310,406 | $241,312 | $528,669 | $425,788 | | Transportation Solutions | 196,797 | 232,775 | 317,458 | 381,744 | | Building Solutions | 107,265 | 108,735 | 199,290 | 215,650 | | Total Revenues | $614,468 | $582,822 | $1,045,417 | $1,023,182 | Segment Operating Income (In thousands) | Segment | Three Months Ended June 30, 2025 | Operating Margin 2025 | Three Months Ended June 30, 2024 | Operating Margin 2024 | | :------------------------ | :------------------------------- | :-------------------- | :------------------------------- | :-------------------- | | E-Infrastructure Solutions | $83,767 | 27.0% | $51,677 | 21.4% | | Transportation Solutions | 25,975 | 13.2% | 15,449 | 6.6% | | Building Solutions | 9,855 | 9.2% | 14,813 | 13.6% | | Segment Operating Income | $119,597 | 19.5% | $81,939 | 14.1% | Segment Operating Income (In thousands) | Segment | Six Months Ended June 30, 2025 | Operating Margin 2025 | Six Months Ended June 30, 2024 | Operating Margin 2024 | | :------------------------ | :----------------------------- | :-------------------- | :----------------------------- | :-------------------- | | E-Infrastructure Solutions | $130,409 | 24.7% | $78,846 | 18.5% | | Transportation Solutions | 37,228 | 11.7% | 23,581 | 6.2% | | Building Solutions | 22,207 | 11.1% | 30,588 | 14.2% | | Segment Operating Income | $189,844 | 18.2% | $133,015 | 13.0% | - Corporate G&A Expense increased to $23.8 million for the six months ended June 30, 2025, from $16.0 million in the prior year[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This analysis covers Sterling's financial performance, strategic initiatives, and market outlook, highlighting strong growth, key transactions, and robust liquidity Overview Sterling operates three segments: E-Infrastructure, Transportation, and Building Solutions, providing specialized services across the US - Sterling operates through three segments: E-Infrastructure, Transportation, and Building Solutions, providing specialized services across various U.S. regions, with a commitment to sustainability[76] Significant Transactions Key transactions include RHB deconsolidation, Drake Concrete acquisition, and the planned CEC Facilities Group acquisition - Road and Highway Builders, LLC (RHB) was deconsolidated on December 31, 2024, with Sterling now using equity method accounting for its 50% interest[77][78] - Sterling acquired Drake Concrete, LLC in Q1 2025 for $25 million cash plus an earn-out, expanding its Building Solutions segment in Dallas-Fort Worth[79] - The company signed a definitive agreement on June 16, 2025, to acquire CEC Facilities Group, LLC for $505 million (cash and stock) plus an earn-out, expected to close in Q3 2025, joining the E-Infrastructure Solutions segment[80] Market Outlook and Trends The company anticipates favorable long-term growth across all segments, driven by E-Infrastructure, federal funding, and eventual housing recovery - The company foresees favorable long-term growth opportunities across all business segments, focusing on E-Infrastructure growth, risk reduction in Transportation, market share expansion in Building Solutions, and margin improvement[81] - E-Infrastructure Solutions anticipates significant growth from data centers, advanced manufacturing, and artificial intelligence applications, with strengthening in the e-commerce distribution sector[82] - Transportation Solutions expects elevated market levels in 2025 and 2026 due to strong federal and state funding, including the Infrastructure Investments and Jobs Act (IIJA) which provides approximately $643 billion for transportation programs[83] - Building Solutions anticipates muted demand in the near-term due to affordability challenges for homebuyers but expects a return to growth over a multi-year period driven by population growth and structural housing shortages[84] Backlog Backlog and Combined Backlog increased to $2.01 billion and $2.25 billion respectively, with an improved backlog margin of 17.8% Backlog and Combined Backlog (In billions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Backlog | $2.01 | $1.69 | | Unsigned Awards | $0.2373 | $0.1379 | | Combined Backlog | $2.25 | $1.83 | - The book-to-burn ratio was 1.4X for Backlog and 1.5X for Combined Backlog for the six months ended June 30, 2025[86][87] - Backlog margin increased to 17.8% at June 30, 2025, from 16.7% at December 31, 2024, driven by a greater mix of E-Infrastructure Solutions backlog and improved Transportation Solutions backlog margin[86] Results of Operations Consolidated revenues, gross profit, and operating income significantly increased, driven by E-Infrastructure, despite higher G&A expenses Consolidated Financial Highlights (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $614,468 | $582,822 | $1,045,417 | $1,023,182 | | Gross profit | 143,140 | 112,743 | 237,980 | 189,647 | | Operating income | 104,564 | 72,734 | 160,640 | 114,859 | | Net income attributable to Sterling common