Sterling Infrastructure, Inc.

Greetings and welcome to the Sterling Infrastructure's third 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 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-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 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 their earnings release issued yesterday afternoon. I will now turn the call over to Mr. Joe Cotillo. Thank you, sir. Please go ahead.

Thanks, Doug. Good morning, everyone. and thank you for joining Sterling's third quarter 2022 earnings call. The third quarter marked the 19th quarter with period-over-period improvements since 2017, and the eighth time we have raised our guidance during that timeframe. This world-class level of performance is a tribute to our people, our culture, and our strategy, or what we refer to as the Sterling Way. It is an honor to be part of a team of 3,000 plus colleagues that consistently deliver best-in-class results while making sure we're always taking care of our fellow employees, our customers, and our communities. The Sterling Way has not only created an exciting culture for employees to be part of, but has delivered great results to our shareholders. Before we talk about the results of another outstanding quarter, I'd like to spend some time talking about our end markets and what is going on in each of our segments. E-infrastructure, which remains our largest segment and represented 46% of our revenue and 66% of our segment operating income in the quarter, saw record bookings as data center, distribution center, and warehouse demand remained high. we began seeing the first wave of onshoring and new manufacturing facility activity take place. A recent win of the new 500-acre plus Rivian Electric Vehicle Plant in Georgia is yet another example of our ability to do large, complex jobs in almost any end market. This new manufacturing activity, along with the continued strong demand for data centers and e-commerce warehouses, continues to give us a positive outlook for 2023. Our transportation solution segment, which represented 40% of our revenue and 17% of our segment operating income in the quarter, remains extremely strong as we saw bid activity pick up and margins improve. Our current backlog has a record margin of over 11%. Federal funding from the infrastructure bill continues to flow to the states, and the state matching funds remain extremely strong. The combination of a multi-year backlog along with improved margins and increased bid activity positions us well to finish 2022 strong and go into 2023 on solid footing. We continue to be disciplined on the jobs we select and will continue to focus on driving margin improvements through 2023. Our building solution segment, which represented 14% of our revenue and 17% of our segment operating income in the quarter, saw significant softening in the quarter of new housing starts. The combination of material inflation and interest rate increases has caused the market to become less affordable for buyers. We believe this trend will continue through the fourth quarter. We have begun seeing builders become more aggressive on incentive programs to help buyers overcome the affordability issue, but do not believe we will see any significant impact of these efforts until 2023. Despite the revenue decrease in the quarter, our operating income remained flat year over year, as a revenue drop was offset by price increases. Overall, we're still facing challenges with the supply chain as we continue to see price increases and availability issues with concrete and diesel. We believe the concrete availability issue will change significantly in the fourth quarter for the better, but are uncertain as to how long and how significant the decent challenges will be. Now let's talk about the great results for the quarter. Revenue versus prior year was up 20%. This strong growth was driven by our e-infrastructure segment whose revenue was up 111%. Our gross margin increased 220 basis points to 14.7% with strong contributions from both transportation and building solutions. Our net income increased 40%, our earnings per share increased 35%, and our EBITDA increased 50%. We generated over $96 million of cash from operations and finished the quarter with $146 million of cash and cash equivalents. Our combined backlog grew to an all-time high of $1.9 billion. This is a 25% increase over year end 2021 and positions us very well for the future. Our record results in the third quarter coupled with our stronger than expected outlook for the fourth quarter has enabled us to raise our full year guidance for the second time this year. The midpoint of our adjusted guidance improves net income 53% our revenue by 21% and our EPS by 47% over prior year. The new revenue guidance is $1.9 billion to $1.92 billion with a net income range of $94 to $98 million and an EPS range of $3.08 to $3.21. Now, I'd like to turn it over to Ron to give you more details on the quarter and our results. Ron?

