Q3 2021 Sterling Construction Company Inc Earnings Call
Greetings and welcome to Sterling Construction's companies' third quarter 2021 earnings conference call and webcast. As a reminder, this conference is being recorded and all participants are in a listen only mode.
There are accompanying slides on the Investor Relations section of the company's website.
Over to Mr. Joe Cutillo. Thank you Sir Please go ahead.
Thanks Sherry.
Good morning, everyone and welcome to Sterling <unk> third quarter 2021 earnings call.
The third quarter marked the 15th quarter of period over period earnings improvements since 2017.
And the six time during that same period that we have raised our annual guidance.
This consistent level of exceptional performance is a tribute to the strength of our strategy and the culture of our people.
Their entrepreneurial spirit cupboard, coupled with their ability to address challenges head on.
Is what enables us to continue to deliver strong results in challenging times.
Before we get into the quarterly results I'd like to spend a little time talking about our end markets and each sector.
Our specialty service sector continues to see very strong activity throughout the east and data and ecommerce distribution centers or what we call the infrastructure.
During the quarter, we booked over $150 million of new business.
In addition to our core customers our geographic expansion has opened up opportunities to new E retailer built.
Building out their distribution networks.
To date.
We have not seen any slowdown in new project activity and do not anticipate any change as we go into 2022.
Our residential sector continues to see strong double digit growth in both the Texas and Arizona markets.
We poured over 1000 slabs in the month of July.
And set a record for slabs poured in a quarter.
Demand of first time homebuyers remains very strong and inventory remains very low.
We anticipate this demand will continue into 2022.
Bid activity for our heavy civil sector remains softer than normal as the dot's in airports await a decision on the next infrastructure Bill.
Regardless of the outcome of the infrastructure Bill we believe bid activity will pick up in early 2022, driven by billions of dollars of stimulus money sitting at the state level allocated to infrastructure.
On the supply chain front, we continue to see significant challenges with material availability and inflation and all of our sectors in all our geographies.
This inflation and availability has gone beyond the normal big ticket items like steel lumber in fuel and is now impacting almost every item we use.
We currently do not see any relief in sight and anticipate these challenges will continue through the first half of 2022.
We will continue to work diligently to find ways to pass these increases.
Or offset that in other ways.
Now, let's talk about our results for the quarter.
The first and most important result for us is keeping our people safe.
And ensuring they go home every evening to their families.
Coming into the quarter, we had not had a lost time incident in 2021. Unfortunately after going over 5 million hours without a lost time incident, we had one in the third quarter.
This incident was a strong reminder, that no matter how hard we work it keeping everyone safe we have to continue to do more.
Being 10 times better than the industry average is not good enough when it comes to safety and we will never stop making our workplace safer every day.
On the financial front versus prior year, our revenue increased 21% and our gross profit increased 16%.
We saw our gross margins declined to 12, 5% driven by material inflation and negative productivity associated with supply chain delays.
Our operating income increased 11, 5% and our earnings per share increased 33% to <unk> 72 per share.
The driver behind our operating income increasing what our gross margin decreased is just one example of the things. We're doing in addition to passing on price to offset the negative impacts of inflation and deliver improved bottom line results.
Our backlog finished the quarter at $1.411 billion.
And our margin in backlog is 12, 3%.
We continue to generate record cash flow from operations.
And as a result of generated $135 million year to date.
In our heavy civil sector, we saw our revenues grow 24%.
But more importantly, our operating income almost tripled versus Q3 prior year.
This strong income improvement is driven by the continued shift away from low bid heavy highway work to aviation and alternatives to delivery highway projects.
Our specialty service sector and residential sector.
Were the areas most impacted by inflation and supply chain delays.
On the residential front, we're able to offset our year over year margin decline by producing a record number of slabs in the quarter.
For the quarter, our resident residential revenue.
Was up 54% versus prior year, and our operating income was up 29%.
We continue to work hard to pass on increases, but still have a 40 plus day delay in doing so.
On the specialty service side, we saw revenues increased 6% year over year in the quarter.
But this increase was not large enough to offset the material inflation and negative productivity, we're seeing associated with material delays.
To help put some perspective around some of these increases and delays we're seeing let me talk about a couple of simple examples.
We used approximately 300000 gallons of diesel fuel per month in this sector.
With the recent increases we saw close to a $1 million of half dollar negative impact in the third quarter alone.
Our standard PVC water pipe is normally priced at the beginning of a job and delivered the same way.
Weak that you need it.
Today, it's taking up to six months to get.
And pricing is determined on the date that it ships.
Our current prices are up over 100% on these products.
Our hope is that these unprecedented increases begin to taper by mid 2022.
And begin to follow similar trends to what we've seen in lumber.
Even with all these challenges our great third quarter and year to date results.
