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What changed in STERLING INFRASTRUCTURE, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of STERLING INFRASTRUCTURE, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+237 added−258 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-28)

Top changes in STERLING INFRASTRUCTURE, INC.'s 2023 10-K

237 paragraphs added · 258 removed · 181 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

101 edited+30 added−14 removed155 unchanged
Biggest changeWe cannot predict with certainty whether the decline in the U.S. housing market beginning in 2022 will continue or worsen due to changes in conditions that are beyond our control, which may include the following: • continued increases in interest rates; • continued or worsening inflationary pressures; • economic downturn or recession; • shortage of lots available for development; • changes in demographics and population migration that impair the demand for new housing; • labor shortages, especially craft labor, and rising costs of labor; and • changes in the tax laws that reduce the benefits of home ownership.
Biggest changeThe continuation or worsening of these conditions generally, or in the markets where we operate, could decrease demand and pricing for new homes in these areas or result in customer cancellations of pending contracts, which could adversely affect the number of Building Solutions concrete projects we have or reduce the prices we can charge for these projects, either of which could result in a decrease in our revenues and earnings that could materially adversely affect our results of operations. 11 We cannot predict with certainty whether the decline in the U.S. housing market beginning in 2022 will continue or worsen due to changes in conditions that are beyond our control, which may include the following: • continued increases in interest rates; • continued or worsening inflationary pressures; • economic downturn or recession; • shortage of lots available for development; • changes in demographics and population migration that impair the demand for new housing; • labor shortages, especially craft labor, and rising costs of labor; and • changes in the tax laws that reduce the benefits of home ownership.
Substantially all of the contracts in our Backlog contain termination for convenience clauses which allow the customer to cancel the contract at their election but would require that the Company be compensated for work performed through the date of termination and additional contractual costs for cancellation.
Substantially all of the contracts in our Backlog contain termination for convenience clauses which allow the customer to cancel the contract at their election but would require that the Company be compensated for work performed through the date of termination and for additional contractual costs for cancellation.
It should not be relied upon for investment purposes, and none of the information on the website is intended to be incorporated into this annual report on Form 10-K by reference. I tem 1A. Risk Factors The following discussion of risk factors contains forward-looking statements.
It should not be relied upon for investment purposes, and none of the information on the website is intended to be incorporated by reference into this annual report on Form 10-K. I tem 1A. Risk Factors The following discussion of risk factors contains forward-looking statements.
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 8 Consolidated Financial Statements and related Notes in Part II, Item 8 “Financial Statements and Supplementary Data” of 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 past, or from anticipated future, financial condition and operating results.
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.
Moreover, an acquisition involves certain risks, including: • difficulties in the integration of operations, systems, policies and procedures; • enhancements in controls and procedures including those necessary for a public company may make it more difficult to integrate operations and systems; • failure to implement proper overall business controls, including those required to support our growth, resulting in inconsistent operating and financial practices at companies we acquire or have acquired; • termination of relationships with the key personnel and customers of an acquired company; • additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls; 16 • the incurrence of environmental and other liabilities, including liabilities arising from the operation of an acquired business or asset prior to our acquisition for which we are not indemnified or for which the indemnity is inadequate; • insufficient management attention to our ongoing business; and • inability to realize the cost savings or other financial benefits that we anticipate.
Moreover, an acquisition involves certain risks, including: • difficulties in the integration of operations, systems, policies and procedures; • enhancements in controls and procedures including those necessary for a public company may make it more difficult to integrate operations and systems; • failure to implement proper overall business controls, including those required to support our growth, resulting in inconsistent operating and financial practices at companies we acquire or have acquired; • termination of relationships with the key personnel and customers of an acquired company; • additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, financial reporting and internal controls; • the incurrence of environmental and other liabilities, including liabilities arising from the operation of an acquired business or asset prior to our acquisition for which we are not indemnified or for which the indemnity is inadequate; • insufficient management attention to our ongoing business; and • inability to realize the cost savings or other financial benefits that we anticipate.
The costs incurred and gross profit realized on our contracts can vary, sometimes substantially, from our original estimates due to a variety of factors, that may include, but not limited to the following: • onsite conditions that differ from those assumed in the original bid or contract; • failure to include required materials or work in a bid, or the failure to estimate properly the quantities or costs needed to complete a lump sum contract; • delays caused by weather conditions; • contract or project modifications creating unanticipated costs not covered by change orders or contract price adjustments; • changes in availability, proximity and costs of materials, including steel, concrete, aggregates and other construction materials (such as stone, gravel, sand and oil for asphalt paving), as well as fuel and lubricants for our equipment; and • claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is a part.
The costs incurred and gross profit realized on our contracts can vary, sometimes substantially, from our original estimates due to a variety of factors, that may include, but are not limited to the following: • onsite conditions that differ from those assumed in the original bid or contract; • failure to include required materials or work in a bid, or the failure to estimate properly the quantities or costs needed to complete a lump sum contract; • delays caused by weather conditions; • contract or project modifications creating unanticipated costs not covered by change orders or contract price adjustments; • changes in availability, proximity and costs of materials, including steel, concrete, aggregates and other construction materials (such as stone, gravel, sand and oil for asphalt paving), as well as fuel and lubricants for our equipment; and 9 • claims or demands from third parties for alleged damages arising from the design, construction or use and operation of a project of which our work is a part.
If a construction joint venture partner fails to perform or is financially unable to bear its portion of required capital contributions or other obligations, including liabilities stemming from lawsuits, we could be required to make additional investments, provide additional services or pay more than our proportionate share of a liability to make up for our partner’s shortfall.
If a construction joint venture partner fails to perform or is financially unable to bear its portion of required capital contributions or other obligations, including liabilities stemming from lawsuits, we could be required to make additional investments, provide additional services or pay more than our proportionate share of a liability to make up for 13 our partner’s shortfall.
Our ability to generate cash, outside of funds available through our revolving credit facility (“Revolving Credit Facility”), is subject to our operational performance, as well as general economic, financial, competitive, legislative, regulatory and other 18 factors that are beyond our control. We may be unable to expand our credit capacity, which could adversely affect our operations and business.
Our ability to generate cash, outside of funds available through our revolving credit facility (“Revolving Credit Facility”), is subject to our operational performance, as well as general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may be unable to expand our credit capacity, which could adversely affect our operations and business.
The Building Solutions industry is sensitive to changes in economic conditions and other factors, such as the level of employment, consumer confidence, consumer income, availability of financing and interest rate levels. In 2022, rising inflation and increased interest rates made home ownership less affordable, which resulted in decreased demand for single-family homes.
The Building Solutions industry is sensitive to changes in economic conditions and other factors, such as the level of employment, consumer confidence, consumer income, availability of financing and interest rate levels. Beginning in 2022, rising inflation and increased interest rates made home ownership less affordable, which resulted in decreased demand for single-family homes.
In addition, our inability to qualify as an eligible bidder, or to compete successfully when bidding for certain state or local government contracts and to win those Transportation Solutions contracts, could materially adversely affect our business, operations, revenues and profits. The design-build project delivery method subjects our Transportation Solutions business to the risk of design errors and omissions.
In addition, our inability to qualify as an eligible bidder, or to compete successfully when bidding for certain state or local government contracts and to win those Transportation Solutions contracts, could materially adversely affect our business, operations, revenues and profits. 12 The design-build project delivery method subjects our Transportation Solutions business to the risk of design errors and omissions.
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 9 contract may be less profitable than expected. As a result, these types of contracts could negatively affect our cash flow, earnings and financial position.
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.
Demand for our E-Infrastructure Solutions business is cyclical and may be vulnerable to economic downturns, interest rate fluctuations or other adverse developments in the credit markets, and reductions in private industry spending; the effects of which may cause our customers to delay, curtail or cancel proposed and existing projects.
Demand for our E-Infrastructure Solutions business is cyclical and may be vulnerable to economic downturns, market interest rate fluctuations or other adverse developments in the credit markets, and reductions in private industry spending; the effects of which may cause our customers to delay, curtail or cancel proposed and existing projects.
A cancellation of an unfinished contract could cause our equipment and work crews to be idle for a period of time until other comparable work becomes available, which could have a material adverse effect on our business and results of operations. 14 Risks Related to Our Workforce Our business depends on our ability to attract and retain talented employees.
A cancellation of an unfinished contract could cause our equipment and work crews to be idle for a period of time until other comparable work becomes available, which could have a material adverse effect on our business and results of operations. Risks Related to Our Workforce Our business depends on our ability to attract and retain talented employees.
All project employees receive hazard specific training and our newly-hired employees undergo an initial safety orientation and receive follow-up trainings during their first 90 days of employment. Our project managers and superintendents work closely with the safety department to ensure safety is planned into all of our operations before they begin.
All project employees receive hazard specific training and our newly-hired employees undergo an initial safety orientation and receive follow-up trainings during their first 90 days of employment. Our project managers and superintendents work closely with our safety department to ensure safety is planned into all of our operations before they begin.
If we were required to write down all or a significant part of our goodwill and/or intangible assets in future periods, our net earnings and equity could be materially adversely affected. 19 Failure to maintain adequate financial and management processes and internal controls could lead to errors in reporting our financial results.
If we were required to write down all or a significant part of our goodwill and/or intangible assets in future periods, our net earnings and equity could be materially adversely affected. Failure to maintain adequate financial and management processes and internal controls could lead to errors in reporting our financial results.
See Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our types of risk and how we mitigate cancellation and credit risk. 6 Insurance and Bonding Our buildings and equipment are covered by insurance, at levels our management believes to be adequate.
See Item 1A “Risk Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our types of risk and how we mitigate cancellation and credit risk. Insurance and Bonding Our buildings and equipment are covered by insurance, at levels our management believes to be adequate.
If our market capitalization drops significantly below the amount of net equity recorded on our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill or intangible assets have been impaired.
If our market capitalization drops significantly 19 below the amount of net equity recorded on our balance sheet, it might indicate a decline in our fair value and would require us to further evaluate whether our goodwill or intangible assets have been impaired.
Daily, our project foremen are required to conduct safety briefings with employees. Regular safety walkthroughs are conducted by our managers, supervisors and safety staff to evaluate project conditions and observe employee safety behavior. To address the safety and health of our workforce due to the COVID-19 pandemic, we implemented additional employee health and safety protocols.
