Sterling Infrastructure, Inc. (STRL) reported a record-breaking third-quarter in 2024, with CEO Joe Cutillo announcing a significant year-over-year increase in earnings per share, operating income, and gross profit margin. The company's revenue grew by 6%, while the earnings per share soared by 56% to $1.97. The e-infrastructure segment stood out with a 90% surge in data center revenues, contributing to an 89% growth in operating profit.
Despite a decline in the residential concrete slab business affecting the building solutions segment, Sterling Infrastructure's overall financial position remains strong, with a solid backlog and a net cash position that supports potential acquisitions.
Key Takeaways
- Earnings per share increased by 56% year-over-year to $1.97.
- Gross profit margin reached 22%, with a 50% rise in operating income.
- Revenue growth was reported at 6%, with a quarter-end backlog of $2.1 billion.
- The e-infrastructure segment saw a significant 90% increase in data center revenues.
- Transportation solutions revenue grew by 18%, with a robust backlog of $1.4 billion.
- Building solutions faced a 10% revenue decline due to a slowdown in the Dallas market.
- Operating cash flow stood at $152 million, with a net cash position of $326 million.
- Updated financial guidance for 2024 includes revenue expectations of $2.15 billion to $2.175 billion and net income of $180 million to $185 million.
Company Outlook
- Sterling anticipates steady growth from mid to large-sized onshoring manufacturing projects.
- Mega projects, particularly semiconductor facilities, are projected to increase for 2026 and 2027.
- Positive signs for the e-commerce and small warehouse markets are expected in 2025.
- The company is focusing on strategic acquisitions, especially in the e-infrastructure market.
Bearish Highlights
- The building solutions segment experienced a 10% revenue decline, influenced by a 29% drop in residential concrete slab business.
- E-commerce and small warehouse markets may remain subdued through 2024.
Bullish Highlights
- Strong demand for e-infrastructure solutions, particularly data centers, is expected to continue.
- Federal funding and elevated activity levels are anticipated to drive strong revenue growth in transportation solutions.
- The building solutions sector is positioned for growth in Dallas, Houston, and Phoenix.
Misses
- The company reported a decline in the building solutions segment, particularly in residential concrete slab business.
Q&A Highlights
- Joe Cutillo discussed the strong pipeline of future work, particularly in data centers and transportation projects.
- Efficiency gains from larger projects and the use of technology such as drones were highlighted.
- The company expects to maintain strong cash flow levels, supported by favorable contract terms.
Sterling Infrastructure's CEO, Joe Cutillo, provided an optimistic view of the company's future during the 3Q 2024 earnings call. The initiation of Amazon (NASDAQ:AMZN)'s first distribution center project, valued at approximately $17 million, and a potential increase in the project pipeline to over $1 billion by mid-2024, particularly in e-infrastructure and data centers, were key points of discussion. Despite the appearance of a flat backlog, Cutillo emphasized real growth and pointed to over $0.5 billion in upcoming transportation projects. The company's strategic focus on larger and more efficient projects, enhanced by technology such as drones, is expected to bolster its position in the market. Sterling Infrastructure's strong cash flow performance, aligned with operating income, and the pursuit of strategic acquisitions, particularly in the e-infrastructure market, underscore the company's robust outlook for growth and profitability.
InvestingPro Insights
Sterling Infrastructure's (STRL) impressive third-quarter performance in 2024 is further supported by real-time data from InvestingPro. The company's market capitalization stands at $5.39 billion, reflecting its significant presence in the infrastructure sector.
One of the most striking InvestingPro Tips is that Sterling has delivered a remarkable 165.11% price total return over the past year. This aligns perfectly with the company's reported record-breaking quarter and substantial year-over-year increases in earnings per share and operating income.
Additionally, InvestingPro data shows that Sterling's stock is trading near its 52-week high, with its current price at 98.92% of the peak. This metric underscores the market's positive reception of Sterling's strong financial performance and optimistic outlook.
