UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021

ORor


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___


Commission File Number			1-31993


STERLING CONSTRUCTION COMPANY, INC.
(Exact name of registrant as specified in its charter)

Delaware			25-1655321
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1800 Hughes Landing Blvd. The Woodlands, Texas			77380
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (281) ~~214-0800~~214-0777


Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share	STRL	The NASDAQ Stock Market LLC
(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. þYes ¨ No


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer	¨	Accelerated filer	þ
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes þ No

The number of shares outstanding of the registrant’s common stock as of October ~~30, 2020~~29, 2021 – ~~28,101,317~~28,794,510

STERLING CONSTRUCTION COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues	Revenues	$	383,458	$	291,699	$	1,080,184	$	779,734	Revenues	$	463,449	$	383,458	$	1,180,431	$	1,080,184
Cost of revenues	Cost of revenues	(333,542)		(262,483)		(935,424)		(705,519)		Cost of revenues	(405,645)		(333,542)		(1,021,348)		(935,424)
Gross profit	Gross profit	49,916		29,216		144,760		74,215		Gross profit	57,804		49,916		159,083		144,760
General and administrative expense	General and administrative expense	(15,154)		(10,239)		(51,209)		(32,302)		General and administrative expense	(19,637)		(15,154)		(52,565)		(51,209)
Intangible asset amortization	Intangible asset amortization	(2,866)		(600)		(8,569)		(1,800)		Intangible asset amortization	(2,866)		(2,866)		(8,598)		(8,569)
Acquisition related costs	Acquisition related costs	(401)		(1,896)		(1,013)		(2,158)		Acquisition related costs	—		(401)		—		(1,013)
Other operating expense, net	Other operating expense, net	(2,664)		(4,366)		(9,989)		(9,936)		Other operating expense, net	(3,270)		(2,664)		(10,414)		(9,989)
Operating income	Operating income	28,831		12,115		73,980		28,019		Operating income	32,031		28,831		87,506		73,980
Interest income	Interest income	23		331		146		986		Interest income	13		23		39		146
Interest expense	Interest expense	(7,177)		(3,024)		(22,537)		(8,988)		Interest expense	(3,919)		(7,177)		(15,660)		(22,537)

Gain on extinguishment of debt, net										Gain on extinguishment of debt, net	968		—		2,032		—
Income before income taxes	Income before income taxes	21,677		9,422		51,589		20,017		Income before income taxes	29,093		21,677		73,917		51,589
Income tax expense	Income tax expense	(6,280)		(913)		(14,712)		(1,782)		Income tax expense	(7,336)		(6,280)		(20,275)		(14,712)
Net income	Net income	15,397		8,509		36,877		18,235		Net income	21,757		15,397		53,642		36,877
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	(240)		(552)		(395)		(635)		Less: Net income attributable to noncontrolling interests	(631)		(240)		(1,905)		(395)
Net income attributable to Sterling common stockholders	Net income attributable to Sterling common stockholders	$	15,157	$	7,957	$	36,482	$	17,600	Net income attributable to Sterling common stockholders	$	21,126	$	15,157	$	51,737	$	36,482

Net income per share attributable to Sterling common stockholders:	Net income per share attributable to Sterling common stockholders:									Net income per share attributable to Sterling common stockholders:
Basic	Basic	$	0.54	$	0.30	$	1.31	$	0.67	Basic	$	0.74	$	0.54	$	1.81	$	1.31
Diluted	Diluted	$	0.54	$	0.30	$	1.30	$	0.66	Diluted	$	0.72	$	0.54	$	1.79	$	1.30

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	28,003		26,365		27,832		26,359		Basic	28,710		28,003		28,527		27,832
Diluted	Diluted	28,233		26,637		27,986		26,661		Diluted	29,213		28,233		28,927		27,986

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(In thousands)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net income	$	15,397	$	8,509	$	36,877	$	18,235	Net income	$	21,757	$	15,397	$	53,642	$	36,877
Other comprehensive income, net of tax	Other comprehensive income, net of tax									Other comprehensive income, net of tax
Change in interest rate swap, net of tax (Note 11)		1,010		0		(6,104)		0
Change in interest rate swap, net of tax (Note 9)										Change in interest rate swap, net of tax (Note 9)	718		1,010		2,341		(6,104)
Total comprehensive income	Total comprehensive income	16,407		8,509		30,773		18,235		Total comprehensive income	22,475		16,407		55,983		30,773
Less: Comprehensive income attributable to noncontrolling interests	Less: Comprehensive income attributable to noncontrolling interests	(240)		(552)		(395)		(635)		Less: Comprehensive income attributable to noncontrolling interests	(631)		(240)		(1,905)		(395)
Comprehensive income attributable to Sterling common stockholders	Comprehensive income attributable to Sterling common stockholders	$	16,167	$	7,957	$	30,378	$	17,600	Comprehensive income attributable to Sterling common stockholders	$	21,844	$	16,167	$	54,078	$	30,378

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents ($24,009 and $7,538 related to variable interest entities (“VIEs”))		$	72,593	$	45,733
Accounts receivable, including retainage ($37,721 and $24,642 related to VIEs)		271,342		248,247
Costs and estimated earnings in excess of billings ($7,213 and $8,328 related to VIEs)		55,310		42,555
Receivables from and equity in construction joint ventures ($9,684 and $7,406 related to VIEs)		13,802		9,196
Other current assets ($146 and $503 related to VIEs)		14,171		11,790
Cash and cash equivalents ($36,809 and $26,122 related to variable interest entities (“VIEs”))						Cash and cash equivalents ($36,809 and $26,122 related to variable interest entities (“VIEs”))	$	117,702	$	66,185
Accounts receivable ($29,761 and $25,789 related to VIEs)						Accounts receivable ($29,761 and $25,789 related to VIEs)	218,683		177,424
Contract assets ($11,655 and $8,370 related to VIEs)						Contract assets ($11,655 and $8,370 related to VIEs)	85,498		84,975
Receivables from and equity in construction joint ventures ($7,024 and $9,708 related to VIEs)						Receivables from and equity in construction joint ventures ($7,024 and $9,708 related to VIEs)	21,656		16,653
Other current assets ($3,569 and $1,493 related to VIEs)						Other current assets ($3,569 and $1,493 related to VIEs)	22,483		16,306
Total current assets	Total current assets	427,218		357,521		Total current assets	466,022		361,543
Property and equipment, net ($5,944 and $5,619 related to VIEs)		121,534		116,030
Operating lease right-of-use assets ($4,079 and $3,817 related to VIEs)		17,250		13,979
Property and equipment, net ($9,943 and $6,010 related to VIEs)						Property and equipment, net ($9,943 and $6,010 related to VIEs)	148,444		126,668
Operating lease right-of-use assets, net ($5,133 and $4,213 related to VIEs)						Operating lease right-of-use assets, net ($5,133 and $4,213 related to VIEs)	17,470		16,515
Goodwill ($1,501 and $1,501 related to VIEs)	Goodwill ($1,501 and $1,501 related to VIEs)	192,014		191,892		Goodwill ($1,501 and $1,501 related to VIEs)	192,014		192,014
Other intangibles, net	Other intangibles, net	247,754		256,323		Other intangibles, net	236,289		244,887
Deferred tax asset, net	Deferred tax asset, net	16,589		26,012		Deferred tax asset, net	—		7,817
Other non-current assets, net	Other non-current assets, net	153		183		Other non-current assets, net	4,078		3,250
Total assets	Total assets	$	1,022,512	$	961,940	Total assets	$	1,064,317	$	952,694

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable ($25,276 and $18,213 related to VIEs)		$	127,336	$	137,593
Billings in excess of costs and estimated earnings ($18,533 and $9,649 related to VIEs)		126,986		85,011
Current maturities of long-term debt ($6,793 and $39 related to VIEs)		57,476		42,473
Current portion of long-term lease obligations ($1,716 and $1,838 related to VIEs)		7,624		7,095
Accounts payable ($30,264 and $19,505 related to VIEs)						Accounts payable ($30,264 and $19,505 related to VIEs)	$	142,740	$	95,201
Contract liabilities ($23,410 and $17,678 related to VIEs)						Contract liabilities ($23,410 and $17,678 related to VIEs)	141,236		114,019
Current maturities of long-term debt ($4,857 and $6,793 related to VIEs)						Current maturities of long-term debt ($4,857 and $6,793 related to VIEs)	21,239		77,434
Current portion of long-term lease obligations ($2,253 and $1,801 related to VIEs)						Current portion of long-term lease obligations ($2,253 and $1,801 related to VIEs)	8,314		7,588
Income taxes payable	Income taxes payable	2,251		1,212		Income taxes payable	306		—
Accrued compensation ($3,582 and $1,521 related to VIEs)		24,328		13,727
Other current liabilities ($2,256 and $1,429 related to VIEs)		11,368		6,393
Accrued compensation ($4,235 and $2,141 related to VIEs)						Accrued compensation ($4,235 and $2,141 related to VIEs)	34,801		18,013
Other current liabilities ($1,351 and $1,374 related to VIEs)						Other current liabilities ($1,351 and $1,374 related to VIEs)	9,088		9,629
Total current liabilities	Total current liabilities	357,369		293,504		Total current liabilities	357,724		321,884
Long-term debt ($37 and $2 related to VIEs)		335,237		390,627
Long-term lease obligations ($2,363 and $1,979 related to VIEs)		9,668		6,976
Long-term debt ($69 and $53 related to VIEs)						Long-term debt ($69 and $53 related to VIEs)	299,923		291,249
Long-term lease obligations ($2,880 and $2,412 related to VIEs)						Long-term lease obligations ($2,880 and $2,412 related to VIEs)	9,306		8,958
Members’ interest subject to mandatory redemption and undistributed earnings	Members’ interest subject to mandatory redemption and undistributed earnings	50,798		49,003		Members’ interest subject to mandatory redemption and undistributed earnings	54,766		51,290
Other long-term liabilities ($1,016 and $0 related to VIEs)		10,124		619
Deferred tax liability, net						Deferred tax liability, net	10,287		—
Other long-term liabilities ($722 and $722 related to VIEs)						Other long-term liabilities ($722 and $722 related to VIEs)	9,218		10,584
Total liabilities	Total liabilities	763,196		740,729		Total liabilities	741,224		683,965
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 11)						Commitments and contingencies (Note 11)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, par value $0.01 per share; 38,000 shares authorized, 28,280 and 28,290 shares issued, 28,086 and 27,772 shares outstanding		283		283
Common stock, par value $0.01 per share; 38,000 shares authorized, 28,782 and 28,279 shares issued, 28,782 and 28,184 shares outstanding						Common stock, par value $0.01 per share; 38,000 shares authorized, 28,782 and 28,279 shares issued, 28,782 and 28,184 shares outstanding	288		283
Additional paid in capital	Additional paid in capital	254,860		251,019		Additional paid in capital	255,313		256,423
Treasury stock, at cost: 194 and 518 shares		(2,651)		(6,142)
Retained earnings (deficit)		11,449		(25,033)
Treasury stock, at cost: 0 and 95 shares						Treasury stock, at cost: 0 and 95 shares	—		(1,445)
Retained earnings						Retained earnings	69,010		17,273
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(6,313)		(209)		Accumulated other comprehensive loss	(2,923)		(5,264)
Total Sterling stockholders’ equity	Total Sterling stockholders’ equity	257,628		219,918		Total Sterling stockholders’ equity	321,688		267,270
Noncontrolling interests	Noncontrolling interests	1,688		1,293		Noncontrolling interests	1,405		1,459
Total stockholders’ equity	Total stockholders’ equity	259,316		221,211		Total stockholders’ equity	323,093		268,729
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,022,512	$	961,940	Total liabilities and stockholders’ equity	$	1,064,317	$	952,694

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	36,877	$	18,235	Net income	$	53,642	$	36,877
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	24,639		12,288		Depreciation and amortization	25,336		24,639
Amortization of debt issuance costs and non-cash interest	Amortization of debt issuance costs and non-cash interest	2,489		2,375		Amortization of debt issuance costs and non-cash interest	1,756		2,489
Gain on disposal of property and equipment	Gain on disposal of property and equipment	(1,042)		(466)		Gain on disposal of property and equipment	(1,176)		(1,042)
Gain on debt extinguishment, net						Gain on debt extinguishment, net	(2,032)		—
Deferred taxes	Deferred taxes	10,946		1,561		Deferred taxes	17,413		10,946
Stock-based compensation expense	Stock-based compensation expense	7,961		2,489		Stock-based compensation expense	5,690		7,961
Change in interest rate hedge		251		0
Changes in operating assets and liabilities (Note 17)		8,828		(28,005)
Change in fair value of interest rate swap						Change in fair value of interest rate swap	(41)		251
Changes in operating assets and liabilities (Note 15)						Changes in operating assets and liabilities (Note 15)	35,154		10,134
Net cash provided by operating activities	Net cash provided by operating activities	90,949		8,477		Net cash provided by operating activities	135,742		92,255
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(22,088)		(7,871)		Capital expenditures	(39,315)		(22,088)
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	1,557		1,265		Proceeds from sale of property and equipment	2,093		1,557
Net cash used in investing activities	Net cash used in investing activities	(20,531)		(6,606)		Net cash used in investing activities	(37,222)		(20,531)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Repayments of debt	Repayments of debt	(52,695)		(10,435)		Repayments of debt	(44,184)		(52,695)
Distributions to noncontrolling interest owners	Distributions to noncontrolling interest owners	0		(5,900)		Distributions to noncontrolling interest owners	(1,959)		—
Purchase of treasury stock		0		(3,201)
Other borrowings		9,137		100

Other						Other	(603)		9,137
Net cash used in financing activities	Net cash used in financing activities	(43,558)		(19,436)		Net cash used in financing activities	(46,746)		(43,558)
Net change in cash and cash equivalents		26,860		(17,565)
Cash and cash equivalents at beginning of period		45,733		94,095
Net change in cash, cash equivalents, and restricted cash						Net change in cash, cash equivalents, and restricted cash	51,774		28,166
Cash, cash equivalents, and restricted cash at beginning of period						Cash, cash equivalents, and restricted cash at beginning of period	72,642		50,562
Cash, cash equivalents, and restricted cash at end of period						Cash, cash equivalents, and restricted cash at end of period	124,416		78,728
Less: restricted cash (Other current assets)						Less: restricted cash (Other current assets)	(6,714)		(6,135)
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	72,593	$	76,530	Cash and cash equivalents at end of period	$	117,702	$	72,593
Supplemental disclosures of cash flow information:						Supplemental disclosures of cash flow information:

Non-cash items:						Non-cash items:
Capital expenditures						Capital expenditures	$	116	$	—

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)


		Nine Months Ended September 30, 2020																														Nine Months Ended September 30, 2021
		Common Stock			Additional Paid in Capital				Treasury Stock						Retained Earnings (Deficit)		Accumulated Other Comprehensive Loss					Total Sterling Stockholders’ Equity			Non-controlling Interests				Total Stockholders’ Equity			Common Stock						Additional Paid in Capital			Treasury Stock					Retained Earnings (Deficit)			Accumulated Other Comprehensive Loss			Total Sterling Stockholders’ Equity			Non-controlling Interests			Total Stockholders’ Equity
		Shares	Amount				Shares			Amount											Shares						Amount							Shares			Amount
Balance at December 31, 2019		27,772	$	283			$	251,019		518			$	(6,142)					$	(25,033)				$	(209)			$	219,918			$	1,293		$	221,211
Balance at December 31, 2020																															Balance at December 31, 2020	28,184			$	283			$	256,423		95		$	(1,445)		$	17,273		$	(5,264)		$	267,270		$	1,459		$	268,729
Net income	Net income	—	—		—				—		—				3,115		—					3,115			100				3,215		Net income	—			—			—			—		—			10,555			—			10,555			1,113			11,668
Change in interest rate swap	Change in interest rate swap	—	—		—				—		—				—		(7,061)					(7,061)			—				(7,061)		Change in interest rate swap	—			—			—			—		—			—			895			895			—			895
Stock-based compensation	Stock-based compensation	—	—		2,234				—		—				—		—					2,234			—				2,234		Stock-based compensation	—			—			1,835			—		—			—			—			1,835			—			1,835

