Sterling Infrastructure, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Good morning to everyone joining us, and welcome to Sterling Infrastructure's second quarter 2026 earnings conference call and webcast.

I am pleased to be here today to discuss our results with Joe Cutillo, Sterling's Chief Executive Officer, Nick Grindstaff, Sterling's Chief Financial Officer, and Dan Govin, Sterling's Chief Operating Officer. As a reminder, there are accompanying slides on the investor relations section of our website. These slides include details on our full year 2026 financial guidance. Before turning the call over to Joe, I will read the safe harbor statement. The discussion 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.

Please also note that management may reference EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, or adjusted earnings per share on this call, which are all 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 on our earnings release issued yesterday afternoon. I will now turn the call over to our CEO, Joe Cutillo.

Thanks, Noel. Good morning, everyone, and thank you for joining Sterling's second quarter 2026 earnings call. Sterling delivered another outstanding quarter, with revenue growth of 90% and adjusted diluted EPS growth of 116%, from $2.69 to $5.80. These results reflect the strength of our strategy, accelerating demand across our markets, and the exceptional execution by our teams. Adjusted EBITDA more than doubled in the quarter, with margins expanding 150 basis points year-over-year to reach 22%. The current market demand allows us to be selective. Rather than chasing every opportunity, we are concentrating on the projects that strengthen our customer relationships, position us for future growth, and enhance our margins. Signed backlog at quarter end totaled $4.3 billion, up 116% year-over-year, and combined backlog increased 150% to reach $5.6 billion. In addition, we have visibility into high probability future phase opportunities that exceed $1.4 billion.

Together, our signed backlog, unsigned awards, and future phase opportunities provide visibility into a total addressable pool of work of more than $7 billion, an increase of more than $2.5 billion since year-end. The growth in our backlog and future phase work in the quarter, together with our visibility into customers' multi-year capital plans, further strengthens our confidence in our multi-year outlook. Now, I'd like to discuss our segment results for the quarter in more detail. In E-infrastructure, second quarter revenue grew 192%. Mission-critical activity, including work on data centers and semiconductor campuses, was the primary growth driver in the quarter. E-infrastructure adjusted operating income increased 148%, and adjusted operating margins remained strong at 24%. Margins continued to benefit from our strong execution on large, time-sensitive Mission-critical projects.

Revenue for our site development operations more than doubled on an organic basis, and adjusted operating margins expanded both year-over-year and sequentially. We saw robust growth across each of our geographies, with particular strength in our Rocky Mountain division, where revenue increased nearly 700%. We also saw strong increases in our Northeast business as work on our large semiconductor campus ramped up. CEC delivered 140% revenue growth compared to its prior year's second quarter, with margins strengthening both year-over-year and sequentially. The Texas market remains exceptionally strong. During the quarter, CEC secured several additional project wins, contributing to a $1.7 billion increase in its combined backlog since year-end 2025. Additionally, we're seeing continued success on winning projects where we are performing electrical and site work in an integrated manner. We continue to see tremendous opportunities ahead in both electrical and site development.

In aggregate, our E-infrastructure signed backlog, unsigned electrical awards, and future phase site development opportunities now exceed $6 billion, representing an increase of $2.7 billion since year-end. Mission-critical work, including data centers, large manufacturing projects, and semiconductor, represented more than 92% of E-infrastructure signed backlog at the end of the quarter. Future phase work is predominantly related to Mission-critical projects. Moving to Transportation Solutions, second quarter revenue declined 20%, reflecting our ongoing reallocation of resources from transportation projects to higher margin E-infrastructure projects. This shift is now taking place at an accelerated pace as activity on our E-infrastructure projects in the Rocky Mountain and Texas regions has increased. This was the first quarter that our Rocky Mountain operation generated more E-infrastructure revenue than transportation revenue. In addition, we are continuing to wind down our low bid, heavy highway work in Texas, which is nearing completion.

Transportation Solutions adjusted operating margins reached 19.5% in the quarter, up more than 500 basis points from the prior year period, and adjusted operating income grew 8%. The strength in margins and profitability was driven by our focus on pursuing the most attractive opportunities within the transportation market. We ended the quarter with Transportation Solutions backlog at $969 million, a 35% year-over-year increase. This primarily reflects the conversion of unsigned backlog to signed backlog. On a combined backlog basis, Transportation Solutions is up 8% from second quarter 2025 and is down 11% from year-end 2025. Shifting to Building Solutions, segment revenue declined 1% in the quarter, driven by relatively flat home builder activity and adjusted operating margins were 9.9%. We continue to anticipate that the residential market will face strong headwinds throughout 2026.

The strength of Sterling's diversified portfolio and strategy to focus on growth in high margin end markets enabled us to deliver another fantastic quarter. With that, I'd like to turn it over to Nick to give you more details on some of our financial metrics and 2026 guidance.

Nick? Thanks, Joe, good morning.

I'll begin with our consolidated backlog metrics. Our second quarter backlog totaled $4.3 billion, a 116% year-over-year increase. Backlog increased 50% year-over-year on an organic basis, despite the strong revenue burn in the quarter. Combined backlog of $5.6 billion increased 150%, or 36% on an organic basis. Second quarter 2026 book-to-burn ratios were 1.4x for backlog and 1.3x for combined backlog, exclusive of the impact of the StoneRidge acquisition. Turning to cash flow, cash flow from operating activities for the first half of 2026 was $328 million. We expect continued strength in operating cash flow for the full year. Cash flow used in investing activities included $70 million of CapEx.

Given the significant increase in our full year 2026 revenue expectation over the past six months and our visibility into future demand, we are increasing our CapEx guidance to $130 million to $140 million, which is a $30 million increase from prior guidance. These incremental investments in our fleet will drive productivity and expand capacity. First half 2026 cash flow from financing activities was a $48 million outflow, including share repurchases of $35 million at an average price of $511.18 per share. Remaining availability under the existing repurchase authorization was $339 million at the end of the quarter. We will remain opportunistic in our approach to share repurchases. Moving to our balance sheet, we ended the quarter with $464 million of cash and debt of $284 million, for a cash net of debt balance of $181 million.

On July 2nd, we closed on the extension and expansion of our revolving facilities to $1.5 billion and extended the maturity to July 2031. We used this facility to pay off our existing term loan.