Additionally, our project foremen are required to conduct daily safety briefings with our employees. Regular safety walkthroughs are conducted by our managers, supervisors and safety staff to evaluate project conditions and observe employee safety behavior. To address the safety and health of our workforce due to the COVID-19 pandemic, we implemented additional employee health and safety protocols.
Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. We may be subject to unionization, work stoppages, slowdowns or increased labor costs.
Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. 14 We may be subject to unionization, work stoppages, slowdowns or increased labor costs.
We maintain general liability and excess liability insurance, workers’ compensation insurance, auto insurance and other types of insurance all in amounts consistent with our risk of loss and industry practice, but this insurance may not be adequate to cover all losses or liabilities that we may incur in our operations.
We maintain general liability and excess liability insurance, workers’ compensation insurance, auto insurance and other types of insurance all in amounts consistent with our risk of loss and infrastructure industry practice, but this insurance may not be adequate to cover all losses or liabilities that we may incur in our operations.
Many factors, including the financial condition of the 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.
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.
While revenues can be recovered following a period of bad weather, it is generally impossible to recover the cost of inefficiencies, and significant periods of bad weather typically reduce profitability of affected contracts both in the current period and during the future life of affected contracts.
While revenues can be recovered following a period of 10 bad weather, it is generally impossible to recover the cost of inefficiencies, and significant periods of bad weather typically reduce profitability of affected contracts both in the current period and during the future life of affected contracts.
The disposition is consistent with the Company’s strategic shift to reduce its portfolio of low-bid heavy highway and water containment & treatment projects in order to reduce risk and improve the Company’s margins and to focus on its strategic geographies outside of California.
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.
Performance problems on existing and future Transportation Solutions contracts could cause actual results of operations to differ materially from those anticipated by us and could cause us to suffer damage to our reputation within the industry and among our customers.
Performance problems on existing and future Transportation Solutions contracts could cause actual results of operations to differ materially from those anticipated by us and could cause us to suffer damage to our reputation within the infrastructure industry and among our customers.
If shortages and cost increases in materials and tightness in the labor market persist for a prolonged period of time, our profit margins could be adversely impacted if we are unable to offset cost increases.
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.
In some cases, we may maintain and bear the cost of more equipment and ready work crews than are necessary for then-existing needs, in anticipation of future needs for existing contracts or expected future 10 contracts.
In some cases, we may maintain and bear the cost of more equipment and ready work crews than are necessary for then-existing needs, in anticipation of future needs for existing contracts or expected future contracts.
Our website also has recent press releases, the Company’s code of business conduct, the charters of the audit committee, compensation and talent development committee, and corporate governance and nominating committee of the Board of Directors and information on the Company’s “whistleblower” procedures. Our website content is made available for information purposes only.
Our website also has recent press releases, the Company’s code of business conduct, the charters of the audit committee, the compensation and talent development committee, and the corporate governance and nominating committee of the Company’s board of directors (the “Board of Directors”) and information on the Company’s “whistleblower” procedures. Our website content is made available for information purposes only.
Typically, the Company assumes more risk with lump-sum contracts; however, these types of contracts offer additional profits if the work is completed for less than originally estimated. Under fixed-unit price contracts, the Company’s profit may vary if actual labor-hour costs vary significantly from the negotiated rates. Each contract is designed to optimize the balance between risk and reward.
Typically, the Company assumes more risk with lump-sum contracts; however, these types of contracts can yield additional profits if the work is completed for less than originally estimated. Under fixed-unit price contracts, the Company’s profit may vary if actual labor-hour costs vary significantly from the negotiated rates. Each contract is designed to optimize the balance between risk and reward.
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 five acquisitions and plan to consider other strategic acquisitions in the future.
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 six acquisitions and plan to consider other strategic acquisitions in the future.
CERCLA also authorizes the Federal Environmental Protection Agency, or EPA, and, in some instances, third parties, to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur.
CERCLA also authorizes the Federal Environmental Protection Agency (“EPA”) and, in some instances, third parties, to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur.
Risks Related to Our Financial Results, Financing and Liquidity Our use of over time revenue recognition (formally known as percentage-of-completion method) accounting related to our projects could result in a reduction or elimination of previously reported revenue and profits.
Risks Related to Our Financial Results, Financing and Liquidity Our use of over time revenue recognition (formerly known as percentage-of-completion method) accounting related to our projects could result in a reduction or elimination of previously reported revenue and profits.
Our contracts generally have clauses that permit the cancellation of the contract unilaterally and at any time as long as the customer compensates the Company for the work already completed and for additional contractual costs for cancellation.
Our contracts generally have clauses that permit the cancellation of the contract unilaterally and at any time as long as the customer compensates us for the work already completed and for additional contractual costs for cancellation.
Typically, a bidder for a contract must post a bid bond, generally for 5% to 10% of the bid amount, and on being awarded the bid, must post a performance and payment bond for up to 100% of the costs to construct.
Typically, a bidder for a contract must post a bid bond, generally for 5% to 10% of the bid amount, and upon being awarded the bid, must post a performance and payment bond for up to 100% of the costs to construct.
In addition, we maintain general liability, excess liability, workers’ compensation and auto insurance all in amounts consistent with our risk of loss and industry practice.
In addition, we maintain general liability, excess liability, workers’ compensation and auto insurance all in amounts deemed consistent with our risk of loss and standard industry practice.
Certain environmental laws impose substantial penalties for non-compliance and others, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, impose strict and retroactive joint and several liability upon persons responsible for releases of hazardous substances.
Certain environmental laws impose substantial penalties for non-compliance and others, such as the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) impose strict and retroactive joint and several liability upon persons responsible for releases of hazardous substances.
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 (such as COVID-19), geopolitical conflicts (such as the conflict in Ukraine), and other matters that have impacted or could impact the global economy.
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 (such as COVID-19), 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.
At December 31, 2022, substantially all of our backlog was contracted on a fixed-unit price or lump sum basis. We occasionally present claims or change orders to our clients for additional costs exceeding a contract price or for costs not included in the original contract price.
At December 31, 2023, substantially all of our Backlog was contracted on a fixed-unit price or lump sum basis. We occasionally present claims or change orders to our clients for additional costs exceeding or not included in the initial contract price.
Any of these factors, in whole or in part, could materially and adversely affect our business, prospects, financial condition, results of operations, stock price and cash flows. These could also be affected by additional factors that apply to all companies generally which are not specifically mentioned below.
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.
To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract profit, we recognize a credit or a charge against current earnings, which could be material. We may not be able to fully realize the revenue value reported in our Backlog. Backlog as of December 31, 2022 totaled $1.41 billion.
To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract profit, we recognize a credit or a charge against current earnings, which could be material. We may not be able to fully realize the revenue value reported in our Backlog. Backlog as of December 31, 2023 totaled $2.07 billion.
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, referred to as RCRA, and comparable state statutes. Although we do not generate solid waste, we occasionally dispose of solid waste on behalf of customers.
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.
In the past, we have been able to attract a sufficient number of personnel to support the growth of our operations; however, we continue to face competition for experienced workers in all our markets. Our employees are important to the success of our business.
In the past, we have been able to attract a sufficient number of personnel to support the growth of our operations; however, we continue to face competition for experienced workers in all of our markets, and we cannot guarantee we will continue to attract a sufficient number of personnel. 7 Our employees are important to the success of our business.
See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 22 - Segment Information for further discussion of our business segments. E-Infrastructure Solutions —Our E-Infrastructure Solutions segment serves large, blue-chip end users in the e-commerce, data center, distribution center, warehousing, energy sectors and more.
See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 21 - Segment Information for further discussion of our business segments. E-Infrastructure Solutions —Our E-Infrastructure Solutions segment serves large, blue-chip end users in the e-commerce distribution center, data center, manufacturing, warehousing, and power generation sectors and more.
In addition, tighter regulation for the protection of the environment and other factors may make it more difficult to obtain new permits and renewal of existing permits may be subject to more restrictive conditions than currently exist. 7 Human Capital At December 31, 2022, the Company had approximately 3,200 employees, comprised of approximately 600 salaried employees and approximately 2,600 hourly employees.
In addition, tighter regulation for the protection of the environment and other factors may make it more difficult to obtain new permits and renewal of existing permits may be subject to more restrictive conditions than currently exist. Human Capital At December 31, 2023, the Company had approximately 3,000 employees, comprised of approximately 700 salaried employees and approximately 2,300 hourly employees.
Heavy highway projects typically have gross margins of 7-8%; however, prior to 2016 our gross margin was approximately 4%. In 2016 we implemented a strategy to solidify this base business by improving bid discipline to significantly reduce the probability of project losses. To execute this strategic focus, a key objective, risk reduction, was prioritized.
Heavy highway projects typically have gross margins of 7-8%; however, prior to 2016 our gross margin was approximately 4%. In 2016 we implemented a strategy to solidify this base business by improving bid discipline to significantly reduce the probability of project losses.
Building Solutions —Our Building Solutions segment is comprised of our residential and commercial businesses. The principal market for our residential business is Texas, specifically the Dallas-Fort Worth and Houston areas and the surrounding communities. In 2021, we began expanding our footprint into the greater Phoenix area and continued in 2022 with the acquisition of the CCS business.
Building Solutions —Our Building Solutions segment is comprised of our residential and commercial businesses. The principal geographic market for our residential business is Texas, specifically Dallas-Fort Worth, Houston and the surrounding communities. In 2021, we expanded our residential business into the greater Phoenix area and continued this expansion in 2022 with the acquisition of the CCS business.
We strive to instill an inclusive culture that allows all employees the opportunity to thrive.
We strive to instill an inclusive culture that provides all our employees the opportunity to thrive.
E-Infrastructure Solutions projects include advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail and storm drainage systems.
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.
Any termination of a construction joint venture arrangement could cause us to reduce our backlog and could materially and adversely affect our business, results of operations and financial condition. At December 31, 2022, there was approximately $46.1 million of construction work to be completed on unconsolidated construction joint venture contracts, of which $18.5 million represented our proportionate share.
Any termination of a construction joint venture arrangement could cause us to reduce our backlog and could materially and adversely affect our business, results of operations and financial condition. At December 31, 2023, there was approximately $230.0 million of construction work to be completed on unconsolidated construction joint venture contracts, of which $112.4 million represented our proportionate share.
