strl-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐						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 INFRASTRUCTURE, INC.
(Exact name of registrant as specified in its charter)

Delaware			25-1655321
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1800 Hughes Landing Blvd. The Woodlands, Texas			77380
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (281) 214-0777


Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share	STRL	The NASDAQ Stock Market LLC
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þYes ¨ No


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

The number of shares outstanding of the registrant’s common stock as of May 3, 2024 – 30,863,541

STERLING INFRASTRUCTURE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


			Page
PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements			3

Statements of Operations			3



Balance Sheets			4

Statements of Cash Flows			5

Statements of Changes in Stockholders’ Equity			6

Notes to the Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19

Item 3. Quantitative and Qualitative Disclosures About Market Risk			24

Item 4. Controls and Procedures			25

PART II—OTHER INFORMATION

Item 1. Legal Proceedings			26

Item 1A. Risk Factors			26







Item 5. Other Information			26

Item 6. Exhibits			27

Signatures			28

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

STERLING INFRASTRUCTURE, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Revenues	$	440,360	$	403,579
Cost of revenues	(363,456)		(341,837)
Gross profit	76,904		61,742
General and administrative expense	(27,298)		(23,321)
Intangible asset amortization	(4,297)		(3,736)
Acquisition related costs	(36)		(190)
Other operating expense, net	(3,148)		(1,868)
Operating income	42,125		32,627
Interest income	5,902		1,974
Interest expense	(6,664)		(7,528)

Income before income taxes	41,363		27,073
Income tax expense	(7,604)		(7,033)
Net income, including noncontrolling interests	33,759		20,040
Less: Net income attributable to noncontrolling interests	(2,711)		(391)
Net income attributable to Sterling common stockholders	$	31,048	$	19,649

Net income per share attributable to Sterling common stockholders:
Basic	$	1.00	$	0.64
Diluted	$	1.00	$	0.64

Weighted average common shares outstanding:
Basic	30,977		30,618
Diluted	31,186		30,789

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING INFRASTRUCTURE, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


	March 31,		December 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents ($45,405 and $24,325 related to variable interest entities (“VIEs”))	$	480,414	$	471,563
Accounts receivable ($10,240 and $1,771 related to VIEs)	274,010		252,435
Contract assets	88,329		88,600
Receivables from and equity in construction joint ventures	18,222		17,506
Other current assets	17,883		17,875
Total current assets	878,858		847,979
Property and equipment, net	258,802		243,648
Operating lease right-of-use assets, net	55,169		57,235
Goodwill	281,363		281,117
Other intangibles, net	324,100		328,397

Other non-current assets, net	19,204		18,808
Total assets	$	1,817,496	$	1,777,184

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ($11,357 and $2,973 related to VIEs)	$	135,426	$	145,968
Contract liabilities ($27,745 and $15,741 related to VIEs)	485,049		444,160
Current maturities of long-term debt	26,469		26,520
Current portion of long-term lease obligations	19,143		19,641
Accrued compensation	19,831		27,758
Other current liabilities	19,799		14,121
Total current liabilities	705,717		678,168
Long-term debt	308,721		314,996
Long-term lease obligations	36,180		37,722
Members’ interest subject to mandatory redemption and undistributed earnings	19,097		29,108
Deferred tax liability, net	78,303		76,764
Other long-term liabilities	17,261		16,573
Total liabilities	1,165,279		1,153,331
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, par value $0.01 per share; 58,000 shares authorized, 31,160 and 30,926 shares issued and outstanding	311		309
Additional paid in capital	288,173		293,570

Retained earnings	356,082		325,034

Total Sterling stockholders’ equity	644,566		618,913
Noncontrolling interests	7,651		4,940
Total stockholders’ equity	652,217		623,853
Total liabilities and stockholders’ equity	$	1,817,496	$	1,777,184

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING INFRASTRUCTURE, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net income	$	33,759	$	20,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,258		13,692
Amortization of debt issuance costs and non-cash interest	305		422
Gain on disposal of property and equipment	(585)		(1,672)


