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spk00: Greetings. Welcome to Sterling Construction Company's third quarter 2021 earnings conference call and webcast. As a reminder, this conference is being recorded and all participants are in a listen-only mode. There are accompanying slides on the investor relations section of the company's website. Before turning the call over to Joe Cotillo, Sterling's chief executive officer, I will read the safe harbor statement. Some discussion made today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Sterling's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events or otherwise. Please also note that management may may reference EBITDA, adjusted EBITDA, adjusted net income, or adjusted earnings per share on this call, which are all financial measures not recognized under U.S. GAAP. As required by the SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday. I would like to now turn the call over to Mr. Joe Cotillo. Thank you, sir. Please go ahead.
spk03: Thanks, Sherry. Good morning, everyone, and welcome to Sterling's third quarter 2021 earnings call. The third quarter marked the 15th quarter of period over period earnings improvements since 2017, and the sixth time during that same period that we have raised our annual guidance. This consistent level of exceptional performance is a tribute to the strength of our strategy and the culture of our people. Their entrepreneurial spirit coupled with their ability to address challenges head on is what enables us to continue to deliver strong results in challenging times. Before we get into the quarterly results, I'd like to spend a little time talking about our end markets in each sector. Our specialty service sector continues to see very strong activity throughout the east in data and e-commerce distribution centers, or what we call e-infrastructure. During the quarter, we booked over $150 million of new business. In addition to our core customers, our geographic expansion has opened up opportunities to new e-retailers building out their distribution networks. To date, we have not seen any slowdown in new project activity and do not anticipate any change as we go into 2022. Our residential sector continues to see strong double-digit growth in both the Texas and Arizona markets. We poured over 1,000 slabs in the month of July and set a record for slabs poured in a quarter. Demand of first-time homebuyers remains very strong and inventory remains very low. We anticipate this demand will continue into 2022. Bid activity for our heavy civil sector remains softer than normal as the DOTs and airports await a decision on the next infrastructure bill. Regardless the outcome of the infrastructure bill, we believe bid activity will pick up in early 2022, driven by billions of dollars of stimulus money sitting at the state level allocated to infrastructure. On the supply chain front, we continue to see significant challenges with material availability and inflation in all our sectors and all our geographies. This inflation and availability has gone beyond the normal big ticket items like steel, lumber, and fuel, and is now impacting almost every item we use. We currently do not see any relief in sight and anticipate these challenges will continue through the first half of 2022. we will continue to work diligently to find ways to pass these increases on or offset them in other ways. Now let's talk about the results for the quarter. The first and most important result for us is keeping our people safe and ensuring they go home every evening to their families. Coming into the quarter, we had not had a lost time incident in 2021. Unfortunately, after going over 5 million hours without a lost time incident, We had one in the third quarter. This incident was a strong reminder that no matter how hard we work at keeping everyone safe, we have to continue to do more. Being 10 times better than the industry average is not good enough when it comes to safety, and we will never stop making our workplace safer every day. On the financial front versus prior year, our revenue increased 21%, and our gross profit increased 16%. We saw our gross margins decline to 12.5% driven by material inflation and negative productivity associated with supply chain delays. Our operating income increased 11.5% and our earnings per share increased 33% to 72 cents per share. The driver behind our operating income increasing when our gross margin decreased is just one example of the things we are doing in addition to passing on price to offset the negative impacts of inflation and deliver improved bottom line results. Our backlog finished the quarter at $1,411,000,000, and our margin in backlog is 12.3%. We continue to generate record cash flow from operations. and as a result have generated $135 million year to date. In our heavy civil sector, we saw our revenues grow 24%, but more importantly, our operating income almost tripled versus Q3 prior year. This strong income improvement is driven by the continued shift away from low bid heavy highway work to aviation and alternative delivery highway projects. Our specialty service sector and residential sector were the areas most impacted by inflation and supply chain delays. On the residential front, we're able to offset our year-over-year margin decline by producing a record number of slabs in the quarter. For the quarter, our residential revenue was up 54% versus prior year, and our operating income was up 29%. We continue to work hard to pass on increases, but still have a 40 plus day delay in doing so. On the specialty service side, we saw revenues increase 6% year over year in the quarter. But this increase was not large enough to offset the material inflation and negative productivity we're seeing associated with material delays. To help put some perspective around some of these increases and delays we are seeing, Let me talk about a couple simple examples. We use approximately 300,000 gallons of diesel fuel a month in this sector. With the recent increases, we saw close to a million and a half dollar negative impact in the third quarter alone. Our standard PVC water pipe is normally priced at the beginning of a job and delivered the same week that you need it. Today, it's taking up to six months to get and pricing is determined on the day that it ships. Our current prices are up over 100% on these products. Our hope is that these unprecedented increases begin to taper by mid-2022 and begin to follow similar trends to what we've seen in lumber. Even with all these challenges, our great third quarter and year-to-date results are enabling us to increase our full-year guidance range as follows. Revenues will be between $1.51 and $1.52 billion, and our net income will be between $61 and $64 billion. With that, I'd like to turn it over to Ron to give you more details on the quarter and the full year.
