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~~June 30, ~~2021~~2022


☐						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,~~INFRASTRUCTURE, 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) 214-0777
Sterling Construction Company, Inc.
(Former name, if changed since last report)


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~~July 29, ~~2021~~2022 – ~~28,794,510~~30,300,393

STERLING ~~CONSTRUCTION COMPANY,~~INFRASTRUCTURE, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Special Note Regarding Name Change

On June 1, 2022, the Company officially changed its legal name from “Sterling Construction Company, Inc.” to “Sterling Infrastructure, Inc.”

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

STERLING ~~CONSTRUCTION COMPANY,~~INFRASTRUCTURE, 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 June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues	Revenues	$	463,449	$	383,458	$	1,180,431	$	1,080,184	Revenues	$	510,568	$	401,666	$	920,888	$	716,982
Cost of revenues	Cost of revenues	(405,645)		(333,542)		(1,021,348)		(935,424)		Cost of revenues	(442,184)		(345,419)		(796,365)		(615,703)
Gross profit	Gross profit	57,804		49,916		159,083		144,760		Gross profit	68,384		56,247		124,523		101,279
General and administrative expense	General and administrative expense	(19,637)		(15,154)		(52,565)		(51,209)		General and administrative expense	(23,424)		(15,829)		(46,496)		(32,928)
Intangible asset amortization	Intangible asset amortization	(2,866)		(2,866)		(8,598)		(8,569)		Intangible asset amortization	(3,514)		(2,866)		(7,082)		(5,732)
Acquisition related costs	Acquisition related costs	—		(401)		—		(1,013)		Acquisition related costs	(230)		—		(485)		—
Other operating expense, net	Other operating expense, net	(3,270)		(2,664)		(10,414)		(9,989)		Other operating expense, net	(126)		(4,832)		(1,101)		(7,144)
Operating income	Operating income	32,031		28,831		87,506		73,980		Operating income	41,090		32,720		69,359		55,475
Interest income	Interest income	13		23		39		146		Interest income	30		12		40		26
Interest expense	Interest expense	(3,919)		(7,177)		(15,660)		(22,537)		Interest expense	(4,480)		(5,737)		(9,067)		(11,741)
Gain on extinguishment of debt, net	Gain on extinguishment of debt, net	968		—		2,032		—		Gain on extinguishment of debt, net	—		1,401		2,428		1,064
Income before income taxes	Income before income taxes	29,093		21,677		73,917		51,589		Income before income taxes	36,640		28,396		62,760		44,824
Income tax expense	Income tax expense	(7,336)		(6,280)		(20,275)		(14,712)		Income tax expense	(10,268)		(8,179)		(16,865)		(12,939)
Net income	Net income	21,757		15,397		53,642		36,877		Net income	26,372		20,217		45,895		31,885
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	(631)		(240)		(1,905)		(395)		Less: Net income attributable to noncontrolling interests	(411)		(161)		(682)		(1,274)
Net income attributable to Sterling common stockholders	Net income attributable to Sterling common stockholders	$	21,126	$	15,157	$	51,737	$	36,482	Net income attributable to Sterling common stockholders	$	25,961	$	20,056	$	45,213	$	30,611

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	$	0.74	$	0.54	$	1.81	$	1.31	Basic	$	0.86	$	0.70	$	1.50	$	1.08
Diluted	Diluted	$	0.72	$	0.54	$	1.79	$	1.30	Diluted	$	0.86	$	0.69	$	1.50	$	1.06

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	28,710		28,003		28,527		27,832		Basic	30,225		28,582		30,094		28,433
Diluted	Diluted	29,213		28,233		28,927		27,986		Diluted	30,362		29,054		30,229		28,878

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

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net income	Net income	$	21,757	$	15,397	$	53,642	$	36,877	Net income	$	26,372	$	20,217	$	45,895	$	31,885
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 9)		718		1,010		2,341		(6,104)
Change in interest rate swap, net of tax (Note 10)										Change in interest rate swap, net of tax (Note 10)	839		728		2,402		1,623
Total comprehensive income	Total comprehensive income	22,475		16,407		55,983		30,773		Total comprehensive income	27,211		20,945		48,297		33,508
Less: Comprehensive income attributable to noncontrolling interests	Less: Comprehensive income attributable to noncontrolling interests	(631)		(240)		(1,905)		(395)		Less: Comprehensive income attributable to noncontrolling interests	(411)		(161)		(682)		(1,274)
Comprehensive income attributable to Sterling common stockholders	Comprehensive income attributable to Sterling common stockholders	$	21,844	$	16,167	$	54,078	$	30,378	Comprehensive income attributable to Sterling common stockholders	$	26,800	$	20,784	$	47,615	$	32,234

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

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

September 30,
2021 December 31,
2020
Assets
Current assets:
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) 218,683 177,424
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) 21,656 16,653
Other current assets ($3,569 and $1,493 related to VIEs) 22,483 16,306
Total current assets 466,022 361,543
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) 17,470 16,515
Goodwill ($1,501 and $1,501 related to VIEs) 192,014 192,014
Other intangibles, net 236,289 244,887
Deferred tax asset, net — 7,817
Other non-current assets, net 4,078 3,250
Total assets $ 1,064,317 $ 952,694
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ($30,264 and $19,505 related to VIEs) $ 142,740 $ 95,201
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) 21,239 77,434
Current portion of long-term lease obligations ($2,253 and $1,801 related to VIEs) 8,314 7,588
Income taxes payable 306 —
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) 9,088 9,629
Total current liabilities 357,724 321,884
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) 9,306 8,958
Members’ interest subject to mandatory redemption and undistributed earnings 54,766 51,290
Deferred tax liability, net 10,287 —
Other long-term liabilities ($722 and $722 related to VIEs) 9,218 10,584
Total liabilities 741,224 683,965
Commitments and contingencies (Note 11) 0 0
Stockholders’ equity:
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 255,313 256,423
Treasury stock, at cost: 0 and 95 shares — (1,445)
Retained earnings 69,010 17,273
Accumulated other comprehensive loss (2,923) (5,264)
Total Sterling stockholders’ equity 321,688 267,270
Noncontrolling interests 1,405 1,459
Total stockholders’ equity 323,093 268,729
Total liabilities and stockholders’ equity $ 1,064,317 $ 952,694


	June 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents ($30,328 and $35,378 related to variable interest entities (“VIEs”))	$	72,905	$	81,840
Accounts receivable ($26,282 and $26,176 related to VIEs)	302,844		232,153
Contract assets ($15,345 and $10,249 related to VIEs)	121,667		83,310
Receivables from and equity in construction joint ventures ($6,696 and $7,058 related to VIEs)	16,910		16,896
Other current assets ($865 and $1,087 related to VIEs)	23,170		20,492
Total current assets	537,496		434,691
Property and equipment, net ($10,095 and $10,420 related to VIEs)	214,976		204,316
Operating lease right-of-use assets, net ($5,246 and $5,097 related to VIEs)	46,628		24,520
Goodwill ($1,501 and $1,501 related to VIEs)	252,887		259,791
Other intangibles, net	297,041		303,223

Other non-current assets, net	4,502		4,455
Total assets	$	1,353,530	$	1,230,996

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ($33,597 and $23,611 related to VIEs)	$	164,506	$	144,982
Contract liabilities ($15,919 and $22,583 related to VIEs)	161,961		127,932
Current maturities of long-term debt ($0 and $4,857 related to VIEs)	26,273		28,230
Current portion of long-term lease obligations ($2,396 and $2,334 related to VIEs)	12,582		8,841

Accrued compensation ($3,175 and $2,388 related to VIEs)	33,044		22,803
Other current liabilities ($700 and $889 related to VIEs)	9,023		18,972
Total current liabilities	407,389		351,760
Long-term debt ($0 and $81 related to VIEs)	415,998		428,588
Long-term lease obligations ($2,850 and $2,763 related to VIEs)	34,103		15,831
Members’ interest subject to mandatory redemption and undistributed earnings	54,214		55,115
Deferred tax liability, net	29,871		14,656
Other long-term liabilities	4,580		4,819
Total liabilities	946,155		870,769
Commitments and contingencies (Note 12)	0		0
Stockholders’ equity:
Common stock, par value $0.01 per share; 38,000 shares authorized, 30,299 and 29,838 shares issued and outstanding	303		298
Additional paid in capital	279,120		280,274

Retained earnings	125,131		79,918
Accumulated other comprehensive gain (loss)	679		(1,723)
Total Sterling stockholders’ equity	405,233		358,767
Noncontrolling interests	2,142		1,460
Total stockholders’ equity	407,375		360,227
Total liabilities and stockholders’ equity	$	1,353,530	$	1,230,996

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

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	53,642	$	36,877	Net income	$	45,895	$	31,885
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	25,336		24,639		Depreciation and amortization	25,412		16,707
Amortization of debt issuance costs and non-cash interest	Amortization of debt issuance costs and non-cash interest	1,756		2,489		Amortization of debt issuance costs and non-cash interest	1,102		1,264
Gain on disposal of property and equipment	Gain on disposal of property and equipment	(1,176)		(1,042)		Gain on disposal of property and equipment	(716)		(437)
Gain on debt extinguishment, net	Gain on debt extinguishment, net	(2,032)		—		Gain on debt extinguishment, net	(2,428)		(1,064)
Deferred taxes	Deferred taxes	17,413		10,946		Deferred taxes	14,505		11,294
Stock-based compensation expense		5,690		7,961
Stock-based compensation						Stock-based compensation	6,463		3,850
Change in fair value of interest rate swap	Change in fair value of interest rate swap	(41)		251		Change in fair value of interest rate swap	(173)		(51)
Changes in operating assets and liabilities (Note 15)		35,154		10,134
Changes in operating assets and liabilities (Note 16)						Changes in operating assets and liabilities (Note 16)	(55,471)		28,044
Net cash provided by operating activities	Net cash provided by operating activities	135,742		92,255		Net cash provided by operating activities	34,589		91,492
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	(3,033)		—
Capital expenditures	Capital expenditures	(39,315)		(22,088)		Capital expenditures	(28,945)		(22,150)
Proceeds from sale of property and equipment	Proceeds from sale of property and equipment	2,093		1,557		Proceeds from sale of property and equipment	951		690
Net cash used in investing activities	Net cash used in investing activities	(37,222)		(20,531)		Net cash used in investing activities	(31,027)		(21,460)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Repayments of debt	Repayments of debt	(44,184)		(52,695)		Repayments of debt	(11,770)		(40,072)
Distributions to noncontrolling interest owners	Distributions to noncontrolling interest owners	(1,959)		—		Distributions to noncontrolling interest owners	—		(1,959)

Other	Other	(603)		9,137		Other	—		(602)
Net cash used in financing activities	Net cash used in financing activities	(46,746)		(43,558)		Net cash used in financing activities	(11,770)		(42,633)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	51,774		28,166		Net change in cash, cash equivalents, and restricted cash	(8,208)		27,399
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 beginning of period	88,693		72,642
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	124,416		78,728		Cash, cash equivalents, and restricted cash at end of period	80,485		100,041
Less: restricted cash (Other current assets)		(6,714)		(6,135)
Less: restricted cash (other current assets)						Less: restricted cash (other current assets)	(7,580)		(6,411)
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	117,702	$	72,593	Cash and cash equivalents at end of period	$	72,905	$	93,630
Supplemental disclosures of cash flow information:

