Actionable news
0
All posts from Actionable news
Actionable news in STRL: Sterling Construction Company Inc,

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from___ to ___
Commission file number 1-31993
STERLING CONSTRUCTION COMPANY, INC.(Exact name of registrant as specified in its charter)
DELAWARE25-1655321
State or other jurisdiction of incorporationor organization(I.R.S. EmployerIdentification No.)
1800 Hughes Landing Blvd.The Woodlands, Texas77380
(Address of principal executive office)(Zip Code)
Registrant’s telephone number, including area code (281) 214-0800
(Former name, former address and former fiscal year, if changed from last report)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations22
Item 3. Quantitative and Qualitative Disclosures about Market Risk30
Item 4. Controls and Procedures31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings32
Item 1A. Risk Factors32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds32
Item 3. Defaults upon Senior Securities32
Item 4. Mine Safety Disclosures32
Item 5. Other Information32
Item 6. Exhibits33
SIGNATURES35
September 30,
2017
December 31,
2016
(Unaudited)
ASSETS

Current assets:

Cash and cash equivalents$66,541
$42,785
Contracts receivable, including retainage149,052
84,132
Costs and estimated earnings in excess of billings on uncompleted contracts43,384
32,705
Inventories2,093
3,708
Receivables from and equity in construction joint ventures9,069
7,130
Other current assets9,654
5,448
Total current assets279,793
175,908
Property and equipment, net59,464
68,127
Goodwill85,277
54,820
Intangibles45,200

Other assets, net3,301
2,968
Total assets$473,035
$301,823
LIABILITIES AND EQUITY

Current liabilities:

Accounts payable$100,565
$67,097
Billings in excess of costs and estimated earnings on uncompleted contracts63,368
64,100
Current maturities of long-term debt986
3,845
Income taxes payable280
78
Accrued compensation14,566
5,322
Other current liabilities15,188
6,150
Total current liabilities194,953
146,592
Long-term liabilities:

Long-term debt, net of current maturities88,619
1,549
Members' interest subject to mandatory redemption and undistributed earnings46,329
45,230
Other long-term liabilities595
362
Total long-term liabilities135,543
47,141
Commitments and contingencies (Note 9)



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; 38,000,000 shares authorized, 27,023,143 and 24,987,306 shares issued270
250
Additional paid in capital231,848
208,922
Retained deficit(93,201)(101,738)
Total Sterling common stockholders’ equity138,917
107,434
Noncontrolling interests3,622
656
Total equity142,539
108,090
Total liabilities and equity$473,035
$301,823
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Revenues$304,219
$205,629
$704,047
$521,778
Cost of revenues(273,588)(189,007)(638,924)(486,065)
Gross profit30,631
16,622
65,123
35,713
General and administrative expenses(13,129)(9,146)(36,545)(27,888)
Other operating expense, net(4,863)(3,804)(9,371)(7,238)
Operating income12,639
3,672
19,207
587
Interest income107
15
192
19
Interest expense(3,576)(491)(6,672)(2,176)
Loss on extinguishment of debt

(755)
Income (loss) before income taxes and earnings attributable to noncontrolling interests9,170
3,196
11,972
(1,570)
Income tax expense(344)(41)(469)(68)
Net income (loss)8,826
3,155
11,503
(1,638)
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures(1,694)(740)(2,966)(1,252)
Net income (loss) attributable to Sterling common stockholders$7,132
$2,415
$8,537
$(2,890)
Net income (loss) per share attributable to Sterling common stockholders:



Basic$0.27
$0.10
$0.33
$(0.12)
Diluted$0.26
$0.10
$0.33
$(0.12)
Weighted average number of common shares outstanding used in computing per share amounts:



Basic26,486
25,003
25,787
23,915
Diluted26,920
25,365
26,260
23,915
STERLING CONSTRUCTION COMPANY, INC.
STOCKHOLDERS
Common StockAdditional
Paid in
RetainedNoncon-trolling
SharesAmountCapitalDeficitInterestsTotal
Balance at January 1, 201724,987
$250
$208,922
$(101,738)$656
$108,090
Net income


8,537
2,966
11,503
Stock-based compensation154
1
2,533


2,534
Stock issued for Tealstone acquisition1,882
19
17,042


17,061
Warrants issued to lenders

3,500


3,500
Other

(149)

