Investor Presentation - September 2019 - Sterling Construction Company
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Investor Presentation
September 2019
Disclosure: Forward-Looking Statements
This presentation contains, and the officers and directors of the Company may from time to time make, statements that are
considered forward–looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of
1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our
control, which may include statements about our: business strategy; financial strategy; and plans, objectives, expectations,
forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this
presentation, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology
such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking
statements contained in this presentation are largely based on our expectations, which reflect estimates and assumptions
made by our management. These estimates and assumptions reflect our best judgment based on currently known market
conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently
uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s
assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking
statements contained in this presentation are not guarantees of future performance, and we cannot assure any reader that
such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ
materially from those anticipated or implied in the forward- looking statements due to factors listed in the “Risk Factors”
section in our filings with the U.S. Securities and Exchange Commission (“SEC”) and elsewhere in those filings. The forward-
looking statements speak only as of the date made, and other than as required by law, we do not intend to publicly update or
revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements
qualify all forward-looking statements attributable to us or persons acting on our behalf.
2
Company Overview
Sterling Construction is a leading heavy civil and residential construction
company with strong competitive positions in the Western U.S. NASDAQ: STRL
HQ: The Woodlands, TX
HEAVY CIVIL CONSTRUCTION - 84% of YTD’19 Revenues
Heavy highway, commercial concrete projects, aviation, and Employees: 2,000+
water containment/treatment Projects underway: >140
Steady 3-5% growth; two-year average project duration Shares out: 26.4M
Cost-driven Market cap: $290.9M
TTM Revenues: $1,034.5M
RESIDENTIAL CONSTRUCTION - 16% of YTD’19 Revenues
TTM EBITDA*: $54.3M
Concrete foundations for single family homes
Combined Backlog: $1,200M
High margin, low CAPEX, quick turnaround slab work with fast cash cycles
TTM Revenues, EBITDA and Backlog as of 6/30/19;
market cap as of 8/26/19.
Low risk – operate exclusively in the high growth markets of
*See EBITDA Reconciliation on page 19
Dallas-Fort Worth Metroplex and Houston
Recently announced Plateau Excavation acquisition provides new end markets and customers 3
Enhanced Business Model & Attractive Valuation
Enhanced Business Model
As Sterling continues to evolve into a more diversified specialty E&C company, our
differentiated strategy allows the Company to be less dependent on lower margin heavy
highway work and capture the upside in end-markets that have higher margins and less
risk.
Valuation vs. Peers
S&P 500 Russell 2000 NASDAQ
Forward P/E ‘20 7.9x 10.0x 14.1x 15.6x 19.6x 20.0x
Forward EV/EBITDA ‘20 4.4x 4.8x 6.9x 11.0x 11.9x 12.4x
Source: Bloomberg as of 8/26/19
4
Investment Considerations
◼ Organic diversification of end-markets driving significant margin and
EPS growth.
◼ Disciplined project execution with emphasis on value-driven delivery
model.
◼ Operational and financial turnaround has been completed by strong
and experienced management team.
◼ Attractive geographic footprint with favorable funding environment.
◼ Acquisition of Plateau provides diversification of revenue streams, a
broad range of high-quality customers in rapidly growing end markets,
increasing profitability and cash flow, and reduced execution risk for
the Company overall; anticipated close near the end of Q3’19.
◼ New credit agreement in conjunction with the Plateau acquisition
establishes more traditional balance sheet structure with reduced cost
of capital; significant de-levering anticipated in 2020 and 2021.