Distributions to owners																															Distributions to owners	—			—			—			—		—			—			—			—			(1,959)			(1,959)
Issuance of stock	Issuance of stock	248	—		(2,460)				(248)		2,563				—		—					103			—				103		Issuance of stock	668			5			(1,602)			(111)		1,741			—			—			144			—			144
Shares withheld for taxes	Shares withheld for taxes	(54)	—		(104)				46		(668)				—		—					(772)			—				(772)		Shares withheld for taxes	(246)			(2)			(5,321)			16		(296)			—			—			(5,619)			—			(5,619)
Balance at March 31, 2020		27,966	$	283	$	250,689			316		$	(4,247)			$	(21,918)	$	(7,270)				$	217,537		$	1,393			$	218,930
Balance at March 31, 2021																															Balance at March 31, 2021	28,606			$	286		$	251,335		—		$	—		$	27,828		$	(4,369)		$	275,080		$	613		$	275,693
Net income	Net income	—	—		—				—		—				18,210		—					18,210			55				18,265		Net income	—			—			—			—		—			20,056			—			20,056			161			20,217
Change in interest rate swap	Change in interest rate swap	—	—		—				—		—				—		(53)					(53)			—				(53)		Change in interest rate swap	—			—			—			—		—			—			728			728			—			728
Stock-based compensation	Stock-based compensation	—	—		3,962				—		—				—		—					3,962			—				3,962		Stock-based compensation	—			—			2,015			—		—			—			—			2,015			—			2,015

Issuance of stock	Issuance of stock	73	—		(740)				(73)		844				—		—					104			—				104		Issuance of stock	32			—			120			—		—			—			—			120			—			120
Shares withheld for taxes		(5)	—		(18)				3		(32)				—		—					(50)			—				(50)
Other	Other	—	—		(73)				—		—				—		—					(73)			—				(73)		Other	—			—			(3)			—		—			—			—			(3)			—			(3)
Balance at June 30, 2020		28,034	$	283	$	253,820			246		$	(3,435)			$	(3,708)	$	(7,323)				$	239,637		$	1,448			$	241,085
Balance at June 30, 2021																															Balance at June 30, 2021	28,638			$	286		$	253,467		—		$	—		$	47,884		$	(3,641)		$	297,996		$	774		$	298,770
Net income	Net income	—	—		—				—		—				15,157		—					15,157			240				15,397		Net income	—			—			—			—		—			21,126			—			21,126			631			21,757
Change in interest rate swap	Change in interest rate swap	—	—		—				—		—				—		1,010					1,010			—				1,010		Change in interest rate swap	—			—			—			—		—			—			718			718			—			718
Stock-based compensation	Stock-based compensation	—	—		1,765				—		—				—		—					1,765			—				1,765		Stock-based compensation	—			—			1,840			—		—			—			—			1,840			—			1,840

Issuance of stock	Issuance of stock	66	—		(714)				(66)		917				—		—					203			—				203		Issuance of stock	148			2			105			—		—			—			—			107			—			107
Shares withheld for taxes	Shares withheld for taxes	(14)	—		—				14		(133)				—		—					(133)			—				(133)		Shares withheld for taxes	(4)			—			(99)			—		—			—			—			(99)			—			(99)
Other		—	—		(11)				—		—				—		—					(11)			—				(11)
Balance at September 30, 2020		28,086	$	283	$	254,860			194		$	(2,651)			$	11,449	$	(6,313)				$	257,628		$	1,688			$	259,316
Balance at September 30, 2021																															Balance at September 30, 2021	28,782			$	288		$	255,313		—		$	—		$	69,010		$	(2,923)		$	321,688		$	1,405		$	323,093

~~STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~(In thousands)~~

~~(Unaudited)~~


		Nine Months Ended September 30, 2019																														Nine Months Ended September 30, 2020
		Common Stock			Additional Paid in Capital				Treasury Stock						Retained Deficit		Accumulated Other Comprehensive Loss					Total Sterling Stockholders’ Equity			Non-controlling Interests				Total Stockholders’ Equity			Common Stock						Additional Paid in Capital			Treasury Stock					Retained Earnings (Deficit)			Accumulated Other Comprehensive Loss			Total Sterling Stockholders’ Equity			Non-controlling Interests			Total Stockholders’ Equity
		Shares	Amount				Shares			Amount											Shares						Amount							Shares			Amount
Balance at December 31, 2018		26,597	$	271			$	233,795		467			$	(4,731)					$	(64,934)				$	0			$	164,401			$	7,859		$	172,260
Balance at December 31, 2019																															Balance at December 31, 2019	27,772			$	283			$	251,019		518		$	(6,142)		$	(25,033)		$	(209)		$	219,918		$	1,293		$	221,211
Net income	Net income	—	—		—				—		—				1,815		—					1,815			46				1,861		Net income	—			—			—			—		—			3,115			—			3,115			100			3,215
Stock-based compensation		(1)	—		1,021				—		—				—		—					1,021			—				1,021
Distributions to owners		—	—		—				—		—				—		—					0			(5,100)				(5,100)
Purchase of treasury stock		(250)	—		—				250		(3,201)				—		—					(3,201)			—				(3,201)
Issuance of stock		130	—		(1,314)				(130)		1,314				—		—					0			—				0
Shares withheld for taxes		(52)	—		—				45		(564)				—		—					(564)			—				(564)
Balance at March 31, 2019		26,424	$	271	$	233,502			632		$	(7,182)			$	(63,119)	$	0				$	163,472		$	2,805			$	166,277
Net income		—	—		—				—		—				7,828		—					7,828			37				7,865
Change in interest rate swap																															Change in interest rate swap	—			—			—			—		—			—			(7,061)			(7,061)			—			(7,061)
Stock-based compensation	Stock-based compensation	—	—		649				—		—				—		—					649			—				649		Stock-based compensation	—			—			2,234			—		—			—			—			2,234			—			2,234

Issuance of stock	Issuance of stock	49	—		(494)				(49)		494				—		—					0			—				0		Issuance of stock	248			—			(2,460)			(248)		2,563			—			—			103			—			103
Shares withheld for taxes	Shares withheld for taxes	(7)	—		(98)				—		—				—		—					(98)			—				(98)		Shares withheld for taxes	(54)			—			(104)			46		(668)			—			—			(772)			—			(772)
Balance at June 30, 2019		26,466	$	271	$	233,559			583		$	(6,688)			$	(55,291)	$	0				$	171,851		$	2,842			$	174,693
Balance at March 31, 2020																															Balance at March 31, 2020	27,966			$	283		$	250,689		316		$	(4,247)		$	(21,918)		$	(7,270)		$	217,537		$	1,393		$	218,930
Net income	Net income	—	—		—				—		—				7,957		—					7,957			552				8,509		Net income	—			—			—			—		—			18,210			—			18,210			55			18,265
Change in interest rate swap																															Change in interest rate swap	—			—			—			—		—			—			(53)			(53)			—			(53)
Stock-based compensation	Stock-based compensation	—	—		819				—		—				—		—					819			—				819		Stock-based compensation	—			—			3,962			—		—			—			—			3,962			—			3,962
Distributions to owners		—	—		—				—		—				—		—					0			(800)				(800)

Issuance of stock	Issuance of stock	13	—		(69)				(13)		139				—		—					70			—				70		Issuance of stock	73			—			(740)			(73)		844			—			—			104			—			104
Shares withheld for taxes	Shares withheld for taxes	(3)	—		—				3		(32)				—		—					(32)			—				(32)		Shares withheld for taxes	(5)			—			(18)			3		(32)			—			—			(50)			—			(50)
Balance at September 30, 2019		26,476	$	271	$	234,309			573		$	(6,581)			$	(47,334)	$	0				$	180,665		$	2,594			$	183,259
Other																															Other	—			—			(73)			—		—			—			—			(73)			—			(73)
Balance at June 30, 2020																															Balance at June 30, 2020	28,034			$	283		$	253,820		246		$	(3,435)		$	(3,708)		$	(7,323)		$	239,637		$	1,448		$	241,085
Net income																															Net income	—			—			—			—		—			15,157			—			15,157			240			15,397
Change in interest rate swap																															Change in interest rate swap	—			—			—			—		—			—			1,010			1,010			—			1,010
Stock-based compensation																															Stock-based compensation	—			—			1,765			—		—			—			—			1,765			—			1,765

Issuance of stock																															Issuance of stock	66			—			(714)			(66)		917			—			—			203			—			203
Shares withheld for taxes																															Shares withheld for taxes	(14)			—			—			14		(133)			—			—			(133)			—			(133)
Other																															Other	—			—			(11)			—		—			—			—			(11)			—			(11)
Balance at September 30, 2020																															Balance at September 30, 2020	28,086			$	283		$	254,860		194		$	(2,651)		$	11,449		$	(6,313)		$	257,628		$	1,688		$	259,316

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

STERLING CONSTRUCTION COMPANY, INC. & SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2020~~2021

($ and share values in thousands, except per share data)

(Unaudited)


1.			NATURE OF OPERATIONS

Business Summary

Sterling Construction Company, Inc., (“Sterling,” “the Company,” “we,” “our” or “us”), a Delaware corporation, ~~is a construction company that has been involved in the construction industry since its founding in 1955. The Company~~ operates through a variety of subsidiaries within three segments specializing in Heavy Civil, Specialty Services and Residential projects in the United States (the “U.S.”), primarily across the southern U.S., the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. Heavy Civil includes infrastructure and rehabilitation projects for highways, roads, bridges, ~~airfields,~~airports, ports, light rail, water, wastewater and storm drainage systems. Specialty Services projects include ~~construction~~ site ~~excavation and drainage, drilling and blasting for excavation,~~development activities, foundations for multi-family homes, parking structures and other commercial concrete projects. Residential projects include concrete foundations for single-family homes.


2.			BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Presentation Basis—The accompanying Condensed Consolidated Financial Statements are presented in accordance with accounting policies generally accepted in the United States (“GAAP”) and reflect all wholly owned subsidiaries and those entities the Company is required to consolidate. See ~~the “Consolidated~~Note 4 - Consolidated 50% Owned ~~Subsidiaries”~~Subsidiaries and ~~“Construction~~Note 5 - Construction Joint ~~Ventures” section of the Notes~~Ventures for further discussion of the Company’s consolidation policy for those entities that are not wholly owned. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Values presented within tables (excluding per share data) are in thousands. Reclassifications have been made to historical financial data in the Condensed Consolidated Financial Statements to conform to the current year presentation.

Estimates and Judgments—The preparation of the accompanying Condensed Consolidated Financial Statements in ~~conformity~~conformance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting estimates of the Company require a higher degree of judgment than others in their application. These include the recognition of revenue and earnings from construction contracts over time, the valuation of long-lived assets, goodwill ~~income taxes~~ and purchase accounting ~~estimates, including goodwill and other intangible assets.~~estimates. Management continually evaluates all of its estimates and judgments based on available information and experience; however, actual results could differ from these estimates.

Significant Accounting Policies

Consistent with Regulation S-X Rule 10-1(a), the Company has omitted significant accounting policies in this quarterly report that would duplicate the disclosures contained in the Company’s annual report on Form 10-K for the year ended December 31, ~~2019~~2020 under “Part II, Item 8. - Notes to Consolidated Financial Statements.” This quarterly report should be read in conjunction with the Company’s most recent annual report on Form 10-K.

~~Receivables, including Retainage—~~Accounts Receivable—Receivables are generally based on amounts billed to the customer in accordance with contractual provisions. Receivables are written off based on the individual credit evaluation and specific circumstances of the customer, when such treatment is warranted. The Company performs a review of outstanding receivables, historical collection information and existing economic conditions to determine if there are potential uncollectible receivables. At September 30, 2021 and December 31, 2020, our allowance for our estimate of expected credit losses was zero.

As is customary, we have agreed to indemnify our bonding company for all losses incurred by it in connection with bonds that are issued, and we have granted our bonding company a security interest in certain assets, including accounts receivable, as collateral for such obligations.

Contracts in Progress—For performance obligations satisfied over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Typically, Sterling bills for advances or deposits from its customers before revenue is recognized, resulting in contract liabilities. However, the Company occasionally bills subsequent to revenue recognition, resulting in contract assets.

Many of the contracts under which the Company performs work also contain retainage provisions. Retainage refers to that portion of our billings held for payment by the customer pending satisfactory completion of the project. Unless reserved, the Company assumes that all amounts retained by customers under such provisions are fully collectible. At September 30, 2021 and December 31, 2020, contract assets included $42,790 and $44,412 of retainage, respectively, and contract liabilities included $41,925 and $33,856 of retainage, respectively. Retainage on active contracts is classified as a current ~~asset~~ regardless of the term of the contract and is generally collected within one year of the completion of a contract. AtWe anticipate collecting approximately 66% of our September 30, 2021 retainage during the next twelve months. These assets and liabilities are reported on the Condensed Consolidated Balance Sheet within “Contract assets” and “Contract liabilities” on a contract-by-contract basis at the end of each reporting period.

Revenue recognized for the three and nine months ended September 30, 2021 that was included in the contract liability balance on December 31, 2020 was $111,887 and $409,257, respectively. Revenue recognized for the three and nine months ended September 30, 2020 ~~and~~that was included in the contract liability balance on December 31, 2019 ~~receivables included $78,300~~was $106,072 and ~~$79,400 of retainage (contract asset),~~$384,569, respectively.

Receivables are written off based on individual credit evaluation and specific circumstances of the customer, when such treatment is warranted. The Company performs a review of outstanding receivables, historical collection information and existing economic conditions to determine if there are potential uncollectible receivables. At both September 30, 2020 and December 31, 2019, our allowance for doubtful accounts against contracts receivable was 0.

Cash and Restricted ~~cash—~~Cash—Our cash is comprised of highly liquid investments with maturities of three months or less. Restricted cash of ~~approximately $6,100~~$6,714 and ~~$4,800~~$6,457 is included in “Other current assets” on the Condensed Consolidated Balance Sheets at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. This primarily represents cash deposited by the Company into separate accounts and designated as collateral for standby letters of credit in the same amount in accordance with contractual agreements.

~~Recently Adopted Accounting Pronouncements~~

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13 to add the guidance in ASC 326 on the impairment of financial instruments. The ASU introduces an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. The amendments in the ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2020 and noted no material impact to the Company’s Condensed Consolidated Financial Statements.


3.			~~PLATEAU ACQUISITION~~

~~General—~~On October 2, 2019, Sterling consummated the acquisition (the “Plateau Acquisition”) of all of the issued and outstanding shares of capital stock of LK Gregory Construction, Inc. and Plateau Excavation, Inc., and all of the issued and outstanding equity interests in DeWitt Excavation, LLC. The Plateau Acquisition was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, ~~Business Combinations~~.

~~Purchase Consideration—Sterling completed the Plateau Acquisition for a purchase price of $427,533, net of cash acquired, detailed as follows:~~


~~Cash consideration transferred, net of $2,425 of cash acquired~~	$	~~375,000~~
~~Target working capital adjustment~~	~~21,323~~
~~Equity consideration transferred (1,245 shares at $13.01 per share(1)~~)	~~16,195~~
~~Note payable to seller (See Note 9 - Debt)~~	~~10,000~~
~~Tax basis election~~	~~5,015~~
~~Total consideration~~	$	~~427,533~~

~~(1)~~ ~~Sterling’s closing stock price on October 1, 2019~~

~~Purchase Price Allocation—~~The aggregate purchase price noted above was allocated to the assets and liabilities acquired based upon their estimated fair values at the acquisition closing date, which were based, in part, upon an external appraisal and valuation of certain assets, including specifically identified intangible assets. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired totaling $106,784 was recorded as goodwill.

~~The following table summarizes our purchase price allocation at the acquisition closing date, net of cash acquired:~~


~~Net tangible assets:~~
~~Accounts receivable, including retainage~~	$	~~81,921~~
~~Costs and estimated earnings in excess of billings~~	~~974~~
~~Other current assets~~	~~249~~
~~Property and equipment, net~~	~~65,492~~
~~Other non-current assets, net~~	10
~~Accounts payable~~	~~(22,039)~~
~~Billings in excess of costs and estimated earnings~~	~~(16,540)~~
~~Other current and non-current liabilities~~	~~(7,918)~~
~~Total net tangible assets~~	~~102,149~~
~~Identifiable intangible assets~~	~~218,600~~
~~Goodwill~~	~~106,784~~
~~Total consideration transferred~~	$	~~427,533~~

~~Identifiable Intangible Assets~~—Intangible assets identified as part of the Plateau Acquisition are reflected in the table below and are recorded at their estimated fair value, as determined by the Company’s management, based on available information which includes a valuation from external experts. The estimated useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows.

Weighted Average Life (Years) October 2, 2019
Fair Value
Customer relationships 25 $ 191,800
Trade name 25 24,800
Non-compete agreements 5 2,000
Total $ 218,600

~~Supplemental Pro Forma Information (Unaudited)~~—The following unaudited pro forma combined financial information (“the pro forma financial information”) gives effect to the Plateau Acquisition, accounted for as a business combination using the purchase method of accounting. The pro forma financial information reflects the Plateau Acquisition and related events as if they occurred at the beginning of the period, and gives effect to pro forma events that are: directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results of Sterling and Plateau following the Plateau Acquisition. The pro forma financial information includes adjustments to (1) exclude transaction costs that were included in historical results and are expected to be non-recurring, (2) include additional intangibles amortization and net interest expense associated with the Plateau Acquisition and (3) include the pro forma results of Plateau for the three and nine months ended September 30, 2019. This pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the dates indicated. Further, the pro forma financial information does not purport to project the future operating results of the combined company following the Plateau Acquisition.