Non-cash items:	Non-cash items:					Non-cash items:
Capital expenditures	Capital expenditures	$	116	$	—	Capital expenditures	$	1,097	$	4,425

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

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

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

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
Shares Amount Shares Amount
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 — — — — — 10,555 — 10,555 1,113 11,668
Change in interest rate swap — — — — — — 895 895 — 895
Stock-based compensation — — 1,835 — — — — 1,835 — 1,835
Distributions to owners — — — — — — — — (1,959) (1,959)
Issuance of stock 668 5 (1,602) (111) 1,741 — — 144 — 144
Shares withheld for taxes (246) (2) (5,321) 16 (296) — — (5,619) — (5,619)
Balance at March 31, 2021 28,606 $ 286 $ 251,335 — $ — $ 27,828 $ (4,369) $ 275,080 $ 613 $ 275,693
Net income — — — — — 20,056 — 20,056 161 20,217
Change in interest rate swap — — — — — — 728 728 — 728
Stock-based compensation — — 2,015 — — — — 2,015 — 2,015
Issuance of stock 32 — 120 — — — — 120 — 120
Other — — (3) — — — — (3) — (3)
Balance at June 30, 2021 28,638 $ 286 $ 253,467 — $ — $ 47,884 $ (3,641) $ 297,996 $ 774 $ 298,770
Net income — — — — — 21,126 — 21,126 631 21,757
Change in interest rate swap — — — — — — 718 718 — 718
Stock-based compensation — — 1,840 — — — — 1,840 — 1,840
Issuance of stock 148 2 105 — — — — 107 — 107
Shares withheld for taxes (4) — (99) — — — — (99) — (99)
Balance at September 30, 2021 28,782 $ 288 $ 255,313 — $ — $ 69,010 $ (2,923) $ 321,688 $ 1,405 $ 323,093

Nine Months Ended September 30, 2020
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
Balance at December 31, 2019 27,772 $ 283 $ 251,019 518 $ (6,142) $ (25,033) $ (209) $ 219,918 $ 1,293 $ 221,211
Net income — — — — — 3,115 — 3,115 100 3,215
Change in interest rate swap — — — — — — (7,061) (7,061) — (7,061)
Stock-based compensation — — 2,234 — — — — 2,234 — 2,234
Issuance of stock 248 — (2,460) (248) 2,563 — — 103 — 103
Shares withheld for taxes (54) — (104) 46 (668) — — (772) — (772)
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 — — — — — 18,210 — 18,210 55 18,265
Change in interest rate swap — — — — — — (53) (53) — (53)
Stock-based compensation — — 3,962 — — — — 3,962 — 3,962
Issuance of stock 73 — (740) (73) 844 — — 104 — 104
Shares withheld for taxes (5) — (18) 3 (32) — — (50) — (50)
Other — — (73) — — — — (73) — (73)
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 — — — — — 15,157 — 15,157 240 15,397
Change in interest rate swap — — — — — — 1,010 1,010 — 1,010
Stock-based compensation — — 1,765 — — — — 1,765 — 1,765
Issuance of stock 66 — (714) (66) 917 — — 203 — 203
Shares withheld for taxes (14) — — 14 (133) — — (133) — (133)
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


	Six Months Ended June 30, 2022
	Common Stock			Additional Paid in Capital		Retained Earnings	Accumulated Other Comprehensive (Loss) Gain		Total Sterling Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	29,838	$	298	$	280,274		$	79,918	$	(1,723)	$	358,767	$	1,460	$	360,227
Net income	—	—		—			19,252		—		19,252		271		19,523
Change in interest rate swap	—	—		—			—		1,563		1,563		—		1,563
Stock-based compensation	—	—		3,521			—		—		3,521		—		3,521

Issuance of stock	688	7		185			—		—		192		—		192
Shares withheld for taxes	(263)	(3)		(7,383)			—		—		(7,386)		—		(7,386)
Balance at March 31, 2022	30,263	$	302	$	276,597		$	99,170	$	(160)	$	375,909	$	1,731	$	377,640
Net income	—	—		—			25,961		—		25,961		411		26,372
Change in interest rate swap	—	—		—			—		839		839		—		839
Stock-based compensation	—	—		2,333			—		—		2,333		—		2,333

Issuance of stock	36	1		190			—		—		191		—		191


Balance at June 30, 2022	30,299	$	303	$	279,120		$	125,131	$	679	$	405,233	$	2,142	$	407,375


	Six Months Ended June 30, 2021
	Common Stock			Additional Paid in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Sterling Stockholders’ Equity		Non-controlling Interests		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
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	—	—		—		—	—		10,555		—		10,555		1,113		11,668
Change in interest rate swap	—	—		—		—	—		—		895		895		—		895
Stock-based compensation	—	—		1,835		—	—		—		—		1,835		—		1,835
Distributions to owners	—	—		—		—	—		—		—		—		(1,959)		(1,959)

Issuance of stock	668	5		(1,602)		(111)	1,741		—		—		144		—		144
Shares withheld for taxes	(246)	(2)		(5,321)		16	(296)		—		—		(5,619)		—		(5,619)
Balance at March 31, 2021	28,606	$	286	$	251,335	—	$	—	$	27,828	$	(4,369)	$	275,080	$	613	$	275,693
Net income	—	—		—		—	—		20,056		—		20,056		161		20,217
Change in interest rate swap	—	—		—		—	—		—		728		728		—		728
Stock-based compensation	—	—		2,015		—	—		—		—		2,015		—		2,015


Issuance of stock	32	—		120		—	—		—		—		120		—		120

Other	—	—		(3)		—	—		—		—		(3)		—		(3)
Balance at June 30, 2021	28,638	$	286	$	253,467	—	$	—	$	47,884	$	(3,641)	$	297,996	$	774	$	298,770

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

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

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2021~~2022

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

(Unaudited)


1.			NATURE OF OPERATIONS

Business Summary

Sterling ~~Construction Company,~~Infrastructure, Inc. (“Sterling,” “the Company,” “we,” “our” or “us”), a Delaware corporation, operates through a variety of subsidiaries within ~~three~~3 segments specializing in ~~Heavy Civil, Specialty Services~~E-Infrastructure, Transportation and ~~Residential projects~~Building Solutions in the United States (the “U.S.”), primarily across the ~~southern U.S.,~~Southern, Northeastern, Mid-Atlantic and the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. ~~Heavy Civil~~E-Infrastructure Solutions projects develop advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems. ~~Specialty Services~~Building Solutions projects include ~~site development activities,~~residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs and other ~~commercial~~ concrete ~~projects. Residential projects include concrete foundations~~work. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society’s quality of life. Caring for ~~single-family homes.~~our people and our communities, our customers and our investors – that is The Sterling Way.


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 Note 45 - Consolidated 50% Owned Subsidiaries and Note 56 - Construction Joint 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~~period presentation.

Estimates and Judgments—The preparation of the accompanying Condensed Consolidated Financial Statements in 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 and purchase accounting 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, ~~2020~~2021 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.

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~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, contract assets included ~~$42,790~~$68,316 and ~~$44,412~~$47,308 of retainage, respectively, and contract liabilities included ~~$41,925~~$47,037 and ~~$33,856~~$46,882 of retainage, respectively. Retainage on active contracts is classified as current regardless of the term of the contract and is generally collected within one year of the completion of a contract. We anticipate collecting approximately ~~66%~~61% of our ~~September~~June 30, ~~2021~~2022 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~~six months ended ~~September~~June 30, 2022 that was included in the contract liability balance on December 31, 2021 was $245,185 and $472,264, respectively. Revenue recognized for the three and six months ended June 30, 2021 that was included in the contract liability balance on December 31, 2020 was ~~$111,887~~$141,813 and ~~$409,257, respectively. Revenue recognized for the three and nine months ended September 30, 2020 that was included in the contract liability balance on December 31, 2019 was $106,072 and $384,569,~~$297,370, respectively.

Cash and Restricted Cash—Our cash is comprised of highly liquid investments with maturities of three months or less. Restricted cash of ~~$6,714~~$7,580 and ~~$6,457~~$6,853 is included in “Other current assets” on the Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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.


3.			ACQUISITIONS

General—On December 30, 2021 (the “Closing Date”), Sterling completed the acquisition (the “Acquisition”) of Petillo LLC and its related entities (collectively, “Petillo”). The Acquisition is accounted for using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations.

Purchase Consideration—Sterling completed the Acquisition for a purchase price of $196,763, net of cash acquired, detailed as follows:


Cash consideration transferred, net of cash acquired	$	175,000
Equity consideration transferred (759 shares at $26.87 per share(1))	20,406

Target working capital adjustment	1,357
Total consideration	$	196,763

(1) Sterling’s closing stock price on December 29, 2021.

Preliminary 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 a preliminary 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 $60,873 was recorded as goodwill. This goodwill represents the value of expected future earnings and cash flows, as well as the synergies created by the integration of the new business within our organization, including cross-selling opportunities to help strengthen our existing service offerings and expand our market position. Goodwill and intangibles of approximately $132,000 related to the Acquisition, are deductible and amortizable for tax purposes over the next 15 years.

The following table summarizes our purchase price allocation at the Acquisition Closing Date, net of cash acquired:


Net tangible assets:
Accounts receivable	$	45,016
Contract assets	5,953
Other current assets	193
Property and equipment, net	47,141
Other non-current assets, net	5,498
Accounts payable	(21,810)
Contract liabilities	(8,585)
Other current liabilities	(8,216)
Total net tangible assets	65,190
Identifiable intangible assets	70,700
Goodwill	60,873
Total consideration transferred	$	196,763

During the six months ended June 30, 2022, the total consideration and purchase price allocation (goodwill) changed by $7,800, primarily due to an updated estimate of the tax basis step-up payment. The purchase price allocation above is subject to further change when additional information is obtained. We have not finalized our assessment of the fair values primarily for intangible assets and property and equipment. We intend to finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the Closing Date of the Acquisition. Our final purchase price allocation may result in additional adjustments to various other assets and liabilities, including the residual amount allocated to goodwill during the measurement period.

Identifiable Intangible Assets—Intangible assets identified as part of the 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 preliminary 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)	December 30, 2021 Fair Value
Customer relationships	25	$	43,200
Trade names	25	27,500
Total		$	70,700

Supplemental Pro Forma Information (Unaudited)—The following unaudited pro forma combined financial information (“the pro forma financial information”) gives effect to the Acquisition, accounted for as a business combination using the purchase method of accounting. The pro forma financial information reflects the Acquisition and related events as if they occurred at the beginning of the period and includes adjustments to (1) include compensation expense associated with the employment agreement the Company entered into with Mr. Petillo, (2) include additional intangible asset amortization associated with the Acquisition, (3) include additional interest expense associated with the Acquisition and (4) include the pro forma results of Petillo for the three and six month periods ending June 30, 2021. 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 Acquisition.