The company's operating income margin of 12.31% for the last twelve months as of Q3 2024 corroborates the reported increase in gross profit margin to 22% in the latest quarter. This improvement in profitability is a key factor contributing to Sterling's robust financial position.
It's worth noting that InvestingPro offers 12 additional tips for Sterling Infrastructure, providing investors with a comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable for those looking to make informed investment decisions in the infrastructure sector.
Full transcript - Sterling Construction Company Inc (NASDAQ:STRL) Q3 2024:
Operator: Welcome to Sterling Infrastructure 3Q '24, webcast and conference call. [Operator Instructions]. I would now like to turn the conference over to Noelle Dilts. Please go ahead.
Noelle Dilts: Thank you. Good morning to everyone joining us, and welcome to Sterling Infrastructure's 2024 third quarter earnings conference call and webcast. I'm pleased to be here today to discuss our results with Joe Cutillo, Sterling's Chief Executive Officer and Sharon Villaverde, Sterling's Chief Financial Officer. Joe will open the call with an overview of the company and its performance in the quarter. Sharon will then discuss our financial results and guidance, after which Joe will provide a market and full year outlook. We will then open the call up for questions. As a reminder, there are accompanying slides on the investor relations section of our website. These slides include details on our updated 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 10K and 10Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligations 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 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 in our earnings release issued yesterday afternoon. Now I'll turn the call over to our CEO, Joe Cutillo,
Joe Cutillo: Thanks Noelle. Good morning everyone, and thank you for joining Sterling's third quarter 2024 earnings call. I'd like to start by thanking our teams for delivering another record quarter to our shareholders. For the quarter, we delivered $1.97 of earnings per share up 56% over prior year. Our gross profit margin reached 22% reflecting our continued focus on the most attractive and highest return opportunities. We grew operating income by over 50% on revenue growth of 6% as we continue to shift our mix towards higher margin services. Backlog at the end of the quarter totaled $2.1 billion an increase of 2% over the prior year. The buying backlog was $2.37 billion relatively flat with the prior year period. Backlog alone does not capture the magnitude of opportunity ahead of us. As our work shifts towards large, multi-phase projects in both transportation and e-infrastructure. We have greater visibility into future phases of work. Our historical award rate for these additional phases is near 100%. Our pipeline of high probability work remains at over a $0.5 billion dollars. In addition in our e-infrastructure segment, our line of sight in the jobs being awarded in the fourth quarter and the first quarter makes us confident both our backlog and future phase pipeline will grow significantly into 2025. The bottom line is we are seeing strong tailwinds across our markets and have excellent visibility for multiple years ahead. Shifting to our balance sheet, we had another great cash generation quarter with operating cash flow of $152 million. Our net cash position is now $326 million and we are in great shape to pursue acquisitions that will build upon our strong platform and accelerate growth. The Sterling way continues to guide us as we grow and expand our company. This is our commitment to take care of our people, our environment, our investors and our communities while we build America's infrastructure. Now I'd like to discuss our results for the third quarter of 2024. In e-infrastructure our largest and highest margin segment, revenue increased 4% and operating profit grew 89%. Operating margins expanded over 1100 basis points to reach a very strong 25.8%, this exceptional margin expansion reflects our continued focus on large mission critical projects and excellent execution. The Data Center market was the primary driver of e-infrastructure revenue growth in the quarter. As revenue from this market increased 90% over the prior year period. Data center work now represents over 50% of our e-infrastructure backlog. The strength in data centers more than offset challenging revenue comparison in the manufacturing market. While the small project market remained below prior year levels. We did see some nice sequential improvement in the quarter. E-infrastructure awards were $314 million driving backlog to $919 million up 3% from the prior year period and an increase of 13% from the beginning of the year, The data center market was again the largest driver of awards. As customers are racing to build the capacity needed for technology advancements, including AI. We continue to lever our resources across the business segments to expand e-infrastructure into the Rocky Mountain region, where we now have multiple data center projects. As our work continues to shift towards large, multi-phase projects, our pipeline of high probability future work has expanded, providing strong visibility into 2025 and 2026. Moving to transportation solutions, revenue increased 18% and operating profit grew 28%. Margins expanded 67 basis points from the prior year to reach 8.2%, our markets are the strongest we have seen in