Deferred taxes	1,517		2,728
Stock-based compensation	4,586		3,240

Changes in operating assets and liabilities (Note 14)	(6,249)		10,608
Net cash provided by operating activities	49,591		49,058
Cash flows from investing activities:
Acquisitions, net of cash acquired	(1,016)		—
Disposition proceeds	—		14,000
Capital expenditures	(22,432)		(14,221)
Proceeds from sale of property and equipment	2,401		6,726
Net cash (used in) provided by investing activities	(21,047)		6,505
Cash flows from financing activities:
Repayments of debt	(6,678)		(30,843)

Withholding taxes paid on net share settlement of equity awards	(13,015)		(4,288)

Net cash used in financing activities	(19,693)		(35,131)
Net change in cash, cash equivalents, and restricted cash	8,851		20,432
Cash, cash equivalents and restricted cash at beginning of period	471,563		185,265
Cash, cash equivalents and restricted cash at end of period	480,414		205,697
Less: restricted cash	—		(3,121)

Cash and cash equivalents at end of period	$	480,414	$	202,576

Non-cash items:
Capital expenditures	$	6,499	$	998

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING INFRASTRUCTURE, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Three Months Ended March 31, 2024
	Common Stock			Additional Paid in Capital		Retained Earnings			Total Sterling Stockholders’ Equity	Noncontrolling Interests		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2023	30,926	$	309	$	293,570		$	325,034		$	618,913	$	4,940	$	623,853
Net income	—	—		—			31,048			31,048		2,711		33,759
Stock-based compensation	—	—		7,248			—			7,248		—		7,248

Issuance of stock	358	2		370			—			372		—		372
Shares withheld for taxes	(124)	—		(13,015)			—			(13,015)		—		(13,015)

Balance at March 31, 2024	31,160	$	311	$	288,173		$	356,082		$	644,566	$	7,651	$	652,217


	Three Months Ended March 31, 2023
	Common Stock			Additional Paid in Capital		Retained Earnings		Total Sterling Stockholders’ Equity		Noncontrolling Interests		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	30,585	$	306	$	287,914	$	186,379	$	474,599	$	3,200	$	477,799
Net income	—	—		—		19,649		19,649		391		20,040
Stock-based compensation	—	—		4,486		—		4,486		—		4,486
Issuance of stock	316	2		216		—		218		—		218
Shares withheld for taxes	(111)	—		(4,288)		—		(4,288)		—		(4,288)
Balance at March 31, 2023	30,790	$	308	$	288,328	206,028		$	494,664	$	3,591	$	498,255

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING INFRASTRUCTURE, INC. & SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

($ and share values in thousands, except per share data)

(Unaudited)


1.			NATURE OF OPERATIONS

Business Summary

Sterling Infrastructure, Inc., (“Sterling,” “the Company,” “we,” “our” or “us”), a Delaware corporation, operates through a variety of subsidiaries within three segments specializing in E-Infrastructure, Transportation and Building Solutions in the United States, primarily across the Southern, Northeastern, Mid-Atlantic and Rocky Mountain regions and the Pacific Islands. E-Infrastructure Solutions provides advanced, large-scale site development services for manufacturing, data centers, e-commerce distribution centers, warehousing, power generation and more. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, rail and storm drainage systems. Building Solutions includes residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs, other concrete work, and plumbing services for new single-family residential builds. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society’s quality of life. Caring for our people and our communities, our customers and our investors – that is The Sterling Way.


2.			BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Presentation Basis—The accompanying Condensed Consolidated Financial Statements are presented in accordance with accounting policies generally accepted in the United States (“GAAP”) and reflect all wholly owned subsidiaries and those entities the Company is required to consolidate. See the “Consolidated 50% Owned Subsidiary” section of this Note and Note 5 - Construction Joint Ventures for further discussion of the Company’s consolidation policy for those entities that are not wholly owned. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Values presented within the Notes (excluding per share data) are in thousands.

Estimates and Judgments—The preparation of the accompanying Condensed Consolidated Financial Statements in conformance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting estimates of the Company require a higher degree of judgment than others in their application. These include the recognition of revenue and earnings from construction contracts over time, the valuation of long-lived assets, goodwill and purchase accounting estimates. Management continually evaluates all of its estimates and judgments based on available information and experience; however, actual results could differ from these estimates.