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Pro forma revenue	$	455,827	$	799,366
Pro forma net income attributable to Sterling	$	24,053	$	34,345


4.			REVENUE FROM CUSTOMERS

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

September 30,
2021 December 31,
2020
Heavy Civil Backlog $ 1,019,904 $ 898,183
Specialty Services Backlog 391,443 277,205
Total Heavy Civil and Specialty Services Backlog $ 1,411,347 $ 1,175,388


	June 30, 2022		December 31, 2021
E-Infrastructure Solutions Backlog	$	523,703	$	432,613
Transportation Solutions Backlog	939,329		963,267
Building Solutions Backlog - Commercial	80,624		97,235
Total Backlog	$	1,543,656	$	1,493,115

The Company expects to recognize approximately ~~64%~~65% 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,
Revenues by major end market 2021 2020 2021 2020
Heavy Highway $ 188,746 $ 148,239 $ 427,451 $ 397,139
Aviation 35,840 20,473 99,816 83,797
Water Containment and Treatment 11,463 17,751 41,890 56,089
Other 13,849 14,615 30,948 40,116
Heavy Civil Revenues 249,898 201,078 600,105 577,141
Site Development 121,286 114,961 341,601 296,845
Commercial 26,970 25,010 82,647 83,552
Specialty Services Revenues 148,256 139,971 424,248 380,397
Residential Revenues 65,295 42,409 156,078 122,646
Total Revenues $ 463,449 $ 383,458 $ 1,180,431 $ 1,080,184
Revenues by contract type
Fixed-Unit Price $ 267,093 $ 187,692 $ 670,526 $ 631,639
Lump Sum 129,742 148,463 348,313 301,025
Residential and Other 66,614 47,303 161,592 147,520
Total Revenues $ 463,449 $ 383,458 $ 1,180,431 $ 1,080,184


	Three Months Ended June 30,				Six Months Ended June 30,
Revenues by major end market	2022		2021		2022		2021
E-Infrastructure Solutions Revenues	$	233,548	$	123,743	$	402,475	$	220,315
Heavy Highway	139,624		139,189		252,369		238,705
Aviation	18,934		36,754		36,517		63,976
Water Containment and Treatment	17,117		16,208		37,004		30,427
Other	15,706		11,002		25,990		17,099
Transportation Solutions Revenues	191,381		203,153		351,880		350,207
Residential	60,471		46,609		114,741		90,783
Commercial	25,168		28,161		51,792		55,677
Building Solutions Revenues	85,639		74,770		166,533		146,460
Total Revenues	$	510,568	$	401,666	$	920,888	$	716,982

Revenues by contract type
Fixed-Unit Price	$	180,408	$	225,886	$	336,718	$	403,434
Lump-Sum	267,274		127,416		465,142		218,571
Residential and Other	62,886		48,364		119,028		94,977
Total Revenues	$	510,568	$	401,666	$	920,888	$	716,982

Each of these contract types presents advantages and disadvantages. Typically, the Company assumes more risk with lump-sum ~~contracts. However,~~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 ~~$13,900~~$13,985 and ~~$7,142,~~$13,905, at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 and variations in project scope of work resulted in a net ~~decrease~~increases of ~~$354~~approximately $10,600 and ~~a net increase of $11,678~~$26,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and net increases of approximately ~~$2,725~~$3,700 and ~~$5,017~~$12,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, included in “Operating income” on the Condensed Consolidated Statements of Operations.


4.5.			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~~$100 and ~~$9,900~~$1,100 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and ~~$2,600~~were approximately $4,800 and ~~$8,900~~$6,600 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, 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~~2 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 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, 2021		December 31, 2020			June 30, 2022		December 31, 2021
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	14,766		11,290		Net accumulated earnings	14,214		15,115
Total liability	Total liability	$	54,766	$	51,290	Total liability	$	54,214	$	55,115

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 and that the Company is the primary beneficiary 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,
2021 2020 2021 2020
Revenues $ 50,338 $ 57,566 $ 121,432 $ 156,292
Operating income $ 808 $ 1,889 $ 2,273 $ 3,093
Net income $ 1,379 $ 932 $ 2,096 $ 1,537


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues	$	48,741	$	43,137	$	93,099	$	71,094
Operating (loss) income	$	(4,608)	$	747	$	(6,056)	$	1,465
Net (loss) income	$	(2,305)	$	366	$	(568)	$	717


5.6.			CONSTRUCTION JOINT VENTURES

Joint Ventures with a Controlling Interest—We consolidate any venture that is determined to be a VIE for which we are 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 the Condensed Consolidated Statements of Operations line item “Net income attributable to noncontrolling interests,” respectively. The Company determined that a joint venture in which the Company’s Ralph L. Wadsworth Construction subsidiary is a 51% owner is a VIE and the Company is the primary beneficiary. Summary financial information for this construction joint venture is as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues	Revenues	$	19,846	$	4,266	$	37,412	$	11,734	Revenues	$	12,609	$	9,325	$	20,462	$	17,566
Operating income	Operating income	$	1,290	$	290	$	4,430	$	961	Operating income	$	836	$	613	$	1,388	$	3,140
Net income	Net income	$	1,292	$	292	$	4,435	$	967	Net income	$	840	$	615	$	1,394	$	3,143

Joint Ventures with a Noncontrolling Interest—The Company accounts for unconsolidated joint ventures using a pro-rata basis in the Condensed Consolidated Statements of Operations and as a single line item (“Receivables from and equity in construction joint ventures”) in the Condensed Consolidated Balance Sheets. This method is a permissible modification of the equity method of accounting which is a common practice in the construction industry. 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, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Current assets	Current assets	$	156,479	$	143,608	Current assets	$	109,823	$	130,898
Current liabilities	Current liabilities	$	(103,754)	$	(141,295)	Current liabilities	$	(67,427)	$	(91,121)
Sterling’s receivables from and equity in construction joint ventures	Sterling’s receivables from and equity in construction joint ventures	$	21,656	$	16,653	Sterling’s receivables from and equity in construction joint ventures	$	16,910	$	16,896


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues	Revenues	$	69,116	$	58,541	$	181,022	$	128,853	Revenues	$	57,918	$	62,489	$	116,477	$	111,906
Income before tax	Income before tax	$	9,311	$	7,814	$	22,726	$	14,487	Income before tax	$	7,567	$	8,780	$	14,344	$	13,415
Sterling’s noncontrolling interest:	Sterling’s noncontrolling interest:									Sterling’s noncontrolling interest:
Revenues	Revenues	$	30,326	$	26,195	$	79,264	$	58,653	Revenues	$	23,970	$	26,994	$	50,578	$	48,938
Income before tax	Income before tax	$	4,149	$	3,541	$	9,959	$	6,559	Income before tax	$	2,948	$	3,676	$	6,015	$	5,811

The caption “Receivables from and equity in construction joint 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 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 could adversely affect the business and operations of the joint venture. In addition, agreement terms may subject us to joint and several liability for our venture partners, and the failure of our venture partners to perform their obligations could impose additional performance and financial obligations on us. The

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


6.7.			PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
Construction and transportation equipment	Construction and transportation equipment	$	256,444	$	231,799	Construction and transportation equipment	$	342,504	$	316,381
Buildings and improvements	Buildings and improvements	23,110		21,025		Buildings and improvements	25,366		24,042
Land	Land	3,891		3,891		Land	3,891		3,891
Office equipment	Office equipment	3,147		3,012		Office equipment	3,513		3,270
Total property and equipment	Total property and equipment	286,592		259,727		Total property and equipment	375,274		347,584
Less accumulated depreciation	Less accumulated depreciation	(138,148)		(133,059)		Less accumulated depreciation	(160,298)		(143,268)
Total property and equipment, net	Total property and equipment, net	$	148,444	$	126,668	Total property and equipment, net	$	214,976	$	204,316

Depreciation Expense—Depreciation expense is primarily included within cost of revenues and was ~~$5,763~~$10,131 and ~~$16,738~~$18,330 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and ~~$5,232~~$5,536 and ~~$16,070~~$10,975 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.


7.8.			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 in total:


			September 30, 2021				December 31, 2020						June 30, 2022				December 31, 2021
		Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Weighted Average Life (Years)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer relationships	Customer relationships	25	$	232,623	$	(23,469)	$	232,623	$	(16,360)	Customer relationships	25	$	275,823	$	(31,441)	$	274,923	$	(25,838)
Trade name		23	30,107		(4,346)		30,107		(3,209)
Trade names											Trade names	24	57,607		(5,970)		57,607		(4,726)
Non-compete agreements	Non-compete agreements	5	2,487		(1,113)		2,487		(761)		Non-compete agreements	5	2,487		(1,465)		2,487		(1,230)
Total	Total	24	$	265,217	$	(28,928)	$	265,217	$	(20,330)	Total	24	$	335,917	$	(38,876)	$	335,017	$	(31,794)

The Company’s intangible amortization expense was ~~$2,866~~$3,514 and ~~$8,598~~$7,082 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and $2,866 and ~~$8,569~~$5,732 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.


8.9.			DEBT

The Company’s outstanding debt was as follows:

September 30,
2021 December 31,
2020
Term Loan Facility $ 310,944 $ 355,000
Revolving Credit Facility — —
Credit Facility 310,944 355,000
Other debt 15,342 20,397
Total debt 326,286 375,397
Less - Current maturities of long-term debt (21,239) (77,434)
Less - Unamortized debt issuance costs (5,124) (6,714)
Total long-term debt $ 299,923 $ 291,249


	June 30, 2022		December 31, 2021
Term Loan Facility	$	435,275	$	446,888
Revolving Credit Facility	—		—
Credit Facility	435,275		446,888

Other debt	11,274		15,309
Total debt	446,549		462,197
Less - Current maturities of long-term debt	(26,273)		(28,230)
Less - Unamortized debt issuance costs	(4,278)		(5,379)
Total long-term debt	$	415,998	$	428,588

Credit Facility—Our amended credit agreement ~~(the~~(as amended, the “Credit Agreement”) provides the Company with senior secured debt financing ~~in an amount up to $475,000 in~~(collectively, the ~~aggregate,~~“Credit Facility”) consisting of (i) a senior secured first lien term loan facility (the “Term Loan Facility”) in the aggregate principal amount of ~~$400,000 (collectively, the “Credit Facility”)~~$540,000 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). 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.

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 plus a margin, or at a ~~one-, two-, three-, six- or, if available,~~one to twelve-month LIBOR rate plus a margin, at the Company’s election. At ~~September~~June 30, ~~2021,~~2022, the Company calculated interest using a one-month LIBOR rate and an applicable margin of ~~0.084%~~1.06% and ~~2.50%~~2.00% per annum, respectively. We continue to utilize an interest rate swap to hedge against ~~$275,000~~$200,000 of the outstanding Term Loan Facility, which resulted in a weighted average interest rate of approximately ~~5.15%~~4.13% per annum during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Scheduled principal payments on the Term Loan Facility are made quarterly and total ~~$24,700, $16,200, $22,300~~approximately $23,200, $31,900, and ~~$18,300~~$26,100 for each of the years ending ~~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. 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~~dispositions, and is also is required to prepay the Credit Facility with a certain percentage of its excess cash flow within 5 days after receipt of its annual audited financial statements. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, 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.$11,612.

