Sterling Construction Company, Inc. (NasdaqGS:STRL) (“Sterling” or “the
Company”) today announced financial results for the third quarter ended
September 30, 2013.
Third Quarter 2013 Financial Results Compared
to Third Quarter 2012:
-
Revenues were $185.9 million compared to $205.3 million;
-
Gross margin was 4.5% of revenues compared to 6.9%;
-
General and administrative expenses as a percentage of revenues were
4.4% compared to 5.0%;
-
Operating income was $1.5 million compared to $4.2 million;
-
Net loss attributable to Sterling common stockholders was $0.2 million
compared to net income of $1.0 million;
-
Net loss per diluted share attributable to common stockholders was
$0.06 compared to net income per diluted share of $0.01; and,
-
Excluding the impact of the revaluation of a liability related to
noncontrolling interest owners, the net loss per diluted share
attributable to common stockholders was $0.01 compared to net income
per diluted share of $0.06.
Third Quarter 2013 Highlights:
-
Bookings of $165 million were up 4.4% from the third quarter of 2012
and increased 7.1% from the second quarter of 2013;
-
Total backlog as of September 30, 2013 was $694 million, an increase
of 5.8% since December 31, 2012;
-
At quarter end the backlog of projects awarded in 2012 was 38% of
total backlog, or $261 million with an average gross margin of 6.3%;
the backlog of projects awarded during 2013 was 45% of total backlog,
or $314 million and carries an average gross margin of 8.3%; and,
-
Total backlog at September 30, 2013 excluded $120 million of projects
where we were the apparent low bidder but had not yet been awarded the
contract.
Business Overview
Revenues for the third quarter 2013 decreased 9.4% compared to the third
quarter of 2012, primarily due to the completion of several large
projects in Utah, particularly the $1.1 billion I-15 CORE Reconstruction
Joint Venture Project, of which the Company’s Utah subsidiary had a
12.5% interest, resulting in approximately $136 million in aggregate
revenues for the project. The Company, however achieved 39.4% sequential
quarterly top line growth reflecting gains in backlog in the first half
of the year, and warmer weather seasonal improvement typical of the
third quarter, particularly in Utah, Nevada and Northern California.
Gross profit in the current third quarter was $8.4 million, a
significant turnaround from the second quarter of 2013, when the Company
posted a gross loss of $16.6 million due to downward revisions of
estimated revenues and gross profit on projects in Texas and Arizona.
Gross margins throughout 2013 have been depressed due to the low margins
on contracts added to backlog before 2012, many of which have
experienced downward revisions in gross profit in 2011, 2012 and 2013.
During the third quarter of 2013, revenues for pre-2012 projects were
$60.0 million, or 32% of total third quarter revenues.
With respect to the gross margin profile of our backlog, 17% or $118
million of our total backlog as of September 30, 2013 relates to
projects awarded before 2012 and carries an average gross margin of
1.8%. These projects primarily consist of contracts in our Texas markets
which, as a result of the significant downward revisions in estimated
gross profits, have adversely affected gross margins over the 2011
through September 2013 period. We expect to complete work on a
significant portion of these low margin contracts by the second quarter
of 2014. In contrast, 38% or $261 million of 2012 projects in backlog
carry an average gross margin of 6.3% and projects in backlog that were
awarded in 2013 represent 45%, or $314 million, and carry an average
gross margin of approximately 8.3%.
General and administrative expenses of $8.2 million were approximately
$2.1 million, or 20.3%, less than the third quarter of 2012 as a result
of one-time hiring bonus and retirement payments for executive
management in the prior year period. For the nine months ended September
30, 2013, general and administrative expenses were $27.3 million, an
increase of 3.4% from the prior year period as a result of additions to
the information systems team hired in the fourth quarter of 2012 to
upgrade the Company’s IT infrastructure, certain non-recurring costs
related to the implementation of process enhancements aimed at improving
operational control and efficiency, and an increase in certain employee
benefit and termination costs.
The revaluation of the liability to noncontrolling interest owners for
the three months ended September 30, 2013 had a $0.05 per share negative
impact on the net loss per basic and diluted share amounts attributable
to Sterling common stockholders, which was consistent with the third
quarter of 2012 when there was also a $0.05 per share negative impact.
For the third quarter and first nine months of 2013, capital
expenditures were $4.6 million and $11.3 million, respectively, compared
with $10.0 million and $27.8 million, respectively, in the comparable
2012 periods, and we continue to expect capital expenditures for the
year to remain significantly below 2012 levels.
Financial Position
Our financial condition remains sound. At September 30, 2013:
-
Working capital totaled $54.0 million, including $26.0 million of
cash, cash equivalents and short-term investments;
-
We had borrowings of $20.4 million on the credit facility and have
$27.6 million of availability;
-
Tangible net worth of $136.0 million exceeded the amount necessary to
support our bonding requirements.
