Attached files

file filename



HOUSTON, TX – November 8, 2012 – Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or “the Company”) today announced financial results for the third quarter and nine months ended September 30, 2012.

$ in millions
3 Months Ended
9 Months Ended
(except per share data)
% Change*
% Change*
  $ 205.3     $ 159.4       28.8 %   $ 472.4     $ 387.2       22.0 %
Gross profit
  $ 14.2     $ 14.8       (4.0 )%   $ 31.2     $ 35.9       (13.2 )%
Gross margin
    6.9 %     9.3 %     (25.8 )%     6.6 %     9.3 %     (29.0 )%
Operating income
  $ 4.2     $ 7.8       (46.3 )%   $ 7.9     $ 16.7       (53.1 )%
Net income (loss)   attributable to common stockholders
  $ 1.0     $ 3.5       (71.4 )%   $ (3.2 )   $ 7.7    
Diluted net income (loss) per share attributable to common stockholders**
  $ 0.01     $ 0.21       (95.2 )%   $ (0.27 )   $ 0.47    

* The percentages and amounts shown for changes between periods in the table above and in the discussions below are based on the amounts reported in the Form 10-Q and may differ from the amounts which would have been calculated from the table above as a result of rounding.
**Based on 16.5 million and 16.4 million weighted-average diluted shares outstanding for the three months ended September 30, 2012 and 2011, respectively and 16.4 million and 16.6 million weighted-average diluted shares outstanding for the nine months ended September 30, 2012 and 2011, respectively.  Diluted net income (loss) per share attributable to common stockholders includes for the three and nine months ended September 30, 2012 the $0.05 and $0.07 impact from a charge to retained earnings related to the revaluation of noncontrolling interest liabilities.
NM – Not meaningful

2012 Third Quarter Compared to 2011
Revenues for the third quarter increased 28.8% over the 2011 comparable quarter primarily as a result of $48.8 million of revenues from operations in Arizona and California acquired in August 2011 and higher revenues from our Nevada operations reflecting the impact of the $25.0 million of contracts assumed from Aggregate Industries, Inc. in January 2012, as well as improvements in estimated profitability in certain projects and the benefit of stronger activity levels in Utah.  The improvements were somewhat offset by lower revenues in Texas.

Gross profit for the 2012 third quarter decreased 4.0% from the same period last year and gross margin decreased to 6.9% from 9.3%.  As was the case in the first half of the year, the 2012 third quarter was impacted by downward revisions of estimated revenues and gross profit on a number of construction projects, primarily in Texas.  These revisions were substantially offset by upward revisions on projects in Utah.

Operating income for the third quarter decreased 46.3% from the 2011 comparable quarter.  General and administrative expenses increased $3.2 million between the quarters.  This reflected general and administrative expenses from operations in Arizona and California acquired in August 2011, compensation expenses attributable to the change in CEO as well as higher professional fees.

Other Highlights
Backlog at September 30, 2012 was $704.0 million and excluded approximately $79 million of expected revenues for which contracts had not yet been officially awarded.  This compares to backlog of $754 million at June 30, 2012.  During the current third quarter, we were awarded contracts totaling $158 million, compared to $240 million in the same period last year bringing 2012 awards through September 30, 2012 to $512 million compared to $476 million in the same period last year.  Please note that we have changed our policy with respect to projects where we are the apparent low bidder but where we have not yet been awarded a contract as of the end of the period.  These awards are now excluded from our reported backlog and awards.  Awards for 2012 now include $125 million of awards previously reported in 2011 which we were the apparent low bidder on in 2011 but which were officially awarded in 2012.  Previously reported amounts for backlog have been restated to conform with the new policy.

For the nine months of 2012, capital expenditures were $27.8 million compared with $19.6 million in the first nine months of 2011 with the increase relating to investments to support our higher level of operations and to replace older equipment.  As was the case in the first half, we continued to dispose of underutilized and aging equipment, and in the first nine months of 2012, we generated proceeds of $11.9 million from the sale of property and equipment resulting in a pre-tax gain of $3.0 million.

