Sterling Infrastructure(US:STRL)2024-05-07 13:10PART I—FINANCIAL INFORMATION Condensed Consolidated Financial Statements Sterling Infrastructure's Q1 2024 financial statements show net income growth to $31.0 million, total assets of $1.82 billion, and stable operating cash flow Statements of Operations Q1 2024 revenues grew 9.1% to $440.4 million, with net income attributable to Sterling common stockholders increasing 58.0% to $31.0 million Consolidated Statements of Operations Highlights (Q1 2024 vs Q1 2023) | Financial Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $440.4M | $403.6M | +9.1% | | Gross Profit | $76.9M | $61.7M | +24.6% | | Operating Income | $42.1M | $32.6M | +29.1% | | Net Income Attributable to Sterling | $31.0M | $19.6M | +58.0% | | Diluted EPS | $1.00 | $0.64 | +56.3% | Balance Sheets As of March 31, 2024, total assets reached $1.82 billion, with stockholders' equity growing to $652.2 million Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $878.9M | $848.0M | | Total Assets | $1.82B | $1.78B | | Total Current Liabilities | $705.7M | $678.2M | | Total Liabilities | $1.17B | $1.15B | | Total Stockholders' Equity | $652.2M | $623.9M | Statements of Cash Flows Q1 2024 net cash from operating activities was $49.6 million, with $21.0 million used in investing and $19.7 million in financing Consolidated Cash Flow Summary (Q1 2024 vs Q1 2023) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $49.6M | $49.1M | | Net Cash (Used in) Provided by Investing Activities | $(21.0)M | $6.5M | | Net Cash Used in Financing Activities | $(19.7)M | $(35.1)M | | Net Change in Cash | $8.9M | $20.4M | Notes to the Condensed Consolidated Financial Statements The notes provide details on operations, accounting policies, the PPG acquisition, and segment performance, including RPOs - The company operates through three segments: E-Infrastructure Solutions, Transportation Solutions, and Building Solutions, serving markets across the Southern, Northeastern, Mid-Atlantic, and Rocky Mountain regions of the U.S. and the Pacific Islands19 - On November 16, 2023, Sterling acquired Professional Plumbers Group, Incorporated ("PPG") for a total fair value of consideration of $56.7 million. The acquisition expanded the company's residential services in the Dallas-Fort Worth market and is included in the Building Solutions segment3132 Remaining Performance Obligations (RPOs) by Segment | Segment | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | E-Infrastructure Solutions | $961.0M | $813.7M | | Transportation Solutions | $1.31B | $1.18B | | Building Solutions - Commercial | $85.7M | $68.8M | | Total RPOs | $2.35B | $2.07B | - The company expects to recognize approximately 65% of its RPOs as revenue within the next twelve months37 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses favorable growth opportunities across all segments, with backlog increasing to $2.35 billion and Q1 2024 revenues up 9.1% to $440.4 million Market Outlook and Trends The company anticipates strong growth across E-Infrastructure, Transportation, and Building Solutions segments, driven by data centers, federal funding, and residential housing - E-Infrastructure Solutions: Significant growth is anticipated from data centers (driven by AI), EV, battery, and solar manufacturing, though the large e-commerce warehouse market is expected to remain subdued through 202475 - Transportation Solutions: The Infrastructure Investments and Jobs Act (IIJA) is expected to continue driving increased bid activity and project awards for the foreseeable future, with aviation activity now accelerating76 - Building Solutions: Continued growth is expected in the residential sector in 2024, supported by strong market dynamics, while the multi-family commercial market is projected to decline77 Backlog As of March 31, 2024, backlog increased to $2.35 billion with a 1.8x book-to-burn ratio and improved margins of 15.6% Backlog and Margin Trends | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Backlog | $2.35B | $2.07B | | Unsigned Awards | $67.6M | $303.2M | | Combined Backlog | $2.42B | $2.37B | | Margin in Backlog | 15.6% | 15.2% | - The book-to-burn ratio was 1.8x for Backlog and 1.1x for Combined Backlog for the three months ended March 31, 202480 Results of Operations Q1 2024 consolidated revenues increased 9.1% to $440.4 million, with gross profit up 24.6% and gross margin expanding to 17.5% Segment Performance (Q1 2024 vs Q1 2023) | Segment | Revenues (Q1 2024) | Revenues (Q1 2023) | Operating Income (Q1 2024) | Operating Margin (Q1 2024) | Operating Margin (Q1 2023) | | :--- | :--- | :--- | :--- | :--- | :--- | | E-Infrastructure Solutions | $184.5M | $205.8M | $27.2M | 14.7% | 11.8% | | Transportation Solutions | $149.0M | $111.1M | $8.1M | 5.5% | 4.8% | | Building Solutions | $106.9M | $86.6M | $14.8M | 13.8% | 10.0% | - E-Infrastructure revenue decreased 10.4% due to weather delays and lower warehouse project volume, but operating margin increased significantly due to a higher mix of data center projects9192 - Transportation Solutions revenue grew 34.0% driven by higher heavy highway, aviation, and other services, leading to improved operating income and margin9394 - Building Solutions revenue increased 23.5%, driven by the PPG acquisition ($16.2 million) and a record number of residential slabs poured, which more than offset a decline in commercial volume9596 Liquidity and Sources of Capital The company maintained strong liquidity with $480.4 million in cash, generating $49.6 million from operations in Q1 2024 Cash Flow Summary (Q1 2024) | Cash Flow Activity | Amount | | :--- | :--- | | Net Cash from Operating Activities | $49.6M | | Net Cash Used in Investing Activities | $(21.0)M | | Net Cash Used in Financing Activities | $(19.7)M | - The company's capital strategy includes pursuing strategic uses of cash for projects, managing debt, and potential share repurchases101 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, impacting annual interest expense by $3.4 million and income by $4.8 million for a 100-basis point change - As of March 31, 2024, the company had $336.9 million of variable rate debt. A 1% change in interest rates would alter annual interest expense by approximately $3.4 million105 - The company held $480.4 million in cash and cash equivalents. A 1% change in interest rates would alter annual interest income by approximately $4.8 million105 - Inflation has increased the cost of operations (oil, fuel, materials, labor) since 2021, but the company incorporates anticipated cost increases into its customer bids107 Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, excluding the PPG acquisition, with no material changes to internal controls - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of March 31, 2024109 - The company excluded the newly acquired PPG business from the scope of its controls evaluation for the quarter ended March 31, 2024109 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls110 PART II—OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings incidental to its ordinary course of business, not expecting a material financial impact - The company is party to various legal proceedings that are incidental to the ordinary course of business and does not expect them to have a material impact113 Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - No material changes have occurred from the risk factors disclosed in the 2023 Form 10-K114 Unregistered Sales of Equity Securities and Use of Proceeds The company has a $200 million stock repurchase program expiring December 5, 2025, with no shares repurchased in Q1 2024 - The Board of Directors approved a $200 million stock repurchase program on December 5, 2023, which is effective until December 5, 2025115 - No shares were repurchased under the program during the three months ended March 31, 2024115 Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q1 2024 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter116 Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications - The report includes various exhibits, such as the Certificate of Incorporation, Bylaws, and CEO/CFO certifications pursuant to SEC rules118