Greetings, and welcome to the Sterling Infrastructure Third Quarter 2023 Conference Call and Webcast. [Operator Instructions]. It is now my pleasure to introduce your host, Noelle Dilts, Vice President of Investor Relations and Corporate Strategy. Thank you. You may begin.

Thank you, Joanna. Good morning to everyone joining us, and welcome to Sterling Infrastructure's 2023 Third Quarter Earnings Conference Call and Webcast. I'm pleased to be here today to discuss our results with Joe Cutillo, Sterling's Chief Executive Officer; and Ron Ballschmiede, Sterling's Chief Financial Officer. Joe will open the call with an overview of the company and its performance in the quarter. Ron will follow that up with the detailed discussion of the financial results. After which Joe will provide a market and full year outlook. Then we will open the call up for questions. As a reminder, there are accompanying slides on the Investor Relations section of our website. Before turning the call over to Joe, I will read the safe harbor statement. Some discussions made today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Sterling's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events or otherwise. The financial information herein and discussions are related to the company's continuing operations. Please also note that management may reference EBITDA, adjusted EBITDA, adjusted net income or adjusted earnings per share on the call, all -- which all are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday afternoon. I'll now turn the call over to our CEO, Joe Cutillo.

Thanks, Noelle. Good morning, everyone, and thank you for joining Sterling's third quarter 2023 earnings call. I'd like to thank our Sterling team for another record quarter. Their hard work and dedication has allowed us to deliver 11 quarters of consecutive year-over-year net income growth. Our diluted earnings per share for the third quarter were $1.26. This represents a substantial 25% increase compared to our same period in 2022, and surpassed our internal projections. Revenue growth in the quarter was 13.7% or 11.7% on an organic basis. Demand trends across our key markets remain strong. The best reflection of this is our backlog, which is up 42% from the beginning of the year and totaled over $2 billion. Our cash flow generation remains excellent. Operating cash flow in the quarter was $150 million, bringing our total cash position to $409 million at the end of the quarter. Our focus remains on deploying our cash into acquisitions that complement our current offerings and enhance our competitive position. We have intensified our targeting efforts and remain extremely active on this front. As we continue to expand our business both organically and through strategic acquisitions, we remain unwavering in our adherence to our guiding principles, the Sterling Way. These principles underscore our commitment to take care of our people, our environment, our investors and our communities, while we work to build America's infrastructure. With a strong third quarter performance, year-to-date results, backlog position and visibility into the fourth quarter, we are raising our full year guidance. The midpoint of our increased earnings per share guidance would represent a 32% growth over 2022. Moving to our segments. E-Infrastructure Solutions backlog grew 48% from the beginning of the year to a new record of $891 million. We continue to see a strong pipeline of work…

Thanks, Joe, and good morning. I am pleased to discuss our third quarter performance. Let me take you through our financial highlights, starting with our backlog metrics. At the end of the quarter, our backlog totaled a record $2.01 billion, an increase of $596 million at the beginning of the year. The gross margin of this backlog was 15.2%, a 90 basis point improvement from the beginning of the year. Higher Transportation and E-Infrastructure backlog margins drove this improvement. Unsigned Awards at the end of the third quarter totaled $375 million. Substantially all of our Unsigned Awards relate to our Transportation Solutions segment. We expect to have the majority of Unsigned Awards to move into backlog by the end of the year. We finished the quarter with combined backlog of $2.386 billion, a $696 million increase from the beginning of the year. Our gross margin in the combined backlog was 14.9%, an increase of 70 basis points from the beginning of the year. The 14.9% gross margin is the highest level in Sterling's history. Our year-to-date backlog book-to-bill ratio was very strong 1.5x for both backlog and combined backlog. Revenue for the current quarter was $560 million, up $67 million over the 2022 quarter. As a result of our strong backlog and our opportunities across each of our markets, our updated increased full year revenue guidance is now between $1.99 billion and $2.05 billion. Consolidated gross profit was $92 million in the quarter, an increase of $12 million over the prior year period. Gross margins increased to 16.4% or 30 basis points over the prior year quarter. General and administrative expense was $25 million for the quarter, an increase of $3 million when compared to the same quarter of the prior year. The increase was driven by general inflation, increased…