Significant Accounting Policies

Consistent with Regulation S-X Rule 10-1(a), the Company has omitted significant accounting policies in this quarterly report that would duplicate the disclosures contained in the Company’s annual report on Form 10-K for the year ended December 31, 2023 under “Part II, Item 8. - Notes to Consolidated Financial Statements.” This quarterly report should be read in conjunction with the Company’s most recent annual report on Form 10-K.

Accounts Receivable—Receivables are generally based on amounts billed to the customer in accordance with contractual provisions. Receivables are written off based on the individual credit evaluation and specific circumstances of the customer, when such treatment is warranted. The Company performs a review of outstanding receivables, historical collection information and existing economic conditions to determine if there are potential uncollectible receivables. At March 31, 2024 and December 31, 2023, our allowance for our estimate of expected credit losses was zero.

Contracts in Progress—For performance obligations satisfied over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Typically, Sterling bills for advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. However, the Company occasionally bills subsequent to revenue recognition, resulting in contract assets.

Many of the contracts under which the Company performs work also contain retainage provisions. Retainage refers to that portion of our billings held for payment by the customer pending satisfactory completion of the project. Unless reserved, the Company assumes that all amounts retained by customers under such provisions are fully collectible. At March 31, 2024 and December 31, 2023, contract assets included $59,273 and $56,855 of retainage, respectively, and contract liabilities included $79,077 and $86,895 of retainage, respectively. Retainage on active contracts is classified as current regardless of the term of the contract and is generally collected within one year of the completion of a contract. We anticipate collecting approximately 70% of our March 31, 2024 retainage during the next twelve months, and the balance thereafter. These assets and liabilities are reported on the Condensed Consolidated Balance Sheet within “Contract assets” and “Contract liabilities” on a contract-by-contract basis at the end of each reporting period.

Contract assets decreased by $271 compared to December 31, 2023, primarily due to lower unbilled revenue, partly offset by an increase in retainage. Contract liabilities increased by $40,889 compared to December 31, 2023, due to the timing of advance billings and work progression and due to a decrease in retainage. Revenue recognized for the three months ended March 31, 2024 that was included in the contract liability balance on December 31, 2023 was $148,951. Revenue recognized for the three months ended March 31, 2023 that was included in the contract liability balance on December 31, 2022 was $97,830.

Consolidated 50% Owned Subsidiary—The Company has a 50% ownership interest in a subsidiary that it fully consolidates as a result of its exercise of control of the entity. The results attributable to the 50% portion that the Company does not own is eliminated within “Other operating expense, net” within the Consolidated Statements of Operations and an associated liability is established within “Members’ interest subject to mandatory redemption and undistributed earnings” within the Consolidated Balance Sheets. The subsidiary also has a mandatory redemption provision which, under circumstances that are certain to occur, obligates the Company to purchase the remaining 50% interest. The purchase obligation is also recorded in “Members’ interest subject to mandatory redemption and undistributed earnings” on the Condensed Consolidated Balance Sheets.

Cash, Cash Equivalents and Restricted Cash—Our cash and cash equivalents are comprised of highly liquid investments with maturities of three months or less. The Company maintains its cash and cash equivalents at major financial institutions. The cash and cash equivalents balance at one or more of these financial institutions exceeds the Federal Depository Insurance Corporation (“FDIC”) insurance coverage. The Company periodically assesses the credit risk associated with these financial institutions and believes that the risk of loss is minimal. There was no restricted cash included in “Other current assets” on the Condensed Consolidated Balance Sheets at March 31, 2024 and December 31, 2023, respectively. Restricted cash primarily represents cash deposited by the Company into separate accounts and designated as collateral for standby letters of credit in the same amount in accordance with contractual agreements.

New Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting - Improvements to Reportable Segment Disclosures” which requires companies to disclose significant segment expense categories and amounts for each reportable segment. A significant segment expense is an expense that is significant to the segment, regularly provided to or easily computed from information regularly provided to the Chief Operating Decision Maker (“CODM”), and included in the reported measure of segment profit or loss. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. This ASU affects financial statement disclosure only, and its adoption will not affect our results of operations or financial position.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosure” which requires companies to disclose disaggregated information about a reporting entity’s effective tax rate reconciliation, using both percentages and reporting currency amounts for specific standardized categories. Separate disclosures will be required for any reconciling items that are equal to or greater than a specified quantitative threshold. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. This ASU affects financial statement disclosure only, and its adoption will not affect our results of operations or financial position.


3.			ACQUISITIONS

PPG Acquisition

On November 16, 2023, Sterling acquired Professional Plumbers Group, Incorporated (“PPG”) (the “PPG Acquisition”). PPG provides all the major plumbing phases for new residential builds, expanding Sterling’s suite of residential services in the Dallas-Fort Worth market. The PPG Acquisition is accounted for using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. The results of PPG are included within our Building Solutions segment.

Purchase Consideration—Sterling completed the PPG Acquisition for a purchase price of $56,693, net of cash acquired, detailed as follows:


Cash consideration transferred, net of cash acquired	$	50,002
Earn-out (1)	4,500
Target working capital adjustment	2,191
Total fair value of consideration	$	56,693

(1) The earn-out arrangement requires the Company to pay up to $20,000 based upon PPG’s achievement of certain cumulative EBITDA targets for a three year period ending on December 31, 2026. No payment shall be made if the cumulative EBITDA targets are not achieved.

Preliminary Purchase Price Allocation—The aggregate purchase price noted above was allocated to the assets and liabilities acquired based upon their estimated fair values at the acquisition closing date, which were based, in part, upon a preliminary external appraisal and valuation of certain assets, including specifically identified intangible assets. The excess of the fair value of consideration over the preliminary estimated fair value of the net tangible and identifiable intangible assets acquired totaling $18,671 was recorded as goodwill. This goodwill represents the value of expected future earnings and cash flows, as well as the synergies created by the integration of the new business within our organization, including cross-selling opportunities to help strengthen our existing service offerings and expand our market position. The goodwill and intangibles related to the acquisition are not expected to be deductible for tax purposes.

The following table summarizes our preliminary purchase price allocation at the acquisition closing date, net of cash acquired:


Net tangible assets:
Accounts receivable	$	2,588

Other current assets	1,460
Property and equipment, net	1,679
Other non-current assets, net	2,394
Accounts payable	(1,268)

Deferred tax liability	(10,525)
Other current and non-current liabilities	(2,806)
Total net tangible liabilities	(6,478)
Identifiable intangible assets	44,500
Goodwill	18,671
Total fair value of consideration transferred	$	56,693

During the three months ended March 31, 2024, the total consideration and purchase price allocation changed by $38, primarily due to the finalization of the working capital adjustment. The purchase price allocation above is subject to further change when additional information is obtained. We have not finalized our assessment of the fair values primarily for intangible assets and property and equipment. We intend to finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the PPG Acquisition. Our final purchase price allocation may result in additional adjustments to various other assets and liabilities, including the residual amount allocated to goodwill during the measurement period.

Identifiable Intangible Assets—Intangible assets identified as part of the PPG Acquisition are reflected in the table below and are recorded at their estimated fair value, as determined by the Company’s management, based on available information which includes a valuation from external experts. The estimated useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.


	Weighted Average Life (Years)	November 16, 2023 Fair Value
Customer relationships	20	$	43,400
Trade names	15	1,100
Total		$	44,500

Supplemental Pro Forma Information (Unaudited)—The following unaudited pro forma combined financial information (“the pro forma financial information”) gives effect to the PPG Acquisition, accounted for as a business combination using the acquisition method of accounting. The pro forma financial information reflects the PPG Acquisition and related events as if they occurred at the beginning of the period and includes adjustments to (1) include additional intangible asset amortization associated with the PPG Acquisition, (2) include additional depreciation, G&A and tax expense, and (3) include the pro forma results of PPG for the period ended March 31, 2023. This pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the dates indicated. Further, the pro forma financial information does not purport to project the future operating results of the combined company following the PPG Acquisition.


