Stifel Cross Sector Insights Conference June 2020 Disclosure: - - PowerPoint PPT Presentation

Stifel Cross Sector Insights Conference

June 2020

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.

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HEAVY CIVIL CONSTRUCTION - 53% of Q1’20 Revenues RESIDENTIAL CONSTRUCTION - 12% of Q1’20 Revenues

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

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

NASDAQ: STRL HQ: The Woodlands, TX Employees: ~3,000 Projects underway: ~200 Shares out: 28.0M Market cap: $289.4M TTM Revenues: $1,199.0M QTD EBITDA*: $20.8M Combined Backlog: $1,432M

TTM Revenues, EBITDA and Backlog as of 3/31/20; market cap as of 6/8/20. *See EBITDA Reconciliation on page 29

SPECIALTY SERVICES – 35% of Q1’20 Revenues

Construction site excavation, drilling and blasting, commercial concrete projects, and drainage work Steady 5-7% growth; six month average project duration Margin enhancing; mid-20% Gross Profit margin

Company Overview

Peer Valuation Analysis

Company Forward P/E 2020 Forward EV/EBITDA 2020 7.9x 5.8x 12.1x 5.0x 28.4x 10.9x 5.8x 3.8x 11.0x 3.5x

S&P 500

24.9x 15.0x

NASDAQ

35.5x 19.0x

Russell 2000

76.1x 17.1x

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Data from Bloomberg as of 6/3/20

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; closed on October 2nd, 2019



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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Expan ansi sion

• n into

Ad Adjacent acent Markets ts 15%+ margins Grow High Marg rgin n Products cts 50/50 Split at 12%+ margin Solidify ify the Base 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 the October 2nd, 2019 Plateau acquisition

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

Project Location Value Start Date US-89 Farmington Joint Venture Utah $139 million Q2’20 Bangerter Highway Reconstruction Utah $70 million Q2’20 Multiple Plateau Excavation Awards Southeast US $70 million Q1’20 University Place Garage Utah $26 million Q2’20 Bucholz Army Airfield Runway Marshall Islands $80 million April 2020 Salt Lake City International Airport Utah $97 million Q3’20

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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

Recent Project Awards Validate Strategy

Strategy Driving Profitable Growth

0% 100% 200% 300% 400% 500% 600% 2015 2016 2017 2018 2019 2020E Revenue Growth Gross Profit Growth

Gross Margin vs. Revenue Growth

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2015 2016 2017 2018 2019 2020E

Revenue

0% 2% 4% 6% 8% 10% 12% $- $200 $400 $600 $800 $1,000 $1,200 $1,400 2015 2016 2017 2018 2019

Record Combined Backlog with Improving Margins

Combined Backlog Gross Margin in Combined Backlog $0 $20 $40 $60 $80 $100 $120 $140 2015 2016 2017 2018 2019 2020E

Adjusted EBITDA

Dollar amounts are in millions and 2020 estimates are using pre-COVID 19 guidance.

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Backlog Growth and Margin Improvement

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March 31, 2020 December 31, 2019 Book to Burn In Q1'2020 Amount Margin % Amount Margin% Backlog $1,190 million 12.7% $1,068 million 11.5% 1.47X Combined Backlog $1,432 million 12.1% $1,342 million 11.0% 1.35X

• Backlog reaches record $1.2 billion, including record Plateau backlog.
• Combined Backlog which includes unsigned low-bid awards reaches $1.4 billion.
• Backlog gross margin increased 120 bps to 12.7% and Combined Backlog gross

margin increased 110 bps to 12.1% from end of 2019.

Revenue Composition Shifting Towards Higher Margin Business

79% 21%

2016

Heavy Highway Other Heavy Civil, Specialty Services, and Residential 36% 64%

2019 Proforma (1)

Heavy Highway Other Heavy Civil, Specialty Services, and Residential (1) Proforma includes Plateau results for the full year 2019.

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32% 68%

Q1 2020 Actual

Heavy Highway Other Heavy Civil, Specialty Services, and Residential

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Plateau Acquisition

October 2, 2019

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% Backlog: ~$159 million as of 9/30/19

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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

• Majority of revenue derived 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 ~$70 of EBITDA (net of incremental “public company” expense), providing strong free cash flow 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 Existi ting ng Ster erli ling ng footp tprint int

Platea eau u

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.