our company's history, and margin opportunities are very attractive. We ended the quarter with transportation solutions combined backlog of $1.4 billion approximately flat with the prior year period. Third quarter awards for transportation solutions were $150 million and unsigned awards totaled $308 million. In addition, we continue to work through the initial design phase of multiple large progressive design build highway projects. The design work and backlog represents only a fraction of the anticipated total value of the projects. Moving to building solutions. Total (EPA:TTEF) segment revenue declined 10% the quarter and operating income declined 12% results varied across our markets and our geographies. Revenue from our residential concrete slab business declined 29% driven primarily by softness in the Dallas market. Affordability remains challenging, and home builders believe that the potential for additional rate cuts may be keeping buyers on the sidelines. However, the builders are bullish regarding a significant rebound in 2025 PPG (WA:IBSP) continues to generate strong margins, but also saw some revenue softness in the quarter related to the Dallas slowdown. Building Solutions operating margin of 11% were slightly below prior year levels. As a reminder, we were able to quickly adjust the cost structure in this business to match demand. We remain very bullish on the long term demand dynamics in our key residential markets, and anticipate strengthening as we move into 2025. With that, I'd like to turn it over to Sharon to give you more details on the quarter and our full year guidance. Sharon.
Sharon Villaverde: Thanks, Joe, and good morning. I'd like to take you through some of the details of our financial results, beginning with our backlog metrics. Our third quarter backlog totaled $2.06 billion, a 2.2% increase over the year ago period. The gross margin of this backlog was 16.8% 170 basis point improvement from the same quarter last year, a higher level of e-infrastructure backlog margin and an increase of both the amount of transportation backlog and its backlog margin drove this improvement. Unsigned awards totaled $319.6 million in the quarter. We closed the quarter with combined backlog of $2.37 billion, which was in line with prior year levels. Third quarter 2024, book to burn ratios were 0.92 times for backlog and 0.86 times for combined backlog. Award timing is inherently lumpy in our business and is best viewed over a multi quarter period. Year to date, book to burn, ratios were 0.99 for backlog and 1.0 times for combined backlog. Turning to our third quarter income statement, revenue was 593.7 million, an increase of 6% over the prior year quarter. Current quarter, consolidated gross profit was 129.8 million, an increase of 41.3% over the 2023 period. Gross margin increased to 21.9%, a 550 basis point improvement over the third quarter of 2023. This margin increase reflects improvements in e-infrastructure and transportation. General and administrative expense was 5.2% of revenue in the quarter, which was consistent with our expectations. Operating income for the third quarter was $87.5 million, a 53.1% increase over the prior year quarter. Our operating margin increased 454 basis points to 14.7%. Our effective income tax rate for the third quarter was 26.4%. We expect our full year effective income tax rate to be approximately 24%. The net effect of these items resulted in a record third quarter with net income of $61.3 million, or $1.97 per diluted share, an improvement of 55.8% and 56.3% respectively compared to the third quarter of 2023. Third quarter EBITDA totaled $100.8 million, an increase of 41.5% over the prior year quarter. EBITDA margin improved to 17% up from 12.7% in the prior year quarter. Cash flow from operating activities for the first nine months of 2024, was a strong $322.8 million compared to $331.2 million in the prior year period. Cash flow used in investing activities for the first nine months of 2024 included $57.5 million of net CapEx. As a result of the significant growth in our transportation segment, we are raising our expected net CapEx for the year to $65 million to 70 million. Year to date, cash flow from financing activities was an $84 million outflow, primarily driven by share repurchases of $50.6 million at an average price of $103.90 per share. $20.5 million was used in the quarter to purchase roughly 188,000 shares at an average price of $108.99. $149.4 million remains available under the existing repurchase authorization. We ended the quarter with a very strong liquidity position, consisting of $648.1 million of cash and debt of $322.6 million for a cash net of debt balance of $325.5 million. In addition, our $75 million revolving credit facility remained unused during the period. With our strong year to date results and significant opportunities in each of our operating segments, we are updating our financial guidance for the year. Our updated guidance ranges are as follows, revenue of $2.15 billion to $2.175 billion. Gross profit margin of 19% to 20%, net income of $180 million to $185 million. Diluted EPS of $5.85 to $6. EBITDA of $310 million to $315 million, considering the diversity and strength of our portfolio of businesses, our strong liquidity position and our comfortable one times EBITDA leverage ratio, we are well positioned to take advantage of additional opportunities to generate significant shareholder value in 2024 and beyond. Now I'll turn the call back to Joe.
