STERLING CONSTRUCTION CO INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - October 31, 2017

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FOR IMMEDIATE RELEASE

STERLING CONSTRUCTION COMPANY, INC. REPORTS
2017 THIRD QUARTER RESULTS

Increases 2017 Guidance

THE WOODLANDS, TX – October 30, 2017 – Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or “the Company”) today announced financial results for the third quarter ended September 30, 2017.

Consolidated Third Quarter 2017 Financial Results Compared to Third Quarter 2016 :
•
Revenues were $304.2 million compared to $205.6 million;
•
Gross margin was 10.1% of revenues compared to 8.1%;
•
Operating income was $12.6 million compared to $3.7 million;
•
Net income attributable to Sterling common stockholders was $7.1 million compared to $2.4 million; and,
•
Net income per diluted share attributable to common stockholders was $0.26 compared to net income per diluted share of $0.10.

Consolidated Financial Position at September 30, 2017:
•
Cash and Cash Equivalents were $66.5 million;
•
Working capital totaled $84.8 million;
•
Total debt was $88.6 million.

Business Overview:
Third quarter 2017 revenues increased approximately 48% compared to the prior year quarter. Heavy Civil Construction revenues grew $57.6 million or 28% over the third quarter of 2016 driven by our large projects in the Rocky Mountain market. The remainder of the increase in revenues was primarily related to the Residential Construction acquisition which was completed on April 3, 2017. Third quarter 2017 Residential Construction revenues totaled $40.9 million compared to $37.2 million for the second quarter of 2017. The residential markets continue to see steady growth in the low double-digit range. Dallas housing starts increased 13% in the third quarter of 2017 over the third quarter of 2016, while our principal operating market for the Residential Construction business continues to perform in excess of the aforementioned market growth rates.

Gross profit was $30.6 million in the third quarter of 2017, an increase of $14.0 million from the prior year third quarter. Gross margin expanded by 200 basis points to 10.1% primarily as a result of the acquisition of Residential Construction which added approximately 160 basis points to gross margin in the third quarter with the balance derived by higher gross margins from Heavy Civil Construction

General and administrative expenses were $13.1 million in the third quarter of 2017, or 4.3% of revenues compared to $9.1 million or 4.4% in the third quarter of 2016. The increase was primarily the result of the Residential Construction acquisition and increased recruiting and pre-bid contract costs in the Company’s Rocky Mountain market.





Heavy Civil Construction Backlog Highlights:
•
Total backlog at September 30, 2017 of $804 million was down 2% when compared to December 31, 2016 and down 12.9% from the second quarter of 2017, which is reflective of a 28% increase in Heavy Civil third quarter revenue over the prior year;
•
Total backlog at September 30, 2017 excludes $108 million of projects where the Company was the apparent low bidder but the contract had not yet been signed; and,
•
Gross margin on projects in backlog as of September 30, 2017 averaged 8.4% as compared with 8.2% at December 31, 2016 and 8% at September 30, 2016, while gross margin on the projects awarded in the third quarter of 2017 averaged approximately 9.5%.

CEO Remarks and Outlook:
“The Sterling Team was able to deliver another strong quarter in some very adverse conditions,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “Even with the impact of one of the worst hurricanes in Texas history, we were still able to improve our Heavy Civil performance, and deliver strong top line and bottom line growth in the third quarter to exceed our expectations. In addition to improved Heavy Civil performance, our Residential Construction segment contributed approximately $40 million in revenues as the business completed the highest number of concrete slabs for a single quarter in its history. We also executed well on some large projects in the Rocky Mountain region. The net impact of Hurricane Harvey on our third quarter was not significant as the productivity lost on Gulf Coast projects was largely offset by emergency work that resulted from the storm related flooding. Our backlog decreased compared to the end of the second quarter reflecting the seasonal timing of bidding opportunities, along with the delay of project lettings by TxDOT in the wake of Harvey, coupled with our continued disciplined approach to bidding.”

Mr. Cutillo continued, “We expect our fourth quarter results to remain strong but follow our typical seasonal decline in both our Heavy Civil and Residential Construction businesses. Given our strong year-to-date performance and our expectations for the fourth quarter, we are raising our guidance ranges for full year 2017 as follows:
•
Revenues of $915 million to $935 million from $850 million to $880 million;
•
Net income attributable to Sterling common stockholders of $11.0 million to $12.5 million from $9.0 million to $11.0 million.
We expect our full year 2017 average common shares outstanding to be approximately 26.6 million.

“Looking beyond 2017, we expect to benefit from a macro environment that continues to provide a steady stream of heavy civil project opportunities across our geographies. Additionally, for our residential business, we anticipate that the Dallas-Fort Worth Metroplex will continue growing at low double digit percentages and we are on track to begin an expansion of our Residential Construction operations in the Houston market in the first half of 2018. Collectively, we expect these factors to lead to top-line growth in the mid-to-high single digits which, combined with our leveragable cost structure and our shifting mix towards higher margin business should lead to margin expansion and increased cash flow. As a result, we anticipate that our balance sheet will further strengthen, providing us with greater financial flexibility to reinvest in our business and pursue attractive growth opportunities.”

Conference Call:
Sterling’s management will hold a conference call to discuss these results and recent corporate developments on Tuesday, October 31, 2017 at 09:00 a.m. ET/8:00 a.m. CT. 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 call.