Changes in the revaluation of the liability to noncontrolling interest owners are reflected in retained earnings rather than net income; however, such changes impact basic and diluted net income (loss) per share attributable to Sterling common stockholders.  The revaluations for the three and nine months ended September 30, 2012 resulted in reductions of $0.05 and $0.07, respectively, in basic and diluted net income (loss) per share attributable to Sterling common stockholders.
Strong Financial Position
We are in very sound financial condition.  At September 30, 2012:
Working capital totaled $82.6 million, including $54.5 million of cash, cash equivalents and short-term investments;
Up to $38.2 million in borrowings was available under the credit facility with an optional increase amount of $50 million; and,
Tangible net worth of $157.9 million was more than adequate to support our bonding requirements.

CEO Remarks
Peter MacKenna, Sterling’s recently appointed Chief Executive Officer commented, “Since joining just over two months ago, I have been evaluating and analyzing all aspects of our business and have been very pleased with much of what I’ve learned.  We have a dedicated team of hard working people with considerable experience enabling us to bid and successfully execute larger more complex jobs; we are in attractive geographic markets; and as noted, we are financially very strong.  While the economy and general market conditions have impacted our recent performance, I am confident that with the ongoing improvements to our bidding and execution processes, Sterling’s near-term profitability should strengthen, which will position us to capitalize on a more active project environment as economic conditions and government funding improve.”

The enactment of the Moving Ahead for Progress in the 21st Century (“MAP-21”) legislation, a two-year, $105 billion reauthorization of the federal surface transportation program, provides annual federal highway funding close to the level of $41 billion under the SAFETEA-LU bill which has been extended numerous times but expired in June 2012.  While maintaining current funding levels, perhaps the greatest impact of the legislation is to give clarity and funding certainty to state and local transportation agencies. Of note, the estimated apportionment of the funds by state indicates that California and Texas have the largest amounts available, approximately $3.5 billion and $3.1 billion, respectively, for fiscal year 2013.  In addition, the Transportation Infrastructure Finance and Innovation Act (“TIFIA”) provides for Federal credit assistance to nationally or regionally significant surface transportation projects, including highway, transit and rail. This program will offer up to $750 million of funds in 2013 and $1.0 billion in 2014.  This translates into approximately $7.5 billion and $10.0 billion of lending capacity in each of these fiscal years, compared with approximately $1.2 billion of annual lending capacity under prior law.  We are hopeful that state and local contracting agencies where we operate will take advantage of TIFIA and MAP-21 funding and once again be awarding larger and more ambitious highway and bridge construction contracts.

According to current estimates, the gross margin in our backlog at September 30, 2012 is comparable to the gross margin reported for 2012 year-to-date results, partly as a result of the previously disclosed operational issues which resulted in the downward revisions of estimated gross profits on a number of construction projects and partly as a result of competitive bidding pressures at the time the contracts were added to backlog.

With the ongoing improvements to our systems and controls, federal funding in the form of MAP-21, our strong financial position, our diverse portfolio of skills and geographic diversity, we continue to have higher expectations for 2013 than for 2012.

Conference Call and Filings
Sterling’s management will hold a conference call to discuss these results and recent corporate developments at 10:00 am ET/9:00 am CT tomorrow, Friday, November 9, 2012.  Interested parties may participate in the call by dialing (201) 493-6744 or (877) 445-9755 ten minutes before the conference call is scheduled to begin, and asking for the Sterling Construction call.

To listen to a simultaneous webcast of the call, please go to the Company’s website at at least 15 minutes early to download and install any necessary audio software.  If you are unable to listen live, the conference call webcast will be archived on the Company’s website for 30 days.  We suggest listeners use Microsoft Explorer as their web browser.

Sterling is a leading heavy civil construction company that specializes in the building and reconstruction of transportation and water infrastructure projects in Texas, Utah, Nevada, Arizona, California and other states where there are construction opportunities.  Its transportation infrastructure projects include highways, roads, bridges and light rail and its water infrastructure projects include water, wastewater and storm drainage systems.

This press release includes certain statements that fall within the definition of “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Any such statements are subject to risks and uncertainties, including overall economic and market conditions, federal, state and local government funding, competitors’ and customers’ actions, and weather conditions, which could cause actual results to differ materially from those anticipated, including those risks identified in the Company’s filings with the Securities and Exchange Commission. Accordingly, such statements should be considered in light of these risks. Any prediction by the Company is only a statement of management’s belief at the time the prediction is made. There can be no assurance that any prediction once made will continue thereafter to reflect management’s belief, and the Company does not undertake to update publicly its predictions or to make voluntary additional disclosures of nonpublic information, whether as a result of new information, future events or otherwise.