Increasing prices of materials and equipment, including due to inflation, and substantial delays in delivering supplies have and could continue to adversely impact our operations and construction projects. In 2022, our operating margins were adversely impacted, and may continue to be impacted, by price increases for certain materials, including fuel, concrete, steel and lumber.
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.
As of December 31, 2022, our workforce was comprised of the following race and ethnicity demographics: Employees as of December 31, 2022 Hispanic 51.8% White 41.7% Black 3.5% Pacific Islander 1.6% Other 1.4% We focus on our safety processes which have allowed us to maintain a high level of safety at our work sites.
As of December 31, 2023, our workforce was comprised of the following race and ethnicity demographics: Employees as of December 31, 2023 Hispanic 47.4% White 47.2% Black 2.9% Pacific Islander 1.4% Other 1.1% We focus on our safety processes, which have allowed us to maintain a high level of safety at our work sites.
Hiring, developing and retaining our employees is not only important, but is a necessity for continued growth and delivery at all levels within our organization. Every employee is critical to the success of our organization and we strive daily to ensure that we are managing our workforce’s needs and requirements.
Hiring, developing and retaining our employees is not only important, but is a necessity for continued growth and delivery at all levels within our organization. Every employee is critical to our organization’s success, and we are dedicated to ensuring that we manage our workforce’s needs and requirements.
We may need to raise additional capital in the future for working capital, capital expenditures and/or acquisitions, and we may not be able to do so on favorable terms or at all, which would impair our ability to operate our business or achieve our growth objectives.
Inability to realize revenue from our Backlog could have an adverse effect on our business. 17 We may need to raise additional capital in the future for working capital, capital expenditures and/or acquisitions, and we may not be able to do so on favorable terms or at all, which would impair our ability to operate our business or achieve our growth objectives.
We may be required to write down all or part of our goodwill and intangibles. We had approximately $262.7 million of goodwill and $299.1 million of intangibles recorded on our Consolidated Balance Sheet at December 31, 2022.
We may be required to write down all or part of our goodwill and intangibles. We had approximately $281 million of goodwill and $328 million of intangibles recorded on our Consolidated Balance Sheet at December 31, 2023.
See Note 3 - Acquisitions for further discussion. 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. for $18 million in cash.
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.
The percentage of our employees represented by unions at December 31, 2022 was approximately 29%. We have agreements, which we customarily renew periodically, with various unions representing groups of employees at project sites. We consider our relationships with our employees and the applicable labor unions to be satisfactory.
The percentage of our employees represented by unions at December 31, 2023 was approximately 20%. We maintain agreements with various unions representing groups of our employees at project sites, and we typically renew these agreements periodically. We consider our relationships with our employees and the applicable labor unions to be satisfactory.
The price and availability of raw materials may vary from year to year due to fluctuations in market conditions and production capacities.
Fluctuations in the price and availability of these raw materials may vary over time due to changes in market conditions and production capacities.
The disposition represented a strategic shift that 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 and Consolidated Balance Sheets. Prior to being disclosed as a discontinued operation, the results of Myers were included within our Transportation Solutions segment.
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.
Access to Company’s Filings The Company maintains a website at www.strlco.com on which our latest annual report on Form 10-K, recent quarterly reports on Form 10-Q, recent current reports on Form 8-K, any amendments to those filings and other filings may be accessed free of charge; some directly on the website and others through a link to the SEC’s website ( www.sec.gov ) where those reports are filed.
Access to Company’s Filings The Company maintains a website at www.strlco.com on which our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and, any amendments to those reports may be accessed free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC; some directly on the website and others through a link to the SEC’s website ( www.sec.gov ) where those reports are filed.
A prolonged government shutdown could impact inspections, regulatory review and certifications, grants, approvals, or cause other situations that could result in our incurring substantial labor or other costs without reimbursement under government contracts, or the delay or cancellation of key government programs in which we are involved, all of which could have a material adverse effect on our business and results of operations. 13 Risks Related to Our Construction Joint Venture Partners and Customers Our participation in construction joint ventures exposes us to liability and/or harm to our reputation for failures of our partners.
A prolonged government shutdown could impact inspections, regulatory review and certifications, grants, approvals, or cause other situations that could result in our incurring substantial labor or other costs without reimbursement under government contracts, or the delay or cancellation of key government programs in which we are involved, all of which could have a material adverse effect on our business and results of operations.
We have completed several acquisitions and plan to consider strategic acquisitions in the future. We may be unable to implement this growth strategy if we cannot identify suitable companies or assets or reach agreement on potential strategic acquisitions on acceptable terms.
We may be unable to implement this growth strategy if we cannot identify suitable companies or assets or reach agreement on potential strategic acquisitions on acceptable terms.
Since the implementation of the strategy and application of the key objective, we have improved the heavy highway backlog gross margin to 10.9% as of December 31, 2022, and we expect gross margins to continue improving as we continue to execute our strategy.
Since the implementation of the strategy and application of the key objective, we have improved the heavy highway backlog gross margin to 11.3% at December 31, 2023, and we expect gross margins to increase further as we continue to execute our strategy.
However, if market conditions became less favorable, we would tend to see migration from both the small local contractors and large international players into that mid-level market. This, in return, could increase competitive bidding pressure and reduce both revenue growth and margins. See Item 1A “Risk Factors” for further discussion of risks associated with our competitive environment.
However, should market conditions become less favorable, we would expect to see a convergence from both the small local contractors and large international construction companies into our targeted mid-level market. This convergence could increase competitive bidding pressure and reduce both 5 revenue growth and margins. See Item 1A “Risk Factors” for further discussion of risks associated with our competitive environment.
Further, our level of indebtedness could have important other consequences to our business, including the following: • limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate; • increasing our vulnerability to general adverse economic and industry conditions; • limiting our ability to fund future working capital and capital expenditures because of the need to dedicate a substantial portion of our cash flows from operations to payments on our debt service; • placing us at a competitive disadvantage compared to our competitors that have less debt; • limiting our ability to borrow additional funds or refinance existing debt; or • requiring that we pledge substantial collateral, which may limit flexibility in operating our business and restrict our ability to sell assets.
Further, our level of indebtedness could have important other consequences to our business, including the following: • limiting our flexibility in planning for, or reacting to, changes in the industry in which we operate; • increasing our vulnerability to general adverse economic and infrastructure industry conditions; • limiting our ability to fund future working capital and capital expenditures because of the need to dedicate a substantial portion of our cash flows from operations to payments on our debt service; • placing us at a competitive disadvantage compared to our competitors that have less debt; • limiting our ability to borrow additional funds or refinance existing debt; or • requiring that we pledge substantial collateral, which may limit flexibility in operating our business and restrict our ability to sell assets. 18 We may elect to borrow, continue or convert certain term or revolving loans under our Credit Agreement to bear interest at either a base rate plus a margin, or at a one-, three-, or six-month Secured Overnight Financing Rate (“Term SOFR”) plus a margin, at the Company’s election.
Government and Environmental Regulations Our operations are subject to compliance with numerous regulatory requirements of federal, state and local agencies and authorities, including regulations concerning safety, wage and hour, and other labor issues, immigration controls, vehicle and equipment operations and other aspects of our business.
Government and Environmental Regulations Our operations must comply with various regulatory requirements imposed by federal, state and local agencies and authorities, including safety, wage and hour regulations and other labor issues, immigration controls, vehicle and equipment operations and other aspects of our business.
Item 1. Business Overview of the Company’s Business Sterling Infrastructure, Inc. (“Sterling” or “the Company”) operates through a variety of subsidiaries within three segments specializing in E-Infrastructure, Transportation and Building Solutions in the United States (the “U.S.”), primarily across the Southern, Northeastern and Mid-Atlantic U.S., the Rocky Mountain States, and Hawaii, as well as other areas with strategic construction opportunities.
Item 1. Business Overview of the Company’s Business Sterling Infrastructure, Inc. (“Sterling” or “the Company”) 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.
For additional discussion regarding the potential impacts of seasonality on our business, see Item 1A “Risk Factors . ” Resources We purchase raw materials for our segments, including but not limited to, cement, aggregate, concrete, liquid asphalt, lumber, steel, diesel and gasoline fuel, natural gas and propane from numerous sources.
For additional discussion regarding the potential impacts of seasonality on our business, see Item 1A “Risk Factors . ” Resources We procure raw materials essential for the operation of our segments, such as, cement, aggregate, concrete, liquid asphalt, lumber, steel, and fuels, including diesel, gasoline, natural gas and propane, from a broad network of sources.
We will potentially face strong competition and pricing pressures for any additional Transportation Solutions contract awards from other government agencies, and we may be required to qualify or continue to qualify under various multiple award task order contract criteria.
Some contracts include multiple award task order contracts in which several contractors are selected as eligible bidders for future work. We will potentially face strong competition and pricing pressures for any additional Transportation Solutions contract awards from other government agencies, and we may be required to qualify or continue to qualify under various multiple award task order contract criteria.
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 affiliated company’s business (collectively “CCS”) for a purchase price of approximately $21 million.
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.
In this report, unless the context otherwise indicates, “Sterling,” “the Company,” “we,” “our” or “us” means Sterling and its consolidated subsidiaries. In addition, references to “Note” or “Notes” refer to the Notes to the Consolidated Financial Statements, included in Item 8 of Part II of this annual report on Form 10-K, unless indicated otherwise.
In addition, references to “Note” or “Notes” refer to the Notes to the Consolidated Financial Statements, included in Item 8 of Part II of this annual report on Form 10-K, unless indicated otherwise.
Building Solutions projects include residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs and other concrete work. 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.
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.
Within these principal markets, our core customers are the Departments of Transportation (“DOT(s)”) in various states, regional transit authorities, airport authorities, port authorities, water authorities and railroads. In our Transportation Solutions segment, four state DOTs accounted for 44% of that segment’s revenue in 2022, 42% in 2021 and 44% in 2020.
The principal geographic markets of this segment are Arizona, Colorado, Nevada, Texas, Utah and the Pacific Islands. Within these principal markets, our core customers are state Departments of Transportation (“DOT(s)”) and regional transit, airport, port, water and railroad authorities. Four state DOTs accounted for 50% of the segment’s revenue in 2023, 44% in 2022 and 42% in 2021.