The Revolving Credit Facility bears interest at the 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. At ~~September~~June 30, ~~2021,~~2022, we had no outstanding borrowings under the $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~~term of the ~~respective facilities.~~facility. Amortization of debt

issuance costs was ~~$492~~$546 and ~~$1,756~~$1,102 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and ~~$727~~$604 and ~~$2,219~~$1,264 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, 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~~At December 31, 2021, other debt primarily consisted of a $10,000 subordinated promissory note to one of the ~~second quarter of 2020, the Company’s 2 50% owned subsidiaries received 3~~Plateau sellers and a short-term Paycheck Protection Program ~~loans~~loan (the “PPP ~~Loans”~~Loan”) ~~totaling approximately $9,800.~~received by 1 of the Company’s 50% owned subsidiaries. During the ~~third~~first quarter of ~~2021,~~2022, the Small Business Administration ~~(“SBA”)~~ forgave ~~1 of~~ the outstanding PPP ~~Loans~~Loan of approximately ~~$2,000,~~$4,800, of which the Company recorded a gain on debt extinguishment of ~~$968~~$2,428 for its 50% portion of the gain. For the nine months ended September 30, 2021, the SBA forgave 2 of the 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 is classified as short-term debt under “Current Liabilities” on the Consolidated Balance Sheets at September 30, 2021, as we expect to receive a forgiveness determination by the SBA within the next six months.

Compliance and 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 certain financial covenants. As of ~~September~~June 30, ~~2021,~~2022, we were in compliance with all of our restrictive and financial covenants. The Company’s debt is recorded at its carrying amount in the Condensed Consolidated Balance Sheets. At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the ~~carrying values~~fair value of our debt outstanding approximated the ~~fair values.~~carrying value.


9.10.			FINANCIAL INSTRUMENTS

Interest Rate Derivative—We continue to utilize a swap arrangement to hedge against interest rate variability associated with ~~$275,000~~$200,000 of the ~~$310,944~~$435,275 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. At ~~September~~June 30, ~~2021,~~2022, the fair value of the swap recorded in accumulated other comprehensive income (loss) (“AOCI”) was a net ~~loss~~gain of ~~$3,790.~~$878.

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~~June 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

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


		September 30, 2021								December 31, 2020									June 30, 2022								December 31, 2021
		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total

Derivative Assets																		Derivative Assets
Other current assets																		Other current assets	$	—	$	847	$	—	$	847	$	—	$	—	$	—	$	—
Other non-current assets																		Other non-current assets	—		—		—		—		—		—		—		—
Total assets at fair value																		Total assets at fair value	$	—	$	847	$	—	$	847	$	—	$	—	$	—	$	—
Derivative Liabilities																		Derivative Liabilities
Other current liabilities	Other current liabilities	$	—	$	(3,529)	$	—	$	(3,529)	$	—	$	(4,427)	$	—	$	(4,427)	Other current liabilities	$	—	$	—	$	—	$	—	$	—	$	(2,438)	$	—	$	(2,438)
Other non-current liabilities	Other non-current liabilities	—		(455)		—		(455)		—		(2,629)		—		(2,629)		Other non-current liabilities	—		—		—		—		—		—		—		—
Total liabilities at fair value	Total liabilities at fair value	$	—	$	(3,984)	$	—	$	(3,984)	$	—	$	(7,056)	$	—	$	(7,056)	Total liabilities at fair value	$	—	$	—	$	—	$	—	$	—	$	(2,438)	$	—	$	(2,438)

OCI—The following table presents the total value recognized in OCI and reclassified from AOCI into earnings during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 for derivatives designated as cash flow hedges:


		Three Months Ended						Nine Months Ended
		September 30, 2021						September 30, 2021						Three Months Ended June 30, 2022				Six Months Ended June 30, 2022
		Before Tax		Tax		Net of Tax		Before Tax		Tax		Net of Tax				Before Tax		Tax		Net of Tax		Before Tax		Tax		Net of Tax
Net gain (loss) recognized in OCI	Net gain (loss) recognized in OCI	$	(111)	$	25	$	(86)	$	(67)	$	15	$	(52)		Net gain (loss) recognized in OCI	$	672	$	(153)	$	519	$	1,957	$	(446)	$	1,511
Net amount reclassified from AOCI into earnings(1)	Net amount reclassified from AOCI into earnings(1)	1,041		(237)		804		3,099		(706)		2,393			Net amount reclassified from AOCI into earnings(1)	415		(95)		320		1,156		(265)		891
Change in other comprehensive income	Change in other comprehensive income	$	930	$	(212)	$	718	$	3,032	$	(691)	$	2,341		Change in other comprehensive income	$	1,087	$	(248)	$	839	$	3,113	$	(711)	$	2,402


		Three Months Ended						Nine Months Ended
		September 30, 2020						September 30, 2020							Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
		Before Tax		Tax		Net of Tax		Before Tax		Tax		Net of Tax			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	$	(82)	$	19	$	(63)	$	44	$	(10)	$	34
Net amount reclassified from AOCI into earnings		1,253		(282)		971		2,279		(513)		1,766
Net amount reclassified from AOCI into earnings(1)														Net amount reclassified from AOCI into earnings(1)	1,024		(233)		791		2,058		(469)		1,589
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	$	942	$	(214)	$	728	$	2,102	$	(479)	$	1,623

(1) Net unrealized ~~losses~~gains totaling ~~$3,335~~$878 are anticipated to be reclassified from AOCI into earnings during the next 12 months due to settlement of the associated underlying obligations.


~~10.~~11.			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~~ten 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,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	1,672	$	2,187	$	4,694	$	6,421	Operating lease cost	$	5,452	$	1,510	$	8,145	$	3,022
Short-term lease cost	Short-term lease cost	$	3,813	$	3,311	$	8,848	$	10,337	Short-term lease cost	$	3,180	$	2,911	$	6,348	$	5,035
Finance lease cost:	Finance lease cost:									Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	46	$	49	$	151	$	154	Amortization of right-of-use assets	$	36	$	46	$	77	$	96
Interest on lease liabilities	Interest on lease liabilities	5		7		16		22		Interest on lease liabilities	3		5		7		11
Total finance lease cost	Total finance lease cost	$	51	$	56	$	167	$	176	Total finance lease cost	$	39	$	51	$	84	$	107

Supplemental cash flow information related to leases is as follows:


		Nine Months Ended September 30,
		2021		2020			Six Months Ended June 30,
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:	2022		2021

Operating cash flows from operating leases	Operating cash flows from operating leases	$	4,627	$	6,281	Operating cash flows from operating leases	$	8,311	$	2,980
Operating cash flows from finance leases	Operating cash flows from finance leases	$	16	$	22	Operating cash flows from finance leases	$	7	$	11
Financing cash flows from finance leases	Financing cash flows from finance leases	$	151	$	154	Financing cash flows from finance leases	$	77	$	96

Right-of-use assets obtained in exchange for lease obligations (non-cash):	Right-of-use assets obtained in exchange for lease obligations (non-cash):					Right-of-use assets obtained in exchange for lease obligations (non-cash):
Operating leases	Operating leases	$	6,221	$	7,679	Operating leases	$	30,192	$	3,496
Finance leases	Finance leases	$	—	$	—	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 %


Operating Leases	June 30, 2022			December 31, 2021

Operating lease right-of-use assets	$	46,628		$	24,520

Current portion of long-term lease obligations	$	12,582		$	8,841
Long-term lease obligations	34,103			15,831
Total operating lease liabilities	$	46,685		$	24,672
Finance Leases
Property and equipment, at cost	$	1,479		$	1,479
Accumulated depreciation	(987)			(907)
Property and equipment, net	$	492		$	572

Current maturities of long-term debt	$	144		$	148
Long-term debt	151			224
Total finance lease liabilities	$	295		$	372
Weighted Average Remaining Lease Term
Operating leases	5.0			5.4
Finance leases	2.0			2.5
Weighted Average Discount Rate
Operating leases	5.0		%	5.0		%
Finance leases	4.3		%	4.3		%

Maturities of lease liabilities are as follows:


		Operating Leases		Finance Leases
Year Ending December 31,	Year Ending December 31,					Year Ending December 31,	Operating Leases		Finance Leases
2021 (excluding the nine months ended September 30, 2021)		$	1,742	$	49
2022		7,377		161

2022 (excluding the six months ended June 30, 2022)						2022 (excluding the six months ended June 30, 2022)	$	6,741	$	77
2023	2023	4,773		155		2023	13,091		154
2024	2024	2,558		77		2024	11,111		77
2025	2025	1,293		—		2025	8,377		—
2026	2026	1,005		—		2026	5,093		—
2027						2027	2,163		—
Thereafter	Thereafter	629		—		Thereafter	6,391		—
Total lease payments	Total lease payments	$	19,377	$	442	Total lease payments	$	52,967	$	308
Less imputed interest	Less imputed interest	(1,757)		(25)		Less imputed interest	(6,282)		(13)
Total	Total	$	17,620	$	417	Total	$	46,685	$	295


~~11.~~12.			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~~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.


~~12.~~13.			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 June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Current tax expense	Current tax expense	$	1,216	$	1,557	$	2,862	$	3,766	Current tax expense	$	1,403	$	1,027	$	2,360	$	1,645
Deferred tax expense	Deferred tax expense	6,120		4,723		17,413		10,946		Deferred tax expense	8,865		7,152		14,505		11,294
Income tax expense	Income tax expense	$	7,336	$	6,280	$	20,275	$	14,712	Income tax expense	$	10,268	$	8,179	$	16,865	$	12,939

Cash paid for income taxes	Cash paid for income taxes	$	485	$	2,900	$	2,167	$	2,944	Cash paid for income taxes	$	2,798	$	1,700	$	2,798	$	1,700

The ~~2021~~ effective income tax rate for the three and six months ended June 30, 2022 was 28.0% and 26.9%, respectively. The rates varied from the statutory rate primarily as a result of state income taxes, nondeductible compensation and other permanent differences. The rate for six months ended June 30, 2022 was additionally benefited by non-taxed PPP loan forgiveness in the first quarter of 2022.

Due to net operating loss carryforwards, the Company expects no cash payments for federal income taxes for ~~2021~~2022 or ~~2020.~~2021. 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, ~~2020~~2021 the Company had federal and state net operating loss (“NOL”) carryforwards of ~~$58,719~~$33,780 and ~~$36,381,~~$32,064, respectively, which expire at various dates in the next 1817 years for U.S. federal income tax and in the next 76 to 1816 years for the various state jurisdictions where we operate. Such NOL carryforwards expire beginning in 2028 through 2039.

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


~~13.~~14.			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~~six months ended ~~September~~June 30, ~~2021~~2022 primarily relate to activity associated with the Stock Incentive Plan, the ESPP and shares withheld for taxes.