Thanks, Joel. Good morning. I'm pleased to discuss our strong third quarter results and another record quarterly performance. Our updated investor relations slide presentation has been posted to our website and includes additional financial details to further understand our third quarter results. The presentation also provides additional modeling considerations, which underpin our 2022 revenue and earnings guidance. As you may recall, we closed the Petillo acquisition on December 30th, 2021, resulting with the inclusion of Petillo's financial results for all of 2022. Let me take you through our financial highlights, starting with our record backlog metrics. At September 30, 2022, our backlog totaled $1,665 million, up $172 million over the beginning of the year. The gross margin of this backlog was 13.1%, a 90 basis point increase over the beginning of the year. A higher proportion of e-infrastructure backlog and improved transportation backlog drove this margin improvement. Unsigned low bid awards at the end of the third quarter totaled $235 million, an increase from $23 million at the end of 2021. We finished the current quarter with a record combined backlog of $1,900,000, a 25% increase over the end of 2021. Our gross profit in combined backlog was 12.9% compared to 12.2% at the beginning of the year. Our current quarter book-to-burn ratios were 1.24 times and 1.25 times for backlog and combined backlog, respectively. Our year-to-date book-to-burn ratios were 1.13 times for backlog and 1.29 times for combined backlog. Revenues for the current quarter were $557 million, up $93 million, or 20% over the prior year quarter. The current quarter revenues were $256 million, an increase over the prior year quarter. The current quarter increase includes revenues of $84 million from the late 2021 acquisition of Petillo and organic growth coming from Plateau of $50 million. Including the Plateau acquisition on a pro forma basis, e-infrastructure organic revenue growth was 40% and 36% for the three and nine months ended September 30, 2022, respectively. The e-infrastructure organic growth reflects the continuing strong demand for distribution centers, data centers, and warehouses across our expanding footprint. Building solutions revenues declined by $12 million per period. This was primarily driven by a decline in housing demand as the ownership became less affordable due to increasing interest rates and inflation. Transportation revenues were $221 million in the current quarter, a decrease of $28.8 million, or 12% from the prior year comparable quarter. This decrease was primarily driven by lower heavy highway and aviation revenues due to the timing of backlog execution and partially offset by increases in water-related projects. Consistent with our strategic intent, low bid, heavy highway work declined by approximately $10 million in the quarter compared to the prior year. As a result of this third quarter results, we have increased our 2022 revenue guidance to a range of $1.9 to $1.9 billion. Current quarter gross profit was $82 million, an increase of $24 million over the 21 quarter. Gross margin increased to a record 14.7% or 220 basis points over the comparable 21 quarter. This margin increase resulted from an increased mix of revenues from our higher margin infrastructure segment and increased margins from both our transportation segments. Our gross margin improvements were negatively impacted by the continuing supply challenges and inflationary pressures, which primarily impacts our e-infrastructure and building solution segments. These challenges principally began in the second quarter of 2021 and have continued to date. General administrative expenses increased $6.8 million in the current quarter to $26.5 million Over a third of this increase is attributable to the Petillo acquisition, with a balance driven by inflation and higher revenue-related incremental costs. We continue to expect our full-year G&A guidance to be approximately 5% of revenues. Operating income for the quarter was $47.7 million, an increase from $32 million for the 2021 quarter. Our current quarter operating margin increased 8.6% compared to 6.9% in the prior year. Our current quarter effective income tax rate was 29%. We do continue to expect our full year effective income tax rate to approximate 28%. The net effect of all these items resulted in a record third quarter net income of $29.5 million, or $0.97 per share. The prior year net income and EPS were $21.1 million and 72 cents per share, respectively. Our increased 2022 net income guidance is now $94 to $98 million, and our earnings per share guidance is $3.08 to $3.21. Our third quarter EBITDA totaled $60.2 million, an increase of 50% over the prior year quarter of $40 million. As a percent of revenues, EBITDA improved to 10.8% of revenues for the quarter, up from 8.6% in the prior year quarter. We have increased our 22 EBITDA guidance to a range of 197 to 205 million. Cash flow from operating activities in the first nine months of 2022 was $130.6 million compared to $135.7 million in the comparable 21 period. Our current quarter 2022 cash flow from operations was $96.1 million. This strong third quarter cash flow significantly recovered from the slow cash generation in the first half of 2022. The 2022 cash flow fluctuations were primarily driven by the ramp up of several new large alternative delivery projects awarded in the first half of 2021, and the significant 2022 organic revenue growth of our e-infrastructure segment. Cash flows from investing activities included $44.8 million of net capex with a $3 million final acquisition related payment of $3 million relating to the final working capital adjustment. The CapEx increase reflects the increased e-infrastructure solution activities, including the impact of the Petillo acquisition. Our cash flow from financing activities was $17.7 million, reflecting our scheduled debt payments for the first three quarters of 2022. and strength of our portfolio businesses and our strong liquidity consisting of our record cash balance of $146 million and our comfortable debt levels at approximately two times forward-looking EBITDA. Although we have not seen a significant economic downturn across our segments, we are prepared, if conditions worsen, to deal with these uncertainties and to take advantage of additional opportunities for the balance of 2022 into 2023 and beyond. Now I'll turn it over back to Joe.