In 2016 we implemented a strategy to shift our project mix from low-bid heavy highway projects to alternative delivery heavy highway projects and other higher margin work (e.g., airports, commercial, piling and shoring).
In 2016, we implemented a strategy to shift our project mix from low-bid heavy highway projects to alternative delivery heavy highway projects and other higher margin work (e.g., airports, commercial, piling and shoring). In 2016, our low-bid heavy highway revenue was approximately 79% of our total revenue, but we have progressively lowered this to 15% as of December 31, 2023.
Seasonality Operations for our segments are typically affected by weather conditions primarily during the first and fourth quarters of our fiscal year, which may alter construction schedules and can create variability in our revenues, profitability and the required number of employees.
Seasonality Operations for our segments are often affected by weather conditions, especially during the first and fourth quarters of our fiscal year. These conditions may disrupt construction schedules and lead to variability in our revenues, profitability and the number of employees we require.
Due to the significant competition in the marketplace and the level of regulations on state or local government contracts, we could suffer reductions in new projects and see lower revenues and profit margins on those projects, which could have a material adverse effect on the business, operating results and financial condition. 12 Our Transportation Solutions business depends on our ability to qualify as an eligible bidder under state or local government contract criteria and to compete successfully against other qualified bidders in order to obtain state or local government contracts.
Due to the significant competition in the marketplace and the level of regulations on state or local government contracts, we could suffer reductions in new projects and see lower revenues and profit margins on those projects, which could have a material adverse effect on the business, operating results and financial condition.
The business of CCS provides residential single-family home concrete foundations, including the preparation, pouring and finishing of post-tension concrete foundations in new housing subdivisions in the greater Phoenix area. The transaction includes working capital, intangible assets, and goodwill. The results of CCS are included within Tealstone which is included within our Building Solutions segment.
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.
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.
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. 8 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.
To the extent that we experience a material increase in the frequency or severity of accidents or workers’ compensation and health claims, or unfavorable developments on existing claims, our results of operations and financial condition could be materially and adversely affected. 15 Risks Related to Regulatory Matters Environmental and other regulatory matters, including those relating to climate change, could adversely affect our ability to conduct our business and could require expenditures that could have a material adverse effect on our results of operations and financial condition.
To the extent that we experience a material increase in the frequency or severity of accidents or workers’ compensation and health claims, or unfavorable developments on existing claims, our results of operations and financial condition could be materially and adversely affected.
Competition Competition for our segments ranges from small local contractors to large international construction companies. We traditionally try to position ourselves to bid on work too large for the small local contractors yet too small for the large national and international construction companies.
We aim to position ourselves in the mid-level market, traditionally bidding on work too large for the small local contractors yet too small for the large national and international construction companies.
Risks Related to Strategy and Acquisitions Our strategy, which includes expanding into adjacent markets, may not be successful. We may continue to pursue growth through the acquisition of companies or assets that will enable us to broaden the types of projects we execute and also expand into new markets.
We may continue to pursue growth through the acquisition of companies or assets that will enable us to broaden the types of projects we execute and also expand into new markets. We have completed several acquisitions and plan to consider strategic acquisitions in the future.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following list summarizes our principal properties by segment for which they are primarily utilized and our “Corporate” headquarters: Location Type of Facility Interest Segment(s) The Woodlands, TX Administrative Leased Corporate Austell, GA Administrative, operations and equipment yard Owned/Leased E-Infrastructure Solutions Flanders, NJ (1) Administrative, operations and equipment yard Leased E-Infrastructure Solutions Denton, TX Administrative and operations Owned Building Solutions Draper, UT (1) Administrative and operations Leased Building Solutions and Transportation Solutions Phoenix, AZ Administrative and operations Leased Transportation Solutions Houston, TX Administrative, operations and equipment yard Owned Transportation Solutions Sparks, NV Administrative and operations Owned/Leased Transportation Solutions (1) The leased space is owned by and leased from related parties.
Biggest changeThe following list summarizes our principal properties by segment for which they are primarily utilized and our “Corporate” headquarters: Location Type of Facility Interest Segment(s) The Woodlands, TX Administrative Leased Corporate Austell, GA Administrative, operations and equipment yard Owned/Leased E-Infrastructure Solutions Flanders, NJ (1) Administrative, operations and equipment yard Leased E-Infrastructure Solutions Denton, TX Administrative and operations Owned Building Solutions Draper, UT (1) Administrative and operations Leased Building Solutions and Transportation Solutions Phoenix, AZ Administrative and operations Leased Transportation Solutions Houston, TX Administrative, operations and equipment yard Owned Transportation Solutions Sparks, NV (1) Administrative and operations Owned/Leased Transportation Solutions Wylie, TX (1) Administrative and operations Leased Building Solutions (1) The leased space is owned by and leased from related parties.
Refer to Note 21 - Related Party Transactions for additional information. All of our wholly-owned assets are encumbered, see Note 10 - Debt for further discussion on debt and our current credit agreements.
Refer to Note 20 - Related Party Transactions for additional information. All of our wholly-owned real property is encumbered, see Note 10 - Debt for further discussion on debt and our Credit Agreement.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn the opinion of management, after consultation with legal counsel, there are currently no threatened or pending legal matters that would reasonably be expected to have a material adverse impact on the Company’s Consolidated Results of Operations, Financial Position or Cash Flows. Item 4. Mine Safety Disclosures Not applicable. 20 PART II
Biggest changeIn the opinion of management, after consultation with legal counsel, there are currently no threatened or pending legal matters that would reasonably be expected to have a material adverse impact on the Company’s Consolidated Results of Operations, Financial Position or Cash Flows. See Note 12 - Commitments and Contingencies for additional information. Item 4. Mine Safety Disclosures Not applicable.
Item 3. Legal Proceedings The Company, including its construction joint ventures and its consolidated 50% owned subsidiary, is now and may in the future be involved as a party to various legal proceedings that are incidental to the ordinary course of business.
Item 3. Legal Proceedings The Company, including its construction joint ventures and its consolidated 50% owned subsidiary, is now and may in the future be involved in legal proceedings that are incidental to the ordinary course of business.
The Company regularly analyzes current information about these proceedings and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters.
The Company reviews current information about these proceedings and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeEquity Compensation Plan Information Certain information about the Company’s equity compensation plans will be contained in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A relating to our 2023 annual meeting of shareholders and is incorporated herein by reference.
Biggest changeEquity Compensation Plan Information Certain information about the Company’s equity compensation plans will be contained in our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A relating to our 2024 annual meeting of shareholders and is incorporated herein by reference. 22 Issuer Purchases of Equity Securities The following table sets forth certain information with respect to repurchases of our common stock during the quarter ended December 31, 2023: Period Total number of shares (or units) purchased (1) Average price paid per share (or unit) Total number of shares (or units) purchased as part of publicly announced plans or programs (1) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (1) October 1 – October 31, 2023 0 $ 0.00 0 $ 200,000,000 November 1 – November 30, 2023 0 0.00 0 $ 200,000,000 December 1 – December 31, 2023 0 0.00 0 $ 200,000,000 Total 0 $ 0.00 0 (1) On December 5, 2023, the Board of Directors approved a program that authorized repurchases of up to $200 million of the Company’s common stock.
The graph lines merely connect the measuring dates and do not reflect fluctuations between those dates. The stock performance shown on the graph is not intended to be indicative of future stock performance. 21 The table below depicts the five-year performance of $100 invested on December 31, 2017 in stock or index, including reinvestment of dividends.
The graph lines merely connect the measuring dates and do not reflect fluctuations between those dates. Additionally, the stock performance shown on the graph is not intended to be indicative of future stock performance. 23 The table below depicts the five-year performance of $100 invested on December 31, 2018 in stock or index, including reinvestment of dividends.
VATE Granite Construction Incorporated GVA IES Holdings, Inc. IESC MYR Group Inc. MYRG Eagle Materials Inc. EXP Great Lakes Dredge & Dock Corporation GLDD Comfort Systems USA, Inc. FIX Summit Materials, Inc. SUM Dycom Industries, Inc. DY Chart Industries, Inc. GTLS Columbus McKinnon Corporation CMCO Construction Partners, Inc. (1) ROAD Infrastructure and Energy Alternatives, Inc.
GTLS Columbus McKinnon Corporation CMCO Comfort Systems USA, Inc. FIX Construction Partners, Inc. ROAD Dycom Industries, Inc. DY Eagle Materials Inc. EXP Granite Construction Incorporated GVA Great Lakes Dredge & Dock Corporation GLDD IES Holdings, Inc. IESC INNOVATE Corp. VATE MYR Group Inc. MYRG Primoris Services Corporation PRIM Summit Materials, Inc. SUM Infrastructure and Energy Alternatives, Inc.
The returns are calculated assuming that an investment with a value of $100 was made in the Company’s common stock and in each index at the end of 2017 and that all dividends were reinvested in additional shares of common stock; however, the Company has paid no dividends during the periods shown.
The returns are calculated assuming that an investment with a value of $100 was made in the Company’s common stock and in each index on December 31, 2018 and that all dividends were reinvested in additional shares of common stock; however, the Company has paid no dividends during the periods shown.
Dividend Policy We have never paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings, and we do not anticipate paying any cash dividends. Additionally, our Credit Agreement restricts the payout of dividends.
For the foreseeable future, we intend to retain any earnings, and we do not anticipate paying any cash dividends. Additionally, our Credit Agreement restricts the payout of dividends.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is traded on the NASDAQ Global Select Market under the trading symbol “STRL”. On February 24, 2023, there were 688 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is traded on the NASDAQ Global Select Market under the trading symbol “STRL”. On February 23, 2024, there were 636 holders of record of our common stock. Dividend Policy We have never paid any cash dividends on our common stock.
The Peer Group index replaced the Dow Jones US Heavy Construction Index that was reported in previous years. The companies in the Peer Group were selected because they comprise a broad group of publicly held corporations, each of which has some operations similar to ours.
The companies in the Peer Group were selected because they comprise a broad group of publicly held corporations, each of which has some operations similar to ours. When taken as a whole, management believes the Peer Group more closely resembles our total business than any individual company in the group.