Joe Cutillo: Thanks, Sharon. We see years of opportunity ahead associated with the revitalization of America's infrastructure. Sterling is playing a critical role in building the data infrastructure that enables today's way of life, the manufacturing production coming back to the U.S., the highways, the bridges and the airports that connect us and the homes we live in. In e-infrastructure solutions, we anticipate that the current strength and data center demand will continue for the foreseeable future, as current capacity represents only a fraction of what is needed to support artificial intelligence and other emerging technologies, our customers are discussing multi-year capital deployment plans and are focused on how to align with the right partners to help them achieve their targets. Our customers are highly focused on speed to market, and are looking for proven, trusted partners. On the manufacturing front we anticipate that in the remainder of 2024 and 2025 we will see a fairly steady pace of mid to large sized onshoring related projects. As we looked at 2026 and 2027 there's a very big pool of mega projects on the horizon. This would include planned semiconductor fabrication facilities. The size and duration of these projects is staggering. Given the complexity involved with their development. We believe it will take some time before awards start to flow. We expect the e-commerce and small warehouse markets will remain soft through 2024 but are encouraged by the preliminary activity we are seeing for 2025. These dynamics support strong profitability growth opportunities over a multi-year period for e-infrastructure. For 2024 we expected deliver strong operating profit, and believe we are well positioned for both revenue and profitability growth in 2025. In transportation solutions we are now in the second half of the federal funding cycle. We have built over two years of backlog and continue to see a robust level of activity ahead. We believe we are now in a market environment where we can sustain elevated growth relative to historical levels, so long as margins remain at current levels or higher. We are very confident that our transportation business will deliver strong revenue and profitability growth in 2024. In building solutions the business is well positioned for growth over a multi-year period. Our key geographies of Dallas, Houston and Phoenix are expected to see continued population growth driving demand for new homes. Additionally, there is a significant opportunity for shared gain in both Houston and Phoenix. We anticipate that affordability challenges and the timing of interest rate cuts will continue to impact demand in the near term. Our conversations with our customers indicate a significant step up in activity in 2025. We're continuing to work hard to find the right acquisitions to grow the company and enhance our service offering. The e-infrastructure market remains our top priority for M&A. We will remain patient and disciplined in our inorganic growth strategy. As it relates to share repurchases we will continue to be opportunistic. As a result of our strong year to-date performance and our backlog position, we are raising full year profitability guidance. The midpoint of our new guidance would represent 10% revenue growth, 33% diluted EPS growth and 21% EBITDA growth. With that, I'd like to turn it over for questions.
Operator: [Operator Instructions]. Your first question comes from Brent Thielman from D.A. Davidson.
Brent Thielman: Hey, Joe, just on e-infrastructure. I mean tremendous profitability here in the quarter. And you know, it looked to me like you finish out somewhere in excess of 20% this year, I guess with the backlog increasingly skewing towards the data centers. I'm trying to think about that in the context of maybe some of these other markets that might come back for you that don't carry as high margins, ecommerce, manufacturing, how do you sort of think about sustaining this level of profitability in e-infrastructure and kind of 2020 mix of things.
