Sterling Construction at 45th Annual William Blair Growth Stock Conference: Strategic Focus on Profitability

On Tuesday, 03 June 2025, Sterling Construction Company Inc. (NASDAQ:STRL) presented at the 45th Annual William Blair Growth Stock Conference, highlighting its strategic focus on profitability and cash flow. The company emphasized its strong financial performance and optimistic outlook while acknowledging challenges in the residential sector.

Key Takeaways

• Sterling Construction reported a record backlog of over $2 billion with an additional $750 million in future phase work.
• The company is focused on high-growth, high-margin markets, particularly in E-Infrastructure.
• Full-year revenue is projected to be just over $2 billion, with EBITDA guidance between $381 million and $403 million.
• Sterling Construction is actively pursuing strategic acquisitions, especially in the E-Infrastructure space.
• The company executed stock buybacks, taking advantage of market conditions.

Financial Results

• Q1 revenues increased in most segments, except for the residential business.
• Q1 adjusted EBITDA exceeded $80 million, with cash flow from operations around $85 million.
• The company maintains a strong balance sheet with over $438 million in cash and approximately $300 million in debt.
• Full-year net income is expected to be between $222 million and $224 million.
• A stock buyback program of $200 million is halfway through completion.

Operational Updates

• E-Infrastructure Solutions, comprising 45% of revenue, focuses on data centers and large manufacturing facilities, with 60% of its backlog in data centers.
• Transportation Solutions has shifted focus from low-bid highway work to higher-margin aviation and rail projects.
• Building Solutions is leveraging growth in markets like Phoenix and Houston to offset downturns in residential construction.
• The company acquired a small dry utility business in Georgia to expand service offerings.

Future Outlook

• Sterling Construction is bullish on infrastructure and technology spending, with plans to expand into electrical and mechanical services.
• The company is positioned for growth in high-margin markets and is actively seeking acquisitions.
• Management expects to double acquisitions within five years and continue stock buybacks strategically.

Conclusion

For a detailed account of Sterling Construction’s strategic insights and financial performance, refer to the full transcript below.

Full transcript - 45th Annual William Blair Growth Stock Conference:

Louis DePalma, Equity Research Team, William Blair: Great. Good morning. I am Louis DePalma. I cover smart smart city technologies on William Blair’s equity research team. This is day one of the forty fifth annual William Blair Growth Stock Conference.

We’re pleased to be hosting a thirty minute presentation with Sterling Infrastructure’s management team for the third consecutive year. When we hosted Sterling back in 2023, the stock price was in the forties, and now here we are and it’s a standing room only crowd. I’m joining me today are CEO, Joe Cotillo, interim principal financial officer, Ron Balchmitte, and VP of investor relations and corporate strategy in the front row, Noelle Dilts. Following the presentation, there will be a breakout session in the Burnham A Room and I am required to inform the standing room audience and those on the webcast that for a complete list of disclosures and potential conflicts of interest, you can go to the William Blair website. So, Joe, please take it away and thank you.

Joe Cotillo, CEO, Sterling Infrastructure: Thanks, Louis. I appreciate, everybody coming. This is a nice crowd, good way to start the day off for us. Let’s see if I can figure out how to advance this thing. There we go.

Great. Thanks. So, before I get started, I wanna give just a little bit of background on Sterling infrastructure and who we are, but more importantly, of the key takeaways I think, you should walk away with today. I’m not gonna read through these for you, but I think a couple things that will be important to understand is the platform that we’ve built over the last five years, not only the results that it’s been able to deliver, but the results that it will continue to deliver over the next five plus years as we go forward. And the fact that we have a balance sheet today that is stronger than ever with a company that throws up better profits than any of our competition and higher cash flow.

So today, as we sit, we’re just under $6,000,000,000 market cap, about $2,000,000,000 of revenue. The more important things are our EBITDA margins are over 15% and we throw off a ton of cash, over $300,000,000 a year of cash right now, which is not only enables us to be strong in our current position, but make significant investments and acquisitions to broaden this platform as we go forward. We have three fundamental elements of our strategy that have never changed since 2015 and I’ll talk about our transformation and where we are today a little bit later. But the first is really simple, that’s solidify the base, that’s continuing to drive up margins, improve productivity, and reduce the risk of our contract types and and job execution. The second one, I’ve never been the smartest person in the room, but I do know that if I do more work that makes more money and less work that makes less money, ultimately, we make more money and we have less risk.