5
Sterling 3-Year Strategic Vision - Introduced in 2016
2021 Blended Margin
12% 2015 - Focused on Solidifying Base and not taking on
3 Expansion into losing jobs
Adjacent Markets
15%+ margins 2016 - Focused on Solidifying Base and began to Grow
10% 2 Grow High High Margin Products…Margins increased to 6.4%
Margin Products 2017 - Continued to Solidify Base, Grow High Margin
50/50 Split at 12%+ Threefold Products, and began Expansion into Adjacent Markets
8% margin margin w/ Tealstone Acquisition...Margins increased to 9.3%
1 improvement
Solidify the Base in 6 years 2018 - Continued Elements 1&2 and began growing out
6% 7-8% Tealstone…Margins increased to 10.6%
2019 - Continued 2018 activities and focus on adding
2015 Margins next adjacent Market…Combined Margins will increase
4%
to over 12% with Plateau acquisition
Key Objectives: Bottom-Line Growth, Risk Reduction, Exceed Peer Performance
6
Recent Project Awards Validate Strategy
Project Location Value Start Date
I-15 Exit 16 Utah $23 million Q1’19
Logan Regional Wastewater Facility Utah $24 million Q2’19
I-15 Express Lane Extension Utah $94 million Q2’19
SH 34 Bridge Reconstruction Texas $33 million Q3’19
FM 51 Texas $23 million Q3’19
UT
Executing
HI
on
▪ Our RLW subsidiary has Strategy
historically executed large
▪ Our RHB subsidiary leverages scale projects across a
its highway expertise to also multitude of end-markets in
pave airport runways at a the Rockies, contributing to
higher margin sustainable margin expansion 7
How the Strategy has Driven Higher Margins
Gross Margin
12.0%
10.0% Combined gross
margin with
8.0%
Plateau expected
to exceed 12%
6.0%
4.0%
2.0%
0.0%
2015 2016 2017 2018 2019e
Continued Focus on Bottom Line to Triple Gross Margin 8
Focused on Bottom-Line Growth as Opposed to Top-Line Growth
500%
450%
400%
350%
300%
250%
200%
150%
100%
50%
0%
2015 2016 2017 2018 2019e
Revenue Growth Gross Profit Growth
Margin growth outpaces revenue growth by approximately 4x 9
Plateau Acquisition
10Expansion into Adjacent Markets…Plateau
12%
3 Expansion into
Adjacent Markets
15%+ margins
10%
2 Grow High
Margin Products Announced Plateau Acquisition – 8/14/19
50/50 Split at 12%+ margin ▪ Provides access to the rapidly growing Southeast US,
8% a region where Sterling currently has no presence.
1 Solidify the Base ▪ Will enhance overall margin and cash flow and be
Goes from immediately accretive.
6% 7-8% to 9-10% ▪ Construction services for warehouses and data
centers is an attractive market space with high-
profile, blue chip customers.
4% ▪ Further reduces Sterling’s risk through diversification.
11Plateau Overview
Plateau is the leading provider of infrastructure improvement services in the Southeastern U.S.
serving blue-chip customers in the data center, distribution center/warehousing (e-commerce and
traditional retail), energy and other growing end markets.
Backlog by End Market as of 12/31/18
Headquarters: Austell, GA
Energy & Other
5%
Employees: ~800
Commercial &
2018 Revenue: ~$290 million Residential
16%
Three year Revenue CAGR: ~12%
Distribution
2018 EBITDA: ~$72 million Center/
Warehouse
Data Center
51%
Backlog: ~$184 million as of 12/31/18 10%
E-Commerce
18%
12Strong Relationships with High Profile Customers
▪ 86% of 2017 revenue was from returning customers
▪ 14-year average tenure with top 10 customers
▪ Provides Sterling with a whole new (and quickly growing) customer base including:
13Key Benefits to Sterling
▪ Higher value service with lower execution risk and better margins
▪ Strong earnings potential and cash generation.
> Can add ~$72 mm and ~$77 mm of EBITDA and free cash
flow, respectively, annually.
▪ Introduction to new markets.
> Plateau operates in attractive markets from both a
margin and growth perspective.
> Mainly excavate for data centers and warehouses, both
of which are growing due to a rise in e-commerce, Plateau
migration of data to “The Cloud” and the continued Existing
prominence of internet activities Sterling
footprint
▪ Expansion into higher growth geographies
14Meets Sterling Acquisition Criteria
Higher value add in adjacent end markets with higher margins
and lower execution risk
End Market Diversification
Great management team that stays with the business
Strong performing business with significant growth potential
Performs “like activities” to what we do today
Immediately accretive
Improving
Improving Margins,
Margins, Reducing
Reducing Risk,
Risk, Adding
Adding Great
Great People
People 15Transformative Characteristics
Attractive Margins Margins - ~26% GM and ~24% EBITDA Margin- significantly above Sterling core business.
Plateau revenues expected to grow mid-to-high single digits annually for the foreseeable
Growth Potential future. Mainly excavate for data centers and warehouses, both of which are growing due to
a rise in e-commerce, the migration of data to “The Cloud” and the Internet of Things.
Diversification of revenue streams by end market,
Diversification
customer type and geographies.