Share Grants—During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company granted the following awards under the Stock Incentive Plan:


		Shares	Weighted Average Grant-Date Fair Value per Share			Shares	Weighted Average Grant-Date Fair Value per Share
RSAs	RSAs	29	$	23.19	RSAs	26	$	23.43
RSUs	RSUs	108	$	20.55	RSUs	110	$	26.51
PSUs (at target)	PSUs (at target)	139	$	20.54	PSUs (at target)	154	$	26.82
Total shares granted	Total shares granted	276			Total shares granted	290

Share Issuances—During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company issued the following shares under the Stock Incentive Plan and the ESPP:


						Shares
RSAs (issued upon grant)						2926
RSUs (issued upon vesting)						555
PSUs (issued upon vesting)						~~621~~675
ESPP (issued upon sale)						18
Total shares issued						~~723~~724

Stock-Based Compensation ~~Expense~~—During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recognized ~~$1,840~~$2,333 and ~~$5,690,~~$4,629, respectively, of stock-based compensation expense, and during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized ~~$1,765~~$2,015 and ~~$7,961~~$3,850 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~~six months ended ~~September~~June 30, ~~2021~~2022 is ~~$19~~$33 and ~~$66,~~$67, respectively, of expense related to the ESPP, and during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company recognized ~~$18~~$22 and ~~$54,~~$47, respectively, of expense related to the ESPP. Additionally, the Company has liability-based awards for which the number of units awarded is not determined until the vesting date. During the three and six months ended June 30, 2022, the Company recognized $0 and $1,225, respectively, within additional paid in capital for the vesting of liability-based awards. The Company did not have any liability-based awards vest during 2021. The Company recognizes forfeitures as they occur, rather than estimating expected forfeitures.

Shares Withheld for Taxes—The Company withheld 4zero and ~~250~~263 shares for taxes on RSU/PSU stock-based compensation vestings for ~~$99~~$0 and ~~$5,718~~$7,386 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

AOCI—During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, 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 910 - Financial Instruments for further discussion.

~~Warrants~~—During the three and nine months ended September 30, 2021, certain holders of 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.~~15.			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~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			Three Months Ended June 30,				Six Months Ended June 30,
Numerator:	Numerator:									Numerator:	2022		2021		2022		2021

Net income attributable to Sterling common stockholders	Net income attributable to Sterling common stockholders	$	21,126	$	15,157	$	51,737	$	36,482	Net income attributable to Sterling common stockholders	$	25,961	$	20,056	$	45,213	$	30,611
Denominator:	Denominator:									Denominator:
Weighted average common shares outstanding — basic	Weighted average common shares outstanding — basic	28,710		28,003		28,527		27,832		Weighted average common shares outstanding — basic	30,225		28,582		30,094		28,433
Shares for dilutive unvested stock and warrants	Shares for dilutive unvested stock and warrants	503		230		400		154		Shares for dilutive unvested stock and warrants	137		472		135		445
Weighted average common shares outstanding — diluted	Weighted average common shares outstanding — diluted	29,213		28,233		28,927		27,986		Weighted average common shares outstanding — diluted	30,362		29,054		30,229		28,878
Basic net income per share attributable to Sterling common stockholders	Basic net income per share attributable to Sterling common stockholders	$	0.74	$	0.54	$	1.81	$	1.31	Basic net income per share attributable to Sterling common stockholders	$	0.86	$	0.70	$	1.50	$	1.08
Diluted net income per share attributable to Sterling common stockholders	Diluted net income per share attributable to Sterling common stockholders	$	0.72	$	0.54	$	1.79	$	1.30	Diluted net income per share attributable to Sterling common stockholders	$	0.86	$	0.69	$	1.50	$	1.06


~~15.~~16.			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,					Six Months Ended June 30,
		2021		2020			2022		2021
Accounts receivable	Accounts receivable	$	(41,259)	$	(24,153)	Accounts receivable	$	(70,745)	$	(34,105)
Contracts in progress, net	Contracts in progress, net	26,694		30,278		Contracts in progress, net	(4,328)		26,008
Receivables from and equity in construction joint ventures	Receivables from and equity in construction joint ventures	(5,003)		(4,606)		Receivables from and equity in construction joint ventures	(14)		(1,358)
Other current and non-current assets	Other current and non-current assets	(6,630)		(1,314)		Other current and non-current assets	(1,245)		(8,448)
Accounts payable	Accounts payable	47,423		(10,257)		Accounts payable	18,480		38,308
Accrued compensation and other liabilities	Accrued compensation and other liabilities	12,916		18,391		Accrued compensation and other liabilities	5,711		3,936
Members' interest subject to mandatory redemption and undistributed earnings	Members' interest subject to mandatory redemption and undistributed earnings	1,013		1,795		Members' interest subject to mandatory redemption and undistributed earnings	(3,330)		3,703
Changes in operating assets and liabilities	Changes in operating assets and liabilities	$	35,154	$	10,134	Changes in operating assets and liabilities	$	(55,471)	$	28,044


~~16.~~17.			SEGMENT INFORMATION

The Company’s internal and public segment reporting are aligned based upon the services offered by its operating segments. ~~The~~With the December 30, 2021 acquisition of Petillo, the Company realigned its operating groups to reflect management’s present oversight of operations. After realignment, the Company’s operations consist of 3 reportable segments: ~~Heavy Civil,~~E-Infrastructure Solutions, Transportation Solutions, and Building Solutions, with the commercial business reclassified from the previously reported Specialty Services ~~and Residential.~~ operating group into the newly formed Building Solutions operating group. The segment information for the prior period has been recast to conform to the current presentation.

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~~We incur expenses at the corporate ~~costs, allocated based~~level that relate to our business as a whole. Certain of these amounts have been charged to our business segments by various methods, largely on the basis of usage, with the unallocated remainder reported in the “Corporate” line. Corporate overhead is primarily ~~upon revenue.~~comprised of corporate headquarters facility expense, the cost of the executive management team, and expenses pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as corporate human resources, legal, governance and finance functions.

The following table presents total revenue and income from operations by reportable segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020:~~2021:

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


	Three Months Ended June 30,				Six Months Ended June 30,
Revenues	2022		2021		2022		2021

E-Infrastructure Solutions	$	233,548	$	123,743	$	402,475	$	220,315
Transportation Solutions	191,381		203,153		351,880		350,207
Building Solutions	85,639		74,770		166,533		146,460
Total Revenues	$	510,568	$	401,666	$	920,888	$	716,982

Operating Income
E-Infrastructure Solutions	$	32,824	$	24,714	$	54,109	$	42,526
Transportation Solutions	5,107		4,796		8,793		7,462
Building Solutions	9,751		6,790		19,109		14,151
Segment Operating Income	47,682		36,300		82,011		64,139
Corporate	(6,362)		(3,580)		(12,167)		(8,664)
Acquisition Related Costs	(230)		—		(485)		—
Total Operating Income	$	41,090	$	32,720	$	69,359	$	55,475

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 certain 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-looking1995. Forward-looking statements included herein relate to matters that are ~~predictive in nature,~~not based on historical facts and reflect our current expectations as of the date of this Report, regarding items such asas: our industry and business outlook, including relating to federal, state and municipal funding for infrastructure projects, the residential home building market and demand from our customers; business strategy, ~~goals~~including the integration of recent acquisitions and the potential for additional future acquisitions; expectations and estimates relating to our backlog; expectations concerning our market ~~position,~~position; future ~~operations, margins, profitability,~~operations; margins; profitability; capital ~~expenditures,~~expenditures; liquidity and capital ~~resources~~resources; and other financial and operating ~~information, and~~information. Forward-looking statements may use or contain words such as “anticipate,” “assume,” “believe,” ~~“budget,”~~ “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “strategy,” “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 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 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 a potential economic downturn or recession, 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;

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

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

•adverse weather conditions;

•potential disruptions, failures or security breaches of the information technology systems on which we rely to conduct our business;

•potential risks and uncertainties relating to the ongoing COVID-19 pandemic, and any future major public health crisis;

•our dependence on a limited number of significant customers;

•our ability to attract and retain key personnel;

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

•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;

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

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

•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~~any prolonged shutdown of 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;~~government;

•our ability to successfully identify, finance, complete and integrate ~~acquisitions;~~recent and potential acquisitions, including the Petillo Acquisition;

•~~citations issued by any governmental authority, including~~our ability to raise additional capital in the ~~Occupational Safety and Health Administration;~~future on favorable terms or at all;

•~~federal, state~~our ability to generate cash flows sufficient to fund our financial commitments and ~~local environmental laws~~objectives;

•our ability to meet the terms and ~~regulations where non-compliance can result in penalties and/or termination~~conditions of ~~contracts as well as civil~~our debt obligations and ~~criminal liability;~~covenants; and

•the other ~~factors~~risks discussed in more detail in the Company’s annual report on Form 10-K for the year ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Form 10-K”) under “Part I, Item 1A. Risk ~~Factors.~~Factors,” or our other filings with the Securities and Exchange Commission.

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. 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. 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 speak only as of the date made, and we undertake no obligation to publicly update or revise any forward-looking statements for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise, and notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes.

OVERVIEW

General—~~Sterling~~On June 1, 2022, we officially changed our legal name from “Sterling Construction Company, Inc.” to “Sterling Infrastructure, Inc.” (“Sterling” or “the Company”),. Sterling operates through a variety of subsidiaries within three segments specializing in ~~Heavy Civil, Specialty Services~~E-Infrastructure, Transportation and ~~Residential projects~~Building Solutions in the United States (the “U.S.”), primarily across the ~~southern U.S.,~~Southern, Northeastern, Mid-Atlantic and the Rocky Mountain States, California and Hawaii, as well as other areas with strategic construction opportunities. ~~Heavy Civil~~E-Infrastructure Solutions projects develop advanced, large-scale site development systems and services for data centers, e-commerce distribution centers, warehousing, transportation, energy and more. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, light rail, water, wastewater and storm drainage systems. ~~Specialty Services~~Building Solutions projects include ~~site development activities,~~residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs and other ~~commercial~~ concrete ~~projects. Residential projects include concrete foundations for single-family homes.~~work. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society’s quality of life. Caring for our people and our ~~investors,~~communities, our customers and our ~~communities~~investors – 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.

Petillo Acquisition—On December 30, 2021, we completed our acquisition of Petillo for aggregate consideration of $196.8 million. Petillo is a leading specialty site development contractor based in Flanders, New Jersey and serves the Northeastern and Mid-Atlantic States, providing large-scale site infrastructure improvement services, including full-service excavation, underground utility construction, environmental remediation, drainage systems for commercial construction and water management and distribution systems. The results of Petillo are included within our E-Infrastructure Solutions segment. See Note 3 - Acquisitions for further discussion.

Impact of COVID-19—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~~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.~~ 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. 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~~impacts on our operations going forward is not yet certain and depends on numerous evolving factors as discussed further in ~~more detail in this quarterly report on~~the Company’s 2021 Form ~~10-Q~~10-K under “Part ~~II,~~I, Item 1A. Risk Factors.”

MARKET OUTLOOK AND TRENDS

The market outlook and trends currently reflect favorable opportunities for long-term growth despite the challenging market pressures that include persistent inflation, supply chain issues and labor challenges. To remain competitive in the current market environments, Sterling remains focused on our strategic business elements and objectives as outlined. We continue to shift our focus from low-bid heavy highway, which now represents approximately 14% of our total revenue, to increasing our margins in our E-Infrastructure and Building Solutions segments.