December 2017 December 2018 December 2019 December 2020 December 2021 December 2022 Sterling Infrastructure, Inc. $ 100.00 $ 66.89 $ 86.49 $ 114.31 $ 161.55 $ 201.47 Dow Jones US Total Return Index $ 100.00 $ 95.03 $ 124.62 $ 150.05 $ 189.81 $ 152.98 Peer Group (Added in 2022) $ 100.00 $ 65.30 $ 90.31 $ 122.33 $ 193.00 $ 155.35 Dow Jones US Heavy Construction (Replaced by Peer Group in 2022) $ 100.00 $ 73.89 $ 99.12 $ 120.35 $ 180.21 $ 207.33 The Peer Group in the graph above is comprised of the following member companies: Company Ticker Primoris Services Corporation PRIM INNOVATE Corp.
December 2018 December 2019 December 2020 December 2021 December 2022 December 2023 Sterling Infrastructure, Inc. $ 100.00 $ 129.29 $ 170.89 $ 241.51 $ 301.19 $ 807.44 Dow Jones US Total Return Index $ 100.00 $ 131.15 $ 157.90 $ 199.74 $ 160.99 $ 203.70 Peer Group $ 100.00 $ 124.38 $ 156.81 $ 228.59 $ 189.22 $ 277.86 The Peer Group in the graph above is comprised of the following member companies: Company Ticker Chart Industries, Inc.
Removed
When taken as a whole, management believes the Peer Group more closely resembles our total business than any individual company in the group or the previously reported Dow Jones US Heavy Construction Index .
Added
Under the program, the Company may repurchase its common stock in the open market or through privately negotiated transactions at such times and at such prices as determined to be in the Company’s best interest. The program expires on December 5, 2025 and may be modified, extended or terminated by the Board of Directors at any time.
Removed
(1) IEA (Former) (1) Excluded from the computation due to an incomplete five year history of data. Item 6. [Reserved] 22
Added
(1) IEA (1) Excluded from the computation as it is no longer publicly traded. Item 6. [Reserved] 24

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeBacklog and gross margin: (In thousands) Backlog Gross Margin in Backlog Fourth quarter of 2022 $1,414,342 14.3% Third quarter of 2022 $1,411,271 14.0% Second quarter of 2022 $1,327,218 13.3% First quarter of 2022 $1,378,335 13.2% Fourth quarter of 2021 $1,327,900 12.6% 24 RESULTS OF OPERATIONS Consolidated Results Financial highlights for 2022 as compared to 2021 and 2020 are as follows: Years Ended December 31, (In thousands) 2022 2021 2020 Continuing Operations: Revenues $ 1,769,436 $ 1,414,374 $ 1,226,738 Gross profit 274,567 203,532 179,630 General and administrative expenses (86,480) (69,153) (64,308) Intangible asset amortization (14,100) (11,464) (11,436) Acquisition related costs (827) (3,877) (1,026) Other operating expense, net (13,290) (12,027) (10,245) Operating income 159,870 107,011 92,615 Interest, net (19,706) (19,266) (29,183) Gain (loss) on extinguishment of debt — 1,064 (301) Income before income taxes and noncontrolling interests 140,164 88,809 63,131 Income tax expense (41,707) (24,874) (19,410) Net income 98,457 63,935 43,721 Less: Net income attributable to noncontrolling interests (1,740) (2,478) (598) Net income attributable to Sterling common stockholders $ 96,717 $ 61,457 $ 43,123 Gross margin from Continuing Operations 15.5 % 14.4 % 14.6 % Discontinued Operations (Note 4): Revenues $ 196,134 $ 167,392 $ 200,674 Operating (loss) income $ (7,345) $ 276 $ 2,277 Pretax (loss) income $ (4,848) $ 1,214 $ 2,244 Pretax gain on disposition $ 16,687 $ — $ — 2022 compared to 2021 Revenues— Revenues were $1.77 billion for 2022, an increase of $355.1 million or 25.1% compared to the prior year.
Biggest changeDiscussions of year-over-year comparisons for 2022 and 2021 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2022. 26 RESULTS OF OPERATIONS Consolidated Results The financial highlights for 2023 as compared to 2022 are as follows: Years Ended December 31, (In thousands) 2023 2022 Revenues $ 1,972,229 $ 1,769,436 Gross profit 337,638 274,567 General and administrative expenses (98,703) (86,480) Intangible asset amortization (15,226) (14,100) Acquisition related costs (873) (827) Other operating expense, net (17,041) (13,290) Operating income 205,795 159,870 Interest, net (15,180) (19,706) Income before income taxes and noncontrolling interests 190,615 140,164 Income tax expense (47,770) (41,707) Less: Net income attributable to noncontrolling interests (4,190) (1,740) Net income from Continuing Operations $ 138,655 $ 96,717 Gross margin 17.1 % 15.5 % Revenues— Revenues were $1.97 billion for 2023, an increase of $202.8 million, or 11.5%, compared to the prior year, with 9.1% generated from organic growth.
The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on performance obligations in progress.
The cumulative impact of revisions in total cost estimates during the progress of work is reflected 31 in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on performance obligations in progress.
Under the market-based method, 32 market information such as multiples of comparable publicly traded companies and/or completed sales transactions are used to develop or validate our fair value conclusions, when appropriate and available.
Under the market-based method, market information such as multiples of comparable publicly traded companies and/or completed sales transactions are used to develop or validate our fair value conclusions, when appropriate and available.
Borrowings —Based on our average borrowings for 2022 and our 2023 forecasted cash needs, we continue to believe that the Company has sufficient liquid financial resources to fund our requirements for the next year of operations. Furthermore, the Company is continually assessing ways to increase revenues and reduce costs to improve liquidity.
Borrowings —Based on our average borrowings for 2023 and our 2024 forecasted cash needs, we continue to believe that the Company has sufficient liquid financial resources to fund our requirements for the next year of operations. Furthermore, the Company is continually assessing ways to increase revenues and reduce costs to improve liquidity.
During the fourth quarter of 2022, 2021 and 2020, the Company performed a qualitative assessment of goodwill, and based on this assessment, no indicators of impairment were present. Factors considered include macroeconomic, industry and competitive conditions, financial performance and reporting unit specific events.
During the fourth quarter of 2023, 2022 and 2021, the Company performed a qualitative assessment of goodwill, and based on this assessment, no indicators of impairment were present. Factors considered include macroeconomic, industry and competitive conditions, financial performance and reporting unit specific events.
These are discussed in a number of places including Item 1A “Risk Factors.” Our annual assessments indicated there was no impairment of goodwill during the years ended December 31, 2022, 2021 and 2020.
These are discussed in a number of places including Item 1A “Risk Factors.” Our annual assessments indicated there was no impairment of goodwill during the years ended December 31, 2023, 2022 and 2021.
Other operating expense, net— Other operating expense, net, includes 50% of earnings and losses related to members’ interest of consolidated 50% owned subsidiary, earn-out expense and other miscellaneous operating income or expense. 26 Members’ interest earnings are treated as an expense and increase the liability account.
Other operating expense, net— Other operating expense, net, includes 50% of earnings and losses related to members’ interest of our consolidated 50% owned subsidiary, earn-out and other miscellaneous operating income or expense. Members’ interest earnings are treated as an expense and increase the liability account.
Purchase Price Allocations —The aggregate purchase price for the CCS, Petillo, and Kimes acquisitions were allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of the closing date, which were based, in part, upon internal and external valuations of certain assets, including specifically identified intangible assets and property and equipment.
Purchase Price Allocations —The aggregate purchase price for the PPG and CCS acquisitions were allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of the closing date, which were based, in part, upon internal and external valuations of certain assets, including specifically identified intangible assets and property and equipment.
Goodwill —Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any indicators of impairment or when other actions require an impairment assessment. The Company performs the annual impairment assessment during the fourth quarter of each year based on balances as of October 1.
Goodwill —Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any indicators of impairment or when other actions require an impairment assessment. The Company performs the annual impairment assessment for its reporting units during the fourth quarter of each year based on balances as of October 1.
For the years ended December 31, 2022, 2021 and 2020, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets.
For the years ended December 31, 2023, 2022 and 2021, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets. 32
Years Ended December 31, (In thousands) 2022 2021 2020 Net cash provided by (used in): Operating activities of Discontinued Operations $ (7,334) $ 11,384 $ 10,313 Investing activities of Discontinued Operations (723) (5,964) (1,908) Financing activities of Discontinued Operations (81) (1,908) 6,805 Net change in cash, cash equivalents, and restricted cash of Discontinued Operations $ (8,138) $ 3,512 $ 15,210 Credit Facilities, Debt and Other Capital General —In addition to our available cash, cash equivalents and cash provided by operations, from time to time we use borrowings to finance acquisitions, our capital expenditures and working capital needs.
Years Ended December 31, (In thousands) 2022 2021 Net cash provided by (used in): Operating activities of Discontinued Operations $ (7,334) $ 11,384 Investing activities of Discontinued Operations (723) (5,964) Financing activities of Discontinued Operations (81) (1,908) Net change in cash, cash equivalents, and restricted cash of Discontinued Operations $ (8,138) $ 3,512 Credit Facilities, Debt and Other Capital General —In addition to our available cash, cash equivalents and cash provided by operations, from time to time we use borrowings to finance acquisitions, our capital expenditures and working capital needs.
The Company expects to pursue strategic uses of its cash, such as, investing in projects or businesses that meet its gross margin targets and overall profitability and managing its debt balances.
The Company expects to pursue strategic uses of its cash, such as, investing in projects or businesses that meet its gross margin targets and overall profitability, managing its debt balances and repurchasing shares of its common stock.
Credit Facility —Our amended credit agreement (as amended, the “Credit Agreement”) provides the Company with senior secured debt financing in an initial principal amount of up to $615 million in the aggregate (collectively, the “Credit Facility”), consisting of (i) a senior secured first lien term loan facility (the “Term Loan Facility”) in the aggregate principal amount of $540 million and (ii) a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of $75 million (with a $75 million limit for the issuance of letters of credit and a $15 million sublimit for swing line loans).
Credit Facility —Our amended 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 million and (ii) a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $75 million (with a $75 million limit for the issuance of letters of credit and a $15 million sublimit for swing line loans).
Backlog includes $18.5 million and $71.5 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner at December 31, 2022 and 2021, respectively. We anticipate that approximately 75% of our Backlog will be recognized as revenues during 2023, with substantially all remaining recognized in the twelve months following.
