Q1 2020 Earnings Call
Greetings and welcome to the Sterling Construction company first quarter 2020 earnings Conference call live webcast.
At this time, all participants are any listen only mode.
And then after session will follow the formal presentation.
As a reminder, this conference is being recorded and their accompanying slides on the Investor Relations section of the company's website.
Before turning the call over to Joe Catello Sterling, Chief Sterling's construction, Chief Executive Officer, I read the Safe Harbor statement.
Especially today May include forward looking statements actual results could differ materially from the statements made today.
For the Sterling's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward looking statements as result of new information future events or otherwise. Please also note that management neighbor for reference EBITDA adjusted EBITDA adjusted net income and a job.
Earnings per share on this call what's your financial measures not recognized under U.S. GAAP as required by FCC rules and regulations. These non-GAAP financial measures are reconciled to their most comparable GAAP financial measure in our earnings release issued yesterday afternoon, now I'd like to turn call over to Joe Catello. Please proceed sir.
Thanks, Josh.
Good morning, and thank you for joining Sterling's first quarter 2020 earnings call.
I hope all of you joining us today and your families are safe and making the most out of these difficult times.
I'd like to start off by thanking our 3000 employees for their hard work dedication and commitment to keeping each other safe.
So many of our employees have family and friends sequester to their homes.
They have not missed a beat to filling the obligations, we add to our customers and our investors.
The entire Sterling team will continue to do everything we can to ensure our employees have a safe productive work place as we go forward.
During the first quarter, we felt very fortunate that all our businesses were deemed the central and all our employees continue to work throughout the period.
At the field level or focus was on keeping our employee safe.
Complying with new guidelines and continuing to serve our customers.
At the corporate level, our focus was on cash preservation.
Quit did he.
Scenario planning and case, our east Central business designation change.
For the quarter, we not only met our internal expectations, both financially and strategically but had an all time record EBITDA quarter, even with all the challenge is that were put before.
Versus prior year, our revenues were up 32%.
Our gross profit was up 81% gross margin percentage was up over 300 basis points and our operating income was up 156%.
Versus our year end 2019.
Our backlog grew $127 million or 12% and our gross margin in backlog improved a 120 basis points.
Our newest acquisition plateau exceeded our expectations as they booked over $100 million of new business and are now at an all time record high backlog [noise].
Even more important than all of that our liquidity improved in a quarter, where we have historically birds $15 million to $20 million in operating cash flow.
As we discussed for the last three years. The overall driving principle of our strategy is increased the bottom line faster than the topline, while reducing our overall risk.
The results of the first quarter or just another example of us continuing to execute that strategy as our bottom line growth rate more than doubled our topline, while creating positive cash flow in a very turbulent time.
To put it all into perspective, our 20 plus million dollars EBITDA in our slowest seasonal quarter was more that our entire EBITDA for the full year of 2016, a pretty remarkable improve it in a short period of time.
As we look forward to the remainder of the year.
There are things, we will have to do that or anything but business as usual.
Many of our customers in offices are now virtual.
Instead of traveling and meeting in person or meetings are conducted because of.
Our procedures and protocols on job sites have changed.
Masks and thermometers are now alongside of hard hats, and safety glasses is standard PBB.
But even with all these changes we believe our heavy civil and specialty service sectors will continue to perform very near our original expectations.
We will however, see small impact a small impact coming for productivity hits associated with new rules and regulations.
Our biggest full year risk, it's an unknown at this time revolves around our residential multifamily and commercial office markets.
So we had strong performance in all those areas in the first quarter, we're seeing builders pull back on starts and new land development Ah that starts a new land development in the second quarter.
In addition, we're seeing future bid activity and project starts in the multifamily and commercial office space get delayed or canceled.
It is still unclear the total magnitude in duration of the slowdown so as we were at the beginning stages.
But we do know it is highly likely they will have an impact on our full year 2020 results.
Because of this we've chosen to pull our full year guidance at this time until we have a clear picture of what that impact will be.