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Pro forma revenue $ 381,721 $ 1,012,192
Pro forma net income attributable to Sterling $ 29,902 $ 58,225


4.			REVENUE FROM CUSTOMERS

Backlog

—The ~~Company had~~following table presents the ~~following~~Company’s backlog, by segment:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Heavy Civil Backlog	Heavy Civil Backlog	$	945,060	$	834,049	Heavy Civil Backlog	$	1,019,904	$	898,183
Specialty Services Backlog	Specialty Services Backlog	293,081		233,976		Specialty Services Backlog	391,443		277,205
Total Heavy Civil and Specialty Services Backlog	Total Heavy Civil and Specialty Services Backlog	$	1,238,141	$	1,068,025	Total Heavy Civil and Specialty Services Backlog	$	1,411,347	$	1,175,388

The Company expects to recognize approximately ~~66%~~64% of its backlog as revenue during the next twelve months, and the balance thereafter.

Revenue Disaggregation

—The following tables present the Company’s revenue disaggregated by major end market and contract type:


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,		Nine Months Ended September 30,
Revenue by major end market		2020		2019		2020		2019
Revenues by major end market											Revenues by major end market	2021		2020		2021		2020
Heavy Highway	Heavy Highway	$	148,239	$	142,118	$	397,139	$	365,692		Heavy Highway	$	188,746	$	148,239	$	427,451	$	397,139
Aviation	Aviation	20,473		39,105		83,797		106,103			Aviation	35,840		20,473		99,816		83,797
Water Containment and Treatment	Water Containment and Treatment	17,751		15,960		56,089		46,709			Water Containment and Treatment	11,463		17,751		41,890		56,089
Other	Other	14,615		21,711		40,116		51,131			Other	13,849		14,615		30,948		40,116
Heavy Civil Revenue		$	201,078	$	218,894	$	577,141	$	569,635
Heavy Civil Revenues											Heavy Civil Revenues	249,898		201,078		600,105		577,141
Site Development											Site Development	121,286		114,961		341,601		296,845
Commercial											Commercial	26,970		25,010		82,647		83,552
Specialty Services Revenues											Specialty Services Revenues	148,256		139,971		424,248		380,397
Residential Revenues											Residential Revenues	65,295		42,409		156,078		122,646
Total Revenues											Total Revenues	$	463,449	$	383,458	$	1,180,431	$	1,080,184

Land Development		$	114,961	$	0	$	296,845	$	0
Commercial		25,010		32,863		83,552		91,436
Specialty Services Revenue		$	139,971	$	32,863	$	380,397	$	91,436

Residential Revenue		$	42,409	$	39,942	$	122,646	$	118,663

Revenues		$	383,458	$	291,699	$	1,080,184	$	779,734

Revenue by contract type
Revenues by contract type											Revenues by contract type
Fixed-Unit Price	Fixed-Unit Price	$	187,692	$	207,807	$	631,639	$	534,323		Fixed-Unit Price	$	267,093	$	187,692	$	670,526	$	631,639
Lump Sum	Lump Sum	148,463		43,959		301,025		125,096			Lump Sum	129,742		148,463		348,313		301,025
Residential and Other	Residential and Other	47,303		39,933		147,520		120,315			Residential and Other	66,614		47,303		161,592		147,520
Revenues		$	383,458	$	291,699	$	1,080,184	$	779,734
Total Revenues											Total Revenues	$	463,449	$	383,458	$	1,180,431	$	1,080,184

Each of these contract types presents advantages and disadvantages. 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. Also, because some contracts can provide little or no fee for managing material costs, the components of contract cost can impact profitability.

Variable Consideration

The Company has projects that it is in the process of negotiating, or awaiting final approval of, unapproved change orders and claims with its customers. The Company is proceeding with its contractual rights to recoup additional costs incurred from its customers based on completing work associated with change orders, including change orders with pending change order pricing, or claims related to significant changes in scope which resulted in substantial delays and additional costs in completing the work. Unapproved change order and claim information has been provided to the Company’s customers and negotiations with the customers are ongoing. If additional progress with an acceptable resolution is not reached, legal action will be taken.

Based upon the Company’s review of the provisions of its contracts, specific costs incurred and other related evidence supporting the unapproved change orders and claims, together in some cases as necessary with the views of the Company’s outside claim consultants, the Company concluded it was appropriate to include in project price amounts of ~~approximately $7,900~~$13,900 and ~~$3,000,~~$7,142, at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, relating to unapproved change orders and claims. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

Contract Estimates

Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes such profit over the life of the contract.

Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials and the performance of subcontractors. Changes in job performance, job conditions and estimated profitability, including those changes arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

Changes in contract estimates resulted in a net decrease of $354 and a net increase of $11,678 for the three and nine months ended September 30, 2021, respectively, and net increases of approximately ~~$2,700~~$2,725 and ~~$5,000~~$5,017 for the three and nine months ended September 30, 2020, ~~and net increases of approximately $500 and $3,700 for the three and nine months ended September 30, 2019,~~respectively, included in “Operating income” on the Condensed Consolidated Statements of Operations.


5.4.			CONSOLIDATED 50% OWNED SUBSIDIARIES

The Company has 50% ownership interests in 2 subsidiaries (“Myers” and “RHB”) that it fully consolidates as a result of its exercise of control over the entities. The earnings attributable to the 50% portions the Company does not own were approximately $3,300 and $9,900 for the three and nine months ended September 30, 2021, respectively, and $2,600 and $8,900 for the three and nine months ended September 30, 2020, ~~respectively, and $5,500 and $8,200 for the three and nine months ended September 30, 2019,~~ respectively, and are eliminated within “Other operating expense, net” in the Condensed Consolidated Statements of Operations. Any undistributed earnings for partners are included in “Members’ interest subject to mandatory redemption and undistributed earnings” within the Condensed Consolidated Balance Sheets and are mandatorily payable at the time of the noncontrolling owners’ death or permanent disability.

These two subsidiaries have individual mandatory redemption provisions which, under circumstances outlined in the partner agreements, are certain to occur and obligate the Company to purchase each partner’s remaining 50% interests for $20,000 ($40,000 in the aggregate). The Company has purchased ~~two~~2 separate $20,000 death and permanent total disability insurance policies to mitigate the Company’s cash draw if such events were to occur. These purchase obligations are also recorded in “Members’ interest subject to mandatory redemption and undistributed earnings” on the Condensed Consolidated Balance Sheets.

The liability consists of the following:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Members’ interest subject to mandatory redemption	Members’ interest subject to mandatory redemption	$	40,000	$	40,000	Members’ interest subject to mandatory redemption	$	40,000	$	40,000
Net accumulated earnings	Net accumulated earnings	10,798		9,003		Net accumulated earnings	14,766		11,290
Total liability	Total liability	$	50,798	$	49,003	Total liability	$	54,766	$	51,290

The Company must determine whether any of its entities, including these 2 50% owned subsidiaries, in which it participates, is a VIE. The Company determined that Myers is a VIE asand that the Company is the primary beneficiary as because,

pursuant to the terms of the Myers Operating Agreement, the Company is exposed to the majority of potential losses of the partnership.

Summary financial information for Myers is as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues	Revenues	$	57,566	$	55,111	$	156,292	$	157,189	Revenues	$	50,338	$	57,566	$	121,432	$	156,292
Operating income	Operating income	$	1,889	$	1,861	$	3,093	$	4,142	Operating income	$	808	$	1,889	$	2,273	$	3,093
Net income	Net income	$	1,864	$	1,869	$	3,073	$	4,160	Net income	$	1,379	$	932	$	2,096	$	1,537


6.5.			CONSTRUCTION JOINT VENTURES

~~The Company participates in joint ventures~~Joint Ventures with ~~other major construction companies and other partners, typically for large, technically complex projects, including design-build projects, when it~~a Controlling Interest—We consolidate any venture that is desirable to share risk and resources in order to seek a competitive advantage. Joint venture partners typically provide independently prepared estimates, furnish employees and equipment, enhance bonding capacity and often also bring local knowledge and expertise. These projects generally have joint and several liability. The Company selects joint venture partners based on its analysis of their construction and financial capabilities, expertise in the type of workdetermined to be ~~performed and past working relationships with~~a VIE for which we are the ~~Company, among other criteria.~~

~~Joint ventures with a controlling interest—Where the Company has a controlling joint interest in a venture, the~~primary beneficiary, or which we otherwise effectively control. The equity held by the remaining owners and their portions of net income (loss) are reflected in stockholders’ equity on the Condensed Consolidated Balance Sheets line item “Noncontrolling interests” and in ~~“Stockholders’ equity” and~~ the Condensed Consolidated Statements of Operations line item “Net income attributable to noncontrolling interests,” respectively. The ~~Condensed Consolidated Statements of Changes~~Company determined that a joint venture in ~~Stockholders’ Equity summarize~~which the ~~changes in~~Company’s Ralph L. Wadsworth Construction subsidiary is a 51% owner is a VIE and the ~~noncontrolling owners’ interests in subsidiaries and consolidated~~Company is the primary beneficiary. Summary financial information for this construction joint ~~ventures.~~venture is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues	$	19,846	$	4,266	$	37,412	$	11,734
Operating income	$	1,290	$	290	$	4,430	$	961
Net income	$	1,292	$	292	$	4,435	$	967

Joint ~~ventures~~Ventures with a ~~noncontrolling interest~~Noncontrolling Interest—~~Where the Company has a noncontrolling joint interest in a venture, the~~The Company accounts for ~~its share of the operations of such construction~~unconsolidated joint ventures onusing a pro-rata basis ~~using proportionate consolidation on its~~in the Condensed Consolidated Statements of Operations and as a single line item ~~in “Receivables~~(“Receivables from and equity in construction joint ventures”) in the Condensed Consolidated Balance Sheets. This method is ~~an acceptable~~a permissible modification of the equity method of accounting which is a common practice in the construction industry. ~~Condensed combined~~Combined financial amounts of joint ventures in which the Company has a noncontrolling interest and the Company’s share of such amounts which are included in the Company’s Condensed Consolidated Financial Statements are shown below:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Current assets	Current assets	$	120,688	$	92,710	Current assets	$	156,479	$	143,608
Current liabilities	Current liabilities	$	(125,294)	$	(86,705)	Current liabilities	$	(103,754)	$	(141,295)
Sterling’s receivables from and equity in construction joint ventures	Sterling’s receivables from and equity in construction joint ventures	$	13,802	$	9,196	Sterling’s receivables from and equity in construction joint ventures	$	21,656	$	16,653


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues	Revenues	$	58,541	$	40,875	$	128,853	$	127,565	Revenues	$	69,116	$	58,541	$	181,022	$	128,853
Income before tax	Income before tax	$	7,814	$	3,588	$	14,487	$	14,401	Income before tax	$	9,311	$	7,814	$	22,726	$	14,487
Sterling’s noncontrolling interest:	Sterling’s noncontrolling interest:									Sterling’s noncontrolling interest:
Revenues	Revenues	$	26,195	$	20,119	$	58,653	$	61,774	Revenues	$	30,326	$	26,195	$	79,264	$	58,653
Income before tax	Income before tax	$	3,541	$	1,769	$	6,559	$	5,869	Income before tax	$	4,149	$	3,541	$	9,959	$	6,559

The caption “Receivables from and equity in construction joint ~~ventures,”~~ventures” includes undistributed earnings and receivables owed to the Company. Undistributed earnings are typically released to the joint venture partners after the customer accepts the project as completed and the warranty period, if any, has passed.

Other—The ~~Company must determine whether each~~use of joint ventures exposes us to a number of risks, including the risk that our partners may be unable or unwilling to provide their share of capital investment to fund the operations of the venture or complete their obligations to us, the venture, or ultimately, the customer. Differences in opinions or views among joint venture partners could also result in delayed decision-making or failure to agree on material issues, which ~~it participates is a VIE. This determination focuses on identifying which joint venture partner, if any, has~~could adversely affect the ~~power to direct the activities of a joint venture~~business and ~~the obligation to absorb losses~~operations of the joint ~~venture or the right to receive benefits from the joint venture in excess of their ownership interests and could have the effect of requiring~~venture. In addition, agreement terms may subject us to ~~consolidate~~ joint ~~ventures in which we have a noncontrolling variable interest.~~

~~The Company determined that~~and several liability for our venture partners, and the ~~joint~~failure of our venture ~~between Ralph L. Wadsworth Construction, LLC, a subsidiary of the Company (“RLW”) (51% owner),~~partners to perform their obligations could impose additional performance and SEMA Construction Inc. (“SEMA”) (49% owner) is a VIE because the Company is the primary beneficiary, as pursuant to the terms of the SEMA Operating Agreement, the Company is exposed to 51% of potential losses of the partnership.

~~Summary~~ financial ~~information for SEMA is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenues $ 4,266 $ 768 $ 11,734 $ 2,397
Operating income $ 290 $ 50 $ 961 $ 162
Net income $ 292 $ 51 $ 967 $ 164

obligations on us. The

1412

aforementioned factors could result in unanticipated costs to complete the projects, liquidated damages or contract disputes, including claims against our partners.


7.6.			PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Construction and transportation equipment	Construction and transportation equipment	$	225,887	$	217,945	Construction and transportation equipment	$	256,444	$	231,799
Buildings and improvements	Buildings and improvements	19,275		14,641		Buildings and improvements	23,110		21,025
Land	Land	3,891		3,891		Land	3,891		3,891
Office equipment	Office equipment	2,762		2,767		Office equipment	3,147		3,012
Total property and equipment	Total property and equipment	251,815		239,244		Total property and equipment	286,592		259,727
Less accumulated depreciation	Less accumulated depreciation	(130,281)		(123,214)		Less accumulated depreciation	(138,148)		(133,059)
Total property and equipment, net	Total property and equipment, net	$	121,534	$	116,030	Total property and equipment, net	$	148,444	$	126,668

Depreciation Expense—Depreciation expense is primarily included within cost of revenues and was $5,763 and $16,738 for the three and nine months ended September 30, 2021, respectively, and $5,232 and $16,070 for the three and nine months ended September 30, 2020, ~~respectively,~~respectively.


7.			OTHER INTANGIBLE ASSETS

The following table presents our acquired finite-lived intangible assets, including the weighted-average useful lives for each major intangible asset category and ~~$3,215~~in total:


		September 30, 2021				December 31, 2020
	Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	25	$	232,623	$	(23,469)	$	232,623	$	(16,360)
Trade name	23	30,107		(4,346)		30,107		(3,209)
Non-compete agreements	5	2,487		(1,113)		2,487		(761)
Total	24	$	265,217	$	(28,928)	$	265,217	$	(20,330)

The Company’s intangible amortization expense was $2,866 and ~~$10,488~~$8,598 for the three and nine months ended September 30, ~~2019,~~2021, respectively, and $2,866 and $8,569 for the three and nine months ended September 30, 2020, respectively.


8.			~~OTHER INTANGIBLE ASSETS~~

~~The following table presents the Company’s acquired finite-lived intangible assets at September 30, 2020 and December 31, 2019:~~

September 30, 2020 December 31, 2019
Weighted
Average
Life Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization
Customer relationships 25 years $ 232,623 $ (13,990) $ 232,623 $ (6,911)
Trade name 23 years 30,107 (2,830) 30,107 (1,692)
Non-competition agreements 5 years 2,487 (643) 2,487 (291)
Total 24 years $ 265,217 $ (17,463) $ 265,217 $ (8,894)

The Company's intangible amortization expense was $2,866 and $8,569 for the three and nine months ended September 30, 2020, respectively, and $600 and $1,800 for the three and nine months ended September 30, 2019, respectively.