Our enabling us to increase our full year guidance range as follows.
Revenues will be between $1, five one and $152 billion.
And our net income will be between 61 and 64.
With that I'd like to turn it over to Ron give you more details on the quarter and the full year Rod.
Thanks, Joe and good morning, everyone.
I am pleased to provide a summary of our strong third quarter 2021 results.
Today's conference call together with our earnings release Form 10-Q, and the Investor deck posted to our website should provide insight into our strategic progress.
<unk> strong earnings and cash flow.
Now, let me take you through our financial highlights for the third quarter.
At September 32021, our backlog totaled $1.411 billion, a 20% increase over the beginning of 2021.
The backlog increase was evenly split with 50% of the growth attributable to both heavy civil and specialty services.
The gross margin in our third quarter backlog was 12, 3% compared to 12% at the beginning of the year.
This higher backlog gross margin primarily reflects an increase in specialty services backlog.
Which generally has higher margin characteristics higher than heavy civil projects.
Unsigned low bid awards totaled $115 million at the end of September 2021.
We finished the third quarter with combined backlog of $1 billion.
$530 million essentially the same as at the beginning of the year.
The gross margin of our combined backlog increased to 12, 1% up from 11, 8% at the beginning of the year.
Our year to date 2021 book to burn factors were one two times and one times for backlog and combined backlog respectively.
Residential which accounted for 13% of our year to date consolidated revenues does not report backlog.
As it is recognized revenue is recognized.
As individual concrete slabs are completed.
Moving to our operating results are.
Our current quarter revenues totaled a record $463 million and $80 million or 21% increase over the prior year quarter.
Third quarter revenue growth by segment was 24%, 6% and 54% for heavy civil specialty services and residential respectively.
The significant increase in heavy civil revenues was primarily due to the ramp up on construction of our large design build joint venture projects.
Our low bid heavy highway revenues decreased slightly in the current quarter.
<unk>, our strategic intent to continue the shift of our mix to the higher margin alternative alternative delivery projects.
Okay.
This change in revenue drove an approximate three time improvement in heavy civil operating income in the current quarter.
The 6% revenue increase and specialty services was driven by higher volumes from site development activities.
Current quarter operating margins declined 320 basis points, driven by continued headwinds from supply chain issues and related impact on productivity and efficiencies as well as slightly lower project margin mix in the quarter.
Residential revenues were $65 $3 million for the current quarter, an increase of $222 $9 million or incredibly 54% over the prior year quarter and up 40% over our second year 'twenty one.
Second quarter 'twenty one revenue.
The strong revenues were driven by the completion of a number of uncompleted slabs, which shifted from second quarter up to 2021.
Due to the weather related delays.
And the continuing strong demand for our new housing markets into Texas footprint.
And to a lesser extent, our recent expansion into Phoenix.
Current quarter operating income margins decreased by 20 basis points over the prior year quarter due to the higher material costs for concrete and steel.
And the lack of consistent availability of these materials as well as increased subcontractor labor costs.
While we continue to work with our customers to pass on increases in material and labor costs. There continues to be a timing delay in obtaining price increases that correspond with the timing and volatility of the increased costs.
The current quarter consolidated gross profit increased seven 9% $7 9 million to $58 $57 8 billion, while gross margins declined to 12, 5% from 13% for the comparable 2024.
Okay.
The increase in gross profit and decrease in margin was primarily driven by higher revenues from each of our segments offset by the continued headwinds from inflation.
Cereal supply and labor available availability challenges, particularly for residential and the special services segments.
General and administrative expenses totaled $19 6 million or four 2% of revenues in the current quarter compared to $15 2 million or 4% of revenues in the prior year.
These increases reflect the high volume of revenues in the quarter and the same pressures as I discussed earlier on costs.
We expect our full year 2021, G&A expense to be approximately four 8% of revenues compared to 5% in 2020.
Operating income in the current quarter was $32 million or six 9% of revenues compared to $28 8 million or seven 5% of revenues in 2020.
The net interest expense declined by $3 2 million to $3 $9 million in the current quarter.
Reflecting the lower interest rates, resulting from our late June 2021 credit facility Amendment, and our continued reduction in our debt levels.
During the quarter the small business administration for gave our partially owned affiliates PPP loan.
The related $1 million gain.
As included in the gain from debt extinguishment on our income statement.
Sure.
Our effective income tax rate was 25, 2% in the current quarter down from 29% in the prior year quarter.
This decrease was primarily driven by the non taxable gain on debt extinguishment I just spoke to.
We expect our full year 2021 effective income tax expense rate to be approximately 27, 5%.
Our current quarter net income totaled $21 1 million or <unk> 72 per.
Per diluted share compared to $15 2 million or <unk> 54 per share in the prior year quarter.
Current quarter EBITDA was $40 million, an increase from $36 7 million in 2020.