With that I'd like to turn it over to Rob give you more details on the quarter can the full year outlook Rob.
Thanks, and good morning.
Im pleased to provide a summary of our 2021st quarter results.
With this being a second quarter of our reported results inclusive of a plateau acquisition most of the acquisition tracks transaction related noise.
Onetime costs are a dollar primarily behind us.
Progress we have been [noise].
We have made progressing our multiyear strategy.
Including the transformational acquisition to plateau is apparent in our first quarter financial performance and cash flows.
The passing of another post acquisition quarter also allows for a cleaner picture of our financial performance.
Unfortunately, now enters the complications of the global pandemic.
There are many continuing uncertainties relating to the pandemic today's prepared remarks, and today time together with the investor deck posted on our website should provide insight into the business aspects, thus far and our expectations for the next few quarters.
And you saw in our earnings press release, but first quarter included acquisition related costs of $473000.
The earnings release at Investor deck includes several non-GAAP financial presentations to help provide a better understanding of the Q1 2020 results and our prospective expectations.
Additionally, as we discussed during our year end earnings call.
The U.S. accounting standards requirement.
Required the reversal of our animal well income tax loss.
Loss allowance.
The 2020 in future consequences of this accounting requirement requires sterling to provide a noncash income tax expense.
Accordingly, and 2020, we expect to provide income tax expense at an effective tax rate of 26% to 27%.
Of which approximately 21% a pre tax income will be a non cash expense.
For the 2021st quarter. This non cash expense totaled $930000.
Because of the recurring nature of this tax expense going forward, we have not eliminated this expense from our non-GAAP presentations.
Please refer to our investor deck materials for additional 2020 cash flow information.
Now, let me talk specifically about our first quarter results.
At March 30, Onest 2020, our backlog was an all time high of $1.190 billion.
12% increase over the end of 2019.
Approximately 58% of the backlog increase related to the growth from the heavy civil segment with a balance of 42% of the growth driven by the plateau operations, which is included in specialty services.
The gross margin in our first quarter backlog was 12.7% also we record high and up from.
1.5% at the beginning of the year.
Unsigned little bit awards totaled $241 million, a decrease of 32 million from the end of 2019.
We finished the first quarter with combined backlog of $1.432 billion, a 7% increase over the 2019.
Our gross profit in combined backlog increased 12.1% at March 30, Onest 2020 from 11% at the beginning of the quarter.
Our 2020 book to burn factors for our combined so the heavy civil and specialty services segments was 147%.
And 135%.
Backlog and combined backlog respectively.
Residential which accounted for 12% of our consolidated revenues does not report backlog, reflecting the short term for soft performance cycle of our residential slabs.
Revenues for the first quarter were $297 million, an increase of 72.7 million or 32% over the 2019 quarter.
The revenue increase was attributable to the specialty service segment due to the inclusion of the plateau acquisition.
Consistent with our expectations the first quarter heavy civil revenue was $155.6 million.
Up slightly or $5.1 million over the 2019 quarter.
We expect accelerated quarter over quarter heavy civil revenue growth for the balance of the year as we ramp up each of our three large design build joint venture projects in them out in the Rocky Mountain region.
Residential revenue for the court for the first quarter.
Was $36.4 million.
Down from $42.8 million in the first quarter of 2019, while up from $34.5 million for the December 13 2019 quarter.
Completed slab count declined 11% from the first quarter of 2019.
This decline was primarily driven by record rainfall in March 2020, which pushed revenues from an first quarter into the second quarter of 2020.
To a lesser extent the shift we saw in mid 2019 to higher demands for small homes, which generate less revenue per slab also had a negative Q1 2020 revenue impact.
Our Houston market expansion continues to pick up steam.
Houston accounted for 14% of the residential completed slabs in the first quarter of 2020 compared to 9% in the first quarter of the prior year.
The Houston area ramp up increasing scale has had a fair favorable impact on its operating income returns.
Consolidated gross profit was $35.2 million in first quarter, an increase of 15.5 50.7 million over 2019.
Consolidated gross margin was 11.9%.
