Sterling Infrastructure, Inc.

Greetings and welcome to the Sterling Construction Company's first quarter 2022 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 this company's website. Before turning the call over to Joe Cutello, Sterling's Chief Executive Officer, I will read the safe harbor statement. Some discussions made today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Starling'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 obligations to update forward-looking statements as a result of the new information, future events, or otherwise. Please also note that management 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 SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday afternoon. I'll now turn the call over to Mr. Joe Cattell. Thank you, sir. Please go ahead.

Thanks, Maria. Good morning, everyone, and welcome to Sterling's first quarter 2022 earnings volume. I'm proud to report another record quarter during an unprecedented time of hyperinflation and supply chain challenges. Our teams are working harder than ever to overcome these challenges and ensure we continue to service our customers and our investors. I'd like to take a second to thank them for their efforts and let them know it does not go unnoticed. This morning, I will cover the highlights of our first quarter and the strategic progress we have made. Then I'll turn it over to Ron for his financial commentary, and I will finish with a market and full year outlook. Let's start with the most important highlight of the quarter, and that is we had zero lost time incidents in the quarter, and our teams went home to their families safe every evening. We continue to be an industry leader in safety, driven by a culture that cares as much about their fellow colleagues as they do about themselves. Our diverse workforce, understands that financial results alone are not enough. We're constantly looking for better ways to protect our people, protect our environments, and give back to our communities. This is what we call the Sterling Way. Shifting to the strategic front, our strategic transformation focused on improving margins, reducing risk, and diversification into value-added services continues to pay off. In the quarter, Our highest margin segment, e-infrastructure, surpassed our transportation segment in revenue for the first time in our history. With the addition of the Petillo acquisition, which we completed at year end, our e-infrastructure segment represented 41% of our total revenue and 62% of our segment operating income in the quarter. We continue to be very excited about the incremental opportunities and synergies we have with the addition of Petillo into the segment. Combined with Plateau, we believe we now have the largest, most capable e-infrastructure site development company in the country. Our building solution segment, our second highest margin segment, continued its organic expansion in both Houston and Phoenix. In the quarter versus prior year, operating income increased 27%, and our Phoenix market has now grown to over 10% of our revenue in the segment in less than nine months. When combined, our e-infrastructure and building solution segments contributed 89% of our segment operating income in the quarter. In transportation solutions, Our focus on bottom line improvements versus top line growth and migration away from low bid heavy highway projects continues to pay off. In the quarter versus prior year, our operating income was up 38% while revenue was up 9%. These improvements in all three segments combined delivered another outstanding quarter. For the quarter versus prior year, Our revenue was up 30%, our net income was up 24%, and our, I'm sorry, our operating income was up 24%, and our net income was up 82%. Versus year end 2021, our combined backlog grew to over $1.6 billion, and our cash balance ended at just over $80 million. These great results are a direct tribute to the power of linking a customer-centric, entrepreneur of culture with our strategic focus on improving margins, reducing risk, and building a platform for future growth. With that, I'd like to turn it over to Ron to give you more details on the financial. Ron?

