STERLING INFRASTRUCTURE, INC. QUARTERLY REPORT ON FORM 10-Q

Overview of Sterling’s Business

Sterling is a diversified construction company that operates through three main business segments: E-Infrastructure Solutions, Transportation Solutions, and Building Solutions. The company provides a range of services including site development, infrastructure projects, and residential/commercial concrete work, primarily across the southern, northeastern, mid-Atlantic, and Rocky Mountain regions of the United States.

Significant Transactions

In 2024, Sterling deconsolidated its 50% owned subsidiary Road and Highway Builders, LLC (RHB), shifting to equity method accounting for this investment. This change was due to an amendment to the RHB operating agreement.

Sterling also acquired Drake Concrete, LLC in the first quarter of 2025 for $25 million in cash plus a four-year earn-out. This acquisition strengthens Sterling’s presence in the Dallas-Fort Worth residential concrete market.

Market Outlook and Trends

Sterling sees favorable long-term growth opportunities across its business segments:

E-Infrastructure Solutions: Driven by customer investments in data centers, manufacturing facilities, and e-commerce distribution centers. Expects significant growth tied to cloud computing, AI, and digital transformation.

Transportation Solutions: Benefiting from increased federal, state, and local infrastructure funding, including the Infrastructure Investments and Jobs Act which provides $643 billion for transportation programs.

Building Solutions: Focused on residential and commercial concrete work in the Dallas-Fort Worth, Houston, and Phoenix markets. Experienced volatility in 2022 but saw recovery in 2023, though the market declined in late 2024 due to interest rate and affordability challenges.

Backlog and Bookings

At March 31, 2025, Sterling’s backlog was $2.13 billion, up from $1.69 billion at the end of 2024. The company’s book-to-burn ratio, which measures new bookings relative to revenue, was 2.2x for the first quarter of 2025.

Sterling’s backlog margin increased to 17.7% at March 31, 2025, up from 16.7% at the end of 2024, driven by a greater mix of higher-margin E-Infrastructure work and improved margins in Transportation.

Consolidated Financial Results

Key highlights for the first quarter of 2025 compared to the prior year period:

• Revenues of $430.9 million, down slightly from $440.4 million (excluding $38.5 million from the deconsolidated RHB, revenues increased $29.1 million)
• Gross profit of $94.8 million, up 23.3%
• Gross margin of 22.0%, up from 17.5%
• Operating income of $56.1 million, up 33.1%
• Net income attributable to Sterling common stockholders of $39.5 million, up 27.2%

The increases in gross profit, operating income, and net income were driven by strong performance in the E-Infrastructure and Transportation segments, partially offset by declines in Building Solutions.

Segment Results

E-Infrastructure Solutions:

• Revenues of $218.3 million, up 18.3% driven by higher data center volume
• Operating income of $46.6 million, or 21.4% margin, up from $27.2 million and 14.7% margin

Transportation Solutions:

• Revenues of $120.7 million, up 7.3% excluding the deconsolidated RHB
• Operating income of $11.3 million, or 9.3% margin, up from $8.1 million and 5.5% margin

Building Solutions:

• Revenues of $92.0 million, down 13.9% due to lower commercial and residential volumes
• Operating income of $12.4 million, or 13.4% margin, down from $15.8 million and 14.8% margin

Liquidity and Capital Resources

At March 31, 2025, Sterling had $638.6 million in cash and cash equivalents, down from $664.2 million at the end of 2024.

Cash flow from operating activities was $84.9 million in the first quarter of 2025, up from $49.6 million in the prior year period, driven by higher operating income and changes in working capital.

Investing activities used $54.2 million of cash, primarily for $37.9 million in acquisitions (including the $25 million Drake acquisition) and $17.9 million in capital expenditures.

Financing activities used $56.2 million of cash, including $43.8 million for share repurchases and $6.6 million in debt repayments.

Sterling maintains a capital strategy focused on revenue growth, improving leverage, and strategic uses of cash such as investments, debt management, and share repurchases.

Joint Ventures

Sterling participates in construction joint ventures to share expertise, risk, and resources on complex projects. The company has joint and several liability with its partners, meaning it could be responsible for completing a project if a partner is unable to fulfill its obligations.

At March 31, 2025, Sterling’s proportionate share of work to be completed on unconsolidated joint venture contracts was $15 million.

Outlook and Analysis

Sterling is well-positioned to capitalize on favorable market trends across its business segments:

E-Infrastructure: Significant growth opportunities tied to the buildout of data centers, manufacturing facilities, and e-commerce distribution centers to support the digital economy.

Transportation: Increased federal, state, and local infrastructure funding, including the IIJA, should drive elevated activity levels in the coming years.

Building: While the residential market has softened recently, long-term demographic trends and housing shortages in Sterling’s key markets support an eventual recovery.

The company’s strategic focus on higher-margin, alternative delivery projects in Transportation and its growing E-Infrastructure business have improved its overall profitability profile. The deconsolidation of RHB also reduces risk and volatility.

However, Sterling continues to face industry-wide challenges such as supply chain disruptions, labor shortages, and inflationary pressures that could impact margins. The company’s ability to successfully navigate these headwinds and execute on its strategic initiatives will be key to its future performance.

Overall, Sterling appears to be in a strong competitive position, with a diversified business model, solid backlog, and ample liquidity to fund growth initiatives. The company’s focus on higher-margin, technology-driven infrastructure projects is a promising strategic shift that could drive improved financial results over the long term.