STERLING INFRASTRUCTURE, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Adjusted earnings per share grew 29% to $1.63, adjusted EBITDA $80 million (31% increase), revenue up 7% pro forma. Gross profit margins expanded 400 basis points to 22%. Operating cash flow $85 million. Closed acquisition of Drake Concrete for $25 million, expected to contribute $55M revenue and $6.5M EBITDA in 2025.
• Backlog: End of quarter backlog $2.1 billion, 17% y-o-y increase pro forma. E-Infrastructure backlog $1.2 billion, up 27% y-o-y.
• Outlook: Bullish on future with strong backlog and future phase opportunities. E-Infrastructure expects data center demand to continue, manufacturing steady, e-commerce and small industrial/warehousing picking up. Transportation Solutions sees continued growth in core markets but expects mid-single digit revenue growth 2025. Building Solutions anticipates slight revenue growth driven by acquisition, with organic decline in legacy residential and commercial work.

Segment Performance

• E-Infrastructure Solutions: First quarter revenue grew 18% y-o-y. Data center market was primary growth driver, up ~60% y-o-y. Adjusted segment operating income grew 61%, adjusted operating margins reached 23% (618 basis point increase). Backlog $1.2 billion, up 27% y-o-y, with mission critical work (including data centers >65%) as majority.
• Transportation Solutions: First quarter revenue grew 9% pro forma. Adjusted operating profit grew 60% due to market demand and mix shift to higher margin services. Backlog $861 million, up 11% y-o-y pro forma.
• Building Solutions: First quarter segment revenue declined 14%, adjusted operating income declined 18%. Legacy residential business revenue down 19% due to soft housing market, severe weather, and tough comp.

Guidance

• Revenue: $2.05 billion to $2.15 billion
• Net income: $222 million to $239 million
• Diluted EPS: $7.15 to $7.65
• Adjusted diluted EPS: $8.40 to $8.90
• EBITDA: $381 million to $403 million
• Adjusted EBITDA: $410 million to $432 million

Risks

• Tariffs and Material Costs: Exposure to steel, concrete, fuel, etc., with some indexing but potential impacts.
• Housing Market Softness: Impact on Building Solutions' legacy residential business.
• Permitting Challenges: For manufacturing and onshoring projects.

Question and Answer

• Q: On E-Infrastructure backlog not data center, how firm is it? **A: Manufacturing steady, e-commerce picking up, small industrial/warehousing activity starting to pick up, with potential upside on projects in second half.
• Q: Tariff exposure across segments? **A: Transportation has steel components mostly made in America with indexing; Building Solutions has concrete indexing; E-Infrastructure has fuel indexing and pre-buying material to mitigate exposure.
• Q: Transportation margin drivers and bid activity? **A: Margin improvement from mix shift to higher margin services; bid activity good with IIJA spend continuing, backlog in E-Infrastructure focused on long-term filling.
• Q: M&A priorities and margin seasonality? **A: E-Infrastructure top priority for M&A; gross margin will have seasonal uptick in summer/fall then dip in Q4, averaging close to guidance.
• Q: IIJA and next bill, biopharma projects? **A: IIJA spend up, next bill in advanced stages; biopharma projects in early stages, capacity available if needed, but permitting a slowdown factor.