	Three Months Ended
	March 31, 2023
Pro forma revenue	$	416,383
Pro forma net income	$	21,521


4.			REVENUE FROM CUSTOMERS

Remaining Performance Obligations (“RPOs”)—RPOs represent the aggregate amount of our contract transaction price related to performance obligations that are unsatisfied or partially satisfied at the end of the period. RPOs include the entire expected revenue values for joint ventures we consolidate and our proportionate value for those we proportionately consolidate. RPOs may not be indicative of future operating results. Projects included in RPOs may be canceled or modified by customers; however, the customer would be obligated to compensate the Company for additional contractual costs for cancellation or modifications. The following table presents the Company’s RPOs, by segment:


	March 31, 2024		December 31, 2023
E-Infrastructure Solutions RPOs	$	961,035	$	813,729
Transportation Solutions RPOs	1,305,381		1,184,496
Building Solutions RPOs - Commercial	85,710		68,791
Total RPOs	$	2,352,126	$	2,067,016

The Company expects to recognize approximately 65% of its RPOs as revenue during the next twelve months, and the balance thereafter.

Revenue Disaggregation—The following tables present the Company’s revenue disaggregated by major end market and contract type:


	Three Months Ended March 31,
Revenues by major end market	2024		2023
E-Infrastructure Solutions Revenues	$	184,476	$	205,840

Heavy Highway	93,377		67,266
Aviation	18,140		13,436
Other Services	37,452		30,437
Transportation Solutions Revenues	148,969		111,139

Residential	83,769		53,714
Commercial	23,146		32,886
Building Solutions Revenues	106,915		86,600
Total Revenues	$	440,360	$	403,579

Revenues by contract type
Lump-Sum	$	224,161	$	112,863
Fixed-Unit Price	130,861		236,699
Residential and Other	85,338		54,017
Total Revenues	$	440,360	$	403,579

Variable Consideration

The Company has projects that it is in the process of negotiating, or awaiting final approval of, unapproved change orders and claims with its customers. The Company is proceeding with its contractual rights to recoup additional costs incurred from its customers based on completing work associated with change orders, including change orders with pending change order pricing, or claims related to significant changes in scope which resulted in substantial delays and additional costs in completing the work. Unapproved change order and claim information has been provided to the Company’s customers and negotiations with the customers are ongoing. If additional progress with an acceptable resolution is not reached, legal action will be taken. Based upon the Company’s review of the provisions of its contracts, specific costs incurred and other related evidence supporting the unapproved change orders and claims, together in some cases as necessary with the views of the Company’s outside claim consultants, the Company concluded it was appropriate to include in project price amounts of $5,525 and $5,225, at March 31, 2024 and December 31, 2023, respectively, relating to unapproved change orders and claims. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Contract Estimates

Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes such profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials and the performance of subcontractors. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Changes in contract estimates resulted in net increases of $21,528 and $8,613 for the three months ended March 31, 2024 and 2023, respectively, and are included in “Operating income” on the Condensed Consolidated Statements of Operations.


5.			CONSTRUCTION JOINT VENTURES

Joint Ventures with a Controlling Interest—We consolidate any venture that is determined to be a VIE for which we are the primary beneficiary, or which we otherwise effectively control. The equity held by the remaining owners and their portions of net income (loss) are reflected in stockholders’ equity on the Condensed Consolidated Balance Sheets line item “Noncontrolling interests” and in the Condensed Consolidated Statements of Operations line item “Net income attributable to noncontrolling interests,” respectively.