Backlog includes $112.4 million and $18.5 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner at December 31, 2023 and 2022, respectively. We anticipate that approximately 65% of our Backlog will be recognized as revenues during 2024, with substantially all remaining recognized in the twelve months following.
Our unsigned low-bid awards (“Unsigned Low-bid Awards”) are excluded from Backlog until the contract is executed by our customer. We refer to the combination of our Backlog and Unsigned Low-bid Awards as “Combined Backlog.” Our book-to-burn ratio, a non-GAAP measure, is determined by taking our additions to Backlog and dividing it by revenue for the applicable period.
Our unsigned awards (“Unsigned Awards”) are excluded from Backlog until the contract is executed by our customer. We refer to the combination of our Backlog and Unsigned Awards as “Combined Backlog.” Our book-to-burn ratio is determined by taking our additions to Backlog and dividing it by revenue for the applicable period.
Capital Expenditures — Capital equipment is acquired as needed by increased levels of production and to replace retiring equipment. Capital expenditures, net of disposals, incurred in 2022 were $56 million.
Capital Expenditures — Capital equipment is acquired as needed by increased levels of production and to replace retiring equipment. Capital expenditures, net of disposals, incurred in 2023 were $51 million.
Thus, gross profit as a percent of revenues can increase or decrease from comparable and subsequent quarters due to variations among contracts and depending upon the stage of completion of contracts. 25 General and administrative expenses— General and administrative expenses were $86.5 million, or 4.9% of revenue, for 2022, compared to $69.2 million, or 4.9% of revenue, in the prior year.
Thus, gross profit as a percent of revenues can increase or decrease from comparable and subsequent quarters due to variations among contracts and depending upon the stage of completion of contracts. General and administrative expenses— General and administrative expenses were $98.7 million, or 5.0% of revenue, for 2023, compared to $86.5 million, or 4.9% of revenue, in the prior year.
The Company’s margin in Backlog has increased from 12.6% at December 31, 2021 to 14.3% at December 31, 2022 and the Combined Backlog margin increased from 12.6% at December 31, 2021 to 14.2% at December 31, 2022, driven by a greater mix of E-Infrastructure Solutions backlog and an improved backlog margin mix within Transportation Solutions.
The Company’s margin in Backlog has increased to 15.2% at December 31, 2023 from 14.3% at December 31, 2022 and the Combined Backlog margin increased to 15.4% at December 31, 2023 from 14.2% at December 31, 2022, driven by a greater mix of E-Infrastructure Solutions backlog and an improved backlog margin mix within Transportation Solutions.
At December 31, 2022, we had $423.7 million of outstanding borrowings under the Term Loan Facility and 30 no outstanding borrowings under the Revolving Credit Facility. 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.
At December 31, 2023, we had $343.4 million of outstanding borrowings under the Term Loan Facility and no outstanding borrowings under the Revolving Credit Facility. 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 disposition is consistent with the Company’s strategic shift to reduce its portfolio of low-bid heavy highway and water containment & treatment projects in order to reduce risk and improve the Company’s margins and to focus on its strategic geographies outside of California. See Note 4 - Dispositions for further discussion.
The disposition is consistent with the Company’s strategic shift to reduce its portfolio of low-bid heavy highway and water containment & treatment projects in order to reduce risk and improve the Company’s margins and to focus on its strategic geographies outside of California.
E-Infrastructure Solutions projects include advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail and storm drainage systems.
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.
At December 31, 2022, our Backlog was $1.41 billion, as compared to $1.33 billion at December 31, 2021, with a book-to-burn ratio of 1.06 for the year ended December 31, 2022.
At December 31, 2023, our Backlog was $2.07 billion, as compared to $1.41 billion at December 31, 2022, with a book-to-burn ratio of 1.38 for the year ended December 31, 2023.
The change in other operating expense, net, was an increase of $1.8 million during 2021 compared to the prior year. Members’ interest earnings increased by $2.8 million during 2021 to $11.5 million from $8.7 million in the prior year, as a result of improved margin mix from our 50% owned subsidiary.
The change in other operating expense, net, was an increase of $3.8 million during 2023 compared to the prior year. Members’ interest earnings increased by $4.4 million during 2023 to $17.7 million from $13.3 million in the prior year, as a result of higher revenue and improved margin mix from our 50% owned subsidiary.
Unsigned Low-bid Awards were $275.0 million at December 31, 2022 and $22.5 million at December 31, 2021. Combined Backlog totaled $1.69 billion at December 31, 2022 and $1.35 billion at December 31, 2021, with a book-to-burn ratio of 1.22 for the year ended December 31, 2022.
Unsigned Awards were $303.2 million at December 31, 2023 and $275.0 million at December 31, 2022. Combined Backlog totaled $2.37 billion at December 31, 2023 and $1.69 billion at December 31, 2022, with a book-to-burn ratio of 1.40 for the year ended December 31, 2023.
The segment information for the prior periods has been recast to conform to the current presentation of continuing operations.
The segment information for the prior period has been recast to conform to the current presentation.
Cash flows provided by operating activities were driven by higher net income, adjusted for various non-cash items and changes in accounts receivable, net contracts in progress and accounts payable balances (collectively, “Contract Capital”), as discussed below, and other assets and accrued liabilities. 29 Changes in Contract Capital— The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital.
The significant improvement in cash flows provided by operating activities was primarily driven by higher net income and improvements in our accounts receivable, net contracts in progress and accounts payable balances (collectively, “Contract Capital”), as discussed below. Changes in Contract Capital— The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital.
In addition, the Company is required to maintain certain financial covenants. As of December 31, 2022, we were in compliance with all of our restrictive and financial covenants. The Company’s debt is recorded at its carrying amount in the Consolidated Balance Sheets. As of December 31, 2022 and 2021, the carrying values of our debt outstanding approximated the fair values.
In addition, the Company is required to maintain certain financial covenants. See Note 10 - Debt for further discussion of these financial covenants. As of December 31, 2023, we were in compliance with all of our restrictive and financial covenants. The Company’s debt is recorded at its carrying amount in the Consolidated Balance Sheets.
The changes in components of Contract Capital during the years ended December 31, 2022 and 2021 were as follows: Years Ended December 31, (In thousands) 2022 2021 Contracts in progress, net $ 77,692 $ 12,906 Accounts receivable (63,285) (8,300) Receivables from and equity in construction joint ventures (5,034) (243) Accounts payable 11,888 26,605 Change in Contract Capital, net $ 21,261 $ 30,968 During 2022, the change in Contract Capital increased liquidity by $21.3 million.
The changes in components of Contract Capital during the years ended December 31, 2023 and 2022 were as follows: Years Ended December 31, (In thousands) 2023 2022 Contracts in progress, net $ 226,066 $ 77,692 Accounts receivable 12,805 (63,285) Receivables from and equity in construction joint ventures (3,384) (5,034) Accounts payable 10,307 11,888 Change in Contract Capital, net $ 245,794 $ 21,261 During 2023, the change in Contract Capital was $245.8 million.
To date, we have not encountered difficulties or material cost increases in obtaining new surety bonds. Capital Strategy — The Company will continue to explore additional revenue growth and capital alternatives to improve leverage and strengthen its financial position in order to take advantage of trends in the civil infrastructure and E-infrastructure markets.
Capital Strategy — The Company will continue to explore additional revenue growth and capital alternatives to improve leverage and strengthen its financial position in order to take advantage of trends in the civil infrastructure and E-infrastructure markets.
The Company’s Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality (particularly with the acquired Petillo operations), the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed.
The Company’s Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects.
Building Solutions projects include residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs and other concrete work. 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.
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.
Corporate Operating expense— Corporate overhead is primarily comprised of corporate headquarters facility expense, the cost of the executive management team, and expenses pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as corporate human resources, legal, governance and finance functions.
The unallocated remainder is reported in the “Corporate G&A Expense” line, which is primarily comprised of corporate headquarters facility expense, the cost of the executive management team, and other expenses pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to any specific business segment, such as corporate human resources, legal, governance, compliance and finance functions.
Management expects net capital expenditures in 2023 to be in the range of $55 to $60 million; however, the award of a project requiring significant purchases of equipment or other factors could result in increased expenditures. NEW ACCOUNTING STANDARDS There were no new accounting standards adopted during the year ended December 31, 2022.
Management expects net capital expenditures in 2024 to be in the range of $55 to $60 million; however, the award of a project requiring significant purchases of equipment or other factors could result in increased expenditures.
In 2022, the residential market experienced significant price volatility and availability for key materials including concrete, steel and lumber, as well as increases in subcontractor labor cost and decreases in labor availability.
In 2022, the residential market experienced significant price volatility and availability for key materials, including concrete, steel and lumber, as well as increases in subcontractor labor costs and decreased labor availability. The Company negotiated with customers to successfully recoup the increases in material and labor costs through price increases.
The increase was driven by a $75.0 million increase in Transportation Solutions, a $71.5 million increase in E-Infrastructure Solutions and a $41.1 million increase in Building Solutions. Gross profit— Gross profit was $203.5 million for 2021, an increase of $23.9 million or 13.3% compared to the prior year.
The increase was driven by an $88.4 million increase in Transportation Solutions, an $82.3 million increase in Building Solutions and a $32.1 million increase in E-Infrastructure Solutions. Gross profit— Gross profit was $337.6 million for 2023, an increase of $63.1 million, or 23.0%, compared to the prior year.
The following table presents the cash flows from discontinued operations. The year ended December 31, 2022 represents the period ending November 30, 2022, the date of disposition.
The year ended December 31, 2022 represents the period ending November 30, 2022, the date of disposition.
Accordingly, the historical results of Myers have been presented as discontinued operations in our Consolidated Statements of Operations and Consolidated Balance Sheets. Prior to being disclosed as a discontinued operation, the results of Myers were included within our Transportation Solutions segment. The following discussion reflects continuing operations only, unless otherwise indicated.
The disposition represented a strategic shift that 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.
We have pledged all proceeds and other rights under our construction contracts to our bond surety company. Events that affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost.
Events that affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. To date, we have not encountered difficulties or material cost increases in obtaining new surety bonds.