Sterling Construction Company, Inc.                                       Investor Relations Counsel
Elizabeth Brumley                                                                        The Equity Group Inc.
EVP & Chief Financial Officer                                                    Linda Latman  212-836-9609
Brian Manning, P.E.                                                                     Fred Buonocore  212-836-9607
EVP & Chief Development Officer

 (See Accompanying Tables)


 (Amounts in thousands, except share and per share data)

Three Months Ended
September 30,
Nine Months Ended
September 30,
  $ 205,283     $ 159,427     $ 472,418     $ 387,167  
Cost of revenues
    (191,114 )     (144,671 )     (441,216 )     (351,230 )
Gross profit
    14,169       14,756       31,202       35,937  
General and administrative expenses
    (10,259 )     (7,071 )     (26,369 )     (19,427 )
Other operating income (expense), net
    261       76       3,017       226  
Operating income
    4,171       7,761       7,850       16,736  
Gain (loss) on sale of securities and other
    617       212       1,700       (33 )
Interest income
    287       309       1,214       1,252  
Interest expense
    (159 )     (357 )     (978 )     (945 )
Income before income taxes and earnings attributable to noncontrolling interests
    4,916 )     7,925       9,786       17,010  
Income tax benefit (expense)
    (847 )     (1,984 )     2,146       (3,295 )
Net income
    4,069       5,941       11,932       13,715  
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
    (3,079 )     (2,480 )     (15,155 )     (5,999 )
Net income (loss) attributable to Sterling common stockholders
  $ 990     $ 3,461     $ (3,223 )   $ 7,716  
Net income (loss) per share attributable to Sterling common stockholders:
  $ 0.01     $ 0.21     $ (0.27 )   $ 0.47  
  $ 0.01     $ 0.21     $ (0.27 )   $ 0.47  
Weighted average number of common shares outstanding used in computing per share amounts:
    16,404,749       16,385,729       16,362,429       16,444,302  
    16,504,033       16,440,835       16,362,429       16,558,074  

(Amounts in thousands, except share and per share data)

September 30,
December 31,
Current assets:
Cash and cash equivalents
  $ 1,034     $ 16,371  
Short-term investments
    53,454       44,855  
Contracts receivable, including retainage
    120,478       74,875  
Costs and estimated earnings in excess of billings on uncompleted contracts
    17,876       16,509  
    3,945       1,922  
Deferred tax asset, net
    793       1,302  
Receivables from and equity in construction joint ventures
    10,767       6,057  
Other current assets
    5,406       2,132  
Total current assets
    213,753       164,023  
Property and equipment, net
    102,326       83,429  
    54,460       54,050  
Other assets, net
    4,742       2,329  
Total assets
  $ 375,281     $ 303,831  
Current liabilities:
Accounts payable
  $ 65,781     $ 40,064  
Billings in excess of costs and estimated earnings on uncompleted contracts
    27,031       18,583  
Current maturities of long-term debt
    73       573  
Income taxes payable
    214       2,013  
Accrued compensation
    9,701       5,329  
Current obligation for noncontrolling owners’ interests in subsidiaries and joint ventures
    23,323       --  
Other current liabilities
    5,006       2,723  
Total current liabilities
    131,129       69,285  
Long-term liabilities:
Long-term debt, net of current maturities
    10,208       263  
Deferred tax liability, net
    368       --  
Other long-term liabilities
    2,498       2,597  
Total long-term liabilities
    13,074       2,860  
Commitments and contingencies
Obligation for noncontrolling owners’ interests in subsidiaries and joint ventures
    18,686       16,848  
Sterling stockholders’ equity:
Preferred stock, par value $0.01 per share; 1,000,000 shares authorized, none issued
    --       --  
Common stock, par value $0.01 per share; 19,000,000 shares authorized, 16,495,216 and 16,321,116 shares issued
    165       163  
Additional paid in capital
    196,495       196,143  
Retained earnings
    12,047       16,509  
Accumulated other comprehensive income
    946       496  
Total Sterling common stockholders’ equity
    209,653       213,311  
Noncontrolling interests
    2,739       1,527  
Total equity
    212,392       214,838  
Total liabilities and equity
  $ 375,281     $ 303,831