STERLING INFRASTRUCTURE, INC. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Joe Cutillo: 2024 was a great year with 37% adjusted EPS growth, 7% top-line growth, gross profit margin 20.1%, operating cash flow nearly $500 million, and e-infrastructure backlog over $1 billion. Discussed segment results, including e-infrastructure growth, transportation solutions shift from Texas low-bid work, and building solutions poised for growth with margin expansion.
• Sharon Villaverde: Discussed impact of RHB operating agreement change, backlog metrics (fourth-quarter backlog $1.69 billion, 1.9% increase excluding RHB backlog), cash flow metrics (2024 operating cash flow $497.1 million), and guidance.

Segment Performance

• E-infrastructure: Full-year segment operating income grew 44%, operating margins reached 22% (nearly a 700 basis point increase). In the fourth quarter, revenue increased 8%, operating profit grew 50%, and operating margins expanded over 680 basis points to 24.1%. The data center market was a primary driver of revenue growth, increasing over 50% year over year. The infrastructure backlog ended 2024 at over $1 billion, a 27% increase from the prior year, with mission-critical work representing over 60% of the backlog.
• Transportation solutions: Full-year revenue grew 24%, and operating profit grew 21%. In the fourth quarter, revenue declined slightly, operating profit margins were 5% (reflecting seasonality), and backlog ended the quarter at $622 million, down 20% year over year on a pro forma basis.
• Building solutions: Annual revenue growth was 1%, and operating profit grew 6%. In the fourth quarter, revenue declined 3%, and operating income declined 17% (entirely attributable to $8 million related to PPG). Residential slab revenue declined 14% due to softness in the DFW market.

Guidance

• 2025 guidance: Revenue $2 billion to $2.15 billion, gross profit margin 21%-22%, diluted EPS $6.75-$7.25, adjusted EPS $7.90-$8.40, EBITDA $370M-$395M, adjusted EBITDA $395M-$420M.
• E-infrastructure: Expected to see strong revenue growth over 10% and operating profit growth north of 25% in 2025.
• Transportation solutions: Expected to have relatively flat revenue excluding RHB, but operating profit growth low to mid-teens.
• Building solutions: Anticipated low single-digit revenue growth with margin expansion, driven by recovery in DFW residential business and share gains in Houston and Phoenix.

Risks

• No specific risks detailed in the transcript beyond general forward-looking statement disclaimers as per SEC rules.

Question and Answer

• Q: Noelle Levitz asked about e-infrastructure margins and M&A in data center markets.

A: Joe Cutillo responded about mix, execution on larger projects driving margins, and M&A plans in data center and semiconductor spaces.

• Q: Adam Thalhimer asked about e-infrastructure margins and PPG's performance.

A: Joe Cutillo discussed mix of mission-critical projects driving margins and PPG's role in leveraging customer relationships.

• Q: Brent Thielman asked about infrastructure margins and building solutions outlook.

A: Joe Cutillo provided context on infrastructure margins from project size and mix, and building solutions outlook considering weather impact and second-half recovery.

• Q: Julio Romero asked about data center tone and transportation sales headwinds.

A: Joe Cutillo noted positive tone from data center customers and explained transportation sales headwind from shift away from Texas low-bid work.

• Q: Tom Bishop asked about market sell-off related to DeepSeq.

A: Joe Cutillo stated sell-off was ill-founded as data center construction continues regardless of chip details.