So we focus on our highest margin products and services, how we continue to expand those and grow those with our customer base. And then the third element is how do we take those highest margin goods and services and take them to adjacent markets or new markets or add other goods and services that our customers are requesting that ultimately make us stronger within that market and drive profitability higher. As you can see, we started the transformation at the end of twenty fifteen. Both Ron and I joined, I think within one week or two weeks of each other. The company was losing money at the time.

It was in serious trouble. First thing we had to do is a turnaround. We did a turnaround. You can see the first three or four years there was was the turnaround efforts. And then we began building the platform that we have today.

And the importance of that platform is not only were we able to grow 18% on an annual basis over that time period, but we’re really at the beginning of what we can do with this platform and what our future growth will be. More importantly, we have a philosophical view that our bottom line should grow at a faster rate than our top line. Sometimes people get upset because I say I really don’t care about revenue, I care about profitability and cash flow. This is an example of our top line was growing at 18% compounded annual growth rate, our bottom line has been growing at 38%. So when we focus on our assets, our asset allocations, our markets, our end customers, or strategically anything we do, we’re looking at how do we drive up more margin, better cash flow and get better returns.

We’re very happy to drop businesses, drop customers, drop whatever we’ve done. With that, what’s interesting in the 18% compounded annual growth rate that you don’t see is we actually took a couple of our businesses and shrank them over $400,000,000 during that time frame. Now in 2015, we’re about $500,000,000, so we shrank almost the entire business to zero and still were able to deliver 18% compounded annual growth rates. As we look forward, we’ve got the best backlog we’ve had in our history and the best quality backlog, over $2,000,000,000 of backlog today, the highest margins in backlog that we have ever had. But what’s even more important is on top of that $2,000,000,000, we have approximately $750,000,000 of future phase work.

And what that is is that the jobs that we’re on and executing today, that’s what it’s gonna take to finish those jobs or more that doesn’t go into backlog until those pieces are released. So theoretically, we have closer to $3,000,000,000 of backlog or work in front of us as we go today. So let me talk a little bit about the platform of businesses that we have. We have three segments today. Our largest segment and most profitable segment is our e infrastructure solutions.

It’s roughly 45% of our total revenue. Second is our transportation solutions, which is 20 or I’m sorry, 3035% roughly of the revenue, and the rest falls under our our building solutions. So let’s start with the infrastructure solutions. Compounded growth rate, pretty nice, 23. Operating income, pretty good, 28%.

But what is it? What does it do? And why do we have those sort of growths and those sort of margins? E infrastructure solutions today focuses primarily on-site development for mission critical projects. Data centers, large manufacturing facilities, e commerce distribution, anything that is large in scale and very complex.

You say, well, isn’t this just moving dirt? We like to say we’re moving mountains. And why is it so critical or why is it different versus some of the other activities? What you have to understand is if you’re a pick up pick one of the big three data center folks out there. They’ve built ten, twenty, 50, a hundred of these data centers.

Once the ground is is leveled, so we start with basically a mountain, a valley, could be a river, whatever, running through this, and we have to make that site flat that they can build the building on. But basic utilities in water, sewer, all that kind of stuff, we stop when they start pouring the concrete. From that point on, I can tell you they know how many nuts, bolts, screws, miles of wire, number of shelves, roofing tile, whatever is going on it because they built a lot of these. They also know down to the day how long that’s going to take because now you’re in a controlled environment. The building’s closed in, weather doesn’t matter, it’s a matter of executing.

The one piece they never know and is different on every single project is the site. No two sites have ever been the same. No two sites will ever be the same. So it’s critical for us to work up stream. In some cases, we’re working three to five years ahead of these projects with these customers on-site selection and giving them an understanding of what what it will take in terms of time and cost to get the site prepared.

I will tell you cost has become the third or fourth decision factor on this stuff. It’s about time. This is all about speed. And what we’re able to do, I tell people we’re not an insurance company, but we sell an insurance policy to our customers. We guarantee we are done on time.