CEO Remarks
Peter MacKenna, President and Chief Executive Officer of Sterling
commented, “We achieved significantly improved results in the third
quarter relative to the second and first quarters of 2013. In addition
to seasonally stronger revenues, we began to benefit from the improving
composition of our backlog, which translated into a substantial increase
in gross profit and gross margin relative to the first two quarters of
the year.”
Mr. MacKenna continued, “Bookings trends continue to strengthen. The
three months ended September 30th was our third consecutive
quarter of sequential growth in bookings, reflecting the consistent
improvement in the construction environment particularly in the Texas
market, as well as traction we are gaining in California and Hawaii.
Additionally, our Utah subsidiary is heavily involved in the repair of
roadways damaged by the recent flooding in Colorado. We are also
achieving increasing success in diversifying our project portfolio away
from commoditized public sector work with an emphasis on attractive
private sector opportunities such as railway infrastructure,
commercial/institutional projects and parking structures. Most
importantly, the margins associated with 2013 bookings are materially
higher than those of previous years. As of the end of September, our
year to date “apparent low bid”-to-bill ratio was 1.36:1 with an average
margin of 8.5%. At the same time, we are steadily burning off the low
margin work added to our backlog during the highly competitive market
environment of the recession and the several years that followed.
Currently, approximately 17% of our total backlog is comprised of legacy
projects, or jobs booked prior to 2012, and we are on track to complete
a significant portion of this legacy backlog by the second quarter of
2014.”
Outlook
Mr. MacKenna concluded, “Our focus for the final quarter of 2013 and the
coming year is on improving profitability. Our current mix of projects
in backlog, and those that we are pursuing point to meaningful,
sustainable gross margin expansion over the coming year. With respect to
general and administrative expenses, while we have made significant
investment in process-improvements and management talent over the past
year to achieve better integration and execution across our operations,
we maintain tight cost controls and expect G&A to approximate our
current run rate for the next several quarters. Capital expenditures
should remain well below 2012 levels, as our current fleet of equipment
supplemented by leased assets as needed provides us with more than
adequate capacity to capitalize on a growing pipeline of project
opportunities. In summary, with the many actions we have taken to
enhance our operational effectiveness, and the progress we’ve made in
improving the margin profile of our backlog, we enter 2014 confident in
our ability to achieve better margins and overall profitability.”
Conference Call
Sterling’s management will hold a conference call to discuss these
results and recent corporate developments at 11:00 am ET/10:00 am CT,
today, Monday, November 11, 2013. 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 www.sterlingconstructionco.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 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.
(See Accompanying Tables)
|
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in
thousands, except share and per share data) (Unaudited)
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2012
|
|
Revenues
|
|
|
|
$
|
185,935
|
|
|
|
$
|
205,283
|
|
|
|
$
|
430,320
|
|
|
|
$
|
472,418
|
|
Cost of revenues
|
|
|
|
|
(177,576
|
)
|
|
|
|
(191,114
|
)
|
|
|
|
(437,211
|
)
|
|
|
|
(441,216
|
)
|
Gross profit (loss)
|
|
|
|
|
8,359
|
|
|
|
|
14,169
|
|
|
|
|
(6,891
|
)
|
|
|
|
31,202
|
|
General and administrative expenses
|
|
|
|
|
(8,176
|
)
|
|
|
|
(10,259
|
)
|
|
|
|
(27,273
|
)
|
|
|
|
(26,369
|
)
|
Other operating income, net
|
|
|
|
|
1,340
|
|
|
|
|
261
|
|
|
|
|
1,599
|
|
|
|
|
3,017
|
|
Operating income (loss)
|
|
|
|
|
1,523
|
|
|
|
|
4,171
|
|
|
|
|
(32,565
|
)
|
|
|
|
7,850
|
|
Gain on sale of securities and other
|
|
|
|
|