~~Heavy Civil~~E-Infrastructure Solutions—Sterling’s ~~Heavy Civil~~E-Infrastructure Solutions business is primarily driven by investments in the development of data centers, e-commerce distribution centers and warehouses. The continued revenue growth of the Company’s complex site development business is directly related to the continued implementation of publicly announced multi-year capital infrastructure campaigns from end users, including Amazon, Facebook and Home Depot. In our growing East Coast market, project activity includes data centers, advanced manufacturing and new warehouse and industrial development. Within this market, the warehouse availability rate remains low, despite over 16.7 million square feet of new building deliveries in 2021. Additionally, the market experienced over 11.8 million square feet of absorption during Q4 of 2021, bringing 2021 total absorption to 34.5 million square feet, more than any other year on record. Equipment and land availability, material delays and fuel price increases continue to be challenging factors with some end users signaling pull back. The trend for full site development instead of staged is expected to continue in the second half of 2022.

Transportation Solutions—Sterling’s Transportation Solutions business is primarily driven by federal, state and municipal funding. Federal funds, on average, provide 50% of annual State Department of Transportation capital outlays for highway and bridge projects. ~~Several of the states in Sterling’s key markets have instituted actions to further increase annual spending.~~ In October 2018, the Federal Aviation Administration reauthorized $3.35 billion annually 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, the $305 billion 2015 federally funded Fixing America’s Surface Transportation (“FAST”) Act increased the annual federal highway investment by 15.1% over a five-year period from 2016 to 2020. In September 2020,On November 5, 2021 Congress passed a one-year extension of the FAST Act which added an additional $13.6 billion to 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~~provided 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 House and the Senate. If passed, these bills~~This bill could add additional multi-year funding for highways, rail and airports starting in ~~late 2021 or early 2022.~~2022, however current changes for funding allocation may cause project start delays. Even though several of the states in Sterling’s key markets have instituted actions to further increase annual spending, shorter project cycles and continued fluctuations in pricing are causing delays in project awards.

~~Specialty Services~~Building Solutions—~~Sterling’s Specialty Services business~~Our Building Solutions segment is ~~primarily driven by investments from end users~~comprised of our residential and developers. Key end users, including Amazon, Facebook and Home Depot, have 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 is at 4.6% and for eleven consecutive quarters over 20 million square feet of new construction has commenced. The outlook for the multi-family market continues to decline, as developers face economic concerns due to the COVID-19 pandemic and the availability and affordability of starter single family homes continues to rise.

~~Residential~~—commercial businesses. The continued revenue growth of ~~the Company’s Residential~~our residential business is directly related to the growth of new home starts in its key market of Dallas-Fort Worth, ~~and~~the continued expansion in the Houston market, and the mid-2021 entry into the ~~Houston and~~ Phoenix ~~markets. The Company’s~~market.

Residential’s core customer base is primarily made up of leading national home builders as well as regional and custom home builders. Over the last several quarters, the residential market has experienced significant price volatility and availability for key materials including concrete, steel and lumber, as well as increases in subcontractor labor cost. 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 the future. Beginning in the back half of the second quarter of 2022, we began to see some volatility in housing demand in the Dallas-Fort Worth market, as interest rates increased and inflation continued to escalate; however, we continue to see strong demand for new housing in the Houston and Phoenix markets. For our commercial business, the outlook for the multi-family market continues to decline, as developers face economic concerns due to the COVID-19 pandemic and the availability and affordability of starter single family homes continues to rise.

BACKLOG

Our backlog (“Backlog”) of construction projects ~~made up of our Heavy Civil and Specialty Services segments,~~ is the remaining amount of contracts that we expect to recognize as revenue in future periods. The contracts in Backlog are typically completed in 6 to 36 months. Our unsigned low-bid awards (“Unsigned Low-bid Awards”) are excluded from Backlog until the contract is executed by our customer. We refer to the combination of our Backlog and Unsigned Low-bid Awards as “Combined ~~Backlog”.~~Backlog.” Our book-to-burn ratio, a non-GAAP measure, is determined by taking our additions to Backlog and dividing it by revenue for the applicable period. 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~~June 30, ~~2021,~~2022, our Backlog was ~~$1.41~~$1.54 billion, as compared to ~~$1.18~~$1.49 billion at December 31, ~~2020,~~2021, with a book-to-burn ratio of ~~1.2X~~1.1X for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~ 2022.

Unsigned Low-bid Awards were ~~$115.0~~$184.0 million at ~~September~~June 30, ~~2021~~2022 and ~~$356.9~~$22.5 million at December 31, ~~2020.~~2021. Combined Backlog totaled ~~$1.53~~$1.73 billion and $1.52 billion at ~~both September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, with a book-to-burn ratio of ~~1.0X~~1.3X for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

The Company’s margin in Backlog has increased to 12.6% at June 30, 2022 from ~~12.0%~~12.2% at December 31, ~~2020 to 12.3% at September 30,~~ 2021 and the Combined Backlog margin increased to 12.5% at June 30, 2022 from ~~11.8%~~12.2% at December 31, ~~2020 to 12.1% at September 30,~~ 2021, driven by a greater mix of ~~Specialty Services awards.~~E-Infrastructure Solutions backlog.

RESULTS OF OPERATIONS

Consolidated Results

Summary—For the ~~third~~second quarter of ~~2021,~~2022, the Company had operating income of ~~$32.0~~$41.1 million, income before income taxes of ~~$29.1~~$36.6 million, net income attributable to Sterling common stockholders of ~~$21.1~~$26.0 million and net income per diluted share attributable to Sterling common stockholders of ~~$0.72.~~$0.86.

Consolidated financial highlights for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 as compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 are as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2021		2020		2021		2020		(In thousands)	2022		2021		2022		2021
Revenues	Revenues	$	463,449	$	383,458	$	1,180,431	$	1,080,184	Revenues	$	510,568	$	401,666	$	920,888	$	716,982
Gross profit	Gross profit	57,804		49,916		159,083		144,760		Gross profit	68,384		56,247		124,523		101,279
General and administrative expenses	General and administrative expenses	(19,637)		(15,154)		(52,565)		(51,209)		General and administrative expenses	(23,424)		(15,829)		(46,496)		(32,928)
Intangible asset amortization	Intangible asset amortization	(2,866)		(2,866)		(8,598)		(8,569)		Intangible asset amortization	(3,514)		(2,866)		(7,082)		(5,732)
Acquisition related costs	Acquisition related costs	—		(401)		—		(1,013)		Acquisition related costs	(230)		—		(485)		—
Other operating expense, net	Other operating expense, net	(3,270)		(2,664)		(10,414)		(9,989)		Other operating expense, net	(126)		(4,832)		(1,101)		(7,144)
Operating income	Operating income	32,031		28,831		87,506		73,980		Operating income	41,090		32,720		69,359		55,475
Interest, net	Interest, net	(3,906)		(7,154)		(15,621)		(22,391)		Interest, net	(4,450)		(5,725)		(9,027)		(11,715)
Gain on extinguishment of debt, net	Gain on extinguishment of debt, net	968		—		2,032		—		Gain on extinguishment of debt, net	—		1,401		2,428		1,064
Income before income taxes and noncontrolling interests	Income before income taxes and noncontrolling interests	29,093		21,677		73,917		51,589		Income before income taxes and noncontrolling interests	36,640		28,396		62,760		44,824
Income tax expense	Income tax expense	(7,336)		(6,280)		(20,275)		(14,712)		Income tax expense	(10,268)		(8,179)		(16,865)		(12,939)
Less: Net income attributable to noncontrolling interests	Less: Net income attributable to noncontrolling interests	(631)		(240)		(1,905)		(395)		Less: Net income attributable to noncontrolling interests	(411)		(161)		(682)		(1,274)
Net income attributable to Sterling common stockholders	Net income attributable to Sterling common stockholders	$	21,126	$	15,157	$	51,737	$	36,482	Net income attributable to Sterling common stockholders	$	25,961	$	20,056	$	45,213	$	30,611

~~Gross margin 12.5 % 13.0 % 13.5 % 13.4 %~~


Gross margin			13.4		%				14.0		%										13.5		%				14.1		%

Revenues—Revenues were ~~$463.4~~$510.6 million for the ~~third~~second quarter of ~~2021,~~2022, an increase of ~~$80.0~~$108.9 million or ~~20.9%~~27.1% compared with the ~~third~~second quarter of ~~2020.~~2021. The increase in the ~~third~~second quarter of ~~2021~~2022 was driven by a ~~$48.8~~$109.8 million increase in ~~Heavy Civil,~~E-Infrastructure Solutions (including $76.0 million related to the acquired Petillo operations) and a ~~$22.9~~$10.9 million increase in ~~Residential and~~Building Solutions, partly offset by an ~~$8.3~~$11.8 million ~~increase~~decrease in ~~Specialty Services.~~Transportation Solutions. Revenues were ~~$1.2 billion~~$920.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$100.3~~$203.9 million or ~~9.3%~~28.4% compared with the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was driven by a ~~$43.9~~$182.2 million increase in ~~Specialty Services,~~E-Infrastructure Solutions (including $123.4 million related to the acquired Petillo operations), a ~~$33.4~~$20.1 million increase in ~~Residential~~Building Solutions and a ~~$23.0~~$1.7 million increase in ~~Heavy Civil.~~Transportation Solutions.

Gross profit—Gross profit was ~~$57.8~~$68.4 million for the ~~third~~second quarter of ~~2021,~~2022, an increase of ~~$7.9~~$12.1 million or ~~15.8%~~21.6% compared to the ~~third~~second quarter of ~~2020.~~2021. The Company’s gross margin as a percent of revenue decreased to ~~12.5%~~13.4% in the ~~third~~second quarter of ~~2021,~~2022, as compared to ~~13.0%~~14.0% in the ~~third~~second quarter of ~~2020.~~2021. The increase in gross profit and decrease in margin as a percent of revenue for the second quarter of 2022 was primarily driven by higher volume, partly offset by continued headwinds from inflation, labor and material supply issues ~~in Specialty Services~~primarily within the E-Infrastructure Solutions and ~~Residential.~~Building Solutions segments. Gross profit was ~~$159.1~~$124.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$14.3~~$23.2 million or ~~9.9%~~22.9% compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The Company’s gross margin as a percent of revenue ~~increased~~decreased to 13.5% in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~13.4%~~14.1% in the ~~nine~~six months ended ~~September~~June 30, ~~2020. Despite the ongoing headwinds,~~2021. The increase in gross profit ~~increased~~and decrease in margin as a percent of revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 was primarily driven by ~~higher~~the continued aforementioned volume and ~~the ramp up of construction on large design-build joint venture projects as we continue to reduce the lower margin low-bid heavy highway revenues for Heavy Civil.~~headwind impacts.

Contracts in progress which were not substantially completed totaled approximately ~~202~~280 and ~~215~~220 at ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, 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~~$23.4 million, or ~~4.2%~~4.6% of revenue, for the ~~third~~second quarter of ~~2021,~~2022, compared to ~~$15.2~~$15.8 million, or ~~4.0%~~3.9% of revenue, for the ~~third~~second quarter of ~~2020.~~2021. General and administrative expenses were ~~$52.6~~$46.5 million, or ~~4.5%~~5.0% of revenue, for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$51.2~~$32.9 million, or ~~4.7%~~4.6% of revenue, for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~Company has begun to see an impact to~~increases were primarily driven by the inclusion of $2.7 million and $5.8 million of general and administrative ~~expenses due to inflation~~expense generated from Petillo operations for the three and six months ended June 30, 2022, respectively, as well as continued supply-chain ~~issues; however, the~~issues and increasing inflation. The Company anticipates that ~~these expenses~~general and administrative expense will ~~remain at~~be approximately ~~4.8%~~5% of revenue for the full year 2022.

