What changed in STERLING INFRASTRUCTURE, INC.'s 10-K — 2024 vs 2025

Since the implementation of the strategy and application of the key objective, we have improved the heavy highway backlog gross margin and we expect gross margins to increase further as we continue to execute our strategy.

Growing high margin products and services— While solidifying the base is important to the profitability of the Company, the improvement of gross margins is limited due to the highly competitive bidding environment for heavy highway projects.

The key objective in this strategic area is our focus on bottom-line growth, and the higher margin projects we target have gross margins in the range of 15% to 18% or higher.

Our acquisition strategy has focused on businesses that can strengthen our current portfolio, enable us to expand into complementary categories or geographic regions or provide diversification of cash flows. The companies we target for acquisition typically have gross margins of 15% or more.

This strategic focus allows us to broaden our portfolio of products and services, and broaden our end customer base to remain competitive in the markets where we operate. Since 2016, we have completed eight acquisitions and regularly assess other strategic opportunities.

Recent Strategic Transactions Myers Disposition— On November 30, 2022, we entered into an agreement (the “Agreement”) and sold the Company’s 50% ownership interest in its partnership with Myers & Sons Construction L.P. (“Myers”) for $18 million in cash.

In accordance with the Agreement’s payment terms, the Company received two payments totaling $14 million in the first quarter of 2023 and two additional payments of $2 million each are due by the end of 2025 and 2027, respectively.

The disposition is consistent with the Company’s strategic shift to reduce its portfolio of low-bid heavy highway and water containment and 4 treatment projects in order to reduce risk and improve the Company’s margins and to focus on its strategic geographies outside of California.

This strategic shift had a major effect on our operations and consolidated financial results, and accordingly, the historical results of Myers have been presented as discontinued operations in our Consolidated Statements of Operations. Prior to being disclosed as a discontinued operation, the results of Myers were included within our Transportation Solutions segment. See Note 4 - Dispositions for further discussion.

CCS Acquisition— On December 20, 2022, we completed the acquisition of Concrete Construction Services of Arizona LLC and its affiliate, CCS Contracting Services LLC (collectively “CCS”), for a purchase price of approximately $21 million.

CCS’s business provides concrete foundation services for residential single-family homes; this includes the preparation, pouring and finishing of post-tension concrete foundations for new housing subdivisions in the greater Phoenix, Arizona area. The results of CCS are included within our Building Solutions segment.

PPG Acquisition— On November 16, 2023, we completed the acquisition of Professional Plumbers Group, Incorporated (“PPG”), a corporation headquartered in Wylie, Texas, near Dallas-Fort Worth, for a purchase price of approximately $57 million.

PPG’s business provides services for all the major plumbing phases required for new single-family residential builds, which expands our suite of residential services in the Dallas-Fort Worth market to include the next critical phase of the build once the slab is complete. The results of PPG are included within our Building Solutions segment.

Solid wastes, which may include hazardous wastes, are subject to the requirements of the federal Solid Waste Disposal Act, the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes. Although we do not generate solid waste, we occasionally dispose of solid waste on behalf of our customers.

We strive to instill an inclusive culture that provides all our employees the opportunity to thrive.

As of December 31, 2024, our workforce was comprised of the following race and ethnicity demographics: Employees as of December 31, 2024 White 46.8% Hispanic 46.6% Black 2.7% Pacific Islander 1.5% Other 2.4% We focus on our safety processes, which have allowed us to maintain a high level of safety at our work sites.

These risk factors may be important to understanding other statements in this annual report on Form 10-K.

The following information should be read in conjunction with Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related Notes in Part II, Item 8 “Financial Statements and Supplementary Data” of this annual report on Form 10-K.

Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below; any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from our past, or from our anticipated future, financial condition and operating results.

Any of these factors, including additional factors that apply to all companies generally which are not specifically mentioned below, in whole or in part, could materially and adversely affect our business, prospects, financial condition, results of operations, stock price and cash flows. 8 Because of the following factors, as well as other factors affecting our financial condition and operating results, our past financial performance should not be considered to be a reliable indicator of our future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to Our Business and Industry Demand for our services may decrease during economic recessions or volatile economic cycles, and a reduction in demand in end markets may adversely affect our business.

Across our three operating segments, revenue and profit are generated from infrastructure projects and services, but we do not directly control the process by which such infrastructure projects and services are awarded.

The construction industry historically has experienced cyclical fluctuations in financial results due to economic recessions, downturns in business cycles of our customers, supply chain disruptions, inflationary pressures, interest rate fluctuations and other economic factors beyond our control.

Many factors, including the financial condition of the infrastructure industry, could adversely affect our customers and their willingness to fund capital expenditures in the future. Additionally, consolidation, competition or capital constraints in the industries we serve may result in reduced spending by our customers.

Economic, regulatory and market conditions affecting our specific end markets may adversely impact the demand for our services, resulting in the delay, reduction or cancellation of certain projects and these conditions may continue to adversely affect us in the future.

Our dependence on suppliers of materials and subcontractors could increase our costs and impair our ability to complete contracts on a timely basis or at all.

The price and availability of the materials required to execute our projects are subject to volatility and disruptions caused by global economic factors that are beyond our control, including, but not limited to, supply chain disruptions, labor shortages, wage pressures, rising inflation and potential economic slowdown or recession, as well as fuel and energy costs, the impact of natural disasters, public health crises, geopolitical conflicts (such as the conflicts in Eastern Europe and the Middle East), and other matters that have impacted or could impact the global economy.

