Jefferies Virtual Industrial Conference August 2020
Disclosure: Forward-Looking Statements This presentation contains, and the officers and directors of the Company may from time to time make, statements that are considered forward- looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about: the scope and duration of the COVID-19 pandemic and its continuing impact on national and global economic conditions; and our business strategy; financial strategy; and plans, objectives, expectations, forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this presentation, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this presentation are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this presentation are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward- looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward- looking statements due to factors listed in the “Risk Factors” section in our filings with the U.S. Securities and Exchange Commission (“SEC”) and elsewhere in those filings. The forward-looking statements speak only as of the date made, and other than as required by law, we do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. This presentation contains the financial measures “EBITDA,” “Adjusted EBITDA,” and “Adjusted EPS,” which are not calculated in accordance with U.S. GAAP. A reconciliation of the non-GAAP financial measures EBITDA, Adjusted EBITDA, and Adjusted EPS to the most directly comparable GAAP financial measure has been provided in the Appendix to this presentation. 2
Company Overview Sterling Construction is a leading heavy civil and residential construction company with strong competitive positions in the Western U.S. HEAVY CIVIL CONSTRUCTION - 55% of Q2’20 Revenues NASDAQ: STRL Heavy highway, commercial concrete projects, aviation, and water HQ: The Woodlands, TX containment/treatment Employees: ~3,000 Steady 3-5% growth; two-year average project duration Projects underway: ~200 Cost-driven Shares out: 28.1M SPECIALTY SERVICES – 34% of Q2’20 Revenues Market cap: $363.8M Construction site excavation, drilling and blasting, commercial concrete TTM Revenues: $1,335.0M projects, and drainage work Steady 5-7% growth; six month average project duration QTD Adj. EBITDA*: $41.4M Margin enhancing; mid-20% Gross Profit margin Combined Backlog: $1,571M TTM Revenues, EBITDA and Backlog as of 6/30/20; RESIDENTIAL CONSTRUCTION - 11% of Q2’20 Revenues market cap as of 8/4/20. Concrete foundations for single family homes *See EBITDA Reconciliation on page 36 High margin, low CAPEX, quick turnaround slab work with fast cash cycles Low risk – operate exclusively in the high growth markets of Dallas-Fort 3 Worth Metroplex and Houston
Peer Valuation Analysis Company Forward P/E 2020 Forward EV/EBITDA 2020 11.0x 6.6x 11.1x 4.6x 26.1x 10.2x 6.4x 3.8x 13.0x 3.4x S&P 500 25.6x 15.5x NASDAQ 38.3x 24.0x Russell 2000 108.0x 17.6x 4 Data from Bloomberg as of 8/4/20
Investment Considerations Organic diversification of end-markets driving significant margin and EPS growth . Disciplined project execution with emphasis on value-driven delivery model. Operational and financial turnaround has been completed by strong and experienced management team. Attractive geographic footprint with favorable funding environment. Acquisition of Plateau provides diversification of revenue streams, a broad range of high-quality customers in rapidly growing end markets, increasing profitability and cash flow, and reduced execution risk for the Company overall; closed on October 2 nd , 2019 New credit agreement in conjunction with the Plateau acquisition establishes more traditional balance sheet structure with reduced cost of capital; significant de-levering anticipated in 2020 and 2021. 5
Sterling 3-Year Strategic Vision - Introduced in 2016 2021 Blended Margin 2015 - Focused on Solidifying Base and not taking on 12% Expans ansion i n into losing jobs 3 Adjac acent M Markets 2016 - Focused on Solidifying Base and began to Grow 15%+ margins 10% High Margin Products…Margins increased to 6.4% Grow Hig High 2 Mar argin in P Products 2017 - Continued to Solidify Base, Grow High Margin 50/50 Split at Threefold Products, and began Expansion into Adjacent Markets 12%+ margin 8% margin w/ Tealstone Acquisition...Margins increased to 9.3% 1 improvement 2018 - Continued Elements 1&2 and began growing out So Solid idify the B Bas ase in 6 years Tealstone…Margins increased to 10.6% 6% 7-8% 2019 - Continued 2018 activities and focus on adding 2015 Margins next adjacent Market…Combined Margins will increase 4% to over 12% with the October 2 nd , 2019 Plateau acquisition Key Objectives: Bottom-Line Growth, Risk Reduction, Exceed Peer Performance Key Objectives: Bottom-Line Growth, Risk Reduction, Exceed Peer Performance 6
Plateau Overview Plateau is the leading provider of infrastructure improvement services in the Southeastern U.S. serving blue-chip customers in the data center, distribution center/warehousing (e-commerce and traditional retail), energy and other growing end markets. Backlog by End Market Headquarters: Austell, GA Energy & Other 5% Employees: ~800 Commercial & Q2 2020 YTD Revenue: ~$106 million Residential 16% Three year Revenue CAGR: ~12% Distribution Center/ Backlog: ~$164 million as of 12/31/19 Warehouse Data Center 51% 10% E-Commerce 18% 7
Revenue Composition Shifting Towards Higher Margin Business 2019 Proforma (1) 2016 Q2 2020 Actual 21% 36% 36% 64% 64% 79% Heavy Highway Heavy Highway Heavy Highway Other Heavy Civil, Specialty Services, and Residential Other Heavy Civil, Specialty Services, and Residential Other Heavy Civil, Specialty Services, and Residential (1) Proforma includes Plateau results for the full year 2019. 8
Strategy Driving Profitable Growth 9 Dollar amounts in millions
Second Quarter 2020 Results • Revenues increased to $400.0 million from $264.1 million in Q2'19, primarily attributable to the inclusion of three months of revenue from Plateau operations. • Gross margin increased 524 basis points to 14.9% from 9.7% in Q2'19. • EBITDA was $41.2 million in Q2'20, a 169% increase over $15.3 million in Q2'19. • Year-to-date generated $52.3 million in cash from operations, compared to cash burn of $4.3 million and $7.9 million in Q2'19 and Q2'18, respectively. • Cash and cash equivalents were $70.6 million at quarter end. • Combined Backlog and associated margin were $1.57 billion and 11.7% at quarter end. 10
Increased EBITDA and Cash Flow Drives De-levering Strategy October 2019 Five Year Credit Facility (the "Facility") • $400M Term Loan Facility • $75M Revolving Credit Facility • Facility proceeds of $400M to acquire Plateau on October 2, 2019 • Facility structured to reduce total funded debt EBITDA coverage from an initial 3.5X to 2.5X or less coverage by the end of 2021. • No penalty for Facility prepayments. Key cash flow Considerations • Cash flows from operations were $52.3M for the six months ended June 30, 2020 compared to $(4.3)M for the comparable prior year period. • 2020 EBITDA guidance of $125M to $135M; Actual EBITDA of $61.5M for the six months of 2020. • Additional 2020 noncash expenses expected to be in the $25M to $29M range (NOL utilization, stock based compensation, noncash EBITDA coverage targeted to be 2.5X or interest expense, etc.). • Scheduled debt payments total $52M in 2020 and $50M in 2021. less by the end of 2021 • More cash flow modeling considerations provided in the appendix. 11
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