Thanks, Ron. As we sit here today, there appears to be no end in sight to the growing need to build and revitalize America's infrastructure. We play a critical role in building the manufacturing plants that are reshoring production to the U.S. The data infrastructure that enables today's way of life, the highways, the bridges and the airports that connect this and the homes we live in. In E-Infrastructure Solutions, we continue to see a robust pipeline of large manufacturing projects tied to electric vehicles, batteries, semiconductors and pharma, both in our current footprint and other potential geographies. We anticipate continued strength in data centers as current capacity represents only a fraction of what will be needed to support artificial intelligence and other emerging technologies. We believe that the e-commerce and small warehouse markets will remain soft through 2024, but pick back up in 2025. These dynamics support strong growth opportunities over a multiyear period for E-Infrastructure solutions. In Transportation Solutions, we think we're now in a market environment where we can accelerate growth relative to historical levels as long as margins remain at current levels or higher. In Building Solutions, we continue to see strong residential activity in our markets and our customers remain bullish as we enter into 2024. In addition, multifamily starts to remain robust and margin opportunity is strong. With our very healthy cash flow and balance sheet, we continue to look hard at acquisitions in E-Infrastructure and Building Solutions. We're proud of how far we've come, but even more excited about the opportunities ahead of us. We believe that the build-out of the U.S. infrastructure will remain strong over the next 3 to 5 years. With our visibility into the fourth quarter in a record backlog, we are confident in our increased guidance and are positioned for an even better 2024. With that, I'd like to turn it over for questions.

[Operator Instructions]. First question comes from Brent Thielman at D.A. Davidson.

I guess first question, Joe, you talked about it a bit in the closing comments there, but this sort of drag from the e-commerce projects, some of the steps in the Northeast, you mentioned it will carry through 2024. How should we think about that impacting your ability to get the E-Infrastructure business still to those kind of long-term compound growth rates you talked about for the business, I guess, the 9% to 12%?

Yes. We're still -- Brent, we're still confident in those numbers. Let me explain in a little more detail what happened in the second quarter because there's really a couple of parts of that. On the positive side, we had great weather in the second quarter. Teams are running hard, and we actually finished some projects that would have been anticipated to finish in the third quarter a little early in the second quarter. So our second quarter numbers were fantastic. What we tried to do is get other jobs kicked off earlier in the third quarter, and we had a combination of one, that not happening, and two, jobs that have actually pushed out to start later. So you got a little bit of a double whammy just in the Northeast that, that happened. So that's where the lion's share of the revenue drop was. Actually, all of the revenue drop was there. And as a result, we got a little bit of an impact on indirect absorption and those sort of things relative to our normal run rate. As we look forward, it's not that the e-commerce distribution centers definitely, Amazon has slowed down. We normally have five Amazons going at any given time. We've got one right now. And we continue to -- we think that's not going to pick up according to Amazon until the small warehouse activity is really the private side, which is a little bigger piece of the market up in the Northeast and the Southeast, and that softened with some of the financing. However, what we've seen, the biggest difference is when you look at the Southeast, we originally anticipated manufacturing jobs, not kicking off until '24, '25. The good news is in the Southeast, those jobs have kicked off quicker. In the Northeast, those jobs are in the early stages of being launched and released. The difference between us growing at high single digits to what I'll call strong double digits is really literally landing one or two of those jobs. I will tell you that we've got line of sight to three to five of those jobs as we sit here today going into '24 and '25. And we feel confident we'll land our fair share of those and we'll be in good shape once those big projects kick in to the Northeast. The Southeast continues to grow at kind of strong rates, and it's really a lag of the big projects in the Northeast.

Okay. That's helpful, Joe. And yes, I guess the large project that you mentioned, plan to bid '24, '25. Are these as biggest the record booking that you recently announced, just looking maybe for a little more context relative to that or just to see the year-to-date, Joe.

Yes. These are -- these projects are in total multibillion-dollar projects, just like the ones we're doing now. Obviously, they vary in size to some degree on our scope. But these are large projects, Brent. The other thing to keep in mind is our backlog position right now is up 40 something percent over beginning of the year, we're in a very good, very strong backlog position. So I would tell you, don't let a quarter or two of dip kind of take over the narrative of what the real growth and real opportunity is up there and where we're at with it.

Yes. Understood. And then on Building Solutions, I mean, pretty solid growth here considering the environment, you were more optimistic as the year sort of developed around that business. Certainly things have picked up. But I guess with mortgage rates continuing to climb, is that having any impact on the KPIs that you sort of track internally slab growth rates, et cetera? Just any measure you'd point to that positivity there in light of that.

Yes. I mean everything it's -- what I would reflect back and say the strategy we put together a couple of years ago for the downturn is really paying off. As we're able to not only take advantage of growing markets, but we'll continue to grow market share in the Houston and Phoenix market to offset those declines in total. But we're seeing both of those markets remain -- including Dallas, they all remain strong. It's working. We're outperforming the general market by a factor of a lot, right? So that's been very good. The only thing we've seen that I think is encouraging to us is we have definitely seen the size of slabs decrease. So what that means is we have to do more slabs to get the same revenue. The nice thing is -- if we look at the margins on those slabs versus the older larger slabs, we've been able to hang in there on the margin side.