To listen to a simultaneous webcast of the call, please go to the Company’s website at www.strlco.com 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.

Sterling is a leading heavy civil construction company that specializes in the building and reconstruction of transportation infrastructure, water infrastructure, and residential and commercial concrete projects in Texas, Utah, Nevada, Colorado, Arizona, California, Hawaii and other states in which there are construction opportunities. Its Heavy Civil construction projects include highways, roads, bridges, airfields, ports, light rail, water, wastewater and storm drainage systems and multi-family homes, commercial projects and parking structures. Its Residential Construction projects include concrete foundations for single-family homes.

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.


Contact:
Sterling Construction Company, Inc.
Jennifer Maxwell, Director of Investor Relations
281-951-3560
Investor Relations Counsel:
The Equity Group Inc.
Fred Buonocore, CFA  212-836-9607
Kevin Towle 212-836-9620



            
(See Accompanying Tables)



STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)

 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenues
$
304,219

 
$
205,629

 
$
704,047

 
$
521,778

Cost of revenues
(273,588
)
 
(189,007
)
 
(638,924
)
 
(486,065
)
Gross profit
30,631

 
16,622

 
65,123

 
35,713

General and administrative expenses
(13,129
)
 
(9,146
)
 
(36,545
)
 
(27,888
)
Other operating expense, net
(4,863
)
 
(3,804
)
 
(9,371
)
 
(7,238
)
Operating income
12,639

 
3,672

 
19,207

 
587

Interest income
107

 
15

 
192

 
19

Interest expense
(3,576
)
 
(491
)
 
(6,672
)
 
(2,176
)
Loss on extinguishment of debt
—

 
—

 
(755
)
 
—

Income (loss) before income taxes and earnings attributable to noncontrolling interests
9,170

 
3,196

 
11,972

 
(1,570
)
Income tax expense
(344
)
 
(41
)
 
(469
)
 
(68
)
Net income (loss)
8,826

 
3,155

 
11,503

 
(1,638
)
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures
(1,694
)
 
(740
)
 
(2,966
)
 
(1,252
)
Net income (loss) attributable to Sterling common stockholders
$
7,132

 
$
2,415

 
$
8,537

 
$
(2,890
)
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to Sterling common stockholders:
 
 
 

 
 

 
 

Basic
$
0.27

 
$
0.10

 
$
0.33

 
$
(0.12
)
Diluted
$
0.26

 
$
0.10

 
$
0.33

 
$
(0.12
)
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding used in computing per share amounts:
 

 
 

 
 

 
 

Basic
26,486

 
25,003

 
25,787

 
23,915

Diluted
26,920

 
25,365

 
26,260

 
23,915

Segment Results
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 
2017
 
2016
 
2017
 
2016
 
Revenue
 
 
 
 
 
 
 
 
Heavy Civil Construction
$
263,278

 
$
205,629

 
$
625,887

 
$
521,778

 
Residential Construction
40,941

 
—

 
78,160

 
—

 
         Total Revenue
$
304,219

 
$
205,629

 
$
704,047

 
$
521,778

 
 
 
 
 
 
 
 
 
 
Operating Income
 

 
 

 
 

 
 

 
Heavy Civil Construction
$
6,960

 
$
3,672

 
$
8,627

 
$
587

 
Residential Construction
5,679

 
—

 
10,580

 
—

 
       Total Operating Income
$
12,639

 
$
3,672

 
$
19,207

 
$
587

 



STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)

 
 
September 30,
2017
 
December 31,
2016
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
66,541

 
$
42,785

Contracts receivable, including retainage
 
149,052

 
84,132

Costs and estimated earnings in excess of billings on uncompleted contracts
 
43,384

 
32,705

Inventories
 
2,093

 
3,708

Receivables from and equity in construction joint ventures
 
9,069

 
7,130

Other current assets
 
9,654

 
5,448

Total current assets
 
279,793

 
175,908

Property and equipment, net
 
59,464

 
68,127

Goodwill
 
85,277

 
54,820

Intangibles
 
45,200

 
—

Other assets, net
 
3,301

 
2,968

Total assets
 
$
473,035

 
$
301,823

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
100,565

 
$
67,097

Billings in excess of costs and estimated earnings on uncompleted contracts
 
63,368

 
64,100

Current maturities of long-term debt
 
986

 
3,845

Income taxes payable
 
280

 
78

Accrued compensation
 
14,566

 
5,322

Other current liabilities
 
15,188

 
6,150

Total current liabilities
 
194,953

 
146,592

Long-term liabilities:
 
 

 
 

Long-term debt, net of current maturities
 
88,619

 
1,549

Member’s interest subject to mandatory redemption and undistributed earnings
 
46,329

 
45,230

Other long-term liabilities
 
595

 
362

Total long-term liabilities
 
135,543

 
47,141

Commitments and contingencies
 
 
 
 
Equity:
 
 
 
 
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; 38,000,000 shares authorized, 27,023,143 and 24,987,306 shares issued
 
270

 
250

Additional paid in capital
 
231,848

 
208,922

Retained deficit
 
(93,201
)
 
(101,738
)
Total Sterling common stockholders’ equity
 
138,917

 
107,434

Noncontrolling interests
 
3,622

 
656

Total equity
 
142,539

 
108,090

Total liabilities and equity
 
$
473,035

 
$
301,823







STERLING CONSTRUCTION CO INC Reports