9.			DEBT

The Company’s outstanding debt was as follows:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Term Loan Facility	Term Loan Facility	$	380,000	$	400,000	Term Loan Facility	$	310,944	$	355,000
Revolving Credit Facility	Revolving Credit Facility	0		20,000		Revolving Credit Facility	—		—
Credit Facility	Credit Facility	380,000		420,000		Credit Facility	310,944		355,000
Note payable to seller, Plateau Acquisition		10,000		10,000
Notes and deferred payments to sellers, Tealstone Acquisition		0		12,230
Finance leases and other debt		10,429		805

Other debt						Other debt	15,342		20,397
Total debt	Total debt	400,429		443,035		Total debt	326,286		375,397

Less - Current maturities of long-term debt	Less - Current maturities of long-term debt	(57,476)		(42,473)		Less - Current maturities of long-term debt	(21,239)		(77,434)
Less - Unamortized debt issuance costs	Less - Unamortized debt issuance costs	(7,716)		(9,935)		Less - Unamortized debt issuance costs	(5,124)		(6,714)
Total long-term debt	Total long-term debt	$	335,237	$	390,627	Total long-term debt	$	299,923	$	291,249

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Credit Facility—~~On October 2, 2019, the Company, as borrower, and certain of its subsidiaries, as guarantors, entered into a Credit Agreement (as~~Our amended ~~the~~credit agreement (the “Credit Agreement”) with BMO Harris Bank N.A., as administrative agent (the “Agent”), Bank of America, N.A., as syndication agent, and BMO Capital Markets Corp. and BofA Securities, Inc., as joint lead arrangers and joint book runners. The Credit Agreement provides the Company with senior secured debt financing in an amount up to $475,000 in the aggregate, consisting of (i) a senior secured first lien term loan facility (the “Term Loan Facility”) in the amount of $400,000 (collectively, the “Credit Facility”) and (ii) a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of $75,000 (with a $75,000 limit for the issuance of letters of credit and a $15,000 sublimit for swing line loans) ~~and (ii) a senior secured first lien term loan facility (the “Term Loan Facility”) in the amount of $400,000 (collectively, the “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 Credit Facility will mature on October 2, 2024.

~~The~~On June 28, 2021, the Credit Agreement was further amended to (i) decrease the applicable margins with respect to the rates per annum applicable to Base Rate Loans (as defined in the Credit Agreement), Eurodollar Loans (as defined in the Credit Agreement), Letter of Credit (as defined in the Credit Agreement) fees and the commitment fee payable under the Revolving Credit Facility and Term Loan Facility; (ii) reduce the applicable percentages of excess cash flow required for application to mandatory prepayments of the Credit Facility; and (iii) decrease the amounts of the scheduled quarterly principal payments due under the Term Loan Facility.

The Term Loan Facility bears interest at either the base rate ~~(“Base Rate”)~~ plus a margin, ~~(4.25% and 3.50% per annum, respectively,~~or at ~~September 30, 2020), or~~a one-, two-, three-, six- or, if available, twelve-month ~~London Inter-Bank Offered Rate (“LIBOR”)~~LIBOR rate plus ~~an applicable~~a margin, ~~(0.162% and 4.50% per annum, respectively,~~ at the Company’s election. At September 30, ~~2020,~~2021, the Company calculated interest using a one-month LIBOR ~~rate),~~rate and an applicable margin of 0.084% and 2.50% per annum, respectively. We continue to utilize an interest rate swap to hedge against $275,000 of the outstanding Term Loan Facility, which resulted in a weighted average interest rate of approximately 5.15% per annum during the nine months ended September 30, 2021. Scheduled principal payments on the Term Loan Facility are made quarterly and total $24,700, $16,200, $22,300 and $18,300 for each of the years ending 2021, 2022, 2023 and 2024, respectively. The Company is required to make mandatory prepayments on the Credit Facility with proceeds received from issuances of debt, events of loss and certain dispositions. The Company also is required to prepay the Credit Facility with its excess cash flow within 5 days after receipt of its annual audited financial statements. For the nine months ended September 30, 2021, the Company made scheduled term loan payments of $20,612, an excess cash flow payment of $18,000 and an optional prepayment of $5,444. A final payment of all principal and interest then outstanding on the Term Loan Facility is due on October 2, 2024.

The Revolving Credit Facility bears interest at the ~~Company’s election.~~same rate options as the Term Loan Facility. In addition to interest on debt borrowings, we are assessed quarterly commitment fees on the unutilized portion of the facility as well as letter of credit fees on outstanding instruments. Interest under the Revolving Credit Facility is payable (i) with respect to LIBOR borrowings, on the last day of each applicable interest period (one, two, three, six or twelve months), unless the applicable interest period is longer than three months, then on each day occurring every three months after the commencement of such interest period, and on the maturity date, and (ii) with respect to Base Rate borrowings, on the last day of every calendar quarter and on the maturity date. At September 30, ~~2020,~~2021, we had 0no outstanding borrowings under the ~~facility, providing~~ $75,000 Revolving Credit Facility.

Debt Issuance Costs—The costs associated with the Term Loan Facility and Revolving Credit Facility are reflected on the Condensed Consolidated Balance Sheets as a direct reduction from the related debt liability and amortized over the terms of ~~available capacity.~~ the respective facilities. Amortization of debt issuance costs was $492 and $1,756 for the three and nine months ended September 30, 2021, respectively, and $727 and $2,219 for the three and nine months ended September 30, 2020, respectively, and was recorded as interest expense. Additionally, due to early payments of $18,000 and $5,444 on the Term Loan Facility in the first and second quarters of 2021, respectively, we recorded losses on debt extinguishment of $0 and $431 for the three and nine months ended September 30, 2021, respectively, related to debt issuance costs.

Other Debt—During the second quarter of 2020, the Company’s 2 50% owned subsidiaries received 3 short-term Paycheck Protection Program loans (the “PPP Loans”) totaling approximately $9,800. During the third quarter of 2021, the Small Business Administration (“SBA”) forgave 1 of the PPP Loans of approximately $2,000, of which the Company recorded a gain on debt extinguishment of $968 for its 50% portion of the gain. For the nine months ended September 30, ~~2020, our weighted average interest rate on borrowings under~~2021, the Revolving Credit Facility was approximately 6.68%. The Revolving Credit Facility may be repaid in whole or in part at any time, with final payment of all principal and interest then outstanding due on OctoberSBA forgave 2 ~~2024.~~

Interest under the Term Loan Facility is payable at the same frequencies and bears interest at the same rate options as the Revolving Credit Facility. We utilize an interest rate swap to hedge against $350,000 of the ~~outstanding Term~~PPP Loans totaling approximately $5,000, of which the Company recorded a gain on debt extinguishment of $2,463 for its 50% portion of the gain. The remaining PPP Loan ~~Facility, which resulted in a weighted average interest rate of approximately 5.80% per annum during~~is classified as short-term debt under “Current Liabilities” on the ~~nine months ended~~Consolidated Balance Sheets at September 30, ~~2020. At September 30, 2020,~~2021, as we ~~had $380,000 of outstanding borrowings under~~expect to receive a forgiveness determination by the ~~facility. Principal payments on~~SBA within the ~~Term Loan Facility total $30,000, $50,000, $50,000, $50,000~~next six months.

Compliance and $220,000 for each of the years ending 2020, 2021, 2022, 2023, and 2024, respectively. A final payment of all principal and interest then outstanding on the Term Loan Facility is due on October 2, 2024.

Other—The Credit Agreement contains various affirmative and negative covenants that may, subject to certain exceptions, restrict the ability of us and our subsidiaries to, among other things, grant liens, incur additional indebtedness, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, purchase, redeem or otherwise acquire or retire capital stock or other equity interests, or merge or consolidate with any other person, among various other things. In addition, the Company is required to maintain ~~the following~~certain financial ~~covenants:~~

•a Total Leverage Ratio (as defined in the Credit Agreement) at the last day of each fiscal quarter not to be greater than 4.00 to 1.00 ending on December 31, 2019 through and including June 30, 2020, 3.75 to 1.00 ending on September 30, 2020, 3.50 to 1.00 ending on December 31, 2020 through and including March 31, 2021, 3.25 to 1.00 ending on June 30, 2021 through and including September 30, 2021, and 3.00 to 1.00 ending on December 31, 2021 and thereafter; and

•a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.20 to 1.00 as of the last day of each fiscal quarter of the Company, commencing with the fiscal quarter ending December 31, 2019.

~~Debt issuance costs~~—The costs associated with the Term Loan Facility and Revolving Credit Facility are reflected on the Balance Sheets as a direct reduction from the related debt liability and amortized over the terms of the respective facilities. Amortization of debt issuance costs was $727 and $2,219 for the three and nine months ended September 30, 2020, respectively, and 0 and $1,555 for the three and nine months ended September 30, 2019, respectively, and was recorded as interest expense.

~~Note Payable to Seller, Plateau Acquisition~~—As part of the Plateau Acquisition, the Company issued a $10,000 subordinated promissory note to one of the Plateau sellers that bears interest at 8% with interest payments due quarterly beginning January 1, 2020. The subordinated promissory note has no scheduled payments, however, it may be repaid in whole or in part at any time, subject to certain payment restrictions under a subordination agreement with the Agent under our Credit Agreement, without premium or penalty, with final payment of all principal and interest then outstanding due on April 2, 2025.

~~Notes and deferred Payments to Sellers, Tealstone Acquisition—~~At September 30, 2020, the Company had 0 balance remaining on the combined promissory notes and deferred cash payments issued as part of the Tealstone Acquisition. During the nine months ended September 30, 2020, the Company paid $5,000 of deferred cash payments and $7,500 on promissory notes that were due on April 3, 2020.

~~Finance Leases and Other Debt~~—The Company had finance leases of $610 and $764 at September 30, 2020 and December 31, 2019, respectively. The finance leases have payment terms ranging from 3 to 5 years and the associated interest rates range from 2.99% to 6.92%. Additionally, during the second quarter of 2020, the Company’s 2 50% owned subsidiaries received 3 short-term Paycheck Protection Program loans (the “PPP Loans”) totaling approximately $9,800. The loans may be fully or partially forgiven if the funds are used for payroll related costs, interest on mortgages, rent, and utilities, and as long as our employee headcount and salary levels remain consistent with our baseline period over an eight to twenty-four week period following the date the loans were received. Any forgiveness of the loans requires approval by the Small Business Administration (“SBA”). If the SBA determines that the loans are not fully or partially forgiven, the balance is subject to a 1% interest rate and requires repayment. The PPP Loans have been classified as short-term debt under “Current Liabilities” on the Condensed Consolidated Balance Sheets at September 30, 2020, as we expect to submit forgiveness applications and receive a determination by the SBA within the next three to six months.

~~Compliance and other~~—covenants. As of September 30, ~~2020,~~2021, we were in compliance with all of our restrictive and financial covenants. The Company’s debt is recorded at its carrying amount in the Condensed Consolidated Balance Sheets. ~~As of~~At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the carrying values of our debt outstanding approximated the fair values.


~~10.~~			~~LEASE OBLIGATIONS~~

The Company has operating and finance leases primarily for construction and transportation equipment, as well as office space. The Company’s leases have remaining lease terms of 1 month to 8 years, some of which include options to extend the leases for up to 10 years.

~~The components of lease expense were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Operating lease cost $ 2,187 $ 2,276 $ 6,421 $ 6,447
Short-term lease cost $ 3,311 $ 5,363 $ 10,337 $ 13,375
Finance lease cost:
Amortization of right-of-use assets $ 49 $ 69 $ 154 $ 140
Interest on lease liabilities 7 9 22 12
Total finance lease cost $ 56 $ 78 $ 176 $ 152

~~Supplemental cash flow information related to leases was as follows:~~

Nine Months Ended September 30,
2020 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 6,281 $ 6,277
Operating cash flows from finance leases $ 22 $ 12
Financing cash flows from finance leases $ 154 $ 140
Right-of-use assets obtained in exchange for lease obligations (noncash):
Operating leases $ 7,679 $ 8,138
Finance leases $ 0 $ 770

~~Supplemental balance sheet information related to leases was as follows:~~

September 30,
2020 December 31,
2019
Operating Leases
Operating lease right-of-use assets $ 17,250 $ 13,979
Current portion of long-term lease obligations $ 7,624 $ 7,095
Long-term lease obligations 9,668 6,976
Total operating lease liabilities $ 17,292 $ 14,071
Finance Leases
Property and equipment, at cost $ 1,479 $ 1,479
Accumulated depreciation (647) (482)
Property and equipment, net $ 832 $ 997
Current maturities of long-term debt $ 193 $ 204
Long-term debt 417 560
Total finance lease liabilities $ 610 $ 764
Weighted Average Remaining Lease Term
Operating leases 3.4 2.5
Finance leases 3.7 4.0
Weighted Average Discount Rate
Operating leases 5.7 % 6.0 %
Finance leases 4.2 % 4.2 %

~~Maturities of lease liabilities are as follows:~~

Operating
Leases Finance
Leases
Year Ending December 31,
2020 (excluding the nine months ended September 30, 2020) $ 1,774 $ 56
2021 7,231 208
2022 5,177 161
2023 2,568 154
2024 1,021 77
Thereafter 1,549 0
Total lease payments $ 19,320 $ 656
Less imputed interest (2,028) (46)
Total $ 17,292 $ 610

1814


~~11.~~9.			FINANCIAL INSTRUMENTS

~~Derivatives~~

Interest Rate Derivative—We continue to utilize a swap arrangement to hedge against interest rate variability associated with ~~$350,000~~$275,000 of the ~~$380,000~~$310,944 outstanding under the Term Loan Facility. The Company has designated its interest rate swap agreement as a cash flow hedging derivative. To the extent the derivative instrument is effective and the documentation requirements have been met, changes in fair value are recognized in other comprehensive income (loss) (“OCI”) until the underlying hedged item is recognized in earnings. ~~The total~~At September 30, 2021, the fair value of the ~~contract~~swap recorded in accumulated other comprehensive income (loss) (“AOCI”) was a net loss of ~~$8,370 at September 30, 2020.~~$3,790.

~~Financial Instruments~~Derivatives Disclosures

Fair Value—Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:

•Level 1—Fair value is based on quoted prices in active markets.

•Level 2—Fair value is based on internally developed models that use, as their basis, readily observable market parameters. Our derivative positions are classified within level 2 of the valuation hierarchy as they are valued using quoted market prices for similar assets and liabilities in active markets. These level 2 derivatives are valued utilizing an income approach, which discounts future cash flow based on current market expectations and adjusts for credit risk.

•Level 3—Fair value is based on internally developed models that use, as their basis, significant unobservable market parameters. The Company did not have any level 3 classifications at September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

The following table presents the fair value of the interest rate derivative by valuation hierarchy and balance sheet classification:

September 30, 2020 December 31, 2019
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Derivative Assets
Other current assets $ 0 $ 0 $ 0 $ 0 $ 0 $ 216 $ 0 $ 216
Other non-current assets 0 0 0 0 0 0 0 0
Total assets at fair value $ 0 $ 0 $ 0 $ 0 $ 0 $ 216 $ 0 $ 216
Derivative Liabilities
Other current liabilities $ 0 $ (4,648) $ 0 $ (4,648) $ 0 $ (61) $ 0 $ (61)
Other non-current liabilities 0 (3,722) 0 (3,722) 0 (398) 0 (398)
Total liabilities at fair value $ 0 $ (8,370) $ 0 $ (8,370) $ 0 $ (459) $ 0 $ (459)

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 September 30, 2020, the fair value of the term loan, based upon the current market rates for debt with similar credit risk and maturities, approximated its carrying value as interest is based on LIBOR plus an applicable margin.


	September 30, 2021								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total





Other current liabilities	$	—	$	(3,529)	$	—	$	(3,529)	$	—	$	(4,427)	$	—	$	(4,427)
Other non-current liabilities	—		(455)		—		(455)		—		(2,629)		—		(2,629)
Total liabilities at fair value	$	—	$	(3,984)	$	—	$	(3,984)	$	—	$	(7,056)	$	—	$	(7,056)

OCI—The following table presents the total value recognized in OCI and reclassified from ~~accumulated other comprehensive income (loss)(“AOCI”)~~AOCI into earnings during the three and nine months ended September 30, 2021 and 2020 for derivatives designated as cash flow hedges:


															Three Months Ended						Nine Months Ended
		Three Months Ended September 30,						Nine Months Ended September 30,							September 30, 2021						September 30, 2021
		Before Tax Amount		Tax Amount		Net of Tax Amount		Before Tax Amount		Tax Amount		Net of Tax Amount			Before Tax		Tax		Net of Tax		Before Tax		Tax		Net of Tax
Net gain (loss) recognized in OCI	Net gain (loss) recognized in OCI	$	50	$	(11)	$	39	$	(10,155)	$	2,285	$	(7,870)	Net gain (loss) recognized in OCI	$	(111)	$	25	$	(86)	$	(67)	$	15	$	(52)
Net amount reclassified from AOCI into earnings(1)	Net amount reclassified from AOCI into earnings(1)	1,253		(282)		971		2,279		(513)		1,766		Net amount reclassified from AOCI into earnings(1)	1,041		(237)		804		3,099		(706)		2,393
Change in other comprehensive income	Change in other comprehensive income	$	1,303	$	(293)	$	1,010	$	(7,876)	$	1,772	$	(6,104)	Change in other comprehensive income	$	930	$	(212)	$	718	$	3,032	$	(691)	$	2,341


	Three Months Ended						Nine Months Ended
	September 30, 2020						September 30, 2020
	Before Tax		Tax		Net of Tax		Before Tax		Tax		Net of Tax
Net gain (loss) recognized in OCI	$	50	$	(11)	$	39	$	(10,155)	$	2,285	$	(7,870)
Net amount reclassified from AOCI into earnings	1,253		(282)		971		2,279		(513)		1,766
Change in other comprehensive income	$	1,303	$	(293)	$	1,010	$	(7,876)	$	1,772	$	(6,104)

(1) Net unrealized losses totaling ~~$4,427~~$3,335 are anticipated to be reclassified from AOCI into earnings during the next 12 months due to settlement of the associated underlying obligations.