Okay. Commercial I mean this is just...

Commercial -- yes, on the commercial, I always forget to talk about commercial because it's normally such a small piece of our business. But we've seen very nice margin growth and very nice opportunities there. If you remember, a couple of years ago, we shrunk that commercial business down to I'll call it, a small skeleton of what it is today. But the margins remain strong and the activity on multifamily remains very strong in the markets we're at, and that was up 20-something percent.

Got it. Just the last one to -- I mean, the huge cash generation again this quarter and year-to-date, it looks like you're benefiting from pretty large advanced payments. Does that all reverse in a material way in 2024 where we see sort of cash flow more consistent with kind of your historical conversion rates?

Certainly, on a project by project, it will, although our largest project is still more than four quarters work to do. What -- obviously, we expect to happen are some of these large jobs starting up with the same characteristics, frankly, of cash flow and this work on just the timing of billings and collections. So I don't see actually variability, which we have across the board in each of our large contractor segments of transportation and the infrastructure. But I think it will stay kind of on the favorable side for quite some time with these big projects out there. We're pretty much plateau, no pun intended at this point in time. I don't see them coming down dramatically.

The next question comes from Brian Russo at Sidoti.

Can you just remind us -- I know there are some margin differences between Plateau in the Southeast in Petillo in the Northeast, it could be union versus nonunion or labor force and/or just scope of work? Just trying to get a sense of as the activity ramps up in the Northeast, you can still maintain the margin profile that you've gotten mostly on the hyperscale data center and reshoring down in the Southeast?

Yes. Let me -- I'll answer some of that and let Rod jump in. Brian, the -- we will always have as long as the project scope mix remains like it is today. We always have about a 4-point margin -- lower margin in the Northeast versus the Southeast. And what that has to do is our customers up there because it's union want to deal with less contractors and deal with one. So on a site development, kind of apples-to-apples, the margins are very close. But we do a lot of concrete work curb and gutter will do actually paving a parking lot, sound walls. And in the Southeast, we've stayed away from that because the margins are significantly lower. In the Northeast, they require it. I think as we look at E-Infrastructure, I think what we need to think about is kind of the, I'll call it, normalized blended average of the two businesses in that segment around 15.5% is what the number should be there. So Plateau runs a little higher, Petillo a little a little lower and you kind of blend it out with revenue and mix, and that's about where it falls.

Yes. During the quarter, it was a bit exacerbated by the slower volume revenues in the month. Give or take, about 1/3 of the revenues come from the Northeast and 2/3 from the Southeast. So the Southeast continue to have nice margin growth. And any time you drop almost 20% of revenues in the month, which was made up by the Southeast, we probably have $1 million to $3 million of unrecovered overhead basically. Now as we beat up, that will come back as we gear up for bigger projects and some of the timings and the issues that we talked about earlier, that will come back a little bit. So -- but 4% is a little bit bigger in the third quarter just because of the swing in the margins. The good news is our highest margins grew. The bad news is our lowest margin declined a bit. So the math was okay.

Okay. Very helpful. And then just to switch gears on transportation, if I recall, in the second quarter, you were able to pivot some of your crews and equipment to support an E-Infrastructure project in the Rocky Mountains. Just wondering, given all the activity that we're seeing in that region. Are you positioned to continue to do that and just go where the margins are.

Yes. I think a couple of things. One, that project has gone extremely well. It's gone so well that the general contractor that's on that job in beta has pulled us into a manufacturing facility in Idaho, it's around food products. And we're actively looking at some other projects with them. They plan on doing a few more as well. So we will continue if the opportunities are available to reallocate those assets to what I'll call the E-Infrastructure space, whether that's data centers or manufacturing or any of those. And team has done a great job -- and I think just as importantly, they are as excited about expanding into that market as they could be. and they're working diligently to do that. So we hope as we go into '24 to '25, not only do we see the large footprint of projects in the Southeast and starting in the Northeast this opens up the geography for us to go even broader with those core customers.

Okay. Great. And then just lastly, the Unsigned Awards mostly in the Transportation Solutions segment. Are those still mostly comprised of highway work? Or is that where we're starting to see the aviation projects pick up in the unsigned bids?

Yes. I think it's primarily road, highway and bridges. There are some early smaller projects in the aviation side that are waiting for final signatures. So the larger opportunities on the aviation side are going to fall into -- maybe awards this year, but to work in fall into 2024, and we expect that to happen. Nice projects out there being developed.

At this time, I will now turn the call back over to Joe Cutillo for closing comments.

Thank you. Thanks again, everyone, for joining our call today. If you have any follow-up questions or wish to schedule a call, please feel free to contact Noelle Dilts. Her contact information can be found in our press release. I want to thank everybody for participating, and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.