If shortages and cost increases in materials and tightness in the labor market persist for a prolonged period of time, and we are unable to offset such cost increases, our profit margins could be adversely impacted.

We rely on third party suppliers to provide substantially all of the materials (including aggregates, cement, asphalt, concrete, steel, oil and fuel) for our contracts and third party subcontractors to perform some of the work on many of our projects.

Increasing prices of materials and equipment and substantial delays in delivering supplies have and could continue to adversely impact our operations and construction projects. For the past several years, our operating margins have been adversely impacted, and may continue to be impacted, by price increases for certain materials, including fuel, concrete, steel and lumber.

To the extent that we are unable to obtain commitments from our suppliers for materials or engage subcontractors, our ability to bid for contracts may be impaired.

If we do not accurately estimate the overall risks, requirements or costs related to a project when we bid for a contract that is ultimately awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract. The majority of our revenues and backlog are derived from fixed-unit price contracts and lump sum contracts.

Fixed-unit price contracts require us to provide materials and services at a fixed-unit price based on agreed quantities irrespective of our actual per unit costs. Lump sum contracts require the contract work to be completed for a single price irrespective of our actual costs incurred.

Our ability to achieve profitability under such contracts is dependent upon our ability to avoid cost overruns by accurately estimating our costs and then successfully controlling our actual costs.

If our cost estimates for a contract are inaccurate, or if we do not perform the contract within our cost estimates, we may incur losses due to cost overruns or the contract may be less profitable than expected. As a result, these types of contracts could negatively affect our cash flow, earnings and financial position.

Item 1C. Cybersecurity In today’s digital age, the security and integrity of our information systems are of paramount importance. As a company, we understand the need to protect the confidentiality, availability and integrity of our systems and data. This disclosure aims to provide an overview of our approach to cybersecurity and the potential risks and threats we face.

We have a cybersecurity program to safeguard our information systems and data, which includes policies, processes and controls designed to protect against cybersecurity threats. The risks and threats that the Company faces in relation to cybersecurity include external threats such as hacking, malware and phishing attacks, which can compromise the security of our systems and data.

Additionally, internal risks, such as employee negligence or malicious activities, can also pose significant cybersecurity threats. We continuously monitor and assess these risks to ensure the effectiveness of our cybersecurity measures. We regularly monitor our IT services to safeguard data and to help improve and stabilize our network and systems.

We periodically audit our existing network and systems and make upgrades as needed. In addition to protective systems and measures, we believe that ongoing employee awareness and training play a critical role in data security. Training includes Security Awareness Proficiency Assessment (“SAPA”) in pertinent knowledge areas such as internet use, email security, social media and mobile devices.

Our SAPA scores are higher than the construction industry average, which we believe demonstrates our commitment to cybersecurity awareness. In the event of a cybersecurity incident, the Company has an incident response plan. This plan outlines the steps we take to detect, respond to and recover from such incidents.

Our security operations include monitoring conducted by a third-party provider in collaboration with internal teams. The Company has also invested in modern cybersecurity tools to protect and detect the systems and data from attacks and compromises. Within our organization, we have established a cybersecurity governance structure.

This structure includes key individuals on the Company’s disclosure committee responsible for detecting and reporting cybersecurity incidents and events, and our Board of Directors which is responsible for cybersecurity risk oversight, with review of IT governance and data security being the responsibility of the audit committee.

Throughout the year, the Board of Directors receives briefings and assessments of the Company’s risks related to IT, data governance, cybersecurity and overall data security. In furtherance of its risk oversight responsibility, the audit committee provides complaint reporting procedures for the confidential, anonymous submissions by employees and others of concerns regarding questionable accounting, auditing and any other matters.

These submissions are collected by an independent organization specializing in those services, and are conveyed to the chair of the audit committee and our general counsel and chief compliance officer.

Additionally, in 2022, we developed an enhanced Employee Self Service portal, designed to serve as a knowledge base where employees can log in to explore the latest IT solutions, tips and resources in addition to reviewing the status of their service request.

In its risk oversight role, our Board of Directors focuses on understanding the nature of our enterprise risks, including our operations and strategic direction, as well as the adequacy of our risk management process and overall risk management system. The Board of Directors evaluates risks over the short-term and over the long-term.

Risk evaluation over the short-term includes the assessment of multiple inputs, including (i) receiving management updates on our business operations, financial results and strategy and discussing risks related to the business at each regular board meeting, (ii) receiving regular reports on all significant committee activities at each regular board meeting and (iii) evaluating the risks inherent in significant transactions, as applicable.

In connection with risk evaluation over the long-term, the Board of Directors also seeks out the input of subject matter experts and consultants. Accordingly, a formal, enterprise risk assessment, which includes numerous members of Company management, is performed annually as part our strategic plan process. We are subject to various legal and regulatory requirements related to cybersecurity.

Compliance with these requirements is of utmost importance to management, is a top priority for the Company and is a shared responsibility among all stakeholders. We continue to diligently work to ensure our compliance efforts align with these obligations, and we are committed to ongoing efforts to enhance our cybersecurity measures and stay vigilant against evolving threats.

We are committed to continuously improving our cybersecurity program as we recognize the ever-evolving nature of cybersecurity threats and the need to adapt our measures accordingly.