Sterling Infrastructure, Inc.

Good morning, ladies and gentlemen, and welcome to the Sterling Infrastructure 4th Quarter 2023 and Full Year Webcast and Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Tuesday, February 27, 2024. I would now like to turn the conference over to Noelle Diltz. Please go ahead.

Thank you, Jelena. Good morning to everyone joining us, and welcome to Sterling Infrastructure's 2023 fourth quarter and full year earnings conference call and webcast. I'm pleased to be here today to discuss our results with Joe Cotillo, Sterling's Chief Executive Officer, and Ron Balshmity, Sterling's Chief Financial Officer. Joe will open the call with an overview of the company and its performance in the quarter and year. Ron will then discuss our financial results and 2024 guidance, after which Joe will provide a market and full year outlook. Then we will open the call up for questions. As a reminder, there are accompanying slides on the investor relations section of our website. Before turning the call over to Joe, I'll read the State Harbor Statement. The discussion 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 obligations to update forward-looking statements as a result of new information, future events, or otherwise. The financial information herein and discussions are related to the company's continuing operations. 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 our CEO, Joe Cotillo.

Thanks, Noelle. Good morning, everyone, and thank you for joining Sterling's fourth quarter and full year 2023 earnings call. 2023 was another great year for Sterling and our investors. We achieved 40% adjusted EPS growth, on 11% top-line growth. This was our third consecutive year generating adjusted earnings per share growth of 40% or more, a testament to our focus on driving margin expansion and returns. Our total backlog ended the year up 46%, providing strong visibility for 2024. We generated operating cash flow of over $478 million, which was about three and a half times our net income. With our strong outlook and balance sheet, we are in an outstanding position to drive continued earnings growth in 2024 and beyond. Our preferred use of cash remains accretive acquisitions that complement our service offerings and enhance our competitive position. In addition, in mid-December, we put in place a $200 million share repurchase program that should allow us to take advantage of dislocations in our stock price and return capital to our shareholders. I want to take a second to thank each of our employees for helping us deliver these results. The men and women of Sterling are what makes this company great. We will continue to take care of our people, our environment, our investors, and our communities while we work to build America's infrastructure. This is the Sterling way. We are proud of our accomplishments over the past year, but are even more excited about the platform we have built and the opportunities ahead. With that, I'd like to discuss our results for the full year and fourth quarter of 2023. Total revenue for the year grew 11% to $1.97 billion. While revenue was slightly below our guided range, our adjusted EBITDA of $260 million was at the high end of our guidance range, and net income exceeded the high end. This reflects our philosophy on focusing on profitability and margin over revenue. We delivered adjusted EPS for the year of $4.47, up 40% from 2022, and above the high end of our previously guided range of $4.10 and $4.23. For the fourth quarter, our consolidated revenue grew just over 8%. Our gross margins expanded 350 basis points to 18.9%. and our net income more than doubled relative to prior year. We'll now move to our segment results. Starting with e-infrastructure, our largest and highest margin segment. For the full year, our e-infrastructure revenue grew 3.5% and operating income grew 16%. Operating margins reached 15%, a 160 basis point increase. For the quarter, though infrastructure revenues declined 12%, our operating profit grew 26%, reflecting the beneficial impact of project selectivity and mix. Revenue in the quarter was impacted by three delayed projects that we discussed on our third quarter call and the slowdown in small private projects in the Northeast. Our Southeastern market remains extremely robust, but would strengthen both onshoring-related manufacturing and data centers. Our very strong fourth quarter e-infrastructure operating margins of 17.3% improved 520 basis points, reflecting favorable mix, supply chain improvement, and good productivity as we completed large projects in the quarter. E-infrastructure backlog finished the year up 35%. providing strong visibility into 2024 and 2025. Additionally, as our mix moves towards large multi-phase projects, we have line of sight into future phases of work that will be awarded as we complete our current phases. We continue to track a number of new large project opportunities that we anticipate will be awarded throughout 2024 and early The data center market was again the largest contributor to awards in the quarter and actively remains very strong as customers are racing to build the capacity needed for AI technology. Additionally, we continue to see high levels of onshoring related manufacturing activity in the Southeast and the Rockies. The Northeast remains slow as small commercial and warehousing activities has declined, and larger manufacturing project opportunities have not yet progressed to award. Shifting to transportation solutions, revenue growth for the year was over 16%, and margins expanded 174 basis points, driving 57% operating profit growth. For the quarter, revenue grew 39%, Operating margins expanded 300 basis points to 7%, and segment operating profit more than doubled. We ended the year with transportation solutions backlog up 66% to $1.18 billion. We continue to see strong broad-based demand and margin growth across our entire geographic footprint. Fourth quarter awards of $337 million reflect strong levels of highway activity. Additionally, subsequent to the quarter end, we were awarded a $155 million aviation project, which will be included in the first quarter backlog. We expect continued momentum in aviation throughout the year. In building solutions, annual revenue growth was 26% or 13% on an organic basis. Our residential business grew 12% organically and our commercial business grew 14%. Segment operating margins were flat with 2022 levels at 11.4%. In the fourth quarter, building solutions revenue grew 24%. Our residential business grew 65% in total, including 25% organic growth. This was partially offset by a slowdown in our commercial business, which was down 27%. The mixed shift towards residential had a favorable impact on segment operating margins, which expanded 100 basis points to 12% and drove operating income growth of 35%. In residential, we remain very bullish on our key markets. Dallas-Fort Worth, Houston, and Phoenix are each population growth markets and continue to outperform national averages. While we're able to take advantage of some attractive project opportunities in the commercial market in 2023, we anticipate that the trends that emerged in the fourth quarter will continue into 2024, driving a decline in commercial revenues. A recent acquisition of Professional Plumbers Group, which brings plumbing capabilities into our portfolio, is a fantastic compliment to our existing services. PPG is a great cultural fit with Sterling, has excellent growth prospects, and is nicely accretive to margins. With that, I'd like to turn it over to Ron to give you more details on the quarter and full year. Ron? Thanks, Joe, and good morning.