Joe Cutillo: There's couple things. You know, we did see a nice rebound in some of the small projects, the industrial projects in the quarter and the hard thing for us is these projects to kind of give you a perspective. We can get a call today. I can give you a real life example that happened last week when I was with our ecommerce guys. We can get a call today, negotiate a contract tomorrow, and be starting by Monday (NASDAQ:MNDY) on these small deals, so they pop up quick, move quickly. We saw a nice rebound in the quarter that I think most people would have thought would have diluted our margins but they didn't. The growth of the margin on these large mission critical jobs just continues to get better, and even as that stuff comes back, we believe we're still going to see margin improvement in e-infrastructure as we go into 2025. And I've never been able to say 100% improvement or 1100 basis points improvement year over year, but I feel really good. Brett, we're in the best shape we've ever been in and when I look at what we're seeing on the horizon in the fourth quarter and first quarter. We're not even to the second quarter projects. It's unbelievable. We're very, very optimistic on both margin and growth in the infrastructure right now.
Brent Thielman: Yeah I mean, it seems like the mountain market, sort of organic expansions working out really well for you and the infrastructure. Are there other areas you can do that organically or at this point I mean, to your point, you're sort of looking at acquisitions in that segment. Is that what you need to do in order to get the new regions?
Joe Cutillo: Yes. So we've seen some nice, nice growth organically through the Rocky Mountains is we look at kind of how far we can take the assets at some point in time, there's a diminishing rate of return to all equipment happily around the country. We still have some room with our footprints to expand another call it half a state to state but what we've done is we put a map together where we think the highest growth opportunities are where we can reach, and then looking at acquisitions to fill those on the gaps.
Brent Thielman: And then just last one on building solutions sounds like some slowness in Dallas. Maybe that persists for a couple of quarters here. Interested your feedback on that, just given what you're hearing from builders, but also Joe, just what, maybe what's going on in Houston and Phoenix? Are you still seeing growth in those markets?
Joe Cutillo: Yes, so a little different dynamics in each one of the markets. Dallas, definitely down in the quarter. Combination of affordability, we've heard some rumblings with one or two builders on land availability, the overall market is down. I will tell you though, in October, on the plumbing side, we saw the starts double in October from where they finished in September, which is a great sign for us that could be going in the right direction very quickly. That's a leading indicator to us on what's happening. So that's good. We continue to see growth in Houston. Saw nice growth year over year not only is the market growing, but we're working on how to be even a little more aggressive on growing market share in that market, Phoenix, I will tell you, is still growing. Phoenix is a quarter to quarter is a little bit more volatile than what the Houston and Dallas markets are. They're usually very consistent up into the right. Phoenix goes up into the right, but we tend to see, a little more of a spike one quarter, a little less of a growth in the next quarter but directionally, we're certainly happy with the Phoenix market and where that's going, and don't have long term concerns with it. Remember, these are the three biggest markets in the U.S. all have population growth. People are either going to be buying homes or renting apartments, and we'll bounce between the commercial business if the apartment world multi-family takes off or back to the first time home buyers on the residential side. So I think a little bit of a lull. The other feedback we're getting from builders is it looks like there's a lot of people on the sidelines waiting for interest rates to drop again. So they're trying to figure out how fast and how far these rates are going to drop, and I get it, if I was them and I hear all the buzz that the interest rates are going to drop, and I'm out there looking at a house, and I think I could get another quarter point or half point by waiting a couple months. I'd probably do the same thing. So we're not negative at all. I think we saw a little slow down in the quarter, but the outlook in talking to the builders actually just two weeks ago, what I will tell you is the numbers that they gave us for growth in 2025 are higher than historical numbers they've given us the last three years on growth projections. So we're hoping they're correct. They're much more bullish than we thought they were going to be, and so they obviously know more about that market and dynamics than we do.
Operator: Your next question comes from Adam Thalhimer from Thompson Davis.
Adam Thalhimer: Actually, I just wanted to keep going on that if they give you good growth projections for 2025 does that start early in '25 or would your experience tell you it's kind of a mid-25 recovery?