For Q1, an increase of 320 basis points over the prior year quarter.
The inclusion of plateau drove the consolidated margin improvement.
General and administrative expenses increased as a result, Packaway plateau acquisition.
And increases in stock based compensation and corporate insurance related costs.
Intangible asset amortization increased $2.2 million to $2.8 million in the first quarter as a result of the plateau acquisition.
Operating income for the 2021st quarter was $12.1 billion, an increase from $4.7 million for the comparable 2019 quarter.
Income tax expense increased by $1 billion year over year predominantly due to the noncash tax expense position, which I discussed earlier.
The net effect of all these items resulted in the first quarter net income of $3.1 billion or diluted earnings per share of 11 cents compared to the first quarter 2019, net income of $1.8 million or or EPS of seven cents.
Net income in 2020, excluding the after tax charge.
For acquisition related costs of $374000 resulted in adjusted net income of $3.5 million or adjusted earnings per share of 12 cents.
Our first quarter EBITDA totaled $20.3 million more than double that of Q1, 2019 EBITDA of $9 million.
As a percent of revenues EBITDA improved to 6.8% of revenues for the first quarter from 4% for the prior year quarter.
EBITDA EBITDA.
Excluding acquisition related costs resulted in a duck adjusted EBITDA of 20.8 million for 7% of revenues.
Now, let's move to our liquidity and balance sheet.
Our cash balance increased by $28.2 million to $73.9 billion for the first quarter.
Historically Sterling first quarter is exceeds the lowest slowest period for both cash flow and earnings.
This has not changed but it has improved.
As a result, we have typically had negative cash flow from the operating activities of $15 million to $20 million in the first quarter.
Our cash flow typically then levels off in the second quarter, and we generate cash in the third and fourth quarters.
Cash generation from operating activities in the first quarter of 2020 was a positive $10.8 million.
Compared to cash usage of $19.2 million.
In the comparable 92019 quarter.
All three of our segments contributed to this 30 million dollar cash flow improvement.
Cash flow from financing activities included net borrowings of $24.9 million.
In light of uncertain future of the uncertain future around the pandemic environment, we folded prudent to borrow 2030 skew the $30 million on a revolving credit facility late in the first quarter and park the cash on our balance sheet.
In addition, we made our first scheduled term loan payment of $5 billion at the end of March.
We ended the quarter with available borrowing capacity of $25 billion on our $75 million revolving credit facility.
Our first quarter 2020 capital expenditures metal disposal proceeds totaled $6.8 million compared to $3.7 million in the 2009 sheet comparable quarter.
Our original 2020 plan anticipated net capex in the range of $25 million to $30 million.
Considering the current pandemic related uncertainties for the balance of the year, we've been working with our business leaders on an entre and on on and an alternative lower cash outflow capex forecast.
Our reduced Capex alternatives include deferring non central purchases short term rentals increased utilization of our operating lease facilities and pursuing the variety of OEM vendor programs such as rent to own.
Low cost rental programs and trade in or used equipment opportunities.
We will continue to monitor our capex as the year progresses.
Our ultra to 2020 Capex range is 15 million to $25 million and is dependent on how the cobot 19, uncertainties play out for the balance of the year.
Please note that we've added a modeling consideration cash flow slide to the Q1 2020, investor deck to and cyst, our stakeholders with understand a key components of our cash flow.
Lastly, our existing 2017 form S. Three shelf registration statement.
Comes to the end of its life later this month.
We continue to believe that having an effective shelf registration statement on file with the Securities Exchange Commission is a best practice.
Consequently, this morning, we filed a new form S. Three shelf registration statement to replace the existing document.
Currently we do not have plans to issue security under this show.
Now I'll turn the call back over Joe.
Thanks, Rob.
As I reflect back on the quarter last 30 days felt more like 30 years.
I don't believe any of us could have imagined.
The whole world autonomy changing as much as it did.
Such a short period the tide however.
The results of the first quarter and how we're positioned to get through the rest of this year.