spk02: Ron? Thanks, Joe, and good morning, everyone. I'm pleased to provide a summary of our strong third quarter 2021 results. Today's conference call, together with our earnings release, Form 10-Q, and the investor deck posted to our website, should provide insight into our strategic progress in delivering strong earnings and cash flow. Now let me take you through our financial highlights for the third quarter. At September 30th, 2021, our backlog totaled $1,411,000,000, a 20% increase over the beginning of 2021. The backlog increase was evenly split with 50% of the growth attributable to both heavy civil and specialty services. The gross margin in our third quarter backlog was 12.3% compared to 12% at the beginning of the year. This higher backlog gross margin primarily reflects an increase in specialty services backlog, which generally has higher margin characteristics, higher than heavy civil projects. Unsigned low bid awards total $115 million at the end of September 2021. We finished the third quarter with combined backlog of $1 billion $530 million, essentially the same as at the beginning of the year. The gross margin of our combined backlog increased to 12.1%, up from 11.8% at the beginning of the year. Our year-to-date 2021 book-to-burn factors were 1.2 times and 1 times for backlog and combined backlog, respectively. Residential, which accounted for 13% of our year-to-date consolidated revenues, does not report backlog as it is recognized, revenues recognized as individual concrete slabs are completed. Moving to our operating results. Our current quarter revenues total a record $463 million, an $80 million, or 21% increase, over the prior year quarter. Third quarter revenue growth by segment was 24%, 6%, and 54% for heavy civil, specialty services, and residential, respectively. The significant increase in heavy civil revenues was primarily due to the ramp-up on construction of our large design-build joint venture projects. Our low-bid heavy highway revenues decreased slightly in the current quarter. reflecting our strategic intent to continue the shift of our mix to the higher margin alternative delivery projects. This change in revenue drove an approximate three-time improvement in heavy civil operating income in the current quarter. The 6% revenue increase in specialty services was driven by higher volumes from site development activities. Current quarter operating margins declined 320 basis points, driven by continued headwinds from supply chain issues and related impact on productivity and efficiencies, as well as slightly lower project margin mix in the quarter. Residential revenues were $65.3 million for the current quarter, an increase of $22.9 million, or incredibly 54% over the prior year quarter. and up 40% over our second year, 21, second quarter, 21 revenue. The strong revenues were driven by the completion of a number of uncompleted slabs, which shifted from second quarter up to 2021 due to the weather-related delays and the continuing strong demand for our new housing markets into Texas footprint. and to a lesser extent, our recent expansion into Phoenix. Current quarter operating income margins decreased by 20 basis points over the prior year quarter due to the higher material costs for concrete and steel and the lack of consistent availability of these materials, as well as increased subcontractor labor costs. While we continue to work with our customers to pass on increases in material and labor costs, There continues to be a timing delay in obtaining price increases that correspond with the timing and volatility of the increased costs. The current quarter consolidated gross profit increased $7.9 million to $57.8 million, while gross margins declined 12.5% from 13% for the comparable 2024. The increase in gross profit and decrease in margin was primarily driven by higher revenues from each of our segments, offset by the continued headwinds from inflation, material supply, and labor availability challenges, particularly for residential and the special services segments. General and administrative expenses total $19.6 million, or 4.2% of revenues in the current quarter, compared to 15.2 million or 4% of revenues in the prior year. These increases reflect the high volume of revenues in the quarter and the same pressures as I discussed earlier on costs. We expect our full year 2021 G&A expense to be approximately 4.8% of revenues compared to 5% in 2020. Operating income in the current quarter was $32 million, or 6.9% of revenues, compared to $28.8 million, or 7.5% of revenues, in 2020. The net interest expense declined by $3.2 million to $3.9 million in the current quarter, reflecting the lower interest rates resulting from our late June 2021 credit facility amendment and our continued reduction in our debt levels. During the quarter, the Small Business Administration forgave our partially owned affiliates PPP loan. The related $1 million gain is included in the gain from debt exclusion on our income statement. Our effective income tax rate was 25.2% in the current quarter, down from 29% in the prior year quarter. This decrease was primarily driven by the non-taxable gain on debt extinguishment I just spoke to. We expect our full year 2021 effective income tax expense rate to be approximately 27.5%. Our current quarter net income totaled $21.1 million, or $0.72 per diluted share, compared to $15.2 million, or $0.54 per share in the prior year quarter. Current quarter EBITDA was $40 million, an increase from $36.7 million in 2020. For the nine months ended September 30th, 2021, EBITDA totaled $110.9 million, an increase of $12.7 million, or 13% over the prior year quarter. Based on our year-to-date performance, including better than expected revenues and operating income, and improved non-operating costs, including interest expense, income taxes, and debt extinguishment gains. We are now providing updated guidance for 2021. We now expect to generate full-year revenues of $1.51 billion to $1.52 billion, and net income of $61 million to $64 million. Now let me provide you an update on our strong cash flow generation and liquidity strategy. As you may recall, with the October 19 plateau acquisition and the new five-year credit facility, our September 30, 2019 pro forma EBITDA coverage ratio was approximately 3.5 times. We set the objective to bring the coverage ratio down to 2.5 by the end of 2021. We exceeded our objective and achieved the 2.5 times target coverage in the first quarter of 2021, nine months earlier than anticipated in our strategic plan. Our EBITDA coverage ratio was a very comfortable 2.2 times at the end of the current quarter. We have not had any borrowings under our $75 million revolving credit facility in 2021. Lastly, a few additional 2021 cash flow comments. Our cash and cash equivalents totaled $117 million as of September 30th, 2021, up $51 million from the beginning of the year. Year-to-date cash flow from operating activities totaled a record $135.7 million compared to $92.3 million for the comparable 2020 period. We invested $37.2 million in net capital expenditures. And lastly, but certainly not least, we reduced our total debt by $49.1 million thus far in 2021. Finally, we expect to continue to explore additional revenue growth through strategic acquisitions of businesses that meet our gross margin and overall profitability targets while managing our liquidity and cash. Please note that we've included modeling considerations slides to the current quarter investor deck to assist our stakeholders with understanding the key components of our 2021 financial expectations. Now, I'll turn the call back over to Joe.
spk03: Joe? Thanks, Ron. We've had three great quarters and are positioned to finish with another record year. More importantly, we have positioned ourselves to continue this trend into 2022. As we look at closing out 2021 and into 2022, we believe the supply chain and inflation issue will continue to be a challenge for us throughout the first half of 2022. However, it's very comforting to know our end markets remain extremely strong and our current backlog and backlog margins are near record highs. Our diverse culture continues to exceed our expectations and delivering outstanding results and generating record cash. Our strategy to diversify our business towards higher margin, lower risk jobs, and end markets continues to pay significant dividends and will not change. We will continue to look for accretive acquisitions that either help us build out our existing sectors with additional services or potentially add on a fourth. This will enable us to continue to grow our combined margins and further reduce risk and volatility. We will ultimately become an infrastructure solution provider able to build or service our customers' greatest needs. Whether it's building something new, rehabilitating something old, or serving infrastructure throughout its useful life, we will be there in the critical time of need. We have truly come a long way in transforming our company from what it was, but we are only at the beginning of what it will be. We are positioned well to make another significant transformational step forward in 2022 and deliver another record year to our shareholders. With that, I'd like to turn it over for questions.
spk00: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Brent Selman with DA Davidson. Please proceed.
spk01: Great. Thank you. Good morning, Joe and Ron. Great quarter. Great.
spk03: Thanks, Brent.
spk01: Hey, I guess the first question is on the residential segment. You know, I've heard slowness with respect to labor capacity, supply chain constraints for home builders, but the business is up 54% this quarter. I guess I'm just trying to flush out what else is going on there because it doesn't seem like, you know, that's holding you back at all.
spk03: No, we, you know, I will tell you it's much more of a struggle. We don't get stuff. You know, the hour we want it, we may get it in the afternoon instead of the morning or the next day in some cases. But our team's done a great job of maneuvering crews and projects and all that stuff to keep the volume up. You know, you've seen the hit we've taken on the margin side, a couple hundred basis points. But that's due to the combination of the inflation and what we're having to do to keep up. The market is staying incredibly strong. We're not seeing any slowdown. We'll see what I'll call the seasonal slowdown in the fourth quarter that's natural, slows down a little bit, and it will give the builders time to regroup and get land available for first quarter, second quarter of next year. But first-time homebuyers continue to remain strong. Inventory is virtually nonexistent in the places that we're working today. We think that trend is going to continue.