Plateau Proves to be Immediately Accretive

Transaction Structure

• Total purchase price of $427.7 million; approximately 5.6x 2018 EBITDA
• Financed the acquisition and repaying existing higher interest rate term loan through a

new $400 million term loan and $75 million revolver

• Closed on October 2, 2019
• 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 ~56 ~71* ~127 # 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

*net of $5 mm of anticipated additional G&A expense *estimates are using pre-COVID 19 guidance

Recent Sterling Results

Q1 2020 Income Statement

• Q1 2020 revenue and gross margin increased primarily due to the

inclusion of a full quarter results from Plateau. Heavy Civil results reflected typical seasonality and both margin and revenue should improve as we begin to ramp up our sizable joint venture projects. Residential improved sequentially, as we continue our ramp up into the Houston market.

• Intangible asset amortization increased $2.2 million during the first

quarter of 2020 to $2.8 million from $0.6 million in the first quarter of 2019, as a result of the Plateau Acquisition.

• Acquisition related costs were $0.5 million during the first quarter of

2020 related to the Plateau Acquisition.

• 131% Adjusted EBITDA increase, reflects the incremental contribution

from the Plateau.

($MM) Q1 2020 Q1 2019 Revenue $296.7 $223.9 Gross Margin 11.9% 8.7% Adjusted Net Income to STRL (1) $3.5 $2.0 Adjusted EBITDA (2) $20.8 $9.0

(1) Adjusted basis excludes costs related to the acquisition of Plateau, net of tax and non-

cash taxes. See Non-GAAP Reconciliation on pages 27-28.

(2) Adjusted for $0.5 million of acquisition costs. See EBITDA Reconciliation on page 15.

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Segment Results

• Heavy Civil segment revenues were largely flat year over year,

but should improve as we begin to ramp up our sizable joint venture projects starting in Q2. Operating profit declined slightly as a result of typical first quarter seasonality.

• Specialty Services segment is largely comprised of our recently

acquired Plateau business. The quarter increases were primarily attributable to the inclusion of three months of results generated from Plateau operations, in spite of adverse weather conditions.

• Residential segment revenue was down compared to prior year,

as a result of heavy rain in March 2020 and the continuing higher demand for smaller homes. Partially offsetting this decline was an increase in completed slabs from our Houston

• expansion. Though we experienced a drop in revenue, margins

improved, as the ramp up and increasing scale in Houston had a favorable impact.

($MM) Q1 2020 Q1 2019

Heavy Civil Revenue $155.6 $150.5 Operating Income $(3.6) $(2.1) Operating Margin (%) (2.3) (1.4) Specialty Services Revenue $104.7 $30.7 Operating Income $11.1 $1.0 Operating Margin (%) 10.6 3.4 Residential Revenue $36.4 $42.8 Operating Income $5.1 $5.8 Operating Margin (%) 14.0 13.6 21

Modeling Considerations - Cash Flow

NON-CASH ITEMS Q1 2020 Q1 2019 Depreciation $5.5 $3.7 Intangible Amortization $2.8 $0.6 Debt Issuance Cost Amortization $1.0 $0.8 Stock-based Compensation $2.2 $1.0 Federal Income Taxes $0.9 Nil FY 2020 Expectations FY 2019 $22 to $24 $15.9 $11 to $12 $4.8 $4.0 $3.4 $8 to $9 $3.8 21% of Pretax Income Nil OTHER ITEMS Q1 2020 Q1 2019 Interest Expense, including Debt Issuance $7.8 $3.1 CAPEX, net of Divestitures $6.8 $3.7 Changes in Operating Assets and Liabilities (2) $(4.7) $(27.4) FY 2020 Expectations FY 2019 $31 to $33 $16.7 $15 to $25 (1) $14.1 Nil $(3.9)

(1) Wide range as actual spending is dependent on how the COVID-19 uncertainties play out for the balance of 2020. (2) While Sterling will experience quarterly seasonal variations throughout 2020, we do not anticipate a significant change for the full year.

($MM)

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Increased EBITDA and Free Cash Flow Drives De-levering Strategy

3.5X 3.0X 1 2 3 4 2019 2020E

Adjusted EBITDA Debt Coverage Ratio

Cash and equivalents $73.9 Current Assets $371.1 Working Capital $84.5 Total Assets $976.4 Current Liabilities $286.3 Total Debt $459.0 Total Liabilities $757.5 Shareholder's Equity $218.9

As of March 31, 2020 ($ in millions)

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Forward Looking Business Fundamentals Remain Strong Despite Headwinds

• Record Backlog and margin in Backlog at quarter end.
• Solid liquidity position that continues to strengthen throughout the remainder of

the year.

• A resilient team that has shown the ability to adjust quickly in a rapid changing

environment.

• Confident in our ability to successfully navigate any slow down challenges we face

in the second half of the year in Residential, multi-family and commercial office spaces within Specialty Services.

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Investment Considerations

25 

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; closed on October 2nd, 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.

Contact Us

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Ron Ballschmiede Chief Financial Officer 281-214-0777 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.

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