And as you can imagine, if every anybody’s ever built a house or or done any sort of project or even less complicated, if you think of your day, I know generally my day is back to back to back calls, meetings, whatever it is through the day. If my first meeting of that day is ten minutes over, I’m an hour over by the end of the day. Right? It just keeps compounding as the day goes on. Well, think of a $3,000,000,000 project that’s gonna take five years to complete.

If we’re two weeks behind on delivering that pad or that site, that project will be months behind by the end of the project with the snowball effect that happens. So we’re able, as a result, we’re the largest in the country, we’re able to provide them a guarantee that that project will be done on time and the certainty of it, which is of high value to them. Okay? Our goal is actually to deliver early every time, which gives them now cushion in their schedule. I’d like to tell you I can charge double for it.

Some days I challenge the team and ask why we can’t charge double for it. We get a slight premium, probably about 5% on the front end, but where we make all our money is on the technology and execution and productivity through the course of these projects. We just do it fundamentally different than anybody else. As an example, we have at our large sites, we have drones on sites that fly the site multiple times a day. Not only is a project management team on-site watching those, that information is going back to Atlanta, our headquarters for this business.

Once a week, the management team reviews the projects, they go over everything, they can if they see something that’s off or something they should be doing different, it goes right back to the project. Or if there’s a challenge with the project, they’ve got the brain trust of the entire management team to look at that and and be able to solve it. That’s just one of a hundred different things that we do. This business, from a from a standpoint of backlog, roughly 60% of our backlog in this business is data centers right now and the vast majority of that $750,000,000 of future phase work is around those mega projects whether they’re factories, large factories or data centers in this segment. Our second segment is our transportation solutions segment.

This is where the company started. When when we came in, 95 plus percent of our business was what was called low bid heavy highway work. For any of you that wanna go into business, do not go into that one. Okay? It is about the worst thing you can do.

Super high risk, super low returns, working with DOTs, we we like private customers more than public company customers. And, you know, when you get a project design, for those of you that worked in any design and it’s only 60% complete and you have to give a hard bid and guarantee that cost on the back end, it’s a pretty high risk proposition. We quickly moved away from that. We’re now focused more on aviation. We found out early on is a runway is the same thing as a highway, except for you make one and a half to two times as much on a runway as you do on a highway.

A rail bridge is the same as a highway bridge except for we make three to five times as much on a rail bridge. And this this simple fact is this, there’s a value proposition tied to those versus a highway. And I don’t care what state you’re from, if your DOT tells you they care about how long it takes to build a road, they’re lying to you. They don’t care. They care about the lowest cost in most scenarios.

A taxiway or a runway in an airport, if it’s not done on time, the airport is paying fees back to the airlines or getting they’re paying penalties, right? So there’s a time value. With a rail customer, they can tell you what an hour of downtime on that rail bridge is. So if we can do rapid bridge replacements through the technology we have where we can replace bridges in twenty four hours, that’s real money to them versus three months, right? So we get a huge premium.

So we’ve continued to grow that out as we go forward. The transportation work that we do is alternative delivery work today. So we do design build. We’re upfront on the design phase. We design the project for manufacturability.

We team up with the best people in the industry that have different skills and the margins are significantly higher, the risk is significantly lower. We grow that business at a much lower rate, a controlled rate. We just focus on continuing to grow margins and as you can see, we’ve seen a nice increase, 43% increase in margins in that business as we go forward. It’s also our cash cow. We work 100% off customers’ money.

We use that cash to invest in higher margin, higher growth areas of the company. So we’ve made that into a reasonable business. The last piece which is our smallest segment is building solutions. Not a sexy business from a stand slabs for residential builders. The big three are our biggest customers, very high volume, entry level, second level of homes.

What we like about this business, fifteen day cash cycles, very good margins, less than $100,000 a year in capital required and all our labor is outsourced. So I shouldn’t say all, we have one operation that has some internal. So the vast majority of our labor is outsourced. So variability on margins at any given time whether volume is growing up or coming down is very, very consistent. Today, this is our weakest market.