Simplifies the continued strength of the business and the value of our overall strategy.
Our teams will continue to figure out how to adapt.
And what seems foreign today will become the new nor tomorrow.
As we look forward to the second quarter and the full year.
We entered the second quarter with record backlogs and record margins.
We have a solid liquidity position that only gets better throughout the remainder of the year.
We have a team that is shown great ability to adjust quickly and rapidly to changing environments and we feel confident that we will be able to successfully navigate any challenges we face associated with slowdowns in the residential multifamily and commercial office markets.
Even though we are stepping back from giving full year guidance until we have a clear picture of the full coven impact we still believe we'll have a year that delivers a strong financial performance.
And with that I'd like to turn it over to any questions.
Thank you we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation from the indicate that your line is in the question Q.
Fresh start to if you would like to your move your question from the Q for participants you can speak our equipment and may be necessary to pick up your handset, thus far pressing the star keys.
Our first question comes from the line Brent Thielman with D.A. Davidson. Please proceed with your question.
Great. Thanks, Good morning Joanna.
Right.
Maybe on residential to start can you guys give us any context or framework about what you're hearing from home builders on.
The decline coming in and just so we have something to think about in terms, where we could in that segment for the next couple of quarters.
Yes ill give you the feedback we're getting its a little bit mix I think everybody has anticipated a larger faster falloff to date that hasn't happened nearly as much is people thought however, as we look forward to what builders are are looking at four.
Sure.
I'll call. It the back half of May and June starch, they're predicting somewhere between 30% to 50% drop in starts.
Now, Texas just opened back up last week I haven't got.
That we won't have this weeks.
I'll call it a.
Foot traffic reports until the end of the we were hoping that that picks up quickly in comes back but right now we're seeing two things you're pulling back on those starch towards the end the bag and we're also seeing for the first time some of the new site development plans delay.
Great so they're not breaking ground on that new development Ah. So we'll keep close to it in.
That's really the biggest driver to us pulling the guidance is we think we're at the very early stages of this.
Well certainly no more over the next 30 or 60 days, but it looks like it with the builders are telling us is that drop looks like it'll be a 90 day kind of drop and then I don't think it'll returned 100% back to normal, but we'll have sub rate of return as we get into that third period than in the back half of the year.
Okay.
And then on the on the heavy civil backlog I mean, good good level of visibility there.
I think you talked about kind of quarter over quarter growth through the rest of the year for this segment to what degree.
I guess does that backlog gives you visibility into 2021.
Yes. It does we have we had very good visibility is that backlog continues into 2020 wanted so that goes into 2022, we generally entered the year with call it 70% to 80% of the year locked and loaded before we get into it.
We haven't run the 2021 numbers, but we have very good visibility going into 2021 right now.
When you think about it with a book to burn that we've had so far this year that 70% typically stays level and up your booking more under burning obviously that has a.
Comforting factors along the laundry look out so as we sit here, we probably could do the math, but it'll be in that ballpark of 70% for the next 12 months activity are sitting on our.
Well I think the other thing Red is.
We have not seen in our markets.
Bid activity is from DRTV slow down well, we have seen some of the little municipality in county work slow down a little bit that's not a big big part of a of what we do it as a matter of fact, the Utah just came out with their 2021 budget, which is a over $3 billion, which is the biggest why we've seen in.
While from that so.
We feel good that the heavy highway will continue to click a lot.
Everybody is.
Concerned about the fast act coming to an AD, but the reality is even if it does come to an AD they'll put some sort of extension on that as it as it goes forward.
At least in.
Overall, and then in the states that we're currently in those states seemed to be positioned pretty well the continue with their programs as we go into 2021 and one last one on backlog apprentice.
The duration of our backlog is extended.
Certainly probably a third of our backlog.
Is in Florida, four to six projects at our two years, plus so that give us a comforting.
Predictable 20, 22021, so we know what we had to fill up and have plenty of time to do it. So the backlogs and so obviously large spends most profitable is bad now we just got a executed as we as a is that we do our job here and get it done.