LIQUIDITY AND SOURCES OF CAPITAL Cash and Cash Equivalents— Total cash and cash equivalents at December 31, 2022 and 2021 were $181.5 million and $81.8 million, respectively, and included the following components: As of December 31, (In thousands) 2022 2021 Generally available $ 100,825 $ 29,812 Consolidated 50% owned subsidiary - Continuing Operations 55,700 16,630 Construction joint ventures 25,019 14,503 Cash and cash equivalents from Continuing Operations 181,544 60,945 Consolidated 50% owned subsidiary - Discontinued Operations — 20,895 Total cash and cash equivalents $ 181,544 $ 81,840 The following table presents consolidated information about our cash flows: Years Ended December 31, (In thousands) 2022 2021 Net cash provided by (used in): Operating activities $ 219,116 $ 158,932 Investing activities (89,755) (223,449) Financing activities (32,789) 80,568 Net change in cash and cash equivalents $ 96,572 $ 16,051 Operating Activities— During 2022, net cash provided by operating activities was $219.1 million compared to net cash provided by operating activities of $158.9 million in the prior year.
The increase in operating income was driven by the aforementioned higher volume. 28 LIQUIDITY AND SOURCES OF CAPITAL Cash and Cash Equivalents— Total cash and cash equivalents at December 31, 2023 and 2022 were $471.6 million and $181.5 million, respectively, and included the following components: As of December 31, (In thousands) 2023 2022 Generally available $ 362,884 $ 100,825 Consolidated 50% owned subsidiary 72,007 55,700 Construction joint ventures 36,672 25,019 Cash and cash equivalents $ 471,563 $ 181,544 The following table presents consolidated information about our cash flows: Years Ended December 31, (In thousands) 2023 2022 Net cash provided by (used in): Operating activities $ 478,584 $ 219,116 Investing activities (87,752) (89,755) Financing activities (104,534) (32,789) Net change in cash and cash equivalents $ 286,298 $ 96,572 Operating Activities— During 2023, net cash provided by operating activities was $478.6 million compared to net cash provided by operating activities of $219.1 million in the prior year.
SIGNIFICANT 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. for $18 million in cash.
Caring for our people and our communities, our customers and our investors – that is The Sterling Way. SIGNIFICANT TRANSACTIONS Myers Disposition— On November 30, 2022, we sold the Company’s 50% ownership interest in its partnership with Myers for $18 million in cash.
Gross margin— The Company’s gross margin as a percent of revenue increased to 15.5% in 2022, as compared to 14.4% in the prior year, driven by an increased proportion of revenue from the higher margin E-Infrastructure Solutions segment, improved margin mix from Transportation Solutions, and the recovery of increased costs from Building Solutions.
The increase was driven by higher volume, an improved project margin mix in Transportation Solutions and an improving supply chain. Gross margin— The Company’s gross margin as a percent of revenue increased to 17.1% in 2023, as compared to 15.5% in the prior year.
The increase is due to additional borrowings related to the Petillo Acquisition and increasing interest rates in 2022. Income taxes— The effective income tax rate was 29.8% in 2022 and 28.0% in the prior year. The rates varied from the statutory rate primarily as a result of state income taxes, non-taxed PPP loan forgiveness, non-deductible compensation and other permanent differences.
Income taxes— The effective income tax rate was 25.1% in 2023 and 29.8% in the prior year. The rate varied from the statutory rate primarily as a result of state income taxes, non-deductible compensation and other permanent differences. In 2023, the Company’s non-deductible compensation was offset by increased tax deductions related to stock compensation.
Contracts in progress that were not substantially complete totaled approximately 230 and 150 at December 31, 2022 and 2021, respectively. These contracts are of various sizes, of different expected profitability and in various stages of completion.
The increase in gross margin as a percent of revenue was due to an easing of supply chain challenges starting in the second quarter of 2023. Contracts in progress that were not substantially complete totaled approximately 230 at both December 31, 2023 and 2022. These contracts are of various sizes, of different expected profitability and in various stages of completion.
Material Cash Requirements The following table sets forth our material cash requirements from contractual obligations at December 31, 2022: Payments due by period (In thousands) Total 1 - 3 Years 4 – 5 Years >5 Years Credit Facility $ 423,663 $ 31,935 $ 391,728 $ — $ — Credit Facility interest 22,668 13,862 8,806 — — Other notes payable (inclusive of outstanding interest) 12,901 1,484 11,417 — — Members’ interest subject to mandatory redemption and undistributed earnings (1) 21,597 21,597 — — — Total $ 480,829 $ 68,878 $ 411,951 $ — $ — 31 (1) Mandatory redemption is based on the death or disability of the interest holder.
Material Cash Requirements The following table sets forth our material cash requirements from contractual obligations at December 31, 2023: Payments due by period (In thousands) Total 1 - 3 Years 4 – 5 Years >5 Years Credit Facility $ 343,438 $ 26,250 $ 317,188 $ — $ — Credit Facility interest 57,923 26,089 31,834 — — Other notes payable (inclusive of outstanding interest) 843 275 333 235 — Members’ interest subject to mandatory redemption and undistributed earnings (1) 29,108 29,108 — — — Total $ 431,312 $ 81,722 $ 349,355 $ 235 $ — (1) Mandatory redemption is based on the death or disability of the interest holder.
Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time.
Bonding — As is customary in the construction business, we are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market.
Sterling operates through a variety of subsidiaries within three segments specializing in E-Infrastructure, Transportation and Building Solutions in the United States (the “U.S.”), primarily across the Southern, Northeastern and Mid-Atlantic U.S., the Rocky Mountain States, and Hawaii, as well as other areas with strategic construction opportunities.
This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes thereto. OVERVIEW General —Sterling 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.
As a result of this bill, Sterling had an increase in bid activity and project awards starting in the third quarter of 2022, and we expect this trend to continue for the foreseeable future. Building Solutions —Our Building Solutions segment is comprised of our residential and commercial businesses.
The IIJA also includes $25 billion of funding for airport modernization. As a result of the IIJA, we had an increase in bid activity and project awards which started in the third quarter of 2022 and continued through 2023. We expect this positive trend to continue for the foreseeable future.
Operating income— Operating income was $26.6 million for 2022, an increase of $6.7 million compared to the prior year.
Operating income— Operating income was $46.2 million, or 11.4% of revenue, for 2023, an increase of $9.5 million compared to $36.7 million, or 11.4% of revenue, in the prior year.
However, in the event of a substantial cash constraint and if we were unable to secure adequate debt financing, our liquidity could be materially and adversely affected. Issuance Common Stock —On December 20, 2022, in connection with the acquisition of the business of CCS, the Company issued 157 thousand shares of the Company’s stock as consideration paid to the sellers.
However, in the event of a substantial cash constraint, and if we were unable to secure adequate debt financing, our liquidity could be materially and adversely affected. Issuance of Common Stock —In addition to our available cash, cash equivalents and cash provided by operations and borrowings, from time to time we issue common stock to finance acquisitions.
The revenue growth of our residential business is directly related to the growth of new home starts in its key market of Dallas-Fort Worth and the continued expansion in the Houston and Phoenix markets. The core customer base of our residential business is primarily made up of leading national home builders as well as regional and custom home builders.
Building Solutions —Our Building Solutions segment is comprised of our residential and commercial businesses. The segment is driven by new home starts in Dallas-Fort Worth, the segments largest market, and continued expansion in the Houston and Phoenix markets. Building Solutions' core customer base includes top national, regional and custom home builders in our areas.
Years Ended December 31, (In thousands) 2022 % of Revenues 2021 % of Revenues 2020 % of Revenues Revenues E-Infrastructure Solutions $ 905,277 51% $ 468,784 33% $ 397,253 32% Transportation Solutions 542,550 31% 628,190 45% 553,150 45% Building Solutions 321,609 18% 317,400 22% 276,335 23% Total Revenues $ 1,769,436 $ 1,414,374 $ 1,226,738 Operating Income (Loss) E-Infrastructure Solutions $ 121,453 13.4% $ 80,478 17.2% $ 76,522 19.3% Transportation Solutions 26,623 4.9% 19,888 3.2% 11,998 2.2% Building Solutions 36,693 11.4% 32,564 10.3% 30,441 11.0% Segment Operating Income 184,769 10.4% 132,930 9.4% 118,961 9.7% Corporate (24,072) (22,042) (25,320) Acquisition related costs (827) (3,877) (1,026) Total Operating Income $ 159,870 9.0% $ 107,011 7.6% $ 92,615 7.5% 2022 compared to 2021 E-Infrastructure Solutions Revenues— Revenues were $905.3 million for 2022, an increase of $436.5 million or 93.1% compared to the prior year.
Years Ended December 31, (In thousands) 2023 % of Revenues 2022 % of Revenues Revenues E-Infrastructure Solutions $ 937,408 48% $ 905,277 51% Transportation Solutions 630,908 32% 542,550 31% Building Solutions 403,913 20% 321,609 18% Total Revenues $ 1,972,229 $ 1,769,436 Operating Income E-Infrastructure Solutions $ 140,997 15.0% $ 121,453 13.4% Transportation Solutions 41,911 6.6% 26,623 4.9% Building Solutions 46,193 11.4% 36,693 11.4% Segment Operating Income 229,101 11.6% 184,769 10.4% Corporate G&A Expense (22,433) (24,072) Acquisition Related Costs (873) (827) Total Operating Income $ 205,795 10.4% $ 159,870 9.0% E-Infrastructure Solutions Revenues— Revenues were $937.4 million for 2023, an increase of $32.1 million, or 3.5%, compared to the prior year.
Discontinued Operations— Revenues were $196.1 million for 2022, an increase of $28.7 million or 17.2% compared to the prior year. The increase was driven by higher heavy highway and water containment and treatment revenue, partly offset by lower aviation revenue. Operating loss was $7.3 million for 2022, a decrease of $7.6 million, compared to the prior year.
The increase was driven by higher heavy highway and other non-highway services revenue, partly offset by lower aviation revenues due to the timing of new awards. Operating income— Operating income was $41.9 million, or 6.6% of revenue, for 2023, an increase of $15.3 million compared to $26.6 million, or 4.9% of revenue, in the prior year.
In accordance with the Agreement’s payment terms, the Company is to receive $12 million in January of 2023 and a series of three $2 million payments due by various dates in 2023, 2025 and 2027.
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.
Capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment. Financing Activities— During 2022, net cash used in financing activities was $32.8 million compared to net cash provided of $80.6 million in the prior year.