The housing market is down, but we’re in the top three markets in the Dallas, Fort Worth, Houston, and Phoenix, all population growth markets, very low market share in Phoenix and Houston. We’re leveraging that market share growth and those to offset some of the downturn as we move forward. Ron, you want to talk about financial? Only thing I’ll talk about before we go into that and as Ron gets into the financials and the cash flow is today we have net negative debt. We’re throwing off over $300,000,000 a year.

We have had very good success with the acquisitions we have made and we are working very hard on acquisitions focused primarily in the e infrastructure space and we’re finding some good, I’ll call them bargains in the building solutions space, but it’s down. But strategically, when we look step back and look at e infrastructure, our customers keep telling us they would like us to do more of the of the project. Right? The next logical step for us is electrical and mechanical. And the reason for that is we’re doing all the upfront work for the electrical or mechanical and there’s no reason that we can’t lay the electrical or do the mechanical.

We did a little experiment. I always believed that, you know, customers can tell you stuff, but when you put your money where your mouth is, then I really believe you at the end of the day. So we did a little experiment this last year. We bought a small dry utility business down in Georgia. Went to our customers and said, you’ve been asking us for this, we’ve got it.

The good news is they say great. We will triple that business in 2024 or 2025. So it’s it’s impressive. So we think if we can add incremental skills and capabilities around the electrical mechanical as we go forward, They’ll quickly get adapted into the next phase of projects with our customers. We will improve the margins in that area and have a very high growth and success rate on the back end.

So that’s what we’re really looking at doing with our cash. We had we also did some stock buybacks through the year. Everybody that had anything to do, I always said I never knew my stock would follow Nvidia, but we did. Unfortunately, when it went down, we rebounded back, so we had a nice opportunity. We bought a bunch of stock back and we’ll continue to do that at the right time.

Thanks, Blake.

Ron Balchmitte, Interim Principal Financial Officer, Sterling Infrastructure: Morning. Well, welcome. I think we will get on with some financial numbers. Our first quarter results were across the board sensational. I think as we talked earlier, or as Joe mentioned, the only business that was flattish in the quarter or down slightly in the quarter was our residential business, and that was anticipated.

One of the things we did during the year, during the first quarter, is we acquired about $30,000,000,000 worth of businesses, all very small, the one Joe mentioned, and then also an additional footprint, if you will, for in Dallas to fill out our area there. Got a good price on it. It was the right thing to do at the right time, and so we’ll be able to kind of get that closer to breakeven this year as the challenge on affordability continues.

Joe Cotillo, CEO, Sterling Infrastructure: Just to give you an idea on prices, we’re seeing sub fives multiples in the residential space. This one we bought for a three. Whenever you have the cash flow that these have and the consistency in the customer base, we can buy them for threes. We think it’s a good use of capital.

Ron Balchmitte, Interim Principal Financial Officer, Sterling Infrastructure: Good point. So on the balance of that, revenues were up single digits, but the balance of it, to our point of you can’t sell your way into making money, but you can continue to increase our returns, and every return we had in the quarter improved, and that’s not unusual for us. First quarter is our slowest quarter. But certainly, the non everything other than the residential business just had fabulous quarters, both on the revenue side and that for the first quarter, which is typically our slowest. So a whole lot of those.

I think, as we mentioned earlier, our EBITDA and cash flow was precious to us. So adjusted EBITDA in the quarter over $80,000,000 and cash flow from ops of about $85,000,000 Now some of that is obviously timing. However, we would and will we expect to kind of keep that runway going, so not unusual for us to have a cash flow from operations in the 300 to 300 to $40,350,000,000 to $400,000,000 this year. And then as we mentioned earlier, I think the cash that we have on the balance sheet is $438,000,000 30 9 million dollars so we are ready for the first opportunities we have that meet our acquisition thresholds and our strategy. This one I pretty much called.

I think the keys are this operating cash flow returns have been fabulous. If you track these along with the revenue side, you’d see that the return percentages have increased substantially every year for those for that period of time, so it continues to be strong. The balance sheet, certainly, we’re obviously sitting on $664,000,000 of cash. That’s at about $300,000,000 of debt. We will continue to look for acquisitions.

They have to be accretive. They have to have something special in them that allows us to use our other business units to either help them run a different way or to continue to increase their returns.