Okay, maybe one more for me and I'll get back in Q.
Given that that the cloudier.
Outlook.
Really really into the back half of the year, Joe would run it.
I want to gauge your comfort level in terms of meeting your financial covenants for the year.
I understand the pre cash flow should be pretty dead, but that's kind of the levers you can pull on that front.
Yeah.
The answer the details, but I think the one thing that's really important for people to understand is with the acquisition of plateau and what we've done over the business over the last three or four years.
The cash flow that we generated in the first quarter is I'll call. It 90 day compared to what has historically done and we are actually at a better positioned today that we probably have ever that.
Rob I'll call it the stability and a solid this as a business, but rocket talk about the covenants and all that stuff as well.
Sure. So, let's let's start with so people understand when we talk about residential dumped the potential magnitude of.
Of our short term builder, driven view of 30% to 50% down for what's your sales quarter.
So our earnings in the residential side are pretty pro rata throughout the year, our EBITDA expectations are plus or minus $25 billion in that business. So do easy math round down little bit $6 million a quarter overall.
And.
As we've talked many times their fixed costs are 50 tight 50 people.
But all the others are variable costs only paid when you're doing now building slabs.
And as a result, it's a variable margin business. So you can almost do the math not quite because we probably have half million dollars of the in a maybe with DNA, maybe $1 million, but.
Okay.
Per per quarter almost.
That'll that'll continue so.
And that 90 day, maybe a three to four $3 million and sort of them.
So that by itself is not a big mover, obviously, we've got the first quarter underneath us with.
Strong first quarter on the operating margin side, and so that will decline will have until sometime in the big decline back half of this quarter and hopefully comes back. So just order of magnitude. If you just assumed that would say that back to that pace. It's $10 billion on a very dark view of it a little bit anyway. So at least what your today and then.
So anything we can rely on.
So now do you get your question our cushion in our bank covenants are essentially let's say, particularly when you consider the $30 million that we borrowed on our revolver is essentially a.
So not our balance sheet as just a precaution of.
Of in these days of uncertainty so we could pay back that 30 today. If we so desired will think thats good idea.
So with that were essentially flat with the first quarter, which at that time had give or take $25 million of EBITDA, driven cushion and we'll be in good shape to pay downs in the second quarter, we pay down.
$12.7 million over the final payments of the seller nodes and rep and warranty hold back on till stone. So those are those have been paid off in the first week of April and then a 5 million dollar payment on the term loan at the end of the second quarter, so that that's $70 million.
Content, you know essentially another buffer to keep that cushion about the same number so long as long as everything else axis, we talked about today.
And then finally.
The way the calculations work is generally a reduction of a million dollars in capex as a save as an additional million dollars of of.
Operating income or EBITDA should say and as I talked about we went from a range of 25 to 30, if things don't respond like we think we will we've already brought down the top end. The 25, we get to 15 without harming the business and having a any noticeable difference.
Frankly, we could borrow we can get a lease rates short term lease rates and even operating lease leads.
Less than we could borrow in our revolver for so we tend to do that periodically anyway. So that's just sort of a when you do that math. It's another if a 10 million dollar additional cushion that you wind up having for the balance of the year, if we need to really put our foot hard on the break and up at the world changes on the heavy civil slash bought while color backlog work.
We'll step out it harder.
Yeah, I think brown, we feel a lot better today than we probably did you know three weeks ago. When it was all uncertainty that a the specialty sector for the most part all the plateaus work all of heavy highway.
Deemed as essential as backlog and customers continue to work in those areas.
We do though we're going to see a tick back in residential.
The Academy gets back.
Actually Academy people get back working.
In Texas at a reasonable rate hopefully that dip is lower and shorter than what we're telling everybody, but right now our best look what we predict is a 30% to 50% drop for 90 days is what we think is is probably.
Realistic up there.
Okay. Thank you guys chronic appreciate it.
Right.
Thank you. Our next question comes from Sean Houston with Keybanc. Please proceed with your question.
Hi, Tim Thanks for taking my questions or I should have complementary complements on the adaptability and cash flow in the first quarter.