(149)
Balance at September 30, 201727,023
$270
$231,848
$(93,201)$3,622
$142,539
Nine Months Ended September 30,
20172016
Cash flows from operating activities:

Net income (loss) attributable to Sterling common stockholders$8,537
(2,890)
Plus: Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures2,966
1,252
Net income (loss)11,503
(1,638)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization13,140
12,097
Loss (gain) on disposal of property and equipment204
(255)
Stock-based compensation expense2,534
1,211
Changes in operating assets and liabilities:

Contracts receivable(45,044)(23,303)
Costs and estimated earnings in excess of billings on uncompleted contracts(7,735)(5,084)
Inventories2,833
(1,465)
Receivables from and equity in construction joint ventures(1,939)3,461
Other assets(4,487)(1,246)
Accounts payable16,687
17,902
Billings in excess of costs and estimated earnings on uncompleted contracts(1,035)31,340
Accrued compensation and other liabilities5,289
6,662
Members' interest subject to mandatory redemption and undistributed earnings1,099
(3,972)
Net cash (used in) provided by operating activities(6,951)
35,710
Cash flows from investing activities:

Tealstsone acquisition, net of cash acquired(54,861)
Additions to property and equipment(8,305)(8,852)
Proceeds from sale of property and equipment5,830
2,187
Net cash used in investing activities(57,336)
(6,665)
Cash flows from financing activities:

Cash received–term loan85,000

Cumulative repayments – equipment-based term loan and other(4,449)(9,546)
Cumulative drawdowns – equipment-based revolver
19,000
Cumulative repayments – equipment-based revolver
(19,000)
Net proceeds from stock issued
19,142
Debt issuance costs6,889

Loss on debt extinguishment755

Distributions to noncontrolling interest owners

Other(152)(46)
Net cash provided by financing activities88,043

9,550
Net increase in cash and cash equivalents23,756

38,595
Cash and cash equivalents at beginning of period42,785
4,426
Cash and cash equivalents at end of period$66,541

$43,021
Supplemental disclosures of cash flow information:

Cash paid during the period for interest$6,139
$2,426
Cash paid during the period for income taxes$145
$5
Non-cash items:

Share consideration given for Tealstone acquisition (1,882,058 shares)$17,061
$
Notes and deferred payments to sellers$11,588
$
Warrants issued to lenders (1,000,000 Warrants)$3,500
$
Transportation and construction equipment acquired through financing arrangements$70
$735
Cash$55,000
Common stock (1,882,058 shares)17,061
Promissory notes4,436
Deferred payments7,153
Total$83,650
Cash$139
Accounts receivable19,876
Costs and estimated earnings in excess of billings on uncompleted contracts2,944
Inventory1,218
Other current assets54
Property, plant and equipment565
Other assets, net1
Identifiable intangible assets and Goodwill77,028
Accounts payable(16,781)
Billings in excess of costs and estimated earnings on uncompleted contracts(303)
Accrued expenses(823)
State income tax payable(268)
Total Consideration$83,650
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Pro forma revenue$304,219
$255,002
$749,176
$657,773
Pro forma net income attributable to Sterling$7,132
$4,659
$8,848
$7,705
September 30,
2017
December 31,
2016
Members’ interest subject to mandatory redemption$40,000
$40,000
Net accumulated earnings6,329
5,230
Total liability$46,329
$45,230
Nine Months Ended
September 30,
20172016
Balance, beginning of period$656
$(91)
Net income attributable to noncontrolling interest included in equity2,966
1,252
Distributions to noncontrolling interest owners

Balance, end of period$3,622
$1,161
September 30,
2017
December 31,
2016
Total combined:

Current assets$42,129
$32,592
Less current liabilities(61,079)(57,598)
Net liabilities$(18,950)$(25,006)
Backlog$51,110
$107,333
Sterling’s noncontrolling interest in backlog$26,659
$52,992
Sterling’s receivables from and equity in construction joint ventures$9,069
$7,130
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Total combined:



Revenues$27,703
$15,520
$61,210
$44,074
Income before tax(6,281)1,925
(3,611)3,838
Sterling’s noncontrolling interest:



Revenues$13,664
$6,103
$28,826
$17,567
Income before tax(1,629)519
(358)1,370
September 30,
2017
December 31,
2016
Assets:

Current assets:

Cash and cash equivalents$2,588
$9,655
Contracts receivable, including retainage30,134
15,046
Other current assets13,936
10,208
Total current assets46,658
34,909
Property and equipment, net8,996
9,824
Goodwill1,501
1,501
Total assets$57,155
$46,234
Liabilities:

Current liabilities:

Accounts payable$27,109
$21,274
Other current liabilities14,667
8,782
Total current liabilities41,776
30,056
Long-term liabilities:

Other long-term liabilities271
5,373
Total liabilities$42,047
$35,429
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Revenues$64,266
$50,739
$126,333
$121,649
Operating income3,666
2,720
6,307
4,894
Net income 1,834
1,357
3,149
2,440
September 30,
2017
December 31,
2016
Construction equipment$121,364
$121,441
Transportation equipment18,275
19,017
Buildings9,547
12,771
Office equipment3,339
3,108
Leasehold improvement914
914
Construction in progress1,432
313
Land2,348
3,509
Water rights200
200
157,419
161,273
Less accumulated depreciation(97,955)(93,146)
Total property and equipment, net$59,464
$68,127
September 30,
2017
December 31,
2016
Loan$85,000
$3,532
Less deferred loan costs and discount(9,350)(803)
Total Loan, net75,650
2,729
Notes and deferred payments to sellers, Tealstone acquisition12,118

Notes payable for transportation and construction equipment and other1,837
2,665
89,605
5,394
Current maturities of long-term debt986
4,648
Less current deferred loan costs
(803)
Less current maturities of long-term debt, net(986)(3,845)
Total long-term debt$88,619
$1,549
a ratio of secured indebtedness to EBITDA of not more than 3.10 to 1.00 for four consecutive quarters, reducing to 1.80 to 1.00 by the four consecutive quarters ending September 30, 2019;
bonding capacity shall be maintained at all times in an amount not less than $1,000,000,000; and
At April 3,
2017
Current stock price$8.88
Exercise option price$10.25
Expected term of warrants (in years)5
Expected volatility rate48.29%
Risk-free rate1.88%
Expected dividend yield%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Numerator:



Net income (loss) attributable to Sterling common stockholders$7,132
$2,415
$8,537
$(2,890)
Weighted average common shares outstanding — basic26,486
25,003
25,787
23,915
Shares for dilutive unvested stock and warrants434
362
473

Weighted average common shares outstanding and incremental shares assumed repurchased— diluted26,920
25,365
26,260
23,915
Basic income (loss) per share attributable to Sterling common stockholders$0.27
$0.10
$0.33
$(0.12)
Diluted income (loss) per share attributable to Sterling common stockholders$0.26
$0.10
$0.33
$(0.12)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2017201620172016
Revenue



Heavy Civil Construction$263,278
$205,629
$625,887
$521,778
Residential Construction40,941

78,160

Total Revenue$304,219
$205,629
$704,047
$521,778
Operating Income



Heavy Civil Construction$6,960
$3,672
$8,627
$587
Residential Construction5,679

10,580

Total Operating Income$12,639
$3,672
$19,207
$587
September 30,
2017
December 31,
2016
Assets
Heavy Civil Construction$365,178
$301,823
Residential Construction107,857

Total Assets$473,035
$301,823
delays or difficulties related to the completion of our projects, including additional costs, reductions in revenues or the payment of liquidated damages, or delays or difficulties related to obtaining required governmental permits and approvals;
factors that affect the accuracy of estimates inherent in our bidding for contracts, estimates of backlog, percentage-of-completion accounting policies, including onsite conditions that differ materially from those assumed in our original bid, contract modifications, mechanical problems with our machinery or equipment and effects of other risks discussed in this document;
cost escalations associated with our contracts, including changes in availability, proximity and cost of materials such as steel, cement, concrete, aggregates, oil, fuel and other construction materials and cost escalations associated with subcontractors and labor;
the presence of competitors with greater financial resources or lower margin requirements than ours and the impact of competitive bidders on our ability to obtain new backlog at reasonable margins acceptable to us;
citations issued by any governmental authority, including the Occupational Safety and Health Administration;
federal, state and local environmental laws and regulations where non-compliance can result in penalties and/or termination of contracts as well as civil and criminal liability;
BacklogGross Margin in Backlog
(Dollar amounts in thousands)
Third quarter of 2017$804,0008.4%
Second quarter of 2017$923,0008.4%
First quarter of 2017$925,0008.4%
Fourth quarter of 2016$823,0008.2%
Third quarter of 2016$820,0008.0%
Three Months Ended September 30,Nine Months Ended September 30,
20172016% Change20172016% Change
(Dollar amounts in thousands)
Revenues$304,219
$205,629
47.9%$704,047
$521,778
34.9%
Gross profit30,631
16,622
84.3%$65,123
$35,713
82.4%
General and administrative expenses(13,129)(9,146)43.5%(36,545)(27,888)31.0%
Other operating expense, net(4,863)(3,804)27.8%(9,371)(7,238)29.5%
Operating income12,639
3,672
NM19,207
587
NM
Interest income107
15
NM192
19
NM
Interest expense(3,576)(491)NM(6,672)(2,176)NM
Loss on extinguishment of debt

NM(755)
NM
Income (loss) before taxes and earnings attributable to noncontrolling interests9,170
3,196
NM11,972
(1,570)NM
Income tax expense(344)(41)NM(469)(68)NM
Net income (loss)8,826
3,155
NM11,503
(1,638)NM
Noncontrolling owners’ interests in earnings of subsidiaries and joint ventures(1,694)(740)NM(2,966)(1,252)NM
Net income (loss) attributable to Sterling common stockholders$7,132
$2,415
NM$8,537
$(2,890)NM
Gross margin10.1%8.1%24.7%9.2%6.8%35.3%
Operating margin4.2%1.8%NM2.7%0.1%NM
NM – Not meaningful.



Three Months Ended
September 30,
Nine Months Ended
September 30,
2017% ofTotal2016% ofTotal2017% ofTotal2016% ofTotal
Revenue



Heavy Civil Construction$263,278
87%$205,629
100%$625,887
89%$521,778
100%
Residential Construction40,941
13%
—%78,160
11%
—%
Total Revenue$304,219
$205,629
$704,047
$521,778
Operating Income



Heavy Civil Construction$6,960
55%$3,672
100%$8,627
45%$587
100%
Residential Construction5,679
45%
—%10,580
55%
—%
Total Operating Income$12,639
$3,672
$19,207
$587
Nine Months Ended
September 30,
20172016
Net cash (used in) provided by:

Operating activities$(6,951)$35,710
Investing activities(57,336)(6,665)
Financing activities88,043
9,550
Total increase in cash and cash equivalents$23,756
$38,595
September 30,
2017
December 31,
2016
Cash and cash equivalents$66,541
$42,785
Working capital$84,840
$29,316
Changes in Components ofContract Capital for the Period Ended
September 30, 2017September 30, 2016Variance
Costs and estimated earnings in excess of billings on uncompleted contracts$(7,735)$(5,084)$(2,651)
Billings in excess of costs and estimated earnings on uncompleted contracts(1,035)31,340
(32,375)
Contracts in progress, net(8,770)26,256
(35,026)
Contracts receivable, including retainage(45,044)(23,303)(21,741)
Receivables from and equity in construction joint ventures(1,939)3,461
(5,400)
Inventories2,833
(1,465)4,298
Accounts payable16,687
17,902
(1,215)
Contract Capital, net$(36,233)$22,851
$(59,084)
PeriodTotal Number ofSharesPurchasedAveragePrice Paidper ShareTotal Number of Shares (or Units) Purchased as Part ofPublicly- AnnouncedPlans or ProgramMaximum Number (orApproximate DollarValue) of Shares (or Units)that May Yet BePurchased Under thePlans or Programs
July 1—July 31, 20172,336
(1)$13.07


August 1—August 31, 201765
(1)$10.79


(1)These shares were repurchased from employees holding shares of the Company's common stock that had been awarded to them by the Company and that were released from Company-imposed transfer restrictions. The repurchase was to enable the employees to satisfy the Company's tax withholding obligations occasioned by the release of the restrictions. The repurchase was made at the election of the employees pursuant to a procedure adopted by the Compensation Committee of the Board of Directors.

More