Summary VIE financial information is as follows:


	Three Months Ended March 31,
	2024		2023
Revenues	$	28,625	$	8,544
Operating income	$	5,250	$	576
Net income	$	5,772	$	720

Joint Ventures with a Noncontrolling Interest—The Company accounts for unconsolidated joint ventures using a pro-rata basis in the Condensed Consolidated Statements of Operations and as a single line item (“Receivables from and equity in construction joint ventures”) in the Condensed Consolidated Balance Sheets. This method is a permissible modification of the equity method of accounting which is a common practice in the construction industry. Combined financial amounts of joint ventures in which the Company has a noncontrolling interest and the Company’s share of such amounts which are included in the Company’s Condensed Consolidated Financial Statements are shown below:


	March 31, 2024		December 31, 2023
Current assets	$	80,310	$	51,604
Current liabilities	$	(37,243)	$	(10,081)
Sterling’s receivables from and equity in construction joint ventures	$	18,222	$	17,506


	Three Months Ended March 31,
	2024		2023
Revenues	$	13,281	$	12,253
Income before tax	$	1,622	$	2,108
Sterling’s noncontrolling interest:
Revenues	$	6,413	$	4,900
Income before tax	$	747	$	860

The caption “Receivables from and equity in construction joint ventures” includes undistributed earnings and receivables owed to the Company. Undistributed earnings are typically released to the joint venture partners after the customer accepts the project as completed and the warranty period, if any, has passed.

Other—The use of joint ventures exposes us to a number of risks, including the risk that our partners may be unable or unwilling to provide their share of capital investment to fund the operations of the venture or complete their obligations to us, the venture, or ultimately, the customer. Differences in opinions or views among joint venture partners could also result in delayed decision-making or failure to agree on material issues, which could adversely affect the business and operations of the joint venture. In addition, agreement terms may subject us to joint and several liability for our venture partners, and the failure of our venture partners to perform their obligations could impose additional performance and financial obligations on us. The aforementioned factors could result in unanticipated costs to complete the projects, liquidated damages or contract disputes, including claims against our partners.


6.			PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:


	March 31, 2024		December 31, 2023
Construction and transportation equipment	$	429,468	$	405,242
Buildings and improvements	21,345		21,325
Land	3,054		3,054
Office equipment	4,023		4,023
Total property and equipment	457,890		433,644
Less accumulated depreciation	(199,088)		(189,996)
Total property and equipment, net	$	258,802	$	243,648

Depreciation Expense—Depreciation expense is primarily included within cost of revenues and was $11,961 and $9,956 for the three months ended March 31, 2024 and 2023, respectively.


7.			OTHER INTANGIBLE ASSETS

The following table presents our acquired finite-lived intangible assets, including the weighted-average useful lives for each major intangible asset category and in total:


		March 31, 2024				December 31, 2023
	Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	24	$	328,323	$	(53,002)	$	328,323	$	(49,431)
Trade names	24	58,707		(10,128)		58,707		(9,519)
Non-compete agreements	5	2,487		(2,287)		2,487		(2,170)
Total	24	$	389,517	$	(65,417)	$	389,517	$	(61,120)

The Company’s intangible amortization expense was $4,297 and $3,736 for the three months ended March 31, 2024 and 2023, respectively.


8.			DEBT

The Company’s outstanding debt was as follows:


	March 31, 2024		December 31, 2023
Term Loan Facility	$	336,875	$	343,438
Revolving Credit Facility	—		—
Credit Facility	336,875		343,438
Other debt	727		843
Total debt	337,602		344,281
Less - Current maturities of long-term debt	(26,469)		(26,520)
Less - Unamortized debt issuance costs	(2,412)		(2,765)
Total long-term debt	$	308,721	$	314,996

Credit Facility—Our amended credit agreement (as amended, the “Credit Agreement”) provides the Company with senior secured debt financing consisting of the following (collectively, the “Credit Facility”): (i) a senior secured first lien term loan facility (the “Term Loan Facility”) in the aggregate principal amount of $350,000 and (ii) a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $75,000 (with a $75,000 limit for the issuance of letters of credit and a $15,000 sublimit for swing line loans). The obligations under the Credit Facility are secured by substantially all assets of the Company and the subsidiary guarantors, subject to certain permitted liens and interests of other parties. The Credit Facility will mature on April 2, 2026.