Other operating expense, net—Other operating expense, net, includes 50% of earnings and losses related to members’ interest of consolidated 50% owned subsidiaries, 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 $4.7 million during the second quarter of 2022 compared to the prior year, due entirely to a decrease in members’ interest, as there was no earn-out expense during the second quarters of 2022 or 2021. The change in other operating expense, net, was a decrease of $6.0 million for the six months ended June 30, 2022 compared to the prior year. Members’ interest earnings decreased by $5.5 million for the six months ended June 30, 2022 to $1.1 million from $6.6 million in the prior year. Earn-out expense decreased by $0.5 million for the six months ended June 30, 2022 to zero from $0.5 million in the prior year as the result of the end of the earn-out period at the end of the first quarter of 2021.

Interest expense—Interest expense was ~~$3.9~~$4.5 million for the ~~third~~second quarter of ~~2021~~2022 compared to ~~$7.2~~$5.7 million for the ~~third~~second quarter of ~~2020~~2021 and interest expense was ~~$15.7~~$9.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$22.5~~$11.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~decrease is in part due to the Company’s declining debt, as the Company has paid down $69 million of its Credit Facility balance since the third quarter of 2020, and in part~~decreases are due to a 2% lower applicable interest rate provided under the amended Credit Agreement, aswhich was amended in the second quarter of 2021. ~~See~~ ~~Note 8 - Debt~~ ~~for more information.~~The decrease was partly offset by the additional borrowings related to the Petillo Acquisition and increasing interest rates in 2022.

Income taxes—The effective income tax rate was ~~25.2%~~28.0% for the ~~third~~second quarter of ~~2021~~2022 and ~~27.4%~~26.9% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~effective~~rates varied from the statutory rate primarily as a result of state income ~~tax rates for third quarter of 2021 and for the nine months ended September 30, 2021 benefited primarily from the~~taxes, non-taxed PPP loan ~~forgiveness. See~~ ~~Note 8 - Debt~~ ~~for more information.~~forgiveness, non-deductible compensation and other permanent differences. The Company anticipates an effective income tax rate for the full year ~~2021~~2022 of ~~27.5% to~~approximately 28%. Due to its net operating loss carryforwards, the Company expects no cash payments for federal income taxes for ~~2021~~2022 or ~~2020.~~2021. See Note 1213 - Income Taxes for more information.

Segment Results

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 % of
Revenue 2020 % of
Revenue 2021 % of
Revenue 2020 % of
Revenue
Revenues
Heavy Civil $ 249,898 54% $ 201,078 52% $ 600,105 51% $ 577,141 54%
Specialty Services 148,256 32% 139,971 37% 424,248 36% 380,397 35%
Residential 65,295 14% 42,409 11% 156,078 13% 122,646 11%
Total Revenues $ 463,449 $ 383,458 $ 1,180,431 $ 1,080,184
Operating Income
Heavy Civil $ 7,174 2.9% $ 2,405 1.2% $ 12,668 2.1% $ 2,679 0.5%
Specialty Services 17,932 12.1% 21,474 15.3% 57,016 13.4% 55,834 14.7%
Residential 6,925 10.6% 5,353 12.6% 17,822 11.4% 16,480 13.4%
Subtotal 32,031 6.9% 29,232 7.6% 87,506 7.4% 74,993 6.9%
Acquisition related costs — (401) — (1,013)
Total Operating Income $ 32,031 6.9% $ 28,831 7.5% $ 87,506 7.4% $ 73,980 6.8%
With the December 30, 2021 acquisition of Petillo, the Company realigned its operating groups to reflect management’s present oversight of operations. After realignment, the Company’s operations consist of three reportable segments: E-Infrastructure Solutions, Transportation Solutions and Building Solutions, with the commercial business reclassified from the previously reported Specialty Services operating group into the newly formed Building Solutions operating group. The segment information for the prior period has been recast to conform to the current presentation.

~~Heavy Civil~~


(In thousands)	Three Months Ended June 30,						Six Months Ended June 30,
Revenues	2022		% of Revenue	2021		% of Revenue	2022		% of Revenue	2021		% of Revenue

E-Infrastructure Solutions	$	233,548	46%	$	123,743	31%	$	402,475	44%	$	220,315	31%
Transportation Solutions	191,381		37%	203,153		50%	351,880		38%	350,207		49%
Building Solutions	85,639		17%	74,770		19%	166,533		18%	146,460		20%
Total Revenues	$	510,568		$	401,666		$	920,888		$	716,982

Operating Income
E-Infrastructure Solutions	$	32,824	14.1%	$	24,714	20.0%	$	54,109	13.4%	$	42,526	19.3%
Transportation Solutions	5,107		2.7%	4,796		2.4%	8,793		2.5%	7,462		2.1%
Building Solutions	9,751		11.4%	6,790		9.1%	19,109		11.5%	14,151		9.7%
Segment Operating Income	47,682		9.3%	36,300		9.0%	82,011		8.9%	64,139		8.9%
Corporate	(6,362)			(3,580)			(12,167)			(8,664)
Acquisition Related Costs	(230)			—			(485)			—
Total Operating Income	$	41,090	8.0%	$	32,720	8.1%	$	69,359	7.5%	$	55,475	7.7%

E-Infrastructure Solutions

Revenues—Revenues were ~~$249.9~~$233.5 million for the ~~third~~second quarter of 2022, an increase of $109.8 million or 88.7% compared to the second quarter of 2021, and revenues were $402.5 million for the six months ended June 30, 2022, an increase of ~~$48.8~~$182.2 million or ~~24.3%~~82.7% compared to the ~~third quarter of 2020, and revenues were $600.1 million for the nine~~six months ended ~~September~~June 30, ~~2021, an increase of $23.0 million or 4.0% compared to the nine months ended September 30, 2020.~~2021. The increases were primarily driven by the inclusion of $76.0 million and $123.4 million of revenue generated from Petillo operations for the three and six months ended June 30, 2022, respectively, as well as higher ~~heavy highway~~volume.

Operating income—Operating income was $32.8 million for the second quarter of 2022, an increase of $8.1 million, compared to the second quarter of 2021. The increase was primarily driven by the inclusion of operating income generated from Petillo operations in the second quarter of 2022, partly offset by continued headwinds from inflation, supply chain issues and the related impact on productivity and efficiency. Operating income was $54.1 million for the six months ended June 30, 2022, an increase of $11.6 million, compared to the six months ended June 30, 2021. The increase was driven by the inclusion of operating income generated from Petillo operations in the six months ended June 30, 2022 and higher volume, partly offset by the aforementioned headwinds, but also seasonality of weather in the Northeastern and Mid-Atlantic U.S. region in the first quarter of 2022. The decrease in operating margins over 2021 were primarily due the aforementioned headwinds as well as a lower margin mix from the inclusion of Petillo operations in 2022.

Transportation Solutions

Revenues—Revenues were $191.4 million for the second quarter of 2022, a decrease of $11.8 million or 5.8% compared to the second quarter of 2021. The decrease was primarily driven by lower aviation revenue, partly offset by ~~lower~~higher water containment and treatment and other revenue. During the second quarter of 2022, our low-bid heavy highway revenue decreased by $8.7 million, which was offset by an increase of $9.1 million from heavy highway design build and other revenues compared to the second quarter of 2021. Revenues were $351.9 million for the six months ended June 30, 2022, an increase of $1.7 million or 0.5% compared to the six months ended June 30, 2021. The increase was primarily driven by higher heavy highway, water containment and treatment and other revenue, partly offset by lower aviation revenue due to the timing of backlog execution. 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,~~six months ended June 30, 2022, our low-bid heavy highway revenue decreased by ~~$3.0~~$8.9 million, which was offset by an increase of ~~$43.5~~$22.6 million from heavy highway design build and other revenues compared to the ~~third quarter of 2020. During the nine~~six months ended ~~September~~June 30, 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, 2020.2021.

Operating Income—Operating income was ~~$7.2~~$5.1 million for the ~~third~~second quarter of ~~2021,~~2022, an increase of ~~$4.8~~$0.3 million, compared to the ~~third~~second quarter of ~~2020,~~2021, and operating income was ~~$12.7~~$8.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$10.0~~$1.3 million, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increases were the result of improved margin mix with the ramp up of construction on large design-build ~~joint venture~~ projects and the continuation of our planned revenue reduction from lower margin low-bid heavy highway work.

~~Specialty Services~~Building Solutions

Revenues—Revenues were ~~$148.3~~$85.6 million for the ~~third~~second quarter of ~~2021,~~2022, an increase of ~~$8.3~~$10.9 million or 5.9% compared to the third quarter of 2020, and revenues were $424.2 million for the nine months ended September 30, 2021, an increase of $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, 2020. The increase was driven by higher volume from site development, partly offset by the aforementioned headwinds.

~~Residential~~

~~Revenues—Revenues were $65.3 million for the third quarter of 2021, an increase of $22.9 million or 54.0%~~14.5%, compared to the ~~third~~second quarter of ~~2020.~~2021, and revenues were $166.5 million for the six months ended June 30, 2022, an increase of $20.1 million or 13.7%, compared to the six months ended June 30, 2021. The ~~Company’s~~ revenue ~~increased~~increases were due to a ~~record number~~higher volume of slabs poured in the ~~third quarter, primarily as a result~~first and second quarters of 2022, compared to 2021. Beginning in the ~~completion~~back half of ~~a large amount of uncompleted slabs which shifted from~~ the second quarter of ~~2021 due~~2022, we began to ~~weather related delays. Revenues were $156.1 million for~~see some volatility in housing demand in the ~~nine months ended September 30, 2021, an increase of $33.4 million or 27.3%, compared~~Dallas-Fort Worth market, as interest rates increased and inflation continued 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~~escalate; however, we continue to see strong demand for new housing in ~~our Texas footprint~~the Houston and ~~our expansion into the Arizona market.~~Phoenix markets.

Operating income—Operating income was ~~$6.9~~$9.8 million for the ~~third~~second quarter of ~~2021,~~2022, an increase of ~~$1.6~~$3.0 million, compared to the ~~third~~second quarter of ~~2020~~2021 and operating income was ~~$17.8~~$19.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~$1.3~~$5.0 million, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increases in operating income and margin were driven by the aforementioned higher volume; however, operating margins ~~declined due~~have continued to be impacted by higher material costs for concrete, steel and lumber, and the lack of consistent availability of these materials, as well as labor shortages and increased subcontractor labor costs. While the Company ~~has worked~~continues to work with customers to pass on the increases in material and labor cost, the Company may not be successful in recouping these additional costs in the future.

Corporate

Operating expense—Corporate overhead is primarily comprised of corporate headquarters facility expense, the cost of the executive management team, and expenses pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as corporate human resources, legal, governance and finance functions. The corporate overhead element of general and administrative expenses, which is not allocated to the business segments, was $6.4 million for the second quarter of 2022, an increase of $2.8 million compared to the second quarter of 2021 and operating expense was $12.2 million for the six months ended June 30, 2022, an increase of $3.5 million, compared to the six months ended June 30, 2021. The increases were primarily driven by higher professional fees as well as continued inflation and supply-chain issues.