For the nine months ended September 32021, EBITDA totaled $110 9 million, an increase of $12 7 million or 13% over the prior year quarter.
Okay.
Based on our year to date performance, including better than expected revenues and operating income and improved nonoperating costs, including interest expense income taxes and debt extinguishment gains. We don't provide we are now providing updated guidance for 2021.
We now expect to generate full year revenues of $15 five 1 billion to one I'm, sorry, 151 billion to $1 $5 2 billion and net income of 61 million to $64 million.
Now let me provide you an update on our strong cash flow generation and liquidity strategy.
As you may recall with the October 19.
<unk> acquisition and a new five year credit facility. Our September 32019 pro forma EBITDA coverage ratio was approximately three five times.
We set the objected to bring that the coverage ratio down to two five by the end of 2021.
We exceeded our objective achieved and achieved the two five times target coverage in the first quarter of 2021.
Nine months earlier than anticipated in our strategic plan.
Our EBITDA coverage ratio was a very comfortable two two times at the end of the current quarter.
We have not had any borrowings under our $75 million revolving credit facility.
2021.
Lastly, a few additional 2021 cash flow comments.
Our cash and cash equivalents totaled $117 million as of September 32021.
Up $51 million from the beginning of the year.
Year to date cash flow from operating activities totaled a record $135 7 million compared to $92 3 million for the comparable 2020 period.
We invested $37 $2 million and net capital expenditures and lastly, but certainly not least we reduced our total debt by $49 1 million thus.
Thus far in 2021.
Finally, we expect to continue to explore additional revenue growth through strategic acquisitions of businesses that meet our gross margin and overall profitability targets, while managing our liquidity and.
And cash.
Hello.
Please note that we've included modeling considerations slides to the current quarter investor deck to assist our stakeholders with understanding the key components of our 2021 financial expectations.
Now I'll turn the call back over to Joe Joe. Thanks.
Thanks, Ron.
We've had three great quarters and are positioned to finish with another record year.
More importantly, we have positioned ourselves to continue this trend into 2022.
As we look at closing out 2021 and.
And into 2022.
We believe the supply chain and inflation issue will continue to be a challenge for us throughout the first half of 2022.
However, it is very comforting to know our end markets remain extremely strong and our current backlog and backlog margins are near record highs.
Our diverse culture continues to exceed our expectations and delivering outstanding results and generating record cash are.
Our strategy to diversify our business towards higher margin lower risk jobs and end markets continues to pay significant dividends and we will not change.
We will continue to look for accretive acquisitions that either help us build out our existing sectors with additional services.
Or potentially add a fourth.
This will enable us to continue to grow our combined margins and further reduce risk and volatility.
We will ultimately become an infrastructure.
<unk> solution provider.
April to build or service our customers greatest needs.
Whether it's building something new.
Rehabilitating something old.
Our serving infrastructure throughout its useful life.
We will be there.
And the critical time of need.
We have truly come a long way in transforming our company from what it was.
But we are only at the beginning of what it will be.
We are positioned well to make another significant transformational step forward in 2022 and.
And deliver another record year to our shareholders with that I'd like to turn it over for questions.
Thank you Andy we'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is just a question you.
You May press star two if he would like to remove your question from thank you for.
Participants using speaker equipment, and Nathan necessary to pick up your handset before.
Pressing the star keys.
Our first question is from Brent Thielman with D. A Davidson. Please proceed.
Great. Thank you good morning, Joe and Ron Great quarter.
Great. Thanks, Brent.
Hey, I guess the first question is on the residential segment.
Heard slowness with respect to labor capacity supply chain constraints for homebuilders, but the business is that.
54% this quarter I guess I'm, just trying to flush out what else is going on there does it seem like.
Yes that is holding you back at all no.
We.
I will tell you it's much more of a struggle we don't get stuff.
Where we want it we may get it in the afternoon the morning or the next day in some cases, but our team has done a great job of.
Maneuvering crews.
Projects and all that stuff to keep the volume up you've seen the hit we've taken on.
The largest side couple of hundred basis points, but thats due to the combination of inflation and what we're having to do to keep up.
The market is staying incredibly strong.
We're not seeing any slowdown we'll see.
What I will call it the seasonal slowdown in the fourth quarter, that's natural slows down a little bit.
And it will give the builders.
Good too.
Regroup and get land available for first quarter second quarter of next year, but.
First time homebuyers continue to remain strong.
Inventory is virtually non existent in the places that we're working today.
We think that trend is going to continue.
Yes.
Yes.
Ron do you have the increase in slab count for the quarter. I know you said it was a record just wondering what the year on year change was.
Yes, Thats slab count was up 36%.
For all its all three.
Texas, and Arizona ramp up of Arizona.
Compared to that.
Got it.
It's sