Sterling Infrastructure, Inc.

Good morning, ladies and gentlemen, and welcome to the Sterling Infrastructure second quarter 2024 conference call and webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. As a reminder, this call is being recorded on Tuesday, August 6, 2024. I would now like to turn the conference call over to Noelle Diltz, Vice President and Investor Relations and Corporate Strategy. Please go ahead.

Thank you. Good morning to everyone joining us and welcome to Sterling Infrastructure's 2024 Second Quarter 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 Sharon Villaverde, Sterling's Chief Financial Officer. Joe will open the call with an overview of the company and its performance in the quarter. Sharon will then discuss our financial results and guidance, after which Joe will provide a market and full year outlook. We will then open the call up for questions. As a reminder, there are accompanying slides on the investor relations section of our website. These slides include details on our updated financial guidance. Before turning the call over to Joe, I will read the safe 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 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'll now turn the call over to our CEO, Joe Cotillo.

Thanks, Noelle. Good morning, everyone, and thank you for joining Sterling's second quarter 2024 earnings call. Our second quarter results reflect our commitment to delivering strong bottom line growth in cash flow to our shareholders. For the quarter, we delivered EPS of $1.67, up 31% over prior year, and a new second quarter record. Our continued focus on margin expansion helped drive gross profit margins to over 19%. We grew operating income 20%, on revenue growth of 12% as we continue to shift our mix towards higher margin services. We are seeing strong tailwinds across our markets and bidding activity remains very solid. Backlog at the end of the quarter totaled $2.1 billion, an increase of 21% over prior year and a 2% increase from the beginning of the year. Combined backlog which reflects a more comprehensive view of our awards, was $2.45 billion, a 2.2% increase from the prior year. Our book-to-burn ratio for combined backlog was above one for the quarter, and we continue to have very good visibility into the opportunity pipeline ahead. Our outlook is even better than what is captured in our backlog metrics. As our work shifts towards large, multi-phase projects in both transportation and e-infrastructure, we have greater visibility into future phases of work. Though we are not guaranteed to win these future phases, we have historically had a high probability of doing so. This high probability work pipeline now totals over a half a billion dollars. We had another great cash generation quarter with operating cash flow of $121 million. Our balance sheet is in great shape, and our net cash position is now $211 million. We are actively seeking acquisitions that will complement our strong platform and accelerate growth. The Serling Way is our commitment to take care of our people, our environment, our investors, and our communities while we build America's infrastructure. This remains our guidepost as we grow and diversify our business. I want to personally thank each of our employees for helping us deliver another fantastic quarter. Now, I'd like to discuss our results for the second quarter of 2024. In e-infrastructure, our largest and highest margin segment, operating profit grew 20% as operating margins expanded over 480 basis points to reach 21.4%. This strong margin expansion reflects our continued focus on large, mission-critical projects and excellent execution. As the small commercial and warehouse markets have softened and become less attractive from a margin perspective, we have elected to shift our efforts and resources towards the large project markets, including data centers and manufacturing. While this shift is impacting top-line growth, we believe it is the best and most efficient use of our resources as we strive to optimize returns. Total e-infrastructure revenue declined 7% in the second quarter, reflecting this rotation. Our data center revenue, which now represents over 40% of our e-infrastructure backlog, grew more than 100% in the quarter. SMALL COMMERCIAL AND WAREHOUSE WORK DECLINED OVER $30 MILLION FROM THE SECOND QUARTER OF 2023. IN THE MANUFACTURING MARKET, WE FACED A CHALLENGING REVENUE COMPARISON DUE TO THE STARTUP OF A LARGE PROJECT IN EARLY 2023. ACTIVITY ON THESE TYPES OF PROJECTS TEND TO BE FRONT END LOADED THEN LEVEL OUT OVER THE REMAINDER OF THE PROJECT DURATION. WORK ON THIS PROJECT WILL CONTINUE THROUGH EARLY 2026, BUT AT MODERATELY LOWER REVENUE LEVELS THAN THE PEAK QUARTERS OF Q2 AND Q3 2023. KEY INFRASTRUCTURE AWARDS WERE 148 MILLION IN THE QUARTER, DRIVING BACKLOG TO $868 MILLION, RELATIVELY FLAT TO PRIOR YEAR PERIOD AND A 7% INCREASE FROM THE BEGINNING OF THE YEAR. THE DATA CENTER MARKET WAS AGAIN THE LARGEST DRIVER OF AWARDS. as customers are racing to build the capacity needed for technology advancements, including AI. We continue to leverage our resources across our business segments to expand e-infrastructure into the Rocky Mountain region, where we now have three sizable data center projects. We continue to see improvements in the Northeast and have picked up some additional data center awards in the Mid-Atlantic subsequent to quarter end. As our work continues to shift towards large projects, our pipeline of high-probability future work is expanded, providing strong visibility into 2025 and 2026. Moving to transportation solutions, revenues increased 54%, which was entirely organic, and operating profit grew 57%. Margins expanded 11 basis points from the prior year to reach 6.6%. Our markets are the strongest we have seen in our company's history, and margin opportunities are very attractive. We ended the quarter with transportation solutions combined backlog of $1.5 billion, a 5% increase from the second quarter of 2023. Second quarter awards for transportation solutions were $88 million, and unsigned awards totaled $309 million. However, the picture is stronger than the backlog and unsigned awards reflect. During the quarter, we were awarded the initial design for multiple large progressive design-built highway projects. The design work and backlog represents only a fraction of the anticipated total value of these projects. Like in e-infrastructure, This adds very high probability work to the pipeline that is not reflected in the awards in our backlog. Moving to building solutions, total segment revenue declined 2% in the quarter, while operating income grew 2%. Results in the quarter were varied across our markets and geographies. Revenue for our residential concrete slab business declined 7%. This decline was largely driven by heavy rainfall in Texas. In addition, the availability of developed land was challenging for the builders. Builders absorbed much of the available capacity during the very strong first quarter and now are working to catch up. PPG continues to perform very well with pro forma organic growth of 8% and strong margins. OUR COMMERCIAL BUSINESS DECLINED $14 MILLION FROM THE PRIOR YEAR PERIOD, WHICH IS IN LINE WITH OUR EXPECTATIONS. THE CONTINUED MIXED SHIFT TOWARDS RESIDENTIAL SLABS AND PLUMBING HAS A FAVORABLE IMPACT ON THE SEGMENT'S OPERATING MARGINS, WHICH EXPANDED 57 BASIS POINTS TO 12.7%. WITH THAT, I'D LIKE TO TURN IT OVER TO SHARON TO GIVE YOU MORE DETAILS ON THE QUARTER AND OUR FULL YEAR GUIDANCE. SHARON?