LIQUIDITY AND SOURCES OF CAPITAL

Cash—Cash at ~~September~~June 30, ~~2021,~~2022, was ~~$117.7~~$72.9 million, and includes the following components:


(In thousands)	(In thousands)	September 30, 2021		December 31, 2020		(In thousands)	June 30, 2022		December 31, 2021
Generally Available	Generally Available	$	57,086	$	26,419	Generally Available	$	27,839	$	29,812
Consolidated 50% Owned Subsidiaries	Consolidated 50% Owned Subsidiaries	42,965		30,354		Consolidated 50% Owned Subsidiaries	20,754		30,429
Construction Joint Ventures	Construction Joint Ventures	17,651		9,412		Construction Joint Ventures	24,312		21,599
Total Cash	Total Cash	$	117,702	$	66,185	Total Cash	$	72,905	$	81,840

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


		Nine Months Ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	Six Months Ended June 30,
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):	2022		2021

Operating activities	Operating activities	$	135,742	$	92,255	Operating activities	$	34,589	$	91,492
Investing activities	Investing activities	(37,222)		(20,531)		Investing activities	(31,027)		(21,460)
Financing activities	Financing activities	(46,746)		(43,558)		Financing activities	(11,770)		(42,633)
Net change in cash, cash equivalents, and restricted cash		$	51,774	$	28,166
Net change in cash and cash equivalents						Net change in cash and cash equivalents	$	(8,208)	$	27,399

Operating Activities—During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, net cash provided by operating activities was ~~$135.7~~$34.6 million compared to net cash provided by operating activities of ~~$92.3~~$91.5 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Cash flows provided by operating activities were ~~driven by~~lower despite higher net income, ~~adjusted~~after adjusting 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~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 were as follows:


		Nine Months Ended September 30,					Six Months Ended June 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021

Contracts in progress, net	Contracts in progress, net	$	26,694	$	30,278	Contracts in progress, net	$	(4,328)	$	26,008
Accounts receivable	Accounts receivable	(41,259)		(24,153)		Accounts receivable	(70,745)		(34,105)
Receivables from and equity in construction joint ventures	Receivables from and equity in construction joint ventures	(5,003)		(4,606)		Receivables from and equity in construction joint ventures	(14)		(1,358)
Accounts payable	Accounts payable	47,423		(10,257)		Accounts payable	18,480		38,308
Change in Contract Capital, net	Change in Contract Capital, net	$	27,855	$	(8,738)	Change in Contract Capital, net	$	(56,607)	$	28,853

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the change in Contract Capital ~~increased~~decreased liquidity by ~~$27.9~~$56.6 million. The Company’s Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality (particularly with the acquired Petillo operations), the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects.

Investing ~~Activities—~~Activities—During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, net cash used in investing activities was ~~$37.2~~$31.0 million, compared to net cash used of ~~$20.5~~$21.5 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The use of cash was driven by purchases of capital equipment, less cash proceeds from the sale of property and ~~buildings~~equipment, and ~~improvements.~~a net payment of the final working capital adjustment for the Petillo Acquisition. Capital equipment is acquired as needed to support ~~increasing~~changing levels of production activities and to replace retiring ~~equipment, particularly within our Specialty Services segment.~~equipment.

Financing Activities—During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, net cash used in financing activities was ~~$46.7~~$11.8 million, compared to net cash used of ~~$43.6~~$42.6 million in the prior year. The financing cash outflow was driven by ~~$44.2~~$11.8 million of repayments on the Term Loan ~~Facility and $2.0 million in distributions to noncontrolling interest owners.~~Facility.

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

Inflation—~~For the past several years,~~While inflation ~~generally has~~did not ~~had~~have a material impact on our financial ~~results. However,~~results for many years, beginning in 2021 and continuing in 2022, 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.

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~~to which it committed to in the joint venture agreement. See the ~~2020~~2021 Form 10-K under “Part I, Item 1A. Risk Factors.”

At ~~September~~June 30, ~~2021,~~2022, there was approximately ~~$354.1~~$178.5 million of construction work to be completed on unconsolidated construction joint venture contracts, of which ~~$152.6~~$75.8 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~~June 30, ~~2021,~~2022, 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

There have been no material changes to the 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~~2021 Form ~~10-K for the year ended December 31, 2020.~~10-K.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to the Company’s discussion of critical accounting estimates from those described in Item 7 of our ~~annual report on~~2021 Form ~~10-K for the year ended December 31, 2020.~~10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We continue to utilize a swap arrangement to hedge against interest rate variability associated with ~~$275~~$200 million of the ~~$311~~$435 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~~gain of approximately ~~$3.8~~$0.9 million at ~~September~~June 30, ~~2021.~~2022. For the ~~$36~~$235 million remaining portion of the Term Loan Facility not associated with the interest rate swap hedge, at ~~September~~June 30, ~~2021~~2022 a 100-basis point (or 1%) increase or decrease in the interest rate would increase or decrease interest expense by approximately ~~$359 thousand~~$2.4 million per year.

Other

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~~June 30, ~~2021,~~2022, 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~~June 30, ~~2021.~~2022. As previously disclosed, we completed the Petillo and Kimes Acquisitions on December 30, 2021 and December 28, 2021, respectively, and, as permitted by SEC guidance for newly acquired businesses, we have elected to exclude the acquired operations of Petillo and Kimes from the scope of design and operation of our disclosure controls and procedures for the quarter ended June 30, 2022. Based on ~~that~~the evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at ~~September~~June 30, ~~2021~~2022 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~~June 30, ~~2021~~2022 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 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 ~~2020~~2021 Form 10-K, except as provided below. 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 2020 Form 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 2020 Form 10-K, 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.

~~Risks Relating to Our Business~~

The 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 September 9, 2021, President Biden directed 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. Additional uncertainty could be caused by competing and potentially conflicting laws and regulations, such as the recent executive order issued by the governor of Texas prohibiting vaccine mandates. While the Company has not incurred significant disruptions thus far from the COVID-19 pandemic, the Federal government’s proposed workplace vaccine mandate or weekly testing requirement may impact our business, results of operations and financial condition in the future.

~~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 delay or cancellation of key government programs in which we are involved, all of which could have a material adverse effect on our business and results of operations.

Item 6. Exhibits

The following exhibits are filed with this Report:


Exhibit No.			Exhibit Title
3.1 ~~(1)~~(2)			Certificate of Incorporation of Sterling ~~Construction Company,~~Infrastructure, 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)).~~June 1, 2022.
3.2 (1)			Amended and Restated Bylaws of Sterling ~~Construction Company,~~Infrastructure , Inc. (incorporated by reference to Exhibit ~~3.1~~3.2 to Sterling Construction Company, Inc.’s Current Report on Form 8-K, filed on ~~March 8, 2018~~June 1 , 20 2 2 (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.
32.2 (3)			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 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

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,~~INFRASTRUCTURE, INC.

Date: ~~November 3, 2021~~August 2, 2022	By:	/s/ Ronald A. Ballschmiede
		Ronald A. Ballschmiede
		Chief Financial Officer and Duly Authorized Officer


			Page
PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements			3

Statements of Operations			3

Statements of Comprehensive Income			4

Balance Sheets			5

Statements of Cash Flows			6

Statements of Changes in Stockholders’ Equity			7

Notes to the Condensed Consolidated Financial Statements			98

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21

Item 3. Quantitative and Qualitative Disclosures About Market Risk			2728

Item 4. Controls and Procedures			28

PART II—OTHER INFORMATION

Item 1. Legal Proceedings			2829

Item 1A. Risk Factors			2829











Item 6. Exhibits			29

Signatures			30


	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
	Shares	Amount				Shares	Amount
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	—	—		—		—	—		10,555		—		10,555		1,113		11,668
Change in interest rate swap	—	—		—		—	—		—		895		895		—		895
Stock-based compensation	—	—		1,835		—	—		—		—		1,835		—		1,835
Distributions to owners	—	—		—		—	—		—		—		—		(1,959)		(1,959)
Issuance of stock	668	5		(1,602)		(111)	1,741		—		—		144		—		144
Shares withheld for taxes	(246)	(2)		(5,321)		16	(296)		—		—		(5,619)		—		(5,619)
Balance at March 31, 2021	28,606	$	286	$	251,335	—	$	—	$	27,828	$	(4,369)	$	275,080	$	613	$	275,693
Net income	—	—		—		—	—		20,056		—		20,056		161		20,217
Change in interest rate swap	—	—		—		—	—		—		728		728		—		728
Stock-based compensation	—	—		2,015		—	—		—		—		2,015		—		2,015
Issuance of stock	32	—		120		—	—		—		—		120		—		120
Other	—	—		(3)		—	—		—		—		(3)		—		(3)
Balance at June 30, 2021	28,638	$	286	$	253,467	—	$	—	$	47,884	$	(3,641)	$	297,996	$	774	$	298,770
Net income	—	—		—		—	—		21,126		—		21,126		631		21,757
Change in interest rate swap	—	—		—		—	—		—		718		718		—		718
Stock-based compensation	—	—		1,840		—	—		—		—		1,840		—		1,840
Issuance of stock	148	2		105		—	—		—		—		107		—		107
Shares withheld for taxes	(4)	—		(99)		—	—		—		—		(99)		—		(99)
Balance at September 30, 2021	28,782	$	288	$	255,313	—	$	—	$	69,010	$	(2,923)	$	321,688	$	1,405	$	323,093


	Nine Months Ended September 30, 2020
	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
Balance at December 31, 2019	27,772	$	283	$	251,019	518	$	(6,142)	$	(25,033)	$	(209)	$	219,918	$	1,293	$	221,211
Net income	—	—		—		—	—		3,115		—		3,115		100		3,215
Change in interest rate swap	—	—		—		—	—		—		(7,061)		(7,061)		—		(7,061)
Stock-based compensation	—	—		2,234		—	—		—		—		2,234		—		2,234


Issuance of stock	248	—		(2,460)		(248)	2,563		—		—		103		—		103
Shares withheld for taxes	(54)	—		(104)		46	(668)		—		—		(772)		—		(772)
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	—	—		—		—	—		18,210		—		18,210		55		18,265
Change in interest rate swap	—	—		—		—	—		—		(53)		(53)		—		(53)
Stock-based compensation	—	—		3,962		—	—		—		—		3,962		—		3,962


Issuance of stock	73	—		(740)		(73)	844		—		—		104		—		104
Shares withheld for taxes	(5)	—		(18)		3	(32)		—		—		(50)		—		(50)
Other	—	—		(73)		—	—		—		—		(73)		—		(73)
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	—	—		—		—	—		15,157		—		15,157		240		15,397
Change in interest rate swap	—	—		—		—	—		—		1,010		1,010		—		1,010
Stock-based compensation	—	—		1,765		—	—		—		—		1,765		—		1,765


Issuance of stock	66	—		(714)		(66)	917		—		—		203		—		203
Shares withheld for taxes	(14)	—		—		14	(133)		—		—		(133)		—		(133)
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


	September 30, 2021		December 31, 2020
Heavy Civil Backlog	$	1,019,904	$	898,183
Specialty Services Backlog	391,443		277,205
Total Heavy Civil and Specialty Services Backlog	$	1,411,347	$	1,175,388