~~12.~~10.			LEASE OBLIGATIONS

The Company has operating and finance leases primarily for construction and transportation equipment, as well as office space. The Company’s leases have remaining lease terms of one month to seven years, some of which include options to extend the leases for up to ten years.

The components of lease expense are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating lease cost	$	1,672	$	2,187	$	4,694	$	6,421
Short-term lease cost	$	3,813	$	3,311	$	8,848	$	10,337
Finance lease cost:
Amortization of right-of-use assets	$	46	$	49	$	151	$	154
Interest on lease liabilities	5		7		16		22
Total finance lease cost	$	51	$	56	$	167	$	176

Supplemental cash flow information related to leases is as follows:


	Nine Months Ended September 30,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,627	$	6,281
Operating cash flows from finance leases	$	16	$	22
Financing cash flows from finance leases	$	151	$	154

Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	$	6,221	$	7,679
Finance leases	$	—	$	—

Supplemental balance sheet information related to leases is as follows:


	September 30, 2021			December 31, 2020
Operating Leases
Operating lease right-of-use assets	$	17,470		$	16,515

Current portion of long-term lease obligations	$	8,314		$	7,588
Long-term lease obligations	9,306			8,958
Total operating lease liabilities	$	17,620		$	16,546
Finance Leases
Property and equipment, at cost	$	1,479		$	1,479
Accumulated depreciation	(857)			(702)
Property and equipment, net	$	622		$	777

Current maturities of long-term debt	$	157		$	188
Long-term debt	260			372
Total finance lease liabilities	$	417		$	560
Weighted Average Remaining Lease Term
Operating leases	3.4			3.2
Finance leases	2.7			3.2
Weighted Average Discount Rate
Operating leases	5.4		%	5.7		%
Finance leases	4.2		%	4.2		%

Maturities of lease liabilities are as follows:


	Operating Leases		Finance Leases
Year Ending December 31,
2021 (excluding the nine months ended September 30, 2021)	$	1,742	$	49
2022	7,377		161
2023	4,773		155
2024	2,558		77
2025	1,293		—
2026	1,005		—
Thereafter	629		—
Total lease payments	$	19,377	$	442
Less imputed interest	(1,757)		(25)
Total	$	17,620	$	417


11.			COMMITMENTS AND CONTINGENCIES

The Company is required by its insurance providers to obtain and hold standby letters of credit. These letters of credit serve as a guarantee by the banking institution to pay the Company’s insurance providers the incurred claim costs attributable to its general liability, workers compensation and automobile liability claims, up to the amount stated in the standby letters of credit, in the event that these claims were not paid by the Company. These letters of credit are cash collateralized, resulting in the cash being designated as restricted.

The Company, including its construction joint ventures and its consolidated 50% owned subsidiaries, 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. Management, after consultation with legal counsel, does not believe that the outcome of these actions will have a material impact on the Condensed Consolidated Financial Statements of the Company.


~~13.~~12.			INCOME TAXES

The Company and its subsidiaries are based in the U.S. and file federal and various state income tax returns. The components of the provision for income taxes were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Current tax expense	Current tax expense	$	1,557	$	113	$	3,766	$	221	Current tax expense	$	1,216	$	1,557	$	2,862	$	3,766
Deferred tax expense	Deferred tax expense	4,723		800		10,946		1,561		Deferred tax expense	6,120		4,723		17,413		10,946
Income tax expense	Income tax expense	$	6,280	$	913	$	14,712	$	1,782	Income tax expense	$	7,336	$	6,280	$	20,275	$	14,712

Cash paid for income taxes	Cash paid for income taxes	$	2,900	$	323	$	2,944	$	323	Cash paid for income taxes	$	485	$	2,900	$	2,167	$	2,944

The 2021 effective income tax rate varied from the ~~21% federal~~ statutory rate primarily as a result of state income taxes, ~~disallowed~~nondeductible compensation and ~~net income attributable to noncontrolling interest owners, which is taxable to those owners rather than to the Company. In addition, 2019 included a reduction in the tax valuation allowance.~~ other permanent differences.

Due to ~~the~~ net operating loss carryforwards, the Company expects no cash payments for federal income taxes for ~~2020~~2021 or ~~2019.~~2020. The Company makes cash payments for state income taxes in states in which the Company does not have net operating loss carry forwards.

At December 31, ~~2019~~2020 the Company had federal and state net operating loss (“NOL”) carryforwards of ~~$83,270~~$58,719 and ~~$44,857,~~$36,381, respectively, which expire at various dates in the next 18 years for U.S. federal income tax and in the next 87 to 18 years for the various state jurisdictions where we operate. Such NOL carryforwards expire beginning in 2028 through ~~2038.~~2039.

As a result of the Company’s analysis, management has determined that the Company does not have any material uncertain tax positions.


~~14.~~13.			STOCK INCENTIVE PLAN AND OTHER EQUITY ACTIVITY

General—The Company has a stock incentive plan (the “Stock Incentive Plan”) and an employee stock purchase plan (the “ESPP”) that are administered by the Compensation and Talent Development Committee of the Board of Directors. Under the Stock Incentive Plan, the Company can issue shares to employees and directors in the form of restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance share units (“PSUs”). Changes in common stock, additional paid in capital and treasury stock during the nine months ended September 30, ~~2020~~2021 primarily relate to activity associated with the Stock Incentive Plan, the ESPP and ~~share repurchases.~~shares withheld for taxes.

Share Grants—During the nine months ended September 30, ~~2020,~~2021, the Company ~~had~~granted the following ~~share grants associated with~~awards under the Stock Incentive Plan:

Shares Weighted Average Grant-Date Fair Value per Share
RSAs 51 $ 8.73
RSUs 160 $ 13.72
PSUs (at target) 176 $ 14.06
Total shares granted 387


	Shares	Weighted Average Grant-Date Fair Value per Share
RSAs	29	$	23.19
RSUs	108	$	20.55
PSUs (at target)	139	$	20.54
Total shares granted	276

Share Issuances—During the nine months ended September 30, ~~2020,~~2021, the Company ~~had~~issued the following ~~share issuances associated with~~shares under the Stock Incentive Plan and the ESPP:


						Shares
RSAs (issued upon grant)						5129
RSUs (issued upon vesting)						8855
PSUs (issued upon vesting)						~~104~~621
ESPP (issued upon sale)						3318
Total shares issued						~~276~~723

Stock-Based Compensation Expense—During the three and nine months ended September 30, ~~2020,~~2021, the Company recognized ~~$1,765~~$1,840 and ~~$7,961,~~$5,690, respectively, of stock-based compensation expense, and during the three and nine months ended September 30, ~~2019,~~2020, the Company recognized ~~$819~~$1,765 and ~~$2,489~~$7,961 of stock-based compensation expense, respectively, primarily within general and administrative expenses. The Company recognizes forfeitures as they occur, rather than estimating expected forfeitures. Included within total stock-based compensation expense for the three and nine months ended September 30, ~~2020~~2021 is ~~$18~~$19 and ~~$54,~~$66, respectively, of expense related to the ESPP, and during the three and nine months ended September 30, ~~2019,~~2020, the Company recognized ~~$12~~$18 and $54, respectively, of expense related to ~~the ESPP. At September 30, 2020, 754 authorized shares remained available for issuance under~~ the ESPP.

Shares Withheld for Taxes—The Company withheld 114 and 60250 shares for taxes on RSU/PSU stock-based compensation vestings for ~~$105~~$99 and ~~$805~~$5,718 during the three and nine months ended September 30, ~~2020,~~2021, respectively. ~~The Company withheld 3 and 13 shares for taxes on RSA stock-based compensation vestings for $28 and $150 during the three and nine months ended September 30, 2020, respectively.~~

~~Warrants~~—During the nine months ended September 30, 2020, certain holders of warrants elected the cashless exercise option and the Company issued 110 common shares on the exercise of 470 warrants with a market value of $1,477.

AOCI—During the three and nine months ended September 30, ~~2020,~~2021, changes in AOCI were a result of net gains (losses) recognized in OCI and amounts reclassified from AOCI into earnings related to our interest rate derivative. See Note 119 - Financial Instruments for further ~~discussion~~discussion.

Warrants—During the three and nine months ended September 30, 2021, certain holders of ~~our cash flow hedge.~~warrants elected the cashless exercise option and the Company issued 125 common shares on the exercise of 230 warrants with a market value of $2,812.


14.			EARNINGS PER SHARE

The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Net income attributable to Sterling common stockholders	$	21,126	$	15,157	$	51,737	$	36,482
Denominator:
Weighted average common shares outstanding — basic	28,710		28,003		28,527		27,832
Shares for dilutive unvested stock and warrants	503		230		400		154
Weighted average common shares outstanding — diluted	29,213		28,233		28,927		27,986
Basic net income per share attributable to Sterling common stockholders	$	0.74	$	0.54	$	1.81	$	1.31
Diluted net income per share attributable to Sterling common stockholders	$	0.72	$	0.54	$	1.79	$	1.30


15.			~~EARNINGS PER SHARE~~SUPPLEMENTAL CASH FLOW INFORMATION

Basic net income per share attributable to Sterling common stockholders is computed by dividing net income attributable to Sterling common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share attributable to Sterling common stockholders is the same as basic net income per share attributable to Sterling common stockholders but includes dilutive unvested stock awards Operating Assets and ~~warrants using the treasury stock method.~~ Liabilities—The following table ~~reconciles~~summarizes the ~~numerators~~changes in the components of operating assets and ~~denominators of the basic and diluted per common share computations for net income attributable to Sterling common stockholders:~~liabilities:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Numerator:
Net income attributable to Sterling common stockholders $ 15,157 $ 7,957 $ 36,482 $ 17,600
Denominator:
Weighted average common shares outstanding — basic 28,003 26,365 27,832 26,359
Shares for dilutive unvested stock and warrants 230 272 154 302
Weighted average common shares outstanding — diluted 28,233 26,637 27,986 26,661
Basic net income per share attributable to Sterling common stockholders $ 0.54 $ 0.30 $ 1.31 $ 0.67
Diluted net income per share attributable to Sterling common stockholders $ 0.54 $ 0.30 $ 1.30 $ 0.66


	Nine Months Ended September 30,
	2021		2020
Accounts receivable	$	(41,259)	$	(24,153)
Contracts in progress, net	26,694		30,278
Receivables from and equity in construction joint ventures	(5,003)		(4,606)
Other current and non-current assets	(6,630)		(1,314)
Accounts payable	47,423		(10,257)
Accrued compensation and other liabilities	12,916		18,391
Members' interest subject to mandatory redemption and undistributed earnings	1,013		1,795
Changes in operating assets and liabilities	$	35,154	$	10,134

2119


16.			SEGMENT INFORMATION

The Company’s internal and public segment reporting are aligned based upon the services offered by its operating segments. The Company’s operations consist of 3 reportable segments: Heavy Civil, Specialty Services and Residential. The Company’s Chief Operating Decision Maker evaluates the performance of the operating segment based upon revenue and income from operations. Each segment’s income from operations reflects corporate costs, allocated based primarily upon revenue.

The following table presents total revenue and income from operations by reportable segment for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenue
Heavy Civil $ 201,078 $ 218,894 $ 577,141 $ 569,635
Specialty Services 139,971 32,863 380,397 91,436
Residential 42,409 39,942 122,646 118,663
Total Revenue $ 383,458 $ 291,699 $ 1,080,184 $ 779,734

Operating Income
Heavy Civil $ 2,405 $ 7,420 $ 2,679 $ 11,020
Specialty Services 21,474 1,371 55,834 3,284
Residential 5,353 5,220 16,480 15,873
Subtotal 29,232 14,011 74,993 30,177
Acquisition related costs (401) (1,896) (1,013) (2,158)
Total Operating Income $ 28,831 $ 12,115 $ 73,980 $ 28,019


~~17.~~			~~SUPPLEMENTAL CASH FLOW INFORMATION~~

~~Operating assets and liabilities—The following table summarizes the changes in the components of operating assets and liabilities:~~

Nine Months Ended September 30,
2020 2019
Accounts receivable, including retainage $ (23,095) $ (15,486)
Contracts in progress, net 29,220 (26,934)
Receivables from and equity in construction joint ventures (4,606) (3,931)
Other current and non-current assets (5,579) (2,111)
Accounts payable (10,257) 11,198
Accrued compensation and other liabilities 21,350 7,330
Members' interest subject to mandatory redemption and undistributed earnings 1,795 1,929
Changes in operating assets and liabilities $ 8,828 $ (28,005)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues
Heavy Civil	$	249,898	$	201,078	$	600,105	$	577,141
Specialty Services	148,256		139,971		424,248		380,397
Residential	65,295		42,409		156,078		122,646
Total Revenues	$	463,449	$	383,458	$	1,180,431	$	1,080,184

Operating Income
Heavy Civil	$	7,174	$	2,405	$	12,668	$	2,679
Specialty Services	17,932		21,474		57,016		55,834
Residential	6,925		5,353		17,822		16,480
Subtotal	32,031		29,232		87,506		74,993
Acquisition related costs	—		(401)		—		(1,013)
Total Operating Income	$	32,031	$	28,831	$	87,506	$	73,980

2220

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report on Form 10-Q (“Report”) contains statements that are, or may be considered to be, “forward-looking statements” regarding the Company which represent our expectations and beliefs concerning future events. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The forward-looking statements included herein relate to matters that are predictive in nature, such as our industry outlook, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information, and may use or contain words such as “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases.

Forward-looking statements reflect our current expectations as of the date of this Report regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, that could result in our expectations not being realized or otherwise could materially affect our financial condition, results of operations and cash flows.

Actual events, results and outcomes may differ materially from those anticipated, projected or assumed in the forward-looking statements due to a variety of factors. Although it is not possible to identify all of these factors, they include, among others, the following:

•potential risks and uncertainties relating to the ~~ultimate impact of the~~ ongoing COVID-19 pandemic, including the duration of the COVID-19 pandemic (including new and emerging strains and variants), additional actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to address its impact, including the distribution, effectiveness and acceptance of vaccines, and the imposition of any proposed vaccine mandates or testing requirements, and the potential ongoing or further negative impact of the COVID-19 pandemic on the ~~global economy and financial markets;~~U.S. economy;

•factors that affect the accuracy of estimates inherent in the bidding for contracts, estimates of backlog, and over time revenue recognition accounting policies, including onsite conditions that differ materially from those assumed in the original bid, contract modifications, mechanical problems with machinery or equipment and effects of other risks referenced below;

•actions of suppliers, subcontractors, design engineers, joint venture partners, customers, competitors, banks, surety companies and others which are beyond our control, including suppliers’, subcontractors’ and joint venture partners’ failure to perform;

•cost escalations associated with our contracts, including changes in availability, proximity and cost of materials such as steel, cement, concrete, aggregates, oil, fuel and other construction materials, including changes in U.S. trade policies and retaliatory responses from other countries, and cost escalations associated with subcontractors and labor;

•changes in costs to lease, acquire or maintain our equipment;

•our dependence on a limited number of significant customers;

•the presence of competitors with greater financial resources or lower margin requirements than ours, and the impact of competitive bidders on our ability to obtain new backlog at reasonable margins acceptable to us;

•any prolonged shutdown of the federal government;

•our ability to qualify as an eligible bidder under government contract criteria;

•changes in general economic conditions, including ~~recessions,~~ reductions in federal, state and local government funding for infrastructure services, changes in those governments’ budgets, practices, laws and regulations and adverse economic conditions in our geographic markets, such as those caused by the ongoing COVID-19 pandemic;

•delays or difficulties related to the completion of our projects, including additional costs, reductions in revenues or the payment of liquidated damages, or delays or difficulties related to obtaining required governmental permits and approvals;

•design/build contracts which subject us to the risk of design errors and omissions;

•our ability to obtain bonding or post letters of credit;

•our ability to raise additional capital on favorable terms;

•our ability to attract and retain key personnel;

•increased unionization of our workforce or labor costs and any work stoppages or slowdowns;

•adverse weather conditions;

•our ability to successfully identify, finance, complete and integrate acquisitions;

•citations issued by any governmental authority, including the Occupational Safety and Health Administration;

•federal, state and local environmental laws and regulations where non-compliance can result in penalties and/or termination of contracts as well as civil and criminal liability; and

•the other factors discussed in more detail in the Company’s annual report on Form 10-K for the year ended December 31, ~~2019~~2020 (the “~~2019~~“2020 Form 10-K”) under “Part I, Item 1A. Risk ~~Factors” and “Part II, Item 1A. Risk Factors” of this Report.~~Factors.”