spk01: And Ron, do you have the increase in slab count for the quarter? I know you said it was a record. Just wondering what the year-on-year change was.
spk02: Yeah, the slab count was up 36% for all. That's all the three. It's Texas and Arizona. Ramp up of Arizona. Compared to that 50-something percent. So that's It's sort of the demonstration that we're getting price increases, but we're not being able to keep up with the continuous price increases we get every day, whether it's material or even shortage of labor.
spk01: Yeah, understood. And, you know, just, I mean, on the short-term stuff, the guidance for revenue, I mean, you're sort of implying flat to lower revenue for the fourth quarter. I guess where do you feel like you're being most conservative? What are you seeing to justify that as you sit here today, understanding it's, you know, 4Q can add some seasonality to it?
spk03: Yeah, well, I think there's a couple of drivers. We certainly run into the winter months, so some of the large – alternative delivery projects out in Utah and Colorado will get shut down or could be shut down for snow. Utah's already had two big snowstorms. So we have that. You've got what I'll call the seasonal slowdown in the residential that happens in the fourth quarter. As you can imagine, the public builders don't want to have a lot of half-built houses on the ground coming into year-end and try to preserve their cash for year-end numbers and then start going crazy at the beginning of the year. And then we've just factored in just the natural, you know, we got two holidays. Our teams have been running nonstop all year. We get in all our vacation and all that stuff, usually the back half of December for most of our teams. And we've got to do our annual maintenance and all of that on our equipment. So part of it is scheduled on our part to kind of regroup and get ready going into the next year. Part of it's driven by just weather in the fourth quarter and holidays. And then the last piece, we always run the risk now with some of these material delays where the stuff just gets pushed out, the work gets pushed out of the quarter and into the first quarter.
spk01: Yep. Okay. And then back to the margins, I guess the residential land specialty, just given your comments, this could continue on to the first half of next year, which seems fair. I mean, is it your expectation we're going to continue to hover around these levels for those segments that you saw in 3Q kind of going in through the first half of next year?
spk03: I think that's fair to assume. You know, if the material prices can stabilize, we can start catching up. But, you know, I give you an example. The good news with our specialty service sector is projects are normally only six months long, so they're pretty quick. The new projects we're bidding, we're obviously building in the new pricing and trying to forecast to the best of our ability what the pricing is going to be. But with these rapid changes, you know, and in a lot of cases you don't even get pricing until it's delivered, it's a little bit of a guessing game. Once it plateaus or at least comes in at normal levels, then we can start eating back at some of that margin erosion. I don't see us losing any significant amounts more unless something really changed for the worse than it is right now in the supply chain. But part of us believes that the material that's gone up 100% or 200% or 300%, I don't see it going up another 100%, 200%, or 300%. It may go up another 10% or 15% or 20%, but we're feeling the brunt of the pain of those real big, fast-moving items that happened early in the cycle and moved consistently over the last six months.
spk01: Okay. Thank you. I'll get back to Q. Thank you.
spk00: Our next question is from Sean Eastman with KeyBank Capital Markets. Please proceed.
spk04: Thanks for taking my questions. We've got these three-year revenue growth targets out there. They all look intact. You know, the 3% to 5% heavy civil, 5% to 7% specialty, 7% to 9% residential. Is there any reason those segments shouldn't be in those ranges in 2022? I mean, it sounds like the demand side of the equation has only really improved over the course of this year, but I don't know, maybe labor is a constraint there. How should we think about that?
spk03: Well, certainly the market is there. And the issues that we run into as we go into 2022 that we're trying to proactively get ahead of, you hit on one of them is labor, right? As you grow seven to 10% in some of these, you need seven to 10% more labor. The other one we're running into, you know, we've had equipment on order for eight to 10 months that still hasn't come in for this year. And equipment rental is getting tighter and tighter. So we've got to get more equipment, more people, and all that kind of stuff. As you can imagine, those are good problems to have because the market is so strong, but they're reality problems out there that they're having. I was talking to someone here recently who's in our industry, and knock on wood, we haven't run into this yet, but they have, where they're running into just spare part issues for a lot of their big equipment. And he was telling me how many pieces of idle equipment he has sitting there. And it was staggering to me for anything from $25 to $30 filters to, you know, a $1,000 part that they just can't get. So those are the things that worry me, Sean, on, you know, how much ducking and weaving do we have to do and that sort of stuff. But I will tell you, the market is out there and we are going to bust our hump to, do everything we can to capture as much of that market.