I guess first question for me is it just kind of wondering at what point in the year you have a good idea.
You know how 2020 is shaping up I just wonder if beyond the residential piece, whether there's a couple bigger jobs, you're waiting to see move forward or not.
Just kind of any color I guess as we head into the construction summer construction season.
When you have that visibility.
Yes, exactly what you guys are waiting for.
Yes, I think but the thing we're winning our biggest we think swaying is on the residential side right right yeah.
That's not to say that like construction project may not starting the third quarter on the heavy civil side or something along those lines.
That's certainly could happen and we don't have 100% plateaus backlog Phil for the fourth quarter, but we've got a lot of time between now and the fourth quarter to fill up the gap that's in the plateau business.
I would be.
Very on carbon to have at full at this point time.
So we certainly have those right now we think our biggest risk is really around this residential piece and is we get through the second quarter.
Hoping that we're all wrong.
In a positive way of assess it.
The residential doesn't drop as much as we think it goes back faster.
But we'll see as we as we're getting into that July timeframe.
If it's going to linger through which normally a relatively busy season is builders tried to get homes completed before the schools season starts and people are moving and making all that stuff that that if that changes.
We'll have a better picture as we go there.
Okay that makes a lot of science and just other refresh.
Even if residential does see this kind of pronounce near term drops you guys have a lot of.
Cost flex in that business right, it's not as though the margin profile on the remaining revenue will be that much different from what it would have looked like correct.
Yeah that business all of the all of the labor in the field I say all there's a few labor. So we have but 90 90 plus percent of that waiver is variable.
We're not for Inswebs, we're not paying for labor.
Theres roughly between 40 and 50 people in the business.
Again, we even there will matter shows cost as effectively as we can.
Dick to keep going so we should not see a significant impact on the.
The margins, what we're really happy with is in the quarter.
We saw a significant improvement in margins coming out of Houston as they finally started to get enough critical mass we've talked about from the start up theres at that point, where you get enough critical mass to where you can get your your concrete cheaper your labor absorbs itself all of that kind of stuff the teams done a great job.
In the Houston market building that in our to that point and we're really really pleased with the with the margin improvement that we saw there.
Okay excellent and just another refresher you guys did call out multifamily commercial office assets potentially be insensitive here in 2020.
Can you just remind us how much of specialty or maybe where else those elements might be reported just total exposure there and then.
Beyond that just how the sort of bid pipeline and.
Award activity has been trending for plateau.
Through this kind of.
Locked down period.
You want to hit the person that I'll hit the plateau piece.
The how much of it is or how much is the office and multifamily sure Saar specialty service services.
Business.
Is about commercial is about.
I've probably.
The multifamily together with some of the smaller and smaller commercial work is about $40 million, a $50 million or revenue per year.
So it's a relatively small part of our of our specialty backlog at our specialty revenues and those projects are generally a little more selling some go fast bites at an average right around the year duration. So.
So it's not that slowdown that we started seeing here in the last a month or so.
We'll put a little bit a drag on the back half of the year, but you know 40 million 10 million a quarter, maybe little bit more Nat I'm, sorry, 40 million a quarter.
Yeah.
Hundred.
That's right here.
Correct myself as I go.
But.
That kind of gross profit for the balance of the year isn't isn't extraordinarily large or small them to small piece relative to the whole sector Sean.
That whole.
Commercial businesses.
We're talking about is less than $100 million here, it's closer to 50 million Bucks and Oh in those areas and we do have some backlog, but where we where we start to see the shortfall is as we get towards the back half of the third quarter. It in the fourth quarter of this year.
Yeah.
As a as it relates to plateau.
Well, we booked a lot more of the first quarter, you've ever anticipated over $100 million.
What plateau is also seeing is we bought the last time, we talked as a matter of fact, we thought that we were going to see a slowdown and what we called speculative warehouse.
Okay and those are the guys are build one off warehouses and hoping by time, it's done they satellites and all that we've seen just the opposite.