Joe Cotillo, CEO, Sterling Infrastructure: So

Ron Balchmitte, Interim Principal Financial Officer, Sterling Infrastructure: we would expect to get two times five two point five times run rate on four to six quarters.

Joe Cotillo, CEO, Sterling Infrastructure: We’re very picky on acquisitions. I mean, we looked at over 200 acquisitions last year to make three. So we’re very picky. We have high expectations. People are critical to us.

We buy people, we don’t buy businesses. But we also have expectations that we can double those businesses in five years.

Ron Balchmitte, Interim Principal Financial Officer, Sterling Infrastructure: Capital allocation is pretty straightforward. As we’ve mentioned, our stock program, it’s $200,000,000 has been authorized. We’re about halfway through that. We take an opportunistic view of that. So when the stock came down because of the excitement in the chip world, it’s come roaring back, but we did take advantage of that and 30 some million dollars was acquired in the first quarter.

Obviously, when that goes back up, we’ll slow that down because our best returns are the right acquisitions for the right time to continue to grow our business at rates and improve our operating performance. As Joe mentioned, we don’t really the returns are important to us, and we do a lot of things to say, sorry. The two years ago when the commercial business was slowing down, our e infrastructure business said, we’re not making that any money. It was like, well, stop doing it. Well, we’re going miss our revenues.

We don’t care. Go get your money on working something else so the margins are better. And that’s an institution that we’ve enjoyed for since Joe and I joined ten years ago. Getting to the full year guidance, I think I wouldn’t use the record one, two, three, four I would use them all. So we expect to have revenue of just over $2,000,000,000 and that’s without that’s sort of a same store but for some of these small tuck ins that we’re doing.

Those are probably less than $35,000,000 worth or $40,000,000 of revenue incremental in the first in this year. Our net income will be at a high of $222,000,000 to $2.00 4,000,000 to $339,000,000 and then down the line, great EBITDA, $381,000,000 to $4.00 3,000,000 is our guidance number, and you can see the other two. And free cash flow, we generally say our free cash flow should be right around our operating income, and we’ll be a little bit better than that this year, so the cash is still acutely rolling, and frankly, we’re out looking for the right transactions. We are picky. We probably look at 30 before we find one.

Maybe that’s even conservative on it, but we think our capital is pretty precious, so we wait and get the right deal and it will be accretive if we’re doing any done. That’s just our philosophy. And that’s pretty much it. So from my side?

Joe Cotillo, CEO, Sterling Infrastructure: Yeah. So if there’s any key takeaways and we’ve got the session afterwards where we can answer a lot of questions and go into more detail. It’s hard to cover everything in thirty minutes or less. But, you know, key takeaways is if you believe infrastructure spend is gonna continue, if you believe technology is gonna continue to spend, if you believe there’s any onshoring that’s coming back, if you believe there’s any sort of build, We’re very bullish on the next five years. We’re very bullish because we work three to five years with our customers on projects that take that long before they break ground.

So we feel very good on the We’re very bullish because we work three to five years with our customers on projects that take that long before they break ground. So we feel very good on data center world. We feel very good on the manufacturing world. We have a lot If you go and focus on margin, you find yourselves in better places that are growing quickly. There’s very few commodities that are growing quickly and they have shitty margins, right?

So if you keep following margins, you will find the next best market and those best markets are always high growth markets, right? So that’s the culture we have and that’s what our guys are out looking for every single day. And as soon as you can become complacent with one customer, you’re dead. So we’re always looking to improve that bottom line and that cash flow That’s how we got into data centers. That’s how we got into these mission critical factories.

We will see new things come out over the next three to five years. And one of the key things I didn’t mention as we talk about e infrastructure is what we call the fungibility of our assets. So today, I don’t care if it’s a data center, I don’t care if it’s a manufacturing facility, I don’t care if it’s an e commerce distribution center, all that works the same to me. As we start adding other capabilities whether that’s electrical or mechanical or specialty piping, there’s some other stuff. We’re looking for those assets that at the end of the day, we don’t care if the shift goes from data centers to manufacturing, manufacturing that could go to energy, right, at some point in time.

We’re positioned that none of that matters to us. We just move where the money is and follow that.

Louis DePalma, Equity Research Team, William Blair: Presentation has now finished. Please check back shortly for the archive.

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