stockholders | 70,991 | 51,879 | 110,468 | 82,927 | | Gross margin | 23.3% | 19.3% | 22.8% | 18.5% | - Excluding $73.9 million of RHB revenue from Q2 2024, revenues increased $105.6 million in Q2 2025, driven by E-Infrastructure Solutions (+$69.1 million) and Transportation Solutions (+$38.0 million), partly offset by Building Solutions (-$1.5 million)[88] - General and administrative expenses increased to $34.0 million (5.5% of revenue) in Q2 2025 and $68.6 million (6.6% of revenue) in H1 2025, reflecting higher performance-based compensation, severance costs, increased headcount, and inflation[92] - Net interest shifted to income of $1.9 million in Q2 2025 and $3.5 million in H1 2025, compared to net interest expense in prior periods, due to increased interest rates on a growing cash balance[94] - The effective income tax rate was 25.7% for Q2 2025 and 25.9% for H1 2025, with a full-year 2025 estimate of approximately 26%[95] Segment Results E-Infrastructure Solutions showed strong revenue and margin growth, Transportation improved margins despite revenue decline, and Building Solutions faced revenue and income decreases Segment Revenues (In thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | E-Infrastructure Solutions | $310,406 | $241,312 | $528,669 | $425,788 | | Transportation Solutions | 196,797 | 232,775 | 317,458 | 381,744 | | Building Solutions | 107,265 | 108,735 | 199,290 | 215,650 | Segment Operating Income and Margin (In thousands) | Segment | Three Months Ended June 30, 2025 | Operating Margin 2025 | Three Months Ended June 30, 2024 | Operating Margin 2024 | | :------------------------ | :------------------------------- | :-------------------- | :------------------------------- | :-------------------- | | E-Infrastructure Solutions | $83,767 | 27.0% | $51,677 | 21.4% | | Transportation Solutions | 25,975 | 13.2% | 15,449 | 6.6% | | Building Solutions | 9,855 | 9.2% | 14,813 | 13.6% | - E-Infrastructure Solutions revenue increased by 28.6% (Q2) and 24.2% (H1), driven by higher volume from data centers, with operating income margin improving due to a project mix shift toward large mission-critical projects[98][99] - Transportation Solutions revenue decreased by 15.5% (Q2) and 16.8% (H1) (including RHB deconsolidation impact), but operating income margin improved due to a better project margin mix[100][101] - Building Solutions revenue decreased by 1.4% (Q2) and 7.6% (H1), and operating income declined due to lower commercial volume and fewer residential slabs, impacted by affordability challenges for homebuyers[102][103] Liquidity and Sources of Capital Cash and cash equivalents increased to $699.4 million, with increased investing and financing outflows, supporting strategic capital allocation Cash and Cash Equivalents (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Generally Available | $551,801 | $566,399 | | Construction Joint Ventures | 147,572 | 97,796 | | Total cash and cash equivalents | $699,373 | $664,195 | Consolidated Cash Flows (Six Months Ended June 30, In thousands) | Activity | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Net cash provided by operating activities | $170,311 | $170,561 | | Net cash used in investing activities | $(66,477) | $(45,381) | | Net cash used in financing activities | $(68,656) | $(56,758) | | Net change in cash and cash equivalents | $35,178 | $68,422 | - Net cash used in investing activities increased due to $37.9 million for acquisitions (including Drake) and $31.3 million for capital expenditures[107] - Net cash used in financing activities increased due to $43.8 million for common stock repurchases and $17.2 million for Term Loan Facility repayments[108] - The company's capital strategy includes investing in projects or businesses, managing debt balances, and repurchasing shares of common stock[109] Joint Ventures The company's construction joint ventures expose it to risks like partner funding issues and joint and several liability - The company participates in construction joint ventures, which expose it to risks such as partners' inability to fund losses and joint and several liability for project completion[110] - At June 30, 2025, approximately $23 million of construction work remained on unconsolidated joint venture contracts, with $9 million representing Sterling's proportionate share[111] New Accounting Standards New accounting standards ASU 2023-09 and ASU 2024-03 will affect disclosures but not financial position or results - Refer to Note 2 for a discussion of new accounting standards, ASU 2023-09 (Income Tax Disclosure) and ASU 2024-03 (Disaggregation of Income Statement Expenses), which are expected to affect disclosures but not financial position or results[112][31][32] Critical Accounting Estimates No material changes occurred in critical accounting estimates from those described in the 2024 Form 10-K - There have been no material changes to the company's critical accounting estimates from those