In reading this Report, you should consider these factors carefully in evaluating any forward-looking statements and you are cautioned not to place undue reliance on any forward-looking statements. ~~Investors~~Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made. Further, we may make changes to our business plans that could affect our results. Although we believe that our plans, intentions and expectations reflected in, or suggested by, the forward-looking statements that we make in this Report are reasonable, we can provide no assurance that they will be achieved.

The forward-looking statements ~~included herein are made~~speak only as of the date ~~hereof,~~made, and we undertake no obligation to publicly update ~~any information contained herein~~ or ~~to publicly release the results of any revisions to~~revise any forward-looking statements ~~to reflect~~for any reason, whether as a result of new information, future events or developments, changed circumstances, ~~that occur,~~ or ~~that we become aware of after the date of this Report.~~otherwise, and notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes.

2321

OVERVIEW

General—Sterling Construction Company, Inc. (“Sterling” or “the Company”), ~~is a construction company that has been involved in the construction industry since its founding in 1955. The Company~~ operates through a variety of subsidiaries within three segments specializing in Heavy Civil, Specialty Services and Residential projects in the United States (the “U.S.”), primarily across the southern U.S., the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. Heavy Civil includes infrastructure and rehabilitation projects for highways, roads, bridges, ~~airfields,~~airports, ports, light rail, water, wastewater and storm drainage systems. Specialty Services projects include ~~construction~~ site ~~excavation and drainage, drilling and blasting for excavation,~~development activities, foundations for multi-family homes, parking structures and other commercial concrete projects. Residential projects include concrete foundations for single-family homes. 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, our investors, our customers and our communities – that is The Sterling Way. This is why we use recycled materials, reclaim water and stockpile the aggregate from our projects. Moreover, from water delivery systems and transportation systems to community service initiatives, like facilitating the construction of homes for disabled veterans, Sterling always puts people first.

~~Plateau Acquisition~~—On October 2, 2019, the Company consummated the acquisition of Plateau and entered into a credit agreement with the financial institutions from time to time party thereto as lenders, BMO Harris Bank N.A., as administrative agent, Bank of America, N.A., as syndication agent, and BMO Capital Markets Corp. and BofA Securities, Inc., as joint lead arrangers and joint book runners. The Credit Agreement provides the Company with senior secured debt financing in an amount up to $475 million in the aggregate with a maturity date of October 2, 2024. With the acquisition of Plateau, we now have three reportable segments: Heavy Civil, Specialty Services and Residential. Refer to ~~Note 9 - Debt~~ ~~for a discussion of our financing arrangements and~~ ~~Note 16 - Segment Information~~ ~~for a discussion of reportable segments and related financial information.~~

Impact of COVID-19—On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and on March 13, 2020, the U.S. President announced a National Emergency relating to COVID-19. Federal, state and local authorities have advised social distancing and many imposed shelter-in-place and stay-at-home orders, including some mandatory business closures. Authorities in some areas of the U.S. began to relax these quarantine and isolation measures in the second quarter of 2020, but a resurgence of COVID-19 cases in mid-July in many regions of the country, including some areas where the Company does business, has, in some cases caused authorities to either defer the phasing out of these restrictions or re-impose quarantine and isolation measures. The number of new cases had been decreasing since the most recent spike, and authorities continued to relax certain restrictions during the third quarter 2020. However, recent reports indicate there may be another resurgence in cases currently occurring as of mid-October 2020. The measures taken have had, and are expected to continue to have, serious adverse effects on the U.S. and global economies of an unknown severity and duration. The Company continues to monitor closely the actual and expected impacts of the COVID-19 pandemic on our business, financial condition and results of operations. Sterling’s business has been identified as a component of “Essential Critical Infrastructure” per the National Cybersecurity and Infrastructure Agency, and to date, we have not experienced significant shutdowns of project sites or operational interruptions. Consistent with governmental orders and public health guidelines, the Company has continued to operate across its footprint. For the Company’s office-based personnel, the Company is social distancing and, where practical, working from home. For personnel onsite at the Company’s construction sites, the Company has taken mitigation measures to prevent the spread of COVID-19, including but not limited to, social distancing, wellness checks, providing sanitation stations and wearing personal protective equipment. While the Company has not incurred significant disruptions thus far from the COVID-19 pandemic, the pandemic may impact our business, condensed consolidated results of operations and financial condition in the future. ~~However,~~On September 9, 2021, President Biden directed the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) to craft regulations that would require all employers with at least 100 employees to require all employees to either be vaccinated or undergo weekly COVID-19 testing. On October 12, 2021, OSHA delivered to the White House’s Office of Information and Regulatory Affairs for review an emergency regulation to carry out this directive, which review was completed on November 1, 2021. Following this review, OSHA is expected to publish the emergency regulation, which would take effect immediately upon such publication. Complying with either a vaccine mandate or weekly testing requirements may be costly and it may be difficult to obtain test results on a weekly basis should the new regulation go into effect. Furthermore, it is possible that some employees may choose to leave employment over a vaccine or testing requirement, resulting in a potential labor shortage. The significance of the impact on our operations going forward is not yet certain and depends on numerous evolving factors as discussed ~~further~~ in ~~Part~~more detail in this quarterly report on Form 10-Q under “Part II, Item ~~1A "Risk Factors" in this Form 10-Q.~~1A. Risk Factors.”

MARKET OUTLOOK AND TRENDS

Heavy Civil—Sterling’s Heavy Civil business is primarily driven by federal, state and municipal funding. Federal funds, on average, provide 50% of annual State Department of Transportation ~~(“DOT”)~~ capital outlays for highway and bridge projects. Several of the states in Sterling’s key markets have instituted actions to further increase annual spending. In November 2018, various state and local transportation measures were passed securing, and in some cases increasing, funding of $1.57 billion in California, $1.27 billion in Texas, $528.5 million in Arizona, $128.2 million in Colorado and $87 million in Utah. In October 2018, the Federal Aviation Administration reauthorized $3.35 billion annually ~~for the next five years.~~through 2023. This reauthorization also includes more than $1 billion a year for airport infrastructure grants and about $1.7 billion for disaster relief. In November 2020, various state and local transportation measures were passed securing, and in some cases increasing, funding of major initiatives in Texas ($7.5 billion) and California ($520 million). In addition to the state locally funded actions, ~~this is~~ the ~~final year of the five-year~~ $305 billion 2015 federally funded Fixing America’s Surface Transportation (“FAST”) Act ~~that~~ increased the annual federal highway investment by 15.1% over ~~the~~a five-year period from 2016 to 2020. ~~With~~In September 2020, Congress passed a one-year extension of the FAST Act ~~set~~which added an additional $13.6 billion to ~~expire this year,~~the Highway Trust Fund. On September 30, 2021, the one-year extension of the FAST Act expired and a 30-day short-term extension was granted to extend the expiration to October 31, 2021. This extension also serves as a new target for the House to pass the Infrastructure Investments and Jobs Act (“IIJA”) that provides a new five-year reauthorization of highway and public transportation programs with historic investment increases of $284 billion for all modes of transportation. With the passing of the IIJA, additional funding is reserved for transportation infrastructure with $110 billion reserved for roads and bridges, $66 billion for rail and $25 billion for airports. Multiple infrastructure proposals are currently underway in both the federal ~~government is currently working towards a bipartisan Federal Infrastructure Bill (America’s Transportation Infrastructure Act) that would both increase~~House and ~~solidify~~the Senate. If passed, these bills could add additional multi-year funding for the next five years. Should the federal government approve this incremental infrastructure investment, it would be an additional growth catalyst; however, it would be unlikely to create a significant business impact before the end of 2020highways, rail and airports starting in late 2021 or 2021. The Heavy Civil segment continues to see an unfavorable productivity impact related to the pandemic as customers and back offices began to work virtually and new procedures and protocol were developed and implemented into field operations beginning in the first quarter of 2020.early 2022.

Specialty Services—Sterling’s Specialty Services business is primarily driven by investments from end users and developers. Key end users, including Amazon, Facebook and Home Depot, have ~~begun~~continued implementing publicly announced multi-year capital infrastructure campaigns. In our primary market in the southeastern United States, and specifically Georgia, the warehouse availability rate ~~remains low~~is at 4.6% and ~~positive~~for eleven consecutive quarters over 20 million square feet of new ~~square footage development trends continue. In our key commercial markets forecasted net absorption~~construction has commenced. The outlook for the multi-family market continues to ~~be positive, with more space leased than supplied~~decline, as developers face economic concerns due to the ~~market. Additionally,~~COVID-19 pandemic and the ~~lending environment~~availability and affordability of starter single family homes continues to sustain new development within our Specialty Services space. However, the outlook for multifamily vacancy rate continues to be below its long-term average and we are experiencing a slowdown in investment in this space.rise.

Residential—The continued revenue growth of the Company’s Residential business is directly related to the growth of new home starts in its key market of Dallas-Fort Worth and continued expansion into the Houston and Phoenix markets. The Company’s core customer base is primarily made up of leading national home builders as well as regional and custom home ~~builders,~~builders. Over the last several quarters, the residential market has experienced significant price volatility and availability for key materials including ~~D.R. Horton, Lennar~~concrete, steel and ~~PulteGroup. The~~lumber, as well as increases in subcontractor labor cost. While the Company has ~~continued its expansion of its Residential business into~~worked with customers to pass on the ~~Houston market. Although our customers anticipated a slowdown~~increases in material and labor cost, the Company may not be successful in recouping these additional costs in the housing market and demand for new developments for the second quarter of 2020, our actual revenues exceeded those expectations. However, due to the recent resurgence of COVID-19 infections, we may still experience a slowdown in the demand for new developments in future periods.future.

BACKLOG

~~At September 30, 2020, our~~Our backlog (“Backlog”) of construction projects, made up of our Heavy Civil and Specialty Services segments, ~~was $1.24 billion,~~is the remaining amount of contracts that we expect to recognize as ~~compared to $1.07 billion at December 31, 2019.~~revenue in future periods. The contracts in ~~our~~ Backlog are typically completed in 6 to 36 months. ~~Contracts in which we are the apparent low bidder for projects~~Our unsigned low-bid awards (“Unsigned Low-bid Awards”) are excluded from Backlog until the contract is executed by our customer. ~~Unsigned Low-bid Awards were $270 million at September 30, 2020 and $273 million at December 31, 2019. The~~We refer to the combination of our Backlog and Unsigned Low-bid Awards ~~which we refer to~~ as “Combined Backlog”. Our book-to-burn ratio, a non-GAAP measure, is determined by taking our additions to Backlog~~” totaled $1.51 billion~~ and ~~$1.34~~dividing it by revenue for the applicable period. This metric allows management to monitor the Company’s business development efforts to ensure we grow our Backlog and our business over time, and management believes that this measure is useful to investors for the same reason.

At September 30, 2021, our Backlog was $1.41 billion, as compared to $1.18 billion at December 31, 2020, with a book-to-burn ratio of 1.2X for the nine months ended September 30, ~~2020~~2021. Unsigned Low-bid Awards were $115.0 million at September 30, 2021 and $356.9 million at December 31, 2020. Combined Backlog totaled $1.53 billion at both September 30, 2021 and December 31, ~~2019, respectively.~~2020, with a book-to-burn ratio of 1.0X for the nine months ended September 30, 2021.

The Company’s margin in Backlog has increased from ~~11.5%~~12.0% at December 31, ~~2019~~2020 to ~~12.4%~~12.3% at September 30, ~~2020~~2021 and the Combined Backlog margin increased from ~~11.0%~~11.8% at December 31, ~~2019~~2020 to ~~11.6%~~12.1% at September 30, ~~2020,~~2021, driven by a greater mix of Specialty Services awards.

RESULTS OF OPERATIONS

Consolidated Results

Summary—For the third quarter of ~~2020,~~2021, the Company had operating income of ~~$28.8~~$32.0 million, income before income taxes of ~~$21.7~~$29.1 million, net income attributable to Sterling common stockholders of ~~$15.2~~$21.1 million and net income per diluted share attributable to Sterling common stockholders of ~~$0.54.~~$0.72.

Consolidated financial highlights for the three and nine months ended September 30, ~~2020~~2021 as compared to the three and nine months ended September 30, ~~2019~~2020 are as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	(In thousands)	2020			2019			2020			2019			(In thousands)	2021		2020		2021		2020
Revenues	Revenues	$	383,458		$	291,699		$	1,080,184		$	779,734		Revenues	$	463,449	$	383,458	$	1,180,431	$	1,080,184
Gross profit	Gross profit	49,916			29,216			144,760			74,215			Gross profit	57,804		49,916		159,083		144,760
General and administrative expenses	General and administrative expenses	(15,154)			(10,239)			(51,209)			(32,302)			General and administrative expenses	(19,637)		(15,154)		(52,565)		(51,209)
Intangible asset amortization	Intangible asset amortization	(2,866)			(600)			(8,569)			(1,800)			Intangible asset amortization	(2,866)		(2,866)		(8,598)		(8,569)
Acquisition related costs	Acquisition related costs	(401)			(1,896)			(1,013)			(2,158)			Acquisition related costs	—		(401)		—		(1,013)
Other operating expense, net	Other operating expense, net	(2,664)			(4,366)			(9,989)			(9,936)			Other operating expense, net	(3,270)		(2,664)		(10,414)		(9,989)
Operating income	Operating income	28,831			12,115			73,980			28,019			Operating income	32,031		28,831		87,506		73,980
Interest, net	Interest, net	(7,154)			(2,693)			(22,391)			(8,002)			Interest, net	(3,906)		(7,154)		(15,621)		(22,391)
Income before income taxes		21,677			9,422			51,589			20,017
Gain on extinguishment of debt, net														Gain on extinguishment of debt, net	968		—		2,032		—
Income before income taxes and noncontrolling interests														Income before income taxes and noncontrolling interests	29,093		21,677		73,917		51,589
Income tax expense	Income tax expense	(6,280)			(913)			(14,712)			(1,782)			Income tax expense	(7,336)		(6,280)		(20,275)		(14,712)
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	(240)			(552)			(395)			(635)			Less: Net income attributable to noncontrolling interests	(631)		(240)		(1,905)		(395)
Net income attributable to Sterling common stockholders	Net income attributable to Sterling common stockholders	$	15,157		$	7,957		$	36,482		$	17,600		Net income attributable to Sterling common stockholders	$	21,126	$	15,157	$	51,737	$	36,482

Gross margin		13.0		%	10.0		%	13.4		%	9.5		%


Gross margin			12.5		%				13.0		%										13.5		%				13.4		%

2523

Revenues—Revenues were ~~$383.5~~$463.4 million for the third quarter of ~~2020,~~2021, an increase of ~~$91.8~~$80.0 million or ~~31%~~20.9% compared with the third quarter of ~~2019.~~2020. The increase in the third quarter of ~~2020~~2021 was driven by a ~~$107.1~~$48.8 million increase in Heavy Civil, a $22.9 million increase in Residential and an $8.3 million increase in Specialty Services due to the inclusion of the quarter results from Plateau, which was acquired on October 2, 2019, and a $2.5 million increase in Residential, partly offset by a $17.8 million decrease in Heavy Civil.Services. Revenues were ~~$1,080.2 million~~$1.2 billion for the nine months ended September 30, ~~2020,~~2021, an increase of ~~$300.5~~$100.3 million or ~~39%~~9.3% compared with the nine months ended September 30, ~~2019.~~2020. The increase in the nine months ended September 30, ~~2020~~2021 was driven by a ~~$289.0~~$43.9 million increase in Specialty Services, ~~due to the inclusion of nine months of results from Plateau,~~ a ~~$7.5~~$33.4 million increase in Residential and a $23.0 million increase in Heavy ~~Civil, and a $4.0 million increase in Residential.~~Civil.