Joe Cutillo: Yes, Adam, where we will we'll really know in January, one of the biggest sale seasons for the builders is that spring sale and for them to hit that spring sale number, they've got to come out of the blocks pretty heavy in January to get the -- we're the first operation the slabs. They've got to get the slabs in there and call it 90-220 days after that they're selling the house. So sometimes we'll see it late December but with holidays, it's usually doesn't kick off until January. Again, we're pretty up. We're very happy with the starts that we saw on the plumbing world in October, we would not have expected that, so that's encouraging. And then we'll watch the slab side as we as we get through the rest of this year.
Adam Thalhimer: Okay, that's good. Can you talk about top line by segment in Q4. I'm having a little trouble getting to getting to the revenue guidance.
Joe Cutillo: I think I don't have it broken down by segment in the quarter. I think we'll just kind of the map right to fill in the blanks. Sharon has the exact numbers, more detail on them.
Sharon Villaverde: I can't provide specific guidance. I think that we continue to look strong in e-infrastructure as compared to prior year. And likewise for well, for transportation, last year had a pretty strong comp, so we probably won't be as strong as in Q4 '24 as we were in Q4 '23 and then building solutions remains relatively flat up a little.
Adam Thalhimer: With Q3?
Sharon Villaverde: Comparing to Q of prior year.
Adam Thalhimer: Okay, got it. And then, Joe, can you just talk high level what you're seeing with first data centers and second, if you could just expand on what you are seeing with the e-commerce distribution centers?
Joe Cutillo: Yeah. So I'll go backwards. We had said, if you remember going back to '22, Amazon was discussing '23 we did zero. I was prepared to tell everybody in '24 we did zero. But as of last week we started Monday. We literally this is a job we got last week on Tuesday, negotiated it final pricing on Wednesday, and we started this Monday for Amazon's first distribution center. They're starting up in the program. We're looking at another one that'll kick off either late this year early next year. So we're encouraged by that, they had told us '25 they were going to start the program back up, and it looks like they're certainly on track, and maybe a little bit early with that so couple that with the rebound that we see happening on the small industrial today, if they drop interest rates and drop them again before the end of the year, we think that's going to start coming back. We said second quarter next year, hopefully that comes back a little sooner than we anticipated. So we're becoming more bullish on both of those areas. When it comes to data centers, here's I'm going to tell you, there are more damp data centers coming our way than we ever anticipated. They are these things are falling out of the sky, and every day we are getting more and more opportunities. The piece Adam that I think everybody is missing is this pipeline of work that we have, and how much of that pipeline grows over the next two quarters. I think it's highly probable that sometime at the end of the first quarter, or halfway through the second quarter, we will have a billion dollars or more in this pipeline of incremental work on top of our backlog that will hit in 25-26 and we're starting to put stuff into '27. So I think people are grossly misled right now by what is in our backlog and I'll give you a perfect example this Amazon distribution center is roughly a $17 million job. We have $300,000 in our backlog based on how the structure that contract is laid out. So we know what we're going to get. Our backlog is very deceiving, because we don't that's how the contract is written and how we have to, how we have to put it in. So if I was going to be a betting person, as I always say, I like to play cards when I know what my cards are and what other's cards are. We are in very, very good shape, and the activity we are seeing is not only unlike nothing we've seen in the past, but continues to exceed our expectations on what we thought would be coming out.
Adam Thalhimer: Well, that only covers e-infrastructure. I think you also said in the prepared remarks that transport, certain transportation projects, you have a really low amount in backlog because it only reflects design and not the actual construction. One of my questions was if you included the actual construction, how much would that add to backlog?
Joe Cutillo: We know it's over $0.5 billion dollars today of total combined, most of that to the infrastructure. But we will have is we get through the design phase of some of these large design builds will set up multi $100 million dollars of future phase backlog in transportation. So we look at transportation today, we have roughly two years of backlog. We're working on stuff that's further out. The transportation bill goes for another two years. We anticipated the end of the transportation bill. The IIJA will have somewhere between two or maybe even more than two years of backlog at that point in time. So we are it's hard to explain to people, but we're sitting here looking at what we have and what's coming and what we're locked into, and we feel very, very good.
Operator: And the next question comes from Julio Romero from Sidoti Company.
