Investor Presentation August 2019 Disclosure: Forward-Looking - - PowerPoint PPT Presentation

Investor Presentation

August 2019

Disclosure: Forward-Looking Statements

2 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 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.

Company Overview

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HEAVY CIVIL CONSTRUCTION - 84% of YTD’19 Revenues RESIDENTIAL CONSTRUCTION - 16% of YTD’19 Revenues

Concrete foundations for single family homes High margin, low CAPEX, quick turnaround slab work with fast cash cycles Low risk – operate exclusively in the high growth markets of Dallas-Fort Worth Metroplex and Houston Heavy highway, commercial concrete projects, aviation, and water containment/treatment Steady 3-5% growth; two-year average project duration Cost-driven

Sterling Construction is a leading heavy civil and residential construction company with strong competitive positions in the Western U.S.

NASDAQ: STRL HQ: The Woodlands, TX Employees: 2,000+ Projects underway: >140 Shares out: 26.4M Market cap: $290.9M TTM Revenues: $1,034.5M TTM EBITDA*: $54.3M Combined Backlog: $1,200M

TTM Revenues, EBITDA and Backlog as of 6/30/19; market cap as of 8/26/19. *See EBITDA Reconciliation on page 19

Recently announced Plateau Excavation acquisition provides new end markets and customers

Enhanced Business Model & Attractive Valuation

S&P 500 Russell 2000 NASDAQ Forward P/E ‘20 7.9x 10.0x 14.1x 15.6x 19.6x 20.0x Forward EV/EBITDA ‘20 4.4x 4.8x 6.9x 11.0x 11.9x 12.4x

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Source: Bloomberg as of 8/26/19

Enhanced Business Model

As Sterling continues to evolve into a more diversified specialty E&C company, our differentiated strategy allows the Company to be less dependent on lower margin heavy highway work and capture the upside in end-markets that have higher margins and less risk.

Valuation vs. Peers

Investment Considerations

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

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; anticipated close near the end of Q3’19.



New credit agreement in conjunction with the Plateau acquisition establishes more traditional balance sheet structure with reduced cost

• f capital; significant de-levering anticipated in 2020 and 2021.

Sterling 3-Year Strategic Vision - Introduced in 2016

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Expans ansion i n into Adjac acent M Markets 15%+ margins Grow Hig High Mar argin in P Products 50/50 Split at 12%+ margin So Solid idify the B Bas ase 7-8% 12% 10% 8% 6% 4% 2021 Blended Margin 2015 Margins

Threefold

margin improvement in 6 years 2 3

Key Objectives: Bottom-Line Growth, Risk Reduction, Exceed Peer Performance

2015 - Focused on Solidifying Base and not taking on losing jobs 2016 - Focused on Solidifying Base and began to Grow High Margin Products…Margins increased to 6.4% 2017 - Continued to Solidify Base, Grow High Margin Products, and began Expansion into Adjacent Markets w/ Tealstone Acquisition...Margins increased to 9.3% 2018 - Continued Elements 1&2 and began growing out Tealstone…Margins increased to 10.6% 2019 - Continued 2018 activities and focus on adding next adjacent Market…Combined Margins will increase to over 12% with Plateau acquisition

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Key Objectives: Bottom-Line Growth, Risk Reduction, Exceed Peer Performance

Recent Project Awards Validate Strategy

Project Location Value Start Date I-15 Exit 16 Utah $23 million Q1’19 Logan Regional Wastewater Facility Utah $24 million Q2’19 I-15 Express Lane Extension Utah $94 million Q2’19 SH 34 Bridge Reconstruction Texas $33 million Q3’19 FM 51 Texas $23 million Q3’19

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• Our RHB subsidiary leverages

its highway expertise to also pave airport runways at a higher margin

HI

• Our RLW subsidiary has

historically executed large scale projects across a multitude of end-markets in the Rockies, contributing to sustainable margin expansion

UT

Executing

• n

Strategy

How the Strategy has Driven Higher Margins

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

2015 2016 2017 2018 2019e

Gross Margin

Combined gross margin with Plateau expected to exceed 12%

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Continued Focus on Bottom Line to Triple Gross Margin

Focused on Bottom-Line Growth as Opposed to Top-Line Growth

9 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% 500%

2015 2016 2017 2018 2019e Revenue Growth Gross Profit Growth

Margin growth outpaces revenue growth by approximately 4x

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Plateau Acquisition

Expansion into Adjacent Markets…Plateau

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So Solid idify the B Bas ase Goes from 7-8% to 9-10% 12% 10% 8% 6% 4% Announced ed P Platea eau Acquisiti tion – 8/ 8/14/ 4/19

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Grow Hig High Margin P n Produc ucts 50/50 Split at 12%+ margin Expans ansion i n into Adjac acent M Markets 15%+ margins

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• Provides access to the rapidly growing Southeast US,

a region where Sterling currently has no presence.

• Will enhance overall margin and cash flow and be

immediately accretive.

• Construction services for warehouses and data

centers is an attractive market space with high- profile, blue chip customers.

• Further reduces Sterling’s risk through diversification.