Gross profit—Gross profit was ~~$49.9~~$57.8 million for the third quarter of ~~2020,~~2021, an increase of ~~$20.7~~$7.9 million or ~~71%~~15.8% compared to the third quarter of ~~2019.~~2020. The Company’s gross margin as a percent of revenue decreased to 12.5% in the third quarter of 2021, as compared to 13.0% in the third quarter of 2020. The increase in gross profit and decrease in margin as a percent of revenue was primarily driven by higher volume, partly offset by continued headwinds from inflation, labor and material supply issues in Specialty Services and Residential. Gross profit was $159.1 million for the nine months ended September 30, 2021, an increase of $14.3 million or 9.9% compared to the nine months ended September 30, 2020. The Company’s gross margin as a percent of revenue increased to ~~13.0%~~13.5% in the third quarter of 2020, as compared to 10.0% in the third quarter of 2019. The increases in gross profit and gross margin as a percent of revenue are primarily driven by Specialty Services due to the inclusion of a full quarter results from Plateau. Gross profit was $144.8 million for the nine months ended September 30, ~~2020, an increase of $70.5 million or 95%~~2021, as compared ~~with the nine months ended September 30, 2019. The Company’s gross margin as a percent of revenue increased~~ to 13.4% in the nine months ended September 30, ~~2020, as compared to 9.5% in~~2020. Despite the ongoing headwinds, gross profit increased for the nine months ended September 30, ~~2019. The increase in gross profit and gross margin as a percent of revenue are primarily~~2021, driven by ~~Specialty Services due~~higher volume and the ramp up of construction on large design-build joint venture projects as we continue to reduce the ~~inclusion of nine months of results from Plateau operations in 2020.~~lower margin low-bid heavy highway revenues for Heavy Civil.

Contracts in progress which were not substantially completed totaled approximately ~~215~~202 and ~~183~~215 at September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. These contracts are of various sizes, of different expected profitability and in various stages of completion. The nearer a contract progresses toward completion, the more visibility the Company has in refining its estimate of total revenues (including incentives, delay penalties and change orders), costs and gross profit. 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 $19.6 million, or 4.2% of revenue, for the third quarter of 2021, compared to $15.2 million, or 4.0% of revenue, for the third quarter of 2020. General and administrative expenses were $52.6 million, or 4.5% of revenue, for the nine months ended September 30, 2021, compared to $51.2 million, or 4.7% of revenue, for the nine months ended September 30, 2020. The Company has begun to see an impact to general and administrative expenses due to inflation and supply-chain issues; however, the Company anticipates that these expenses will remain at approximately 4.8% of revenue for the full year 2021.

Interest expense—Interest expense was $3.9 million for the third quarter of 2021 compared to $7.2 million for the third quarter of 2020 ~~an increase of $4.9 million compared to the third quarter of 2019. General~~ and ~~administrative expenses were $51.2~~interest expense was $15.7 million for the nine months ended September 30, ~~2020, an increase of $18.9 million~~2021, compared to the nine months ended September 30, 2019. These increases were primarily due to the inclusion of the results from Plateau operations in 2020 and higher stock compensation and other corporate related cost.

~~Intangible asset amortization—Intangible asset amortization was $2.9 million for the third quarter of 2020, an increase of $2.3 million compared to the third quarter of 2019. Intangible asset amortization was $8.6~~$22.5 million for the nine months ended September 30, ~~2020, an increase of $6.8 million compared~~2020. The decrease is in part due to the ~~nine months ended September 30, 2019. The increases were a result~~Company’s declining debt, as the Company has paid down $69 million of ~~the Plateau Acquisition.~~

~~Acquisition related costs—The Company had acquisition related costs of $0.4 million and $1.9 million during~~its Credit Facility balance since the third quarter of 2020, and ~~2019, respectively, and $1.0 million and $2.2 million for~~in part due to a 2% lower applicable interest rate provided under the ~~nine months ended September 30, 2020 and 2019, respectively, all of which related to~~Credit Agreement, as amended in the ~~Plateau Acquisition.~~

~~Other operating expense, net—~~Other operating expense, net, includes 50% of earnings and losses related to Members’ interest of consolidated 50% owned subsidiaries (included within Heavy Civil), earn-out expense and other miscellaneous operating income or expense. Members’ interest earnings are treated as an expense and increase the liability account. The change in other operating expense, net, was a decrease of $1.7 million during the thirdsecond quarter of 2020 compared to the third quarter of 2019. Earn-out expense decreased by $0.1 million during the third quarter of 2020 to $0.1 million from $0.2 million in the third quarter of 2019. Members’ interest earnings decreased by $1.6 million during the third quarter of 2020 to $2.6 million from $4.2 million in the third quarter of 2019. The change in other operating expense, net, was an increase of $0.1 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Earn-out expense decreased by $0.6 million during the nine months ended September 30, 2020 to $1.1 million from $1.7 million in the nine months ended September 30, 2019. Members’ interest earnings increased by $0.7 million during the nine months ended September 30, 2020 to $8.9 million from $8.2 million in the nine months ended September 30, 2019.

~~Interest expense—~~2021. See Interest expense was $7.2 million in the third quarter of 2020 compared to $3.0 million in the third quarter of 2019 and interest expense was $22.5 million in the nine months ended September 30, 2020 compared to $9.0 million in the nine months ended September 30, 2019. The increases were due to borrowings related to the Plateau Acquisition.Note 8 - Debt for more information.

Income taxes—The effective income tax rate was ~~29.0% and 28.5% in~~25.2% for the third quarter of ~~2020~~2021 and 27.4% for the nine months ended September 30, ~~2020, respectively, compared to 9.7% and 8.9% in the~~2021. The effective income tax rates for third quarter of ~~2019~~2021 and for the nine months ended September 30, ~~2019.~~2021 benefited primarily from the non-taxed PPP loan forgiveness. See Note 8 - Debt for more information. The ~~increases in both periods are in part due to a reduction in the tax valuation allowance that reduced the~~Company anticipates an effective income tax rate ~~in 2019 and in part due~~for the full year 2021 of 27.5% to ~~additional state taxes in 2020 primarily related to Plateau.~~28%. Due to its net

operating loss carryforwards, the Company expects no cash payments for federal income taxes for ~~2020~~2021 or ~~2019.~~2020. See Note 1312 - Income Taxes for more information.

Segment Results


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	(In thousands)	2020		% of Revenue	2019		% of Revenue	2020		% of Revenue	2019		% of Revenue	(In thousands)	2021		% of Revenue	2020		% of Revenue	2021		% of Revenue	2020		% of Revenue
Revenue
Revenues														Revenues
Heavy Civil	Heavy Civil	$	201,078	52%	$	218,894	75%	$	577,141	54%	$	569,635	73%	Heavy Civil	$	249,898	54%	$	201,078	52%	$	600,105	51%	$	577,141	54%
Specialty Services	Specialty Services	139,971		37%	32,863		11%	380,397		35%	91,436		12%	Specialty Services	148,256		32%	139,971		37%	424,248		36%	380,397		35%
Residential	Residential	42,409		11%	39,942		14%	122,646		11%	118,663		15%	Residential	65,295		14%	42,409		11%	156,078		13%	122,646		11%
Total Revenue		$	383,458		$	291,699		$	1,080,184		$	779,734
Total Revenues														Total Revenues	$	463,449		$	383,458		$	1,180,431		$	1,080,184

Operating Income	Operating Income													Operating Income
Heavy Civil	Heavy Civil	$	2,405	1.2%	$	7,420	3.4%	$	2,679	0.5%	$	11,020	1.9%	Heavy Civil	$	7,174	2.9%	$	2,405	1.2%	$	12,668	2.1%	$	2,679	0.5%
Specialty Services	Specialty Services	21,474		15.3%	1,371		4.2%	55,834		14.7%	3,284		3.6%	Specialty Services	17,932		12.1%	21,474		15.3%	57,016		13.4%	55,834		14.7%
Residential	Residential	5,353		12.6%	5,220		13.1%	16,480		13.4%	15,873		13.4%	Residential	6,925		10.6%	5,353		12.6%	17,822		11.4%	16,480		13.4%
Subtotal	Subtotal	29,232		7.6%	14,011		4.8%	74,993		6.9%	30,177		3.9%	Subtotal	32,031		6.9%	29,232		7.6%	87,506		7.4%	74,993		6.9%
Acquisition related costs	Acquisition related costs	(401)			(1,896)			(1,013)			(2,158)			Acquisition related costs	—			(401)			—			(1,013)
Total Operating Income	Total Operating Income	$	28,831	7.5%	$	12,115	4.2%	$	73,980	6.8%	$	28,019	3.6%	Total Operating Income	$	32,031	6.9%	$	28,831	7.5%	$	87,506	7.4%	$	73,980	6.8%

Heavy Civil

Revenues—Revenues were ~~$201.1~~$249.9 million for the third quarter of ~~2020, a decrease~~2021, an increase of ~~$17.8~~$48.8 million or ~~8.1%~~24.3% compared to the third quarter of ~~2019. The decrease was driven by lower aviation revenue for the third quarter of~~ 2020, ~~compared to the third quarter of 2019. Revenues~~and revenues were ~~$577.1~~$600.1 million for the nine months ended September 30, ~~2020, a~~2021, an increase of ~~$7.5~~$23.0 million or ~~1.3%~~4.0% compared to the nine months ended September 30, ~~2019.~~2020. The ~~increase was~~increases were primarily driven by higher heavy highway and aviation revenue, ~~for~~partly offset by lower water containment and treatment revenue. The increase in heavy highway revenue was primarily due to the ramp up of construction on large design-build joint venture projects. During the third quarter of 2021, our low-bid heavy highway revenue decreased by $3.0 million, which was offset by an increase of $43.5 million from heavy highway design build and other revenues compared to the third quarter of 2020. During the nine months ended September 30, ~~2020~~2021, our low-bid heavy highway revenue decreased by $65.9 million, which was offset by an increase of $96.2 million from heavy highway design build and other revenues compared to the nine months ended September 30, ~~2019, partly offset by the aforementioned third quarter impact.~~2020.

Operating Income—Operating income was ~~$2.4~~$7.2 million for the third quarter of ~~2020, a decrease~~2021, an increase of ~~$5.0~~$4.8 million, compared to the third quarter of ~~2019. The decrease was the result of a charge for increased estimated cost to complete the construction of three separate bridges in Texas~~2020, and a margin shift due to lower volume on aviation work and higher volume of lower margin heavy highway work. The company expects the margin mix to improve in 2021 with the ramp up of several large projects which are in backlog. Operatingoperating income was ~~$2.7~~$12.7 million for the nine months ended September 30, ~~2020, a decrease~~2021, an increase of ~~$8.3~~$10.0 million, compared to the nine months ended September 30, ~~2019.~~2020. The ~~decrease was~~increases were the result of improved margin mix with the ~~aforementioned third quarter impact~~ramp up of construction on large design-build joint venture projects and ~~greater project mix shift to~~the continuation of our ~~50% owned subsidiaries which increased members interest by $0.7 million and additional costs associated with COVID-19.~~planned revenue reduction from lower margin low-bid heavy highway work.

Specialty Services

Revenues—Revenues were ~~$140.0~~$148.3 million for the third quarter of ~~2020,~~2021, an increase of ~~$107.1~~$8.3 million or 5.9% compared to the third quarter of ~~2019. The increase was driven by the inclusion of Plateau’s operations in the third quarter of~~ 2020, ~~partly offset by a decrease in Commercial revenues. Revenues~~and revenues were ~~$380.4~~$424.2 million for the nine months ended September 30, ~~2020,~~2021, an increase of ~~$289.0~~$43.9 million or 11.5% compared to the nine months ended September 30, 2020. The increases were primarily driven by higher volume from site development.

Operating income—Operating income was $17.9 million for the third quarter of 2021, a decrease of $3.5 million, compared to the third quarter of 2020. The decrease was driven by the continued headwinds from supply chain issues and the related impact on productivity and efficiency, as well as lower project margin mix in the third quarter of 2021. Operating income was $57.0 million for the nine months ended September 30, 2021, an increase of $1.2 million, compared to the nine months ended September 30, ~~2019.~~2020. The increase was ~~primarily attributable to the inclusion of nine months of results~~driven by higher volume from ~~Plateau operations in 2020,~~site development, partly offset by ~~a decrease in Commercial revenues.~~the aforementioned headwinds.

Residential

~~Operating income—~~Revenues—~~Operating income was $21.5~~Revenues were $65.3 million for the third quarter of ~~2020,~~2021, an increase of ~~$20.1~~$22.9 million or 54.0%, compared to the third quarter of ~~2019 and operating income was $55.8~~2020. The Company’s revenue increased due to a record number of slabs poured in the third quarter, primarily as a result of the completion of a large amount of uncompleted slabs which shifted from the second quarter of 2021 due to weather related delays. Revenues were $156.1 million for the nine months ended September 30, ~~2020,~~2021, an increase of ~~$52.6~~$33.4 million or 27.3%, compared to the nine months ended September 30, 2020. Despite inclement weather in Texas in the

first half of 2021, the Company’s revenue increased due to a record number of slabs poured in each of the first three quarters of 2021. We continue to see strong demand for new housing in our Texas footprint and our expansion into the Arizona market.

Operating income—Operating income was $6.9 million for the third quarter of 2021, an increase of $1.6 million, compared to the third quarter of 2020 and operating income was $17.8 million for the nine months ended September 30, 2021, an increase of $1.3 million, compared to the nine months ended September 30, ~~2019. The increases were primarily attributable to the inclusion of operating income generated from Plateau operations in~~ 2020.

~~Residential~~

~~Revenues—~~Revenues were $42.4 million for the third quarter of 2020, an increase of $2.5 million or 6.2%, compared to the third quarter of 2019. Revenues were $122.6 million for the nine months ended September 30, 2020, an increase of $4.0 million or 3.4%, compared to the nine months ended September 30, 2019. The increases in revenue were primarily the result of the continued ramp-up of work in Houston.

~~Operating income—~~Operating income was $5.4 million for the third quarter of 2020, an increase of $0.1 million, compared to the third quarter of 2019 and operating income was $16.5 million for the nine months ended September 30, 2020, an increase of $0.6 million, compared to the nine months ended September 30, 2019. The increases were driven by the ramp-up of operations and scale in Houston. Houston as a percentage of completed slabs was 15% for the third quarter of 2020 compared to 11% for the third quarter of 2019. Operating income as a percent of revenue decreased 45 basis points compared to the third quarter of 2019, driven by the ramp-up of operations and scale in Houston, temporary price concessions implemented to mitigate a potential decrease in demandaforementioned higher volume; however, operating margins declined due to ~~COVID-19,~~higher material costs for concrete, steel and ~~an increase in~~ lumber, and ~~concrete~~the lack of consistent availability of these materials, as well as labor shortages and increased subcontractor labor costs. While the Company has worked with customers to pass on the increases in material and labor cost, the Company may not be successful in recouping these additional costs in ~~2020.~~the future.

LIQUIDITY AND SOURCES OF CAPITAL

Cash—Cash at September 30, ~~2020,~~2021, was ~~$72,593,~~$117.7 million, and includes the following components:


(In thousands)	(In thousands)	September 30, 2020		December 31, 2019		(In thousands)	September 30, 2021		December 31, 2020
Generally Available	Generally Available	$	35,083	$	29,659	Generally Available	$	57,086	$	26,419
Consolidated 50% Owned Subsidiaries	Consolidated 50% Owned Subsidiaries	30,658		12,004		Consolidated 50% Owned Subsidiaries	42,965		30,354
Construction Joint Ventures	Construction Joint Ventures	6,852		4,070		Construction Joint Ventures	17,651		9,412
Total Cash	Total Cash	$	72,593	$	45,733	Total Cash	$	117,702	$	66,185

The following tables set forth information about our cash flows and liquidity:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	(In thousands)	2020		2019		(In thousands)	2021		2020
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	90,949	$	8,477	Operating activities	$	135,742	$	92,255
Investing activities	Investing activities	(20,531)		(6,606)		Investing activities	(37,222)		(20,531)
Financing activities	Financing activities	(43,558)		(19,436)		Financing activities	(46,746)		(43,558)
Net change in cash and cash equivalents		$	26,860	$	(17,565)
Net change in cash, cash equivalents, and restricted cash						Net change in cash, cash equivalents, and restricted cash	$	51,774	$	28,166

Operating Activities—During the nine months ended September 30, ~~2020,~~2021, net cash provided by operating activities was ~~$90.9~~$135.7 million compared to net cash provided by operating activities of ~~$8.5~~$92.3 million in the nine months ended September 30, ~~2019.~~2020. Cash flows provided by operating activities were driven by 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 accrued liabilities.

Changes in Contract Capital—The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital. The changes in the components of Contract Capital during the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 were as follows:

Nine Months Ended September 30,
(In thousands) 2020 2019
Costs and estimated earnings in excess of billings $ (12,755) $ (26,060)
Billings in excess of costs and estimated earnings 41,975 (874)
Contracts in progress, net 29,220 (26,934)
Accounts receivable, including retainage (23,095) (15,486)
Receivables from and equity in construction joint ventures (4,606) (3,931)
Accounts payable (10,257) 11,198
Change in Contract Capital, net $ (8,738) $ (35,153)


	Nine Months Ended September 30,
(In thousands)	2021		2020


Contracts in progress, net	$	26,694	$	30,278
Accounts receivable	(41,259)		(24,153)
Receivables from and equity in construction joint ventures	(5,003)		(4,606)
Accounts payable	47,423		(10,257)
Change in Contract Capital, net	$	27,855	$	(8,738)

During the nine months ended September 30, ~~2020,~~2021, the change in Contract Capital ~~decreased~~increased liquidity by ~~$8.7~~$27.9 million. 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.

