Sterling Infrastructure, Inc.

Greetings and welcome to the Sterling Infrastructure's second quarter 2022 earnings conference call and webcast. As a reminder, this conference is being recorded and all participants are on 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 discussions 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 and 10 filing 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 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 will now turn the call over to Mr. Joe Cotillo. Thank you, sir, and please go ahead.

Thanks, Donna. Good morning, everyone, and thank you for joining Sterling's second quarter 2022 earnings call. I would like to start off by thanking all of our employees for delivering another record quarter, the Sterling Way, and enabling us to increase our full year earnings forecast in some very challenging times. The Sterling Way is what defines our culture. It is an understanding that great results to our shareholders are critical, let alone not enough. It is our responsibility to continuously look for better ways to protect our people, our environments, and give back to our communities. It's this culture, these values, that have enabled us to deliver multiple quarters of record results. This morning, I will cover the highlights of our second quarter and the strategic progress we have made. Then I will turn it over to Ron for his financial commentary, and I will finish with a market and full year outlook. Let's start off with our most important asset, our people. In the quarter, we had zero lost time incidents. Our continued focus on the well-being of our employees helps us ensure our colleagues go home safe every evening and makes us an industry leader in safety. Shifting to the strategic front in each one of our segments, the strategy and objectives we established six years ago remain the same and are focused on improving margins, reducing risk while building a platform for future accretive growth. This strategy continues to pay off as we have transformed the company into three different segments, and it will continue to pay off long into the future. Our e-infrastructure segment has become both our highest revenue and highest margin segment. In the quarter, revenues were up 89% versus Q2 prior year. and now represent 46% of our total revenue and 69% of our total segment operating income. The recent acquisition of Petillo has only made this segment stronger and added to our opportunities. Our second highest margin segment, Building Solutions, continued to see strong growth as its revenue grew 15% versus prior year's second quarter. and its segment operating income grew 44%. Building Solutions now represents 17% of our total revenue and 20% of our operating income. We saw significant growth in our expansion markets and combined now represent 18% of our residential revenue, up from 6% in the second quarter, 2021. Our transportation solutions business reduced in size in the quarter versus prior year by approximately 6%, but delivered more earnings as our segment operating income improved 6.5%. Our continued shift away from low bid to alternative delivery highway, aviation, and rail projects continues to pay off. Our transportation segment now represents 37% of our revenues, and 11% of our segment operating income. All three segments delivered an improved year-over-year operating income along with various other great results. For the quarter versus prior year, our revenue was up 27%, our segment operating income was up 31%, and our net income was up 29%. We grew our combined backlog to $1.73 billion up 14% versus year end 2021, and delivered 86 cents per share to our shareholders. The continued strong performance in the quarter and the year to date has enabled us to increase our full year net income guidance from a range of $83 million to $89 million to a range of $90 to $96 million. With that, I'll turn it over to Ron to talk about our financials in more detail. Rod?

Thank you, Joe, and good morning. I'm pleased to discuss our strong 2022 second quarter results and record quarterly performance. Our updated investor relations slide presentation has been posted to our website and includes additional financial details to help further understand our second quarter 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 in the inclusion of Petillo's financial results for all of 2022. Let me take you through our financial highlights, starting with our backlog metrics. At June 30, 2022, our backlog totaled $1,544,000, up $51 million over the beginning of the year. Our gross margin of this backlog was 12.6%, a 40 basis point increase over the beginning of the year. A higher proportion of our e-infrastructure solutions backlog drove this margin. Unsigned low bid awards at the end of the second quarter, $184 million, an increase from $23 million at the end of 2021. We finished the current quarter with record combined backlog of $1,727,000, a 14% increase over the end of 2021. Our gross profit in combined backlog was 12.5%, compared to 12.2% at the beginning of the year. Our current quarter book-to-bill ratios were 1.06 times for backlog and 1.26 times for combined backlog. Revenue for the current quarter of 2022 totaled $511 million, up $109 million, or 27% over the prior year quarter. Importantly, of this 27% second quarter revenue growth, 76 million or 19% of the revenue growth was driven by the late 2021 acquisition of Petillo with a balance of 8% organic revenue growth coming from Sterling. Including the Petillo results on a pro forma consolidated basis, Sterling's organic revenue growth in the second quarter was 12% and it was 15% in the first half of 2022. The current quarter of e-infrastructure solutions organic growth of $34 million over the prior year quarter reflects a continued strong demand for distribution centers, data centers, and warehouses across our East Coast footprint. Building solutions revenue grew 15% over the comparable 21 quarter. reflecting continued residential revenue growth in our core Dallas-Fort Worth market and in our expanding footprints in Phoenix and Houston. In the current quarter, Phoenix and Houston accounted for 18% of our residential revenues compared to 6% in the comparable 21 quarter. Transportation Solutions revenue $191 million in the current quarter, a decrease of $11 million, or 6% over the comparable year period. The decrease was primarily driven by lower aviation and, consistent with our strategic intent, declining low bid heavy highway work. These declines were partially offset by increased water projects and higher alternative delivery revenues. We have increased our 2022 revenue guidance range to $1.865 to $1.885 billion from our previous range of $1.825 to $1.875 billion. Additionally, we increased our EPS guidance to a range of $2.95 to $3.15 from our initial 2022 guidance range of $2.69 to $2.88. Our current gross profit was $68 million, an increase of $12 million over the 21 quarter. Second quarter 2022 gross margin declined 60 basis points to 13.4% from the prior year quarter. This margin decline resulted from continuing supply chain challenges and inflationary pressures, which primarily impacts our infrastructure and building solution segments. These challenges principally began at GAN in the second quarter of 2021 and have continued to date. General and administrative expenses increased $7.6 million in the current quarter to $23.4 million. Over a third of this increase is attributable to the Zillow acquisition. We continue to expect our full year G&A expense to be approximately 5% of revenues. Operating income for the current quarter was $41 million, an increase of $32.7 million for the 21 quarter. Our current quarter operating margin was 8% compared to 8.1% in the prior year quarter. The decline is primarily as a result of the aforementioned supply chain and inflationary challenges, which continues to put pressure on our margins. Our current quarter effective income tax rate was 28%, which is consistent with our expectations for the full year. The net of all these items resulted in record second quarter net income of $26 million, or $0.86 per share. The prior year quarter net income and EPS were $20.1 million and $0.69 per share, respectively. Our second quarter EBITDA totaled $54.3 million, an increase of 33% over the prior year quarter of $41 million. As a percent of revenues, EBITDA improved 10.6% of revenues for the quarter, up from 10.2% in the prior year quarter and up from 9.7% in the first quarter of 2022. We've increased our 2022 EBITDA guidance to a range of $192 to $202 million from our prior guidance range of $185 to $200 million. Cash generated from operations for the first half of 2022 was $34.6 million compared to $91.6 million in the comparable 21 period. The fluctuation principally reflects the very strong 2021 cash flow driven by the ramp up of several new large alternative delivery projects, which were awarded and began working in the first half of 2021. And the significant 2022 organic revenue growth from our two fastest growing segments, e-infrastructure and building solutions. These two segments combine pro forma 2022 organic revenue was 26% in the second quarter and 27% for the first half of 2022. The first half cash flow from investing activities included $28 million of net CapEx and a $3 million payment of the final working capital adjustment for the Petillo acquisition. The CapEx increase reflects the increase in infrastructure solutions activities, including the impact of the Petillo acquisition. Our full year 2022 anticipated net capex continues to be in the $50 to $55 million range. Finally, we repay debt of $11.8 million in the first half of 2022. Now I'll turn the call back over to Joe.