With all the activity with E commerce.
In Amazon Amazon can't build and get through their process enough warehouses quick enough and through the southeast they're going out in buying and pre buy all of these speculative warehouses that were on the books to be built or in process of being built.
The one issue there running into that's taking a little more time to some of these I'll call. It off the drawing board and on the books.
As a lot of the counties or is that shut down or scaled back. So what normally took I forget the exact time I think they had 60 days to get a permit through now is taking 90 days right to get permits are so theres a little bit of an issue there.
But.
The activity looks very good we think on the back end of this.
We believe that the E commerce space and all the activities around that are only going to accelerate or as we go forward. So.
Nothing to raise any alarms at this point in time.
And we think the back half of the year will be will be strong with what stuff reserve Yeah. Let me I got tongue tied there for a second maybe somebody help recover here. So our commercial business outside of the plateaued business is up about $120 million per year about half of that would.
Be basically the based Hillstone business that we acquired that's in the commercial side.
Yeah, so it gets back to that.
50, 60 million call. It 60 million kind of run rate and that's the work that had a duration when you're that's where we're seeing a bit of the slowdown so call. It.
$50 million per quarter of revenue of which we got backlog to cover most of the balance a year, but that's that's the that'll be the headwinds as we move forward that sorry, I Didnt have was more Chris few minutes ago.
Got it last one from you guys you did call out the civil heavy civil business had had sort of the most dislocation from a productivity perspective in the first quarter from just the covert 19 environment I'm just curious how we're trending into the second core.
After there have you guys kind of got back to normal you know how close to normal are we at this point.
Heavy civil and just so we can think about margin trajectory there.
Yes, I think.
What's what's really amazing is whenever you go through.
Paul a dramatic change that first everybody thinks the world's coming to the end and then you just realize how resilient people really are and how able they are to adapt when they have to right nobody likes to adapt if they don't have to but when the world changes you have to adapt.
I would tell you shot if we if we talk to all of our presidents and all of our business leaders six months ago, and said you know we'd like to try this thing called having our offices in our customers work virtual it we could do they would they would have thought we were absolutely off our rockers.
But we're up we oh.
A litany of calls try to keep up with this as you can imagine and one of our calls a week or two ago. We had a one of the present say you know I never believe this would work, but this is actually working pretty well and we've got kind of our stuff going and I think we're to the point now where we still have.
I have some incremental cost with simple things like safety meetings, and all that where you could do a mall in 10 minutes and now you got it have six people are less and it takes time to do it right. It again have people together as much and you're not moving crews around as much. So there's going to be some long term impact of that but I would say.
I'm really proud of the team in the folks on how quickly they are able to adapt and also work with customers that are now virtual in remote which is highly unusual for us and they've done a great job. So I think we're on a scale of one to 10, we're probably at an eight to eight the half.
Fun on running what I'll call, which will be the new norm and we'll continue to get better, but overall, we see a little bit of impact, but it's not it's not points of margin. It's it's small incremental piece of margin and what and candidly. We're working on some other things to make that up in other ways. When you think about it not all bad.
Having very few cars on the road when you're doing when eroding highway contractor is a very productive change.
Yeah, as you might imagine a moving moving traffic of work around and the second one is we burn a lot of diesel and.
That we're saving that the one thing we don't lock in product.
Our projects and we're at that variable risks. So so if it's not like which we only have ups. There are some sometimes you forget about it becomes pretty dismal everyday when you would get on listen the news, but there are some things that kind of balance out in that.
Thanks.
Got it all really helpful responses, thanks very much.
Thank you we have reached the end of our question and answer session I would like to pass the floor back over to management for any additional concluding comments.
Thanks, Jessica Thanks again, everyone for joining our call today, you have any follow up questions or wishes schedule a call with US. Please refer to the contact information provided in the press release.
Associated with our Investor Relations group at Sterling or our partners at the equity group.
We'll have a great day, we appreciate taking the time.
Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation you may disconnect your lines at this time.
[music].
Yes.
[noise].
[noise] [noise].