As specified in the Credit Agreement, the Term Loan Facility bears interest at either the base rate plus a margin, or at a one-, three- or six-month Term SOFR rate plus a margin, at the Company’s election. At March 31, 2024, the Company calculated interest using a Term SOFR rate of 5.43% and an applicable margin of 1.50% per annum, and had a weighted

average interest rate of approximately 6.94% per annum during the three months ended March 31, 2024. Scheduled principal payments on the Term Loan Facility are made quarterly and total approximately $26,300, $26,300 and $6,600 for the years ending 2024, 2025 and 2026, respectively. A final payment of all principal and interest then outstanding on the Term Loan Facility is due on April 2, 2026. For the three months ended March 31, 2024, the Company made scheduled Term Loan Facility payments of $6,563.

The Revolving Credit Facility bears interest at the same rate options as the Term Loan Facility. In addition to interest on debt borrowings, we are assessed quarterly commitment fees on the unutilized portion of the facility as well as letter of credit fees on outstanding instruments. At March 31, 2024, we had no outstanding borrowings under the $75,000 Revolving Credit Facility.

Debt Issuance Costs—The costs associated with the Credit Facility are reflected on the Condensed Consolidated Balance Sheets as a direct reduction from the related debt liability and amortized over the term of the facility. Amortization of debt issuance costs was $353 and $579 for the three months ended March 31, 2024 and 2023, respectively, and was recorded within interest expense.

Compliance and Other—The Credit Agreement contains various affirmative and negative covenants that may, subject to certain exceptions, restrict our ability and the ability of our subsidiaries to, among other things, grant liens, incur additional indebtedness, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, purchase, redeem or otherwise acquire or retire capital stock or other equity interests, or merge or consolidate with any other person, among various other things. In addition, the Company is required to maintain certain financial covenants. As of March 31, 2024, we were in compliance with all of our restrictive and financial covenants. The Company’s debt is recorded at its carrying amount in the Condensed Consolidated Balance Sheets. Based upon the current market rates for debt with similar credit risk and maturities, at March 31, 2024 and December 31, 2023, the fair value of our debt outstanding approximated the carrying value, as interest is based on Term SOFR plus an applicable margin.


9.			LEASE OBLIGATIONS

The Company has operating and finance leases primarily for construction and transportation equipment, as well as office space. The Company’s leases have remaining lease terms of one month to nine years, some of which include options to extend the leases for up to ten years.

The components of lease expense are as follows:


	Three Months Ended March 31,
	2024		2023
Operating lease cost	$	5,691	$	4,954
Short-term lease cost	$	4,184	$	4,375

Finance lease cost:
Amortization of right-of-use assets	$	67	$	37
Interest on lease liabilities	11		2
Total finance lease cost	$	78	$	39

Supplemental cash flow information related to leases is as follows:


	Three Months Ended March 31,
Cash paid for amounts included in the measurement of lease liabilities:	2024		2023

Operating cash flows from operating leases	$	5,335	$	4,788
Operating cash flows from finance leases	$	11	$	2
Financing cash flows from finance leases	$	67	$	37

Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	$	2,339	$	6,956
Finance leases	$	—	$	—

Supplemental balance sheet information related to leases is as follows:



Operating Leases	March 31, 2024			December 31, 2023
Operating lease right-of-use assets	$	55,169		$	57,235

Current portion of long-term lease obligations	$	19,143		$	19,641
Long-term lease obligations	36,180			37,722
Total operating lease liabilities	$	55,323		$	57,363
Finance Leases
Property and equipment, at cost	$	2,011		$	2,011
Accumulated depreciation	(1,286)			(1,232)
Property and equipment, net	$	725		$	779

Current maturities of long-term debt	$	159		$	195
Long-term debt	468			498
Total finance lease liabilities	$	627		$	693
Weighted Average Remaining Lease Term
Operating leases	3.7			3.7
Finance leases	4.1			4.4
Weighted Average Discount Rate
Operating leases	5.8		%	5.8		%
Finance leases	6.8		%	6.6		%

Maturities of lease liabilities are as follows:


Year Ending December 31,	Operating Leases		Finance Leases

2024 (excluding the three months ended March 31, 2024)	$	16,773	$	157
2025	19,813		157
2026	13,403		158
2027	3,638		158
2028	1,742		92
2029	1,775		—

SEC Form 10-Q filed by Sterling Infrastructure Inc.