In 2023, the cash used in investing activities was driven by $51.2 million for the acquisition of the PPG business and $50.6 million for the net purchases of capital equipment, partly offset by the $14 million received for the disposition of Myers. Capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment.
E-Infrastructure Solutions —Sterling’s E-Infrastructure Solutions business is primarily driven by investments in the development of data centers, e-commerce distribution centers, advanced manufacturing centers and warehouses.
E-Infrastructure Solutions —Our E-Infrastructure Solutions business is driven by our customers’ investments in the development of advanced manufacturing centers, data centers, e-commerce distribution centers and warehouses. We foresee significant growth opportunities tied to the implementation of multi-year capital deployment plans by customers in the electric vehicle (EV), battery, solar, food, and semiconductor manufacturing markets.
Operating income— Operating income was $80.5 million for 2021, an increase of $4.0 million compared to the prior year. The increase was primarily driven by higher volume; however, it was partly offset by headwinds from supply chain issues and the related impact on productivity and efficiency.
The increase was primarily driven by higher volume from advanced manufacturing and data centers, partly offset by lower volume from large e-commerce distribution centers and small warehouses. Operating income— Operating income was $141.0 million, or 15.0% of revenue, for 2023, an increase of $19.5 million compared to $121.5 million, or 13.4% of revenue, in the prior year.
Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects. Investing Activities— During 2022, net cash used in investing activities was $89.8 million, compared to net cash used of $223.4 million in the prior year.
Investing Activities— During 2023, net cash used in investing activities was $87.8 million, compared to net cash used of $89.8 million in the prior year.
Discontinued Operations— Cash flows from discontinued operations are disclosed below and in Note 4 - Dispositions , rather than separately presented in the statement of cash flows. The Company does not expect the absence of the cash flows from discontinued operations to have a significant impact on future liquidity and capital resources.
(“Plateau”) seller note, and $9.6 million for withholding taxes paid on the net share settlement of vested equity awards. 29 Discontinued Operations— Cash flows from discontinued operations are disclosed below and in Note 4 - Dispositions , rather than separately presented in the statement of cash flows.
In 2022, the cash used in financing activities was driven by $23.4 million in repayments on the Term Loan Facility (as defined below) and $9.4 million for withholding taxes paid on the net share settlement of vested equity awards.
In 2023, the cash used in financing activities was primarily driven by $93.5 million in repayments of debt, including scheduled payments of $29.8 million and voluntary early payments of $53 million on the Term Loan Facility (as defined below) and $10 million for the repayment of the Plateau Excavation, Inc.
The increase in revenue was primarily the result of a $44.5 million increase in residential revenues, partly offset by a $3.4 million decrease in commercial revenues. Despite inclement weather in Texas in the first half of 2021, the Company’s revenue increased due to a record number of concrete slabs poured in 2021.
The increase was primarily driven by a $66.0 million increase in residential revenues due to a record number of slabs poured in 2023, and an increase in commercial volume compared to 2022. The increase in residential revenues includes $34.4 million from the Arizona concrete foundation business acquired in late 2022.
Transportation Solutions —Sterling’s Transportation Solutions business is primarily driven by federal, state and municipal funding. Federal funds, on average, provide 50% of annual State Department of Transportation capital outlays for highway and bridge projects. In October 2018, the Federal Aviation Administration reauthorized $3.35 billion annually through 2023.
Federal funds, on average, provide 50% of annual State Department of Transportation capital outlays for highway and bridge projects. We benefit from a number of federal, state and local infrastructure investment programs.
The increase was primarily driven by the inclusion of $288.8 million of revenue generated from Petillo operations, as well as higher volume from organic growth. 27 Operating income— Operating income was $121.5 million for 2022, an increase of $41.0 million compared to the prior year.
The increases in operating income and margin were driven by an improved project margin mix and the aforementioned higher revenue. Building Solutions Revenues— Revenues were $403.9 million for 2023, an increase of $82.3 million, or 25.6%, compared to the prior year, with 12.8% generated from organic growth.
We incur expenses at the corporate level that relate to our business as a whole. Certain of these amounts have been charged to our business segments by various methods, largely on the basis of usage, with the unallocated remainder reported in the “Corporate” line.
A portion of these expenses are allocated to our business segments by various methods, but primarily on the basis of usage.
Removed
This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes thereto. On November 30, 2022, we completed the disposition of our 50% ownership interest in our partnership with Myers & Sons Construction L.P. (“Myers”), which represented a strategic shift that had a major effect on our operations and consolidated financial results.
Added
The following discussion reflects continuing operations only, unless otherwise indicated. See Note 4 - Dispositions for further discussion. Professional Plumbers Group - On November 16, 2023, we completed the acquisition of Professional Plumbers Group, Incorporated (“PPG”), a corporation headquartered in Wylie, Texas for a purchase price of approximately $57 million.
Removed
OVERVIEW General —On June 1, 2022, we officially changed our legal name from “Sterling Construction Company, Inc.” to “Sterling Infrastructure, Inc.” (“Sterling” or “the Company”).
Added
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.
Removed
Petillo Acquisition —On December 30, 2021, we completed our acquisition of Petillo for aggregate consideration of $196.8 million.
Added
See Note 3 - Acquisitions for further discussion. MARKET OUTLOOK AND TRENDS We see favorable opportunities for long-term growth across each of our business segments.
Removed
Petillo is a leading specialty site development contractor based in Flanders, New Jersey, and serves the Northeastern and Mid-Atlantic States, providing large-scale site infrastructure improvement service, including full-service excavation, underground utility construction, environmental remediation, drainage systems for commercial construction and water management and distribution systems. The results of Petillo are included within our E-Infrastructure Solutions segment.
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We remain focused on our strategic objectives, as described in Item 1 “Business — Business Strategy.” These objectives include: 1) growth in our E-Infrastructure Solutions segment, with particular focus on large, high-value projects; 2) risk reduction through a continued shift in our Transportation Solutions business away from low-bid heavy highway work, toward alternative delivery and design-build projects; 3) continuing to grow market share and geographic presence in Building Solutions; and 4) improving our margins in each of our segments.
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See Note 3 - Acquisitions for further discussion. MARKET OUTLOOK AND TRENDS The market outlook and trends currently reflect favorable opportunities for long-term growth despite the challenging market pressures, including persistent inflation, supply chain issues and labor challenges. To remain competitive in the current market environments, Sterling remains focused on our strategic business elements and objectives as outlined.
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We have been awarded several large projects related to investments in EV and solar products. We anticipate continued strong demand from these and other technology sectors, supported by Federal government investment initiatives and incentives. Additionally, we continue to benefit from activity related to multiphase hyperscale data center development.
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We continue to shift our focus from low-bid heavy highway work, which now represents approximately 11% of our total revenue, to increasing our revenue from alternative delivery projects within Transportation Solutions and increasing revenue from our E-Infrastructure and Building Solutions segments and improving our margins in each of our segments.
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While the majority of our end customers are demonstrating strong performance, in 2023 we experienced a decline in large e-commerce distribution center and small warehouse activity. We expect these markets will remain subdued through 2024. 25 Transportation Solutions —Our Transportation Solutions business is primarily driven by federal, state and municipal funding.
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The continued revenue growth of the Company’s complex site development business is directly related to the continued implementation of publicly announced multi-year capital infrastructure campaigns from end users, Amazon, Facebook and Home Depot, and opportunistic investments in alternative energy components in solar and battery technology, spurred by the Creating Helpful Incentives to Produce Semiconductors (“CHIPS”) Act.
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At the state and local level, the November 2020 elections saw strong support for transportation initiatives with the passage of many ballot measures that secured, and in some cases increased, funding.
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We have seen a significant increase in demand for data centers, next-generation factories for solar and EV battery plants, advanced manufacturing and new warehouse and industrial development.
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At the Federal level, the November 2021 Infrastructure Investments and Jobs Act (“IIJA”) includes approximately $643 billion in funding for transportation programs ($432 billion for highways, $109 billion for transportation and $102 billion for rail), of which $284 billion is an increase over historic investment levels that will fund new transportation infrastructure.
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This significant increase in demand had been partially offset by a slowdown in large fulfillment center spend in the market. 23 Equipment and land availability, material delays, fuel price increases and rising interest rates continue to be challenging factors for the segment, slowing some development from end users.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Our interest rate risk relates primarily to fluctuations in variable interest rates on our revolving credit facility and term loan facility (collectively, the “Credit Facility”).
Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Our interest rate risk relates primarily to fluctuations in variable interest rates on our revolving credit facility and term loan facility (collectively, the “Credit Facility”) and our cash and cash equivalents balance.
Inflation — While inflation did not have a material impact on our financial results for many years, beginning in 2021 and continuing in 2022, supply chain volatility and inflation has resulted in price increases in oil, fuel, lumber, concrete, steel and labor which have increased our cost of operations, and inflation has increased our general and administrative expense.
Inflation — While inflation did not have a material impact on our financial results for many years, since 2021, supply chain volatility and inflation has resulted in price increases in oil, fuel, lumber, concrete, steel and labor which have increased our cost of operations, and inflation has increased our general and administrative expense.
At December 31, 2022 a 100-basis point (or 1%) increase or decrease in the interest rate would increase or decrease interest expense by approximately $4.2 million per year. Other Fair Value — The carrying values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short-term nature of these instruments.
At December 31, 2023 a 100-basis point (or 1%) increase or decrease in the interest rate would increase or decrease interest income by approximately $4.7 million per year. Other Fair Value — The carrying values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the short-term nature of these instruments.
Based upon the current market rates for debt with similar credit risk and maturities, at December 31, 2022, the fair value of our debt outstanding approximated the carrying value, as interest is based on LIBOR plus an applicable margin.
Based upon the current market rates for debt with similar credit risk and maturities, at 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.
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During 2022, we continued to utilize a swap arrangement to hedge against interest rate variability associated with $200 million of the Term Loan Facility until the swap arrangement expired on December 12, 2022. Our indebtedness as of December 31, 2022 included $423.7 million of variable rate debt under our Credit Facility.
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Our indebtedness as of December 31, 2023 included $343.4 million of variable rate debt under our Credit Facility. At December 31, 2023 a 100-basis point (or 1%) increase or decrease in the interest rate would increase or decrease interest expense by approximately $3.4 million per year. As of December 31, 2023, we held cash and cash equivalents of $471.6 million.

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