spk02: And certainly for the private sector work of residential and specialty leaders, supervisors, the hard people to get, we can't find 20% increase in those people available to help us. So that's, I don't know what Joe was talking to, but another situation where you just can't hire enough people. They just are not out there, unfortunately.
spk04: Okay. And... Just as it relates to the equipment side that you were describing there, Joe, it's interesting that you actually took up CapEx guidance. Is there something strategic in there? That's a little counterintuitive.
spk03: Well, there's two drivers to that. It's taking us longer to get equipment in, so we're having to put it on and buy it. So we're buying next year's equipment now. We actually put an order in a couple months ago. The other thing that we have historically levered is kind of flex capacity is rental equipment and lease equipment. And it's very hard to get right now. The availability of that is very low. So in some instances where we might lease historically, today it actually makes more sense to buy. And we're always looking at that model every time we look at a piece of equipment. Do we rent? Do we lease? Do we buy? And based on pricing and availability, that can shift any quarter or any year.
spk02: If you go back to last year, our specialty group increased revenues 30-some percent. This year, with our large joint venture contracts cranking up that you saw in the quarter, all that revenue takes you up more yellow iron. And so we kind of peak at that at this point, at least for this year.
spk04: Okay, interesting. And then, of course, this past quarter, you guys rolled out these – big 2024 targets, you know, the margin numbers are definitely notable. So I guess what you guys are saying is you think you can get to 16% gross margin organically through 2024 and that kind of 250 basis points is mostly from a shift in mix. And then if you execute more M&A, you think you can get to 20% by 2024? Is that how we should think about it?
spk03: Yeah, and I think the only thing that's been added to that is obviously we've got to claw back some of the margin we've lost with the inflation, right? So there's probably another couple points of challenge to us as we go forward. But that's right. If you just look at the growth patterns and the mixed change over the continuum of time, plus the continued movement we'll see, In the heavy civil sector, as we continue to reduce our low bid heavy highway business and go into alternative delivery and aviation, that gets us to that 16% or so. And then from there, to get to 20, it's got to be through acquisitions or expansions.
spk04: Okay, and do you have line of sight on acquisitions or a particular end market or business type that gives you confidence on that 20% number at this point, Joe?
spk03: You know, it's always hard to have everything lined up for four years, but we believe by continuing to grow out in the residential sector and the specialty service sector, that will continue to move us towards that point. And then at some point in time, I think we're going to need a fourth sector in some way, shape, or form that will help drive that. And one of the things that we need to focus on, too, is the bottom line impact of all that. At the end of the day, it's easy for us to talk about the gross margin, and that's what we're shooting for internally. But what falls through and how do we get that impact to the bottom line? So there's other levers just besides the gross margin for us to get to the ultimate number as well, Sean.
spk04: Okay, that's helpful. Last one. This one's for you, Ron. I mean, if we just look at the ratio of operating cash flow expectations relative to EBITDA for 2021, is there anything moving around there as we look out to 2022? Or should you guys be kind of converting that EBITDA at a similar clip as we look into next year?
spk02: Yeah, it's probably the hardest thing to predict for us because just timing of projects and, you know, front-end payments and burn-off and everything else. But, you know, the good news is we, even in the margin challenges this year, that cash flow has beat our expectation by a fair amount. But having said that, I've said that for two years in a row, so I think we'll continue to kind of start with, the way I look at it is kind of start with operating income And generally, in each of our sectors or segments, we don't really have working capital move with revenues, just because of the way we build very quickly, short cycle for residential, and then the cash turn we get from properly structuring contracts. So I would expect it to beat operating income a bit. That's where I start with the most predictable one and beat that as we've done the last couple of years. But at some point in time, you can't keep beating it by 20%. You run out of improvement opportunities, unfortunately. Understood.
spk04: Thanks for the help. Thanks, Fred.
spk00: And we do have a follow-up question from Brent Thelman with DA Davidson. Please proceed.
spk01: Hey, Ron, on the cash flow question, it sounds like you're sort of pulling forward some capex in order to get in front and secure the equipment you need. Could that imply cash flow could be even or free cash flow could be even stronger next year?