described in Item 7 of its 2024 Form 10-K[113] Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk primarily involves interest rate fluctuations on variable-rate debt and cash, and the impact of inflation on operating costs Interest Rate Risk Interest rate risk impacts $300 million of variable-rate debt and $699 million in cash, with a 100-basis point change affecting interest by $3-7 million - The company's indebtedness includes $300 million of variable rate debt. A 100-basis point increase or decrease in the interest rate would increase or decrease interest expense by approximately $3 million per year[114] - As of June 30, 2025, the company held cash and cash equivalents of $699 million. A 100-basis point increase or decrease in the interest rate would increase or decrease interest income by approximately $7 million per year[114] Other Carrying values of short-term assets and liabilities approximate fair values; inflation continues to increase operating costs - The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values due to their short-term nature. The fair value of debt also approximates its carrying value as interest is based on Term SOFR plus an applicable margin[115] - Inflation has resulted in price increases for materials (steel, cement, concrete, aggregates, oil, fuel) and labor, increasing operating costs and general and administrative expenses. While anticipated cost increases are considered in bids, inflation may continue to negatively impact financial results[116] Item 4. Controls and Procedures Disclosure controls were effective as of June 30, 2025, excluding new acquisitions, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2025, with newly acquired businesses excluded per SEC guidance - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2025[118] - Newly acquired businesses were excluded from the scope of design and operation of disclosure controls and procedures for the quarter ended June 30, 2025, as permitted by SEC guidance[118] Changes in Internal Control over Financial Reporting No material changes occurred in internal control over financial reporting during the quarter ended June 30, 2025 - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2025[119] Inherent Limitations on Effectiveness of Controls Internal controls may not prevent all errors or fraud, and their effectiveness is subject to inherent limitations and changing conditions - Internal control over financial reporting may not prevent or detect all errors and fraud, and its effectiveness is subject to the risk that controls may become inadequate due to changing conditions or deteriorating compliance[120] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but management does not anticipate a material impact on financial statements - The company is involved in various legal proceedings incidental to its ordinary course of business, but management does not expect a material impact on the Condensed Consolidated Financial Statements[121] Item 1A. Risk Factors No material changes occurred to the risk factors previously disclosed in the 2024 Form 10-K, which should be carefully considered - There have been no material changes from the risk factors previously disclosed in 'Part I, Item 1A. Risk Factors' of the 2024 Form 10-K[122] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No common stock was repurchased in Q2 2025 under the $200 million program, which is authorized until December 5, 2025 Common Stock Repurchases (Quarter Ended June 30, 2025, In thousands, except price per share data) | Period | Total number of shares (or units) purchased | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | | :---------------------- | :-------------------------------- | :------------------------------------- | :------------------------------------------------------------------------ | :---------------------------------------------------------------------------------------------------------------- | | April 1 – April 30, 2025 | 0 | $0.00 | 0 | $85,558 | | May 1 – May 31, 2025 | 0 | $0.00 | 0 | $85,558 | | June 1 – June 30, 2025 | 0 | $0.00 | 0 | $85,558 | | Total | 0 | $0.00 | 0 | $85,558 | - The Board of Directors approved a program on December 5, 2023, authorizing repurchases of up to $200 million of the company's common stock, which expires on December 5, 2025[123] Item 5. Other Information No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the quarter ended June 30, 2025[124] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including key agreements and required certifications - Key exhibits filed include the Asset Purchase Agreement for CEC Facilities Group (Exhibit 2.1) and the Amended and Restated Credit Agreement (Exhibit 10.1)[125] Signatures The report was signed by Nicholas Grindstaff, Chief Financial Officer, on behalf of Sterling Infrastructure, Inc. on August 5, 2025 - The report was signed by Nicholas Grindstaff, Chief Financial Officer and Duly Authorized Officer, on August 5, 2025[129]