163
|
|
|
|
|
617
|
|
|
|
|
838
|
|
|
|
|
1,700
|
|
Interest income
|
|
|
|
|
335
|
|
|
|
|
287
|
|
|
|
|
871
|
|
|
|
|
1,214
|
|
Interest expense
|
|
|
|
|
(306
|
)
|
|
|
|
(159
|
)
|
|
|
|
(614
|
)
|
|
|
|
(978
|
)
|
Income (loss) before income taxes and earnings attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to noncontrolling interests
|
|
|
|
|
1,715
|
|
|
|
|
4,916
|
|
|
|
|
(31,470
|
)
|
|
|
|
9,786
|
|
Income tax (expense) benefit
|
|
|
|
|
380
|
|
|
|
|
(847
|
)
|
|
|
|
12,928
|
|
|
|
|
2,146
|
|
Net income (loss)
|
|
|
|
|
2,095
|
|
|
|
|
4,069
|
|
|
|
|
(18,542
|
)
|
|
|
|
11,932
|
|
Noncontrolling owners’ interests in earnings of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and joint ventures
|
|
|
|
|
(2,284
|
)
|
|
|
|
(3,079
|
)
|
|
|
|
(3,250
|
)
|
|
|
|
(15,155
|
)
|
Net income (loss) attributable to Sterling common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders
|
|
|
|
$
|
(189
|
)
|
|
|
$
|
990
|
|
|
|
$
|
(21,792
|
)
|
|
|
$
|
(3,223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Sterling common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
$
|
(0.06
|
)
|
|
|
$
|
0.01
|
|
|
|
$
|
(1.38
|
)
|
|
|
$
|
(0.27
|
)
|
Diluted
|
|
|
|
$
|
(0.06
|
)
|
|
|
$
|
0.01
|
|
|
|
$
|
(1.38
|
)
|
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
16,652,074
|
|
|
|
|
16,404,749
|
|
|
|
|
16,626,118
|
|
|
|
|
16,362,429
|
|
Diluted
|
|
|
|
|
16,652,074
|
|
|
|
|
16,504,033
|
|
|
|
|
16,626,118
|
|
|
|
|
16,362,429
|
|
|
|
STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (Amounts in thousands, except share and
per share data)
|
|
|
|
|
|
September 30, 2013
|
|
|
December 31, 2012
|
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
5,014
|
|
|
$
|
3,142
|
Short-term investments
|
|
|
|
|
21,016
|
|
|
|
49,211
|
Contracts receivable, including retainage
|
|
|
|
|
90,663
|
|
|
|
70,815
|
Costs and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
|
|
31,481
|
|
|
|
20,592
|
Inventories
|
|
|
|
|
5,375
|
|
|
|
3,731
|
Deferred tax asset, net
|
|
|
|
|
1,928
|
|
|
|
1,803
|
Receivables from and equity in construction joint ventures
|
|
|
|
|
12,260
|
|
|
|
11,005
|
Other current assets
|
|
|
|
|
9,026
|
|
|
|
4,459
|
Total current assets
|
|
|
|
|
176,763
|
|
|
|
164,758
|
Property and equipment, net
|
|
|
|
|
95,926
|
|
|
|
102,308
|
Goodwill
|
|
|
|
|
54,820
|
|
|
|
54,820
|
Long-term deferred tax asset, net
|
|
|
|
|
14,198
|
|
|
|
2,973
|
Other assets, net
|
|
|
|
|
12,405
|
|
|
|
6,651
|
Total assets
|
|
|
|
$
|
354,112
|
|
|
$
|
331,510
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
79,113
|
|
|
$
|
47,796
|
Billings in excess of costs and estimated earnings on uncompleted
contracts
|
|
|
|
|
31,070
|
|
|
|
18,918
|
Current maturities of long-term debt
|
|
|
|
|
220
|
|
|
|
73
|
Accrued compensation
|
|
|
|
|
7,810
|
|
|
|
4,909
|
Current obligation for noncontrolling owners’ interest in
subsidiaries and
|
|
|
|
|
|
|
|
|
|
joint ventures
|
|
|
|
|
524
|
|
|
|
2,887
|
Other current liabilities
|
|
|
|
|
3,980
|
|
|
|
2,691
|
Total current liabilities
|
|
|
|
|
122,717
|
|
|
|
77,274
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities
|
|
|
|
|
20,568
|
|
|
|
24,201
|
Other long-term liabilities
|
|
|
|
|
2,245
|
|
|
|
2,728
|
Total long-term liabilities
|
|
|
|
|
22,813
|
|
|
|
26,929
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Obligations for noncontrolling owners’ interests in subsidiaries
and joint
|
|
|
|
|
|
|
|
|
|
ventures
|
|
|
|
|
17,759
|
|
|
|
14,721
|
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; 19,000,000 shares
authorized,
|
|
|
|
|
|
|
|
|
|
16,662,824 and 16,495,216 shares issued
|
|
|
|
|
167
|
|
|
|
165
|
Additional paid in capital
|
|
|
|
|
197,168
|
|
|
|
197,067
|
Retained earnings (deficit)
|
|
|
|
|
(9,906
|
)
|
|
|
12,220
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
(191
|
)
|
|
|
696
|
Total Sterling common stockholders’ equity
|
|
|
|
|
187,238
|
|
|
|
210,148
|
Noncontrolling interests
|
|
|
|
|
3,585
|
|
|
|
2,438
|
Total equity
|
|
|
|
|
190,823
|
|
|
|
212,586
|
Total liabilities and equity
|
|
|
|
$
|
354,112
|
|
|
$
|
331,510
|
|
Copyright Business Wire 2013