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. Headquarters: Austell, GA Employees: ~800 2018 Revenue: ~$290 million Three year Revenue CAGR: ~12% 2018 EBITDA: ~$72 million Backlog: ~$184 million as of 12/31/18

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Distribution Center/ Warehouse 51% E-Commerce 18% Data Center 10% Commercial & Residential 16% Energy & Other 5%

Backlog by End Market as of 12/31/18

Strong Relationships with High Profile Customers

• 86% of 2017 revenue was from returning customers
• 14-year average tenure with top 10 customers
• Provides Sterling with a whole new (and quickly growing) customer base including:

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Key Benefits to Sterling

• Strong earnings potential and cash generation.

> Can add ~$72 mm and ~$77 mm of EBITDA and free cash flow, respectively, annually.

• Introduction to new markets.

> Plateau operates in attractive markets from both a margin and growth perspective. > Mainly excavate for data centers and warehouses, both

• f which are growing due to a rise in e-commerce,

migration of data to “The Cloud” and the continued prominence of internet activities

• Expansion into higher growth geographies

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• Higher value service with lower execution risk and better margins

Ex Exist sting ng St Sterling g footprin int

Pl Plat ateau eau

Meets Sterling Acquisition Criteria

Higher value add in adjacent end markets with higher margins and lower execution risk End Market Diversification Great management team that stays with the business Strong performing business with significant growth potential Performs “like activities” to what we do today Immediately accretive

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Improving Margins, Reducing Risk, Adding Great People Improving Margins, Reducing Risk, Adding Great People

Transformative Characteristics

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Attractive Margins

Margins - ~26% GM and ~24% EBITDA Margin- significantly above Sterling core business.

Growth Potential

Plateau revenues expected to grow mid-to-high single digits annually for the foreseeable

• future. Mainly excavate for data centers and warehouses, both of which are growing due to

a rise in e-commerce, the migration of data to “The Cloud” and the Internet of Things.

Diversification

Diversification of revenue streams by end market, customer type and geographies.

Lower Risk

Quick turnaround, more stable projects doing activities we do every day.

High Free Cash Flow

Low capex requirements drive high free cash flow.

Combined Entity of ~$1.3 billion in Revenue and $130 million in EBITDA

Transaction Structure

• Total purchase price of $400 million; approximately 5.5x EBITDA
• Financing the acquisition and repaying existing higher interest rate term loan through a

new $400 million term loan and $75 million revolver

• Expect to close near the end of Q3’19
• Key members of Plateau management remaining with company

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Combined Company Analysis

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($ in millions)

Sterling Plateau Combined Revenue ~1,000 ~290 ~1,290 EBITDA ~58 ~72 ~130 # of Employees ~2,000 ~800 ~2,800

Estimated Combined Annual Financials

Heavy Highway Construction 39% Other Heavy Civil Construction 28% Residential Construction 11% Plateau 22%

Revenues by End Market

Heavy Highway becomes <40% of Consolidated Revenue

Recent Sterling Results and Guidance

Recent Results

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

YTD 2019 impacted by difficult weather conditions across much of operating footprint, in addition the Heavy Civil segment is dealing with the delayed start of several large projects.



Those factors led us to revise our FY 2019 revenue guidance.



Combined backlog and available cash at all-time highs of $1.2 billion and $57 million, respectively, as of 6/30/19.



Repurchased $7.9 million of our common stock (717,000 shares) and paid down $8.7 million of debt during the TTM June 2019.



Double digit y/y net income increase, despite the reduction in FY 2019 guidance.

($MM except EPS) TTM June 2019 TTM June 2018 Revenue $1,034 mm $1,049 mm Gross Margin 10.0% 10.1% Net Income to STRL $24.2 mm $20.9 mm EBITDA* $54.3 mm $50.3 mm

*See EBITDA Reconciliation on page 19

$- $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 $1.10 $1.20 2018 2019E

EPS

FY’2019 Guidance & Modeling Considerations*

Revenue $1,010 - $1,025 Net Income $27 - $29 EPS $1.00 - $1.07 EBITDA $56 - $59 Gross Margin 10% - 10.5% G&A Expense as % of Revenue ~5% Other Expense Net $13 - $14 Net Interest Expense $10 - $11 Tax Expense $3 JV Non-Controlling Interest Expense $1 - $2 Expected Shares Outstanding ~27 mm

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*Dollars in millions except for EPS, excludes Plateau acquisition

Investment Considerations

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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

• verall; anticipated close near the end of Q3’19.



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.

Contact Us

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Ron Ballschmiede Chief Financial Officer 281-214-0800 Fred Buonocore, CFA Senior Vice President 212-836-9607 fbuonocore@equityny.com Mike Gaudreau Associate 212-836-9620 mg@equityny.com

Company Representative

Sterling Construction Company, Inc.

Investor Relations Advisors

The Equity Group Inc.

EBITDA Reconciliation

EBITDA Calculation Q2 2019 FY 2018 Q2 2018 Net income attributable to Sterling common stockholders $ 7,828 $ 25,187 $ 8,174 Income tax expense 706 1,738 97 Interest expense 2,904 12,350 3,112 Interest income (291) (1,017) (201) Depreciation and amortization 4,082 16,770 4,183 Calculated EBITDA $ 15,229 $ 55,028 $ 15,365 TTM EBITDA Rollforward FY 2018 EBITDA $ 55,028 H1 2018 EBITDA (24,977) H1 2019 EBITDA 24,294 TTM EBITDA (H1 2019) $ 54,345

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