Sterling Infrastructure(STRL) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2020, revenues increased by 31% compared to Q3 2019, reaching $383 million, with operating income and EBITDA both more than doubling [12][24] - Cash flows from operating activities tripled to $38.7 million [12] - Net income for Q3 2020 was $15.2 million, or $0.54 per share, compared to $8 million, or $0.30 per share in Q3 2019 [31] Business Line Data and Key Metrics Changes - Heavy civil sector revenues decreased by 8%, reflecting a $6 million increase in heavy highway revenues but a $24 million decrease in aviation and other heavy civil revenues [32] - Residential sector revenues increased by 6% and operating income rose by 4%, with a decline in operating margin due to temporary price concessions and increased lumber prices [14][36] - Specialty service sector saw significant increases in both revenue and operating income, primarily due to the Plateau acquisition [15][34] Market Data and Key Metrics Changes - Backlog totaled a record high of $1.238 billion, a 16% increase from the beginning of the year, with heavy civil backlog increasing by 13% and specialty services backlog increasing by 25% [19] - The gross margin in the third quarter backlog was 12.4%, a 90 basis point increase from December 31, 2019 [20] Company Strategy and Development Direction - The company aims to reduce risk, increase margins, and diversify end markets, with over 50% of revenues now from the heavy civil sector and less than 30% from low bid heavy highway projects [7][8] - The strategy includes focusing on improving margins in the heavy civil sector and growing lower risk, higher margin residential and specialty service sectors [10] Management's Comments on Operating Environment and Future Outlook - Management anticipates a slight decrease in bid activity for 2021 but remains optimistic due to a strong backlog and improved margins [48] - Full year guidance for 2020 is set at $1.415 billion to $1.43 billion in revenues, with an adjusted net income midpoint of $42.5 million, representing a 73% improvement over 2019 [49] Other Important Information - The company expects full year adjusted EBITDA to be in the range of $125 million to $135 million [42] - Cash and cash equivalents totaled $72.6 million at the end of Q3 2020, up from $45.7 million at the beginning of the year [45] Q&A Session Summary Question: Insights on civil margins and cost dynamics - Management noted that the margin changes are primarily due to a temporary project mix and a $3.5 million charge related to a multi-bridge project in Texas [54][60] Question: Expectations for heavy civil operating margins in 2021 - Management expects margins to improve slightly as the company continues to reduce low bid heavy highway projects [70] Question: Market dynamics in the specialty sector - Management indicated strong visibility in the specialty sector driven by multi-year plans from major customers like Home Depot and Amazon [84] Question: Capacity challenges in the specialty sector - The company is actively recruiting and training to address capacity constraints due to unexpected growth in the Plateau business [76] Question: Pricing negotiations in the residential sector - Most customers have returned to historical pricing levels, with expectations for lumber prices to normalize in early 2021 [96]