Investing Activities—During the nine months ended September 30, ~~2020,~~2021, net cash used in investing activities was ~~$20.5~~$37.2 million, compared to ~~$6.6~~net cash used of $20.5 million in the nine months ended September 30, ~~2019.~~2020. The use of cash was driven by purchases of capital equipment and buildings and improvements. Capital equipment is acquired as needed to support ~~changing~~increasing levels of production activities and to replace retiring ~~equipment.~~equipment, particularly within our Specialty Services segment.

Financing Activities—During the nine months ended September 30, ~~2020,~~2021, net cash used in financing activities was ~~$43.6~~$46.7 million, compared to net cash used of ~~$19.4~~$43.6 million in the prior year. The financing cash outflow was driven by ~~$52.7~~$44.2 million of ~~repayments on debt, primarily consisting of $12.5 million in payments on the combined promissory notes and deferred cash payments issued as part of the Tealstone Acquisition and $20.0 million in~~ repayments on the Term Loan Facility and ~~$20.0~~$2.0 million in ~~repayments on the Revolving Credit Facility.~~distributions to noncontrolling interest owners.

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 specialty services markets. The Company expects to pursue strategic uses of its cash, such as, ~~investing in projects or~~strategic acquisitions of businesses that meet ~~its~~our gross margin targets and overall profitability, and managing its debt balances.

Inflation—For the past several years, inflation generally has not had a material impact on our financial results. However, beginning in 2021, supply chain volatility has resulted in price increases in oil, fuel, lumber, concrete and steel which have increased our cost of operations, and inflation has increased our general and administrative expense. Anticipated cost increases are considered in our bids to customers; however, inflation has had, and may continue to have, a negative impact on the Company’s financial results.

~~OFF-BALANCE SHEET ARRANGEMENTS AND~~

JOINT VENTURES

We participate in various construction joint venture partnerships in order to share expertise, risk and resources for certain highly complex projects. The joint venture’s contract with the project owner typically requires joint and several liability among the joint venture partners. Although our agreements with our joint venture partners provide that each party will assume and fund its share of any losses resulting from a project, if one of our partners was unable to pay its share, we would be fully liable for such share under our contract with the project owner. Circumstances that could lead to a loss under these guarantee arrangements include a partner’s inability to contribute additional funds to the venture in the event that the project incurred a loss or additional costs that we could incur should the partner fail to provide the services and resources toward project completion that had been committed to in the joint venture agreement. See the ~~2019~~2020 Form 10-K under “Part I, Item 1A. Risk ~~Factors,~~Factors.” ~~as updated herein.~~

At September 30, ~~2020,~~2021, there was approximately ~~$573.7~~$354.1 million of construction work to be completed on unconsolidated construction joint venture contracts, of which ~~$255.9~~$152.6 million represented our proportionate share. Due to the joint and several liability under our joint venture arrangements, if one of our joint venture partners fails to perform, we and the remaining joint venture partners would be responsible for completion of the outstanding work. As of September 30, ~~2020,~~2021, we are not aware of any situation that would require us to fulfill responsibilities of our joint venture partners pursuant to the joint and several liability under our contracts.

NEW ACCOUNTING STANDARDS

~~See~~There have been no material changes to the ~~applicable section~~Company’s discussion of new accounting standards from those described in Note 2 - Basis of Presentation and Significant Accounting Policies of our annual report on Form 10-K for ~~a discussion of new accounting standards.~~the year ended December 31, 2020.

CRITICAL ACCOUNTING ESTIMATES

~~The discussion and analysis of the financial condition and results of operations are based on the Company’s Condensed Financial Statements, which~~There have been prepared in accordance with GAAP. The preparation of these Condensed Financial Statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. The Company continually evaluates its estimates based on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies involve more significant judgments and estimates used in the preparation of the Condensed Financial Statements.

~~Revenue Recognition~~

~~Performance Obligations Satisfied Over Time~~—Revenue for contracts that satisfy the criteria for over time recognition is recognized as the work progresses. The Company measures transfer of control of the performance obligation utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as materials and labor, and indirect costs that are attributable to contract activity. Under the cost-to-cost approach, the use of estimated costs to complete each performance

obligation is a significant variable in the process of determining recognized revenue and is a significant factor in the accounting for such performance obligations. Significant estimates that impact the cost to complete each performance obligation are materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor or supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. 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. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which could result inno material changes to the Company’s ~~Condensed Financial Statements and related disclosures.~~

~~Valuation~~discussion of ~~Long-Lived Assets~~

Long-lived assets, which include property, equipment and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, the estimated future cash flow associated with the asset or asset group will be compared to their respective carrying amounts to determine if an impairment exists. Actual useful lives and cash flows could be differentcritical accounting estimates from those ~~estimated by management, and this could have a material effect~~described in Item 7 of our annual report on ~~operating results and financial position. For the three and nine months ended September 30, 2020 and~~Form 10-K for the year ended December 31, ~~2019, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets.~~

~~Goodwill~~

At September 30, 2020 and December 31, 2019, we had goodwill with a carrying amount of $192.0 million and $191.9 million, respectively. 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. During the fourth quarter 2019, the Company performed a qualitative assessment of goodwill, and based on this assessment, no indicators of impairment were present. Additionally, during the three and nine months ended September 30, 2020, the Company noted no indicators of impairment.

~~Income Taxes~~

~~Deferred Tax Realization Assessments~~—Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using currently enacted income tax rates for the years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our net DTAs depends upon our ability to generate sufficient future taxable income of the appropriate character and in the appropriate jurisdictions.

As a result of the Company’s analysis, management has determined that the Company does not have any material uncertain tax positions. If our estimates or assumptions regarding our current and deferred tax items are inaccurate or are modified, these changes could have potentially material impacts on our earnings.

~~Purchase Accounting Estimates~~

The aggregate purchase price for the Plateau Acquisition was allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of October 2, 2019, which were based, in part, upon an external appraisal and valuation of certain assets, including specifically identified intangible assets and property and equipment. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired, totaling $106.8 million, was recorded as goodwill. See ~~Note 3 - Plateau Acquisition~~ ~~to our Condensed Financial Statements for further discussion.~~2020.

Item 3. Quantitative and Qualitative Disclosures ~~About~~about Market Risk

Interest Rate Risk

We continue to utilize a swap arrangement to hedge against interest rate variability associated with ~~$350~~$275 million of the ~~$380~~$311 million outstanding under the Term Loan Facility. The Company has designated its interest rate swap agreement as a cash flow hedging derivative. To the extent the derivative instrument is effective and the documentation requirements have been met, changes in fair value are recognized in other comprehensive income (loss) until the underlying hedged item is recognized in earnings. The total fair value of the contract was a net loss of approximately ~~$8.4~~$3.8 million at September 30, ~~2020.~~2021. For the ~~$30~~

$36 million remaining portion of the Term Loan Facility not associated with the interest rate swap hedge, at September 30, ~~2020~~2021 a 100-basis point (or 1%) increase or decrease in the interest rate would increase or decrease interest expense by approximately ~~$0.3 million~~$359 thousand per year.

Other

The carrying values of the Company’s cash and cash equivalents, ~~(primarily consisting of bank deposits),~~ accounts receivable and accounts payable approximate their fair values because of the short-term nature of these instruments. At September 30, ~~2020,~~2021, the fair value of the term loan, based upon the current market rates for debt with similar credit risk and maturities, approximated its carrying value as interest is based on LIBOR plus an applicable margin.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures include, but are not limited to, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s principal executive officer and principal financial officer reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2020. As previously disclosed, we completed the Plateau Acquisition on October 2, 2019 and, as permitted by SEC guidance for newly acquired businesses, we have elected to exclude the acquired operations of Plateau from the scope of design and operation of our disclosure controls and procedures for the quarter ended September 30, 2020.2021. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at September 30, ~~2020~~2021 to ensure that the information required to be disclosed by the Company in this Report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting may not prevent or detect all errors and all fraud. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

The Company, including its construction joint ventures and its consolidated 50% owned subsidiaries, 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. The Company regularly analyzes current information about these proceedings and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters.

In 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 ~~Condensed~~Company’s Consolidated Results of Operations, Financial Position or Cash Flows.

Item 1A. Risk Factors

There have not been any material changes from the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” of the ~~2019~~2020 Form 10-K, except as provided below. In addition, many of the other risks described in Part I, Item 1A. “Risk Factors” of our 2019 Form 10-K may be heightened by the risks described below as well as other impacts of COVID-19 or other global or regional health pandemics, epidemics or similar public health threats. The below discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Report and the ~~2019~~2020 Form ~~10-~~

K.10-K. The below information should be read in conjunction with the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” of the ~~2019~~2020 Form 10-K, ~~as updated by Part II, Item 1A. “Risk Factors” of our quarterly report on Form 10-Q for the quarter ended March 31, 2020,~~ and with the other portions of this Report, including “Cautionary Statement Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I and the Condensed Consolidated Financial Statements and related notes in Item 1 of Part I. You should carefully consider such risk factors, which could materially affect the business, financial condition or future results.

~~Risk Related~~

Risks Relating to ~~the COVID-19 Pandemic~~Our Business

The ~~COVID-19 pandemic~~Federal government’s proposed workplace vaccine mandate or weekly testing requirement, if and when effective, could disrupt the Company’s operations, increase costs and adversely affect its business, results of operations, and financial condition.

On ~~March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and on March 13, 2020, the U.S.~~September 9, 2021, President ~~announced a National Emergency relating~~Biden directed OSHA to COVID-19. Federal, state, and local authorities have advised social distancing and many imposed shelter-in-place and stay-at-home orders, including some mandatory business closures. Authorities in some areas of the U.S. begancraft regulations that would require all employers with at least 100 employees to relax these quarantine and isolation measures in the second quarter of 2020, but a resurgence of COVID-19 cases in mid-July in many regions of the country, including some areas where the Company does business, has,~~in some cases caused authorities~~require all employees to either ~~defer~~be vaccinated or undergo weekly COVID-19 testing. On October 12, 2021, OSHA delivered to the ~~phasing~~White House’s Office of Information and Regulatory Affairs for review an emergency regulation to carry out ~~of these restrictions,~~this directive, which review was completed on November 1, 2021. Following this review, OSHA is expected to publish the emergency regulation, which would take effect immediately upon such publication. Complying with either a vaccine mandate or ~~re-impose~~quarantine and isolation measures. The number of new cases had been decreasing since the most recent spike, and authorities continued to relax certain restrictions during the third quarter 2020. However, recent reports indicate thereweekly testing requirements may be ~~another resurgence~~costly and it may be difficult to obtain test results on a weekly basis should the new regulation go into effect. Furthermore, it is possible that some employees may choose to leave employment over a vaccine or testing requirement, resulting in ~~cases currently occurring~~a potential labor shortage. Additional uncertainty could be caused by competing and potentially conflicting laws and regulations, such as the recent executive order issued by the governor of mid-October 2020. The measures taken have had, and are expected to continue to have, serious adverse effects on the U.S. and global economies of an unknown severity and duration. This outbreak, which has continued to spread worldwide, has adversely affected workforces, customers, economies, and financial markets globally.Texas prohibiting vaccine mandates. While the Company has not incurred significant disruptions thus far from the COVID-19 pandemic, the ~~pandemic~~Federal government’s proposed workplace vaccine mandate or weekly testing requirement may impact our business, ~~condensed consolidated~~ results of operations and financial condition in the future. ~~However,~~

A prolonged government shutdown may adversely affect our Heavy Civil business.

We derive a significant portion of our Heavy Civil revenue from governmental agencies and programs. 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 ~~significance~~delay or cancellation of ~~the impact~~key government programs in which we are involved, all of which could have a material adverse effect on our ~~operations going forward is not yet certain~~business and ~~depends on numerous evolving factors that the Company may not be able to accurately predict or effectively respond to, including, without limitation: the duration and scope~~results of the outbreak; actions taken by governments, businesses, and individuals in response to the outbreak; the effect on economic activity and actions taken in response; the effect on customers and their demand for the Company's products and services; the ability of our subcontractors to perform under their contracts due to their own financial or operational difficulties; the availability of subcontractors and other talent; and the Company's ability to continue operations, including without limitation as a result of supply chain challenges, facility closures, social distancing, restrictions on travel, fear or anxiety by the populace and shelter-in-place orders.operations.

~~Item 2.~~ ~~Unregistered Sales of Equity Securities and Use of Proceeds~~

The following table shows shares repurchased from employees holding shares of the Company’s common stock that had been awarded to them by the Company and that were released from Company-imposed transfer restrictions. The repurchase was to enable the employees to satisfy the Company’s tax withholding obligations occasioned by the release of the restrictions. The repurchase was made at the election of the employees pursuant to a procedure adopted by the Compensation and Talent Development Committee of the Board of Directors.

Period Total Number of
Shares
Purchased Average
Price Paid
Per Share
July 1 – July 31, 2020 2,954 $ 9.60
August 1 – August 31, 2020 — $ —
September 1 – September 30, 2020 — $ —
Total 2,954 $ 9.60

~~Items 3 and 4 are not applicable and have been omitted.~~

~~Item 5.~~ ~~Other Information~~

On September 1, 2020, the Company filed a Current Report on Form 8-K under Item 5.02(d) disclosing that on September 1, 2020, Mr. Dwayne Wilson was appointed to the Company’s Board of Directors (the “Board”), effective September 1, 2020. At that time, Mr. Wilson’s Board committee appointments had not yet been determined by the Board.

The Board, based on the recommendation of the Company’s Corporate Governance and Nominating Committee, appointed Mr. Wilson to serve as a member of the Board’s Audit Committee as well as the Board’s Compensation and Talent Development Committee, effective October 30, 2020.

Item 6. Exhibits

The following exhibits are filed with this Report:


Exhibit No.			Exhibit Title
3.1 (1)			Certificate of Incorporation of Sterling Construction Company, Inc. as amended through April 28, 2017 (incorporated by reference to Exhibit 3 to Sterling Construction Company, Inc.'s Current Report on Form 8-K, filed on May 3, 2017 (SEC File No. 1-31993)).
3.2 (1)			Amended and Restated Bylaws of Sterling Construction Company, Inc. (incorporated by reference to Exhibit 3.1 to Sterling Construction Company, Inc.’s Current Report on Form 8-K, filed on March 8, 2018 (SEC File No. 1-31993)).



31.1 (2)			Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
31.2 (2)			Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
32.1 (3)			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section ~~1350~~1350.
32.2 (3)			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section ~~1350~~1350.
101.INS			Inline XBRL Instance Document—The instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

(1) Incorporated by reference to the filing indicated

(2) Filed herewith

(3) Furnished herewith

3329

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	STERLING CONSTRUCTION COMPANY, INC.

Date: November 3, ~~2020~~2021	By:	/s/ Ronald A. Ballschmiede
		Ronald A. Ballschmiede
		Chief Financial Officer and Duly Authorized Officer

3430


			Page
PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements			3

Statements of Operations			3

Statements of Comprehensive Income ~~(Loss)~~			4

Balance Sheets			5

Statements of Cash Flows			6

Statements of Changes in Stockholders’ Equity			7

Notes to the Condensed Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2321

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3027

Item 4. Controls and Procedures			3128

PART II—OTHER INFORMATION

Item 1. Legal Proceedings			3128

Item 1A. Risk Factors			31

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~			3228







~~Item 5. Other Information~~			32



Item 6. Exhibits			3329

Signatures			3430


	Weighted Average Life (Years)	October 2, 2019 Fair Value
Customer relationships	25	$	191,800
Trade name	25	24,800
Non-compete agreements	5	2,000
Total		$	218,600


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Pro forma revenue	$	381,721	$	1,012,192
Pro forma net income attributable to Sterling	$	29,902	$	58,225


		September 30, 2020				December 31, 2019
	Weighted Average Life	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	25 years	$	232,623	$	(13,990)	$	232,623	$	(6,911)
Trade name	23 years	30,107		(2,830)		30,107		(1,692)
Non-competition agreements	5 years	2,487		(643)		2,487		(291)
Total	24 years	$	265,217	$	(17,463)	$	265,217	$	(8,894)


Period	Total Number of Shares Purchased	Average Price Paid Per Share
July 1 – July 31, 2020	2,954	$	9.60
August 1 – August 31, 2020	—	$	—
September 1 – September 30, 2020	—	$	—
Total	2,954	$	9.60