Julio Romero: Good morning, Joe Sharon and Noelle. You guys talked about this, this pipeline of work coming your way on the e-infrastructure side, you mentioned some near term on shore and projects in '24 and '25 but also the much larger projects on the horizon for '26 and '27. I guess how are you balancing the pace of your bids now versus, kind of keeping your capacity open for those 26-27 mega projects?
Joe Cutillo: Well, I think the good thing is we can, we can go full bore now, and as we see those projects coming, we have plenty of time if we need to build excess or extra capacity to do that and we would do that. So we're not pulling back on any of these mission critical jobs. We are loading up the boat as much as we can with them, and when these mega jobs come out, we'll be fine. You know, we were very good at expanding up very rapidly, and we're not concerned about that. Let me clarify one thing on the pipeline. We talked about these, this multi-phase pipeline. This isn't work that's out there that we're looking at to bid. This is subsequent work associated with jobs we have. So that's a big difference. I'm not looking at a $1 billion looking a lot more than a $1 billion dollars of work out there. This is work that we have that will tag on is either incremental contracts or change orders to the existing contract to complete the project. So this isn't stuff that we're hopeful on that might happen. This is stuff that has to happen to complete the project. It's more of a contractual structure the way they do that doesn't enable us to book all of that backlog at one time. I would tell you today that if we were able to do that, our backlog would be up well over a $0.5 billion and everybody would be saying, Oh, my God, look at all this work. Instead, people keep getting confused because our backlog staying relatively flat, and we know it's really grown. Okay, so I just want to make sure that that's true.
Julio Romero: No, that's very helpful, and that gives some context the kind of sequencing of how you how you see things going forward. You also mentioned earlier that you said some of these smaller deals in the e-infrastructure that came back a bit in the third quarter didn't dilute margins. Can you maybe expand on that a bit? Are you doing anything different in terms of these small, industrial, kind of quick return projects, in terms of bid margins or contract terms that are -- go ahead?
Joe Cutillo: I think the reality is the smaller projects will carry lower margins. Okay, that's not changing what is changing is the pace and rate of which we're growing these mission critical projects and I'll be honest, we're realizing the value we bring to customers is even better than we maybe have priced and put out there in the past. And then the bigger the projects, we are able to drive much better efficiencies on execution, so we are picking up more points of efficiency on the back end of these projects than we ever have in the past. And that's kudos to our team and the great work they've done. It's also we've introduced some things with technology to now where we are -- I'll bore you to death on this call, but to see what we're doing with drones, in measuring, monitoring, project management, what we can do with drones that can now see down through trees and down through areas that you couldn't get takeoffs accurately in the past. If you miscalculate the amount of dirt by six inches over 400 acres that you have to move, it's real money by being able to dial it into the numbers, we're able to dial it in that's incremental productivity. So there's 100 things like that that we continue to do, continue to drive, and are looking at, how do we even do that better as we go forward?
Julio Romero: Very helpful there. Just last one for me would just be on you had another great quarter of cash flow. Can you just speak to, kind of the drivers of that and how that should trend going forward?
Joe Cutillo: Yes, it's going to keep going. We've done a great job of working off customers money. We believe philosophically we should do that the way we structure our contracts and our bids help us do that early and out of the gate. With these larger projects, we tend to get a higher amount of cash up front, which is nice, I think if you look forward and want to be conservative, our cash flow should always be kind of that operating income level or better, and we don't see anything changing that would change to the dynamics of the cash flow going forward. Our contract terms are the same. Our customer and markets are pretty much the same. So all positive. We're working hard on what to do with all that cash that's the key for us right now.
Operator: [Operator Instructions]. At this time, we have no other questions. Please proceed.
Joe Cutillo: I want to thank everyone again for joining today's call, another exciting quarter for the Sterling team. If you have any follow up questions or wish to schedule a call directly with us. Please contact Noelle Dilts, her information is in the press release. So hope everybody has a great day, and we appreciate it. Thanks.
Operator: Ladies and gentlemen. This concludes the conference. You may now disconnect your lines.
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