spk03: No, we'll probably need to add. We don't right now. We're going to have to add more capital next year. So, you know, we go back to the growth rates of the market. The markets are growing rapidly. faster today than we can grow. So as you can imagine, we're working diligently to find operators, working diligently to find equipment. The hardest ones for us, as Ron said, is when you get into our project management teams and that sort of stuff. That's a critical piece. But we don't see us not buying or slowing down in the next year based on what our end customers are forecasting for next year and the year after. in the e-commerce space and data center space. The other thing that's coming on, Brent, we haven't seen any projects yet, but it's coming on quickly, is the, I'll call it reshoring or onshoring of manufacturing and onshoring of inventory with all the supply chain issues. And there are a lot of projects out there looking for land, looking for designs and that, to build these warehouses. And we think that's going to be a nice little bump for us, probably late 22 or early 23.
spk02: Yeah, when you think about our largest, so over half of our CapEx is in our specialty group, as you might guess. And when you think about the site development business, it is all about moving dirt. And if you have more volume, you need more equipment. So that's why I don't see us going backwards. We'll put some more clarity around that as we work on our 2022 plan release and things at the end of the year, but we've got to beat that goose every now and then.
spk03: I wouldn't underestimate that if we picked up an incremental project and we needed 30 pieces of equipment, we could go across the street to the CAD dealer and put together a package. It's a rental package for that project, and if We saw the long-term demand for that. We'd flip it into the cat-bag spend. If you go to that same cat dealer today, he actually has John Deere ag equipment sitting on his lot because there's no cat equipment available, right? It's kind of like the car dealers right now. There's just not a lot of equipment out there. So we want to keep feeding the beast, and we're going to be required to spend a little more capital as a result.
spk01: Okay. And then I wanted to talk about the gross margin targets you've laid out for 24 to 26, 16 to 20%. Obviously, you can't time and predict M&A. I think, Joe, it would be helpful to hear just some of the actions you're already taking to get yourself toward those targets, whether it be geographic expansion, et cetera. I'd love to hear a little more about that and what you're doing today already to get yourself in that direction.
spk03: Yeah. So a couple things, and as we go into 2022, we'll do some things structurally as well to help drive a more enhanced focus on things like aviation. We really like that business. If the infrastructure bill ever comes through, that spend rate doubles over the next five years. How do we take advantage of that? And again, that's on the heavy civil side. But the expansion in the Phoenix is a great example. It's going very well. As a matter of fact, if we had a lot more people, we'd be doing even better. Pricing is better in Phoenix than the Houston market, and that seems to be growing even faster than the Houston market rates. So we'll continue to build that out and grow it. So every dollar we bring in in the residential side obviously helps move that margin. Geographically, we'll continue to to move further north with our plateau business as we get into more of the Virginia, Maryland market and then the D.C. proper area. And we're trying to figure out strategically how we go all the way up to, I'll call it Pennsylvania, New Jersey, that come together there. That market is very similar to Atlanta in the sense that that seems to be a real big distribution hub where the Amazons and all of those folks are putting these distribution centers. They're close proximity to still get into New York City, D.C., and some of the big markets, but far enough out in rural areas that they can buy hundreds of acres of land and be able to afford doing it. So we'll continue to go up through there. On the acquisition front, look, the market is good. We are seeing and looking at a lot of deals. but I think the more important thing is we're seeing more quality deals here and have some opportunities for both. I'll call quick tuck-ins to add goods and services to our sectors and some out there that look a little bigger on the surface, too early to tell at this point in time, but we're optimistic that we'll be able to start using some of this free cash flow and cash that we're building up to do something certainly before the end of the first half of 2022.
spk01: And Joe, are you finding as you're moving Plateau into new regions, you can still get the margins that business historically?
spk03: Believe it or not, we tend to get better margins in the newer areas because it's more of a pull from our customers that really want us there The most competitive market for us is the Atlanta proper area, just because there's a lot of contractors there. And those jobs, we do big jobs around there, but a lot of those jobs are those B, what we call the B jobs or the smaller jobs. So, no, our team has actually done better as they've expanded into these other geographies.
spk01: Okay. Thank you, guys. Mm-hmm.
spk00: We have reached the end of our question and answer session. I would like to turn the conference back over to Joe Cotillo for closing comments.
spk03: Thanks, Sherry. I'd like to thank everyone again for joining today's call. If you have any follow-up questions, please refer to the information provided in the press release related to our investor relations group at Sterling or our partners at the Equity Group. I hope everyone has a great day, and thanks again.
spk00: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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