Thanks, Joe, and good morning. I am pleased to discuss our strong financial start of 2022 and another record first quarter performance. Our updated investor relations slide presentation has been posted to our website and includes additional financial details to help further understand our first quarter 2022 financial results. The presentation also provides additional modeling considerations, which underpin our 2022 revenue and earnings guidance. As you may recall, we closed on the Petillo acquisition on December 30th, 2021. resulting with the full inclusion of Patil's financial results in the first quarter. Let me take you through our financial highlights, starting with our backlog metrics. At March 31st, 2022, our backlog totaled $1,527,000, up $34 million from the beginning of the year. The gross margin in this backlog was 12.8%. a 60 basis point increase over the beginning of the year. A higher proportion of each infrastructure solutions backlog drove this margin improvement. Unsigned low bid awards at the end of the first quarter of 2022 were $142 million, an increase from approximately $20 million at the end of last year. We finished the current quarter with combined backlog of $1,669,000, a 10% increase over the end of 2021. Our gross profit and combined backlog was a record 12.6% compared to 12.2% at the beginning of the quarter. Our current quarter book-to-burn ratios were 1.0 times for backlog and 1.43 times for combined backlog. Revenue for the current quarter of 2022 were $410 million, up $95 million, or 30%, over the first quarter of 2021. Importantly, of this 30% first quarter revenue growth, half of the revenue growth was driven by the late 2021 acquisition of Petillo and half from organic sterling and its revenue. Our segments reported strong first quarter organic revenue growth of 26% from new infrastructure, 13% from building solutions, and 9% organic growth from transportation solutions. The current quarter e-infrastructure organic growth of $25 million over the prior year quarter reflects a continuing strong demand for distribution centers, data centers, and warehouse within our East Coast footprint. Building Solutions revenues grew 13% over 2021 compared to 21 financial quarter, reflecting continued residential growth in our core Dallas-Fort Worth market and our expanding footprints in Phoenix and Houston. In the current quarter, Phoenix and Houston accounted for 18% of our residential revenues compared to 7% in the prior year quarter. Transportation solutions revenue was $160 million in the current quarter, an increase of 9.1% over the prior period. The increased transportation revenues were primarily driven by higher heavy highway and water containment and treatment work, partially offset by lower aviation revenues. The heavy highway revenue growth was primarily due to increased construction activities on our large design-build project. Consolidated gross profit was $56 million, an increase of $11.1 million over the prior year quarter. Consolidated gross margin declined from the comparable 21 quarter by 40 basis points to 13.9% in the current quarter. This decline resulted from continuing supply chain and inflationary pressures, primarily impacting our e-infrastructure and building solutions segments. These challenges make our year-over-year margin comparison difficult as there was minimal impact of the supply chain and inflationary challenges in the first quarter of 2021. General and administrative expenses increased $6 million in the current quarter to $23.1 million. Over half of this increase is attributable to the Petillo acquisition. We continue to expect our full year G&A expense to be approximately 5% of revenues. Operating income for the first quarter was $28.3 million, an increase from $22.8 million in the prior year quarter. Our current quarter operating margin was 6.9% compared to 7.2% in the prior year quarter. The decline is primarily the results of my aforementioned supply chain chain and inflationary challenges, which have put pressure on our margins since Q2 of 2021. In the current quarter, one of our 50% owned entities received a final notice that its PPP loan had been forgiven. Sterling's portion of this debt forgiveness was $2.4 million, and this gain is included in income in the first quarter. The current quarter effective income tax rate was 25.3%, a decline from 29% in the prior year quarter. This effective tax rate decline principally reflects the benefit of the $2.4 million non-taxable gain from the forgiveness of our last outstanding PPP loan. We continue to expect our full year effective tax rate to be 28% to 29%. Our full year non-cash portion of our effective tax rate will continue to be approximately 24% of pre-tax income. The net effect of all these items results in a first quarter record net income of $19.3 million, or 64 cents per share. The prior year quarter net income in EPS were $10.6 million, and 37 cents per share, respectively. Our first quarter EBITDA totaled $39.8 million, an increase of 33% over the prior year quarter of $29.9 million. In the percent of revenues, EBITDA improved to 9.7% of revenues per quarter, up from 9.5% for the prior year period. Cash flow generation from operating activity in the quarter was $19.2 million compared to $38.1 million in the comparable 2021 quarter. The fluctuation principally reflects our first quarter seasonality and our changes in the mix in our contracts included in backlog. Additionally, the current quarter included approximately $4 million of cash outflows relating to the payment of the Petillo acquisition related costs in 2022. We continue to expect our full year cash flow from operations to approximate our income from operations for the year. Our first quarter capital expenditures net of disposal proceeds totaled $14.6 million compared to $11 million in 2021. This increase reflects our strong e-infrastructure solutions activities, including the impact of the Patil acquisition. Our full year 2022 anticipated net CapEx continues to be in the $50 to $55 million range. Now I'll turn it back to Joe.