Quick turnaround, more stable projects doing
Lower Risk
activities we do every day.
High Free Cash Flow Low capex requirements drive high free cash flow.
Combined Entity of ~$1.3 billion in Revenue and $130 million in EBITDA
16Transaction Structure
▪ Total purchase price of $400 million; approximately 5.5x EBITDA
▪ Financing the acquisition and repaying existing higher interest rate term loan through a
new $400 million term loan and $75 million revolver
▪ Expect to close near the end of Q3’19
▪ Key members of Plateau management remaining with company
17Combined Company Analysis
Estimated Combined Annual Financials Revenues by End Market
($ in millions) Sterling Plateau Combined
Revenue ~1,000 ~290 ~1,290 Plateau
22%
EBITDA ~58 ~72 ~130
Heavy Highway
# of ~2,000 ~800 ~2,800 Construction
Employees Residential 39%
Construction
11%
Other Heavy Civil
Construction
28%
Heavy Highway becomesRecent Sterling Results and Guidance
Recent Results
◼ YTD 2019 impacted by difficult weather conditions across
much of operating footprint, in addition the Heavy Civil
segment is dealing with the delayed start of several large
($MM except EPS) TTM June 2019 TTM June 2018 projects.
Revenue $1,034 mm $1,049 mm
◼ Those factors led us to revise our FY 2019 revenue guidance.
Gross Margin 10.0% 10.1%
Net Income to STRL $24.2 mm $20.9 mm ◼ Combined backlog and available cash at all-time highs of $1.2
billion and $57 million, respectively, as of 6/30/19.
EBITDA* $54.3 mm $50.3 mm
◼ Repurchased $7.9 million of our common stock (717,000
*See EBITDA Reconciliation on page 19 shares) and paid down $8.7 million of debt during the TTM
June 2019.
◼ Double digit y/y net income increase, despite the reduction in
FY 2019 guidance.
20FY’2019 Guidance & Modeling Considerations*
Revenue $1,010 - $1,025
Net Income $27 - $29 EPS
$1.20
EPS $1.00 - $1.07 $1.10
$1.00
EBITDA $56 - $59 $0.90
$0.80
Gross Margin 10% - 10.5% $0.70
G&A Expense as % of Revenue ~5% $0.60
$0.50
Other Expense Net $13 - $14 $0.40
$0.30
Net Interest Expense $10 - $11 $0.20
$0.10
Tax Expense $3 $-
2018 2019E
JV Non-Controlling Interest Expense $1 - $2
Expected Shares Outstanding ~27 mm
*Dollars in millions except for EPS, excludes Plateau acquisition
21Investment Considerations
◼ Organic diversification of end-markets driving significant margin and EPS
growth.
◼ Disciplined project execution with emphasis on value-driven delivery model.
◼ Operational and financial turnaround has been completed by strong and
experienced management team.
◼ Attractive geographic footprint with favorable funding environment.
◼ Acquisition of Plateau provides diversification of revenue streams, a broad
range of high-quality customers in rapidly growing end markets, increasing
profitability and cash flow, and reduced execution risk for the Company
overall; anticipated close near the end of Q3’19.
◼ New credit agreement in conjunction with the Plateau acquisition establishes
more traditional balance sheet structure with reduced cost of capital;
significant de-levering anticipated in 2020 and 2021.
22Contact Us
Company Representative Investor Relations Advisors
Sterling Construction Company, Inc. The Equity Group Inc.
Ron Ballschmiede Fred Buonocore, CFA
Chief Financial Officer Senior Vice President
281-214-0800 212-836-9607
fbuonocore@equityny.com
Mike Gaudreau
Associate
212-836-9620
mg@equityny.com
23EBITDA Reconciliation
EBITDA Calculation Q2 2019 FY 2018 Q2 2018
Net income attributable to Sterling common stockholders $ 7,828 $ 25,187 $ 8,174
Income tax expense 706 1,738 97
Interest expense 2,904 12,350 3,112
Interest income (291) (1,017) (201)
Depreciation and amortization 4,082 16,770 4,183
Calculated EBITDA $ 15,229 $ 55,028 $ 15,365
TTM EBITDA Rollforward
FY 2018 EBITDA $ 55,028
H1 2018 EBITDA (24,977)
H1 2019 EBITDA 24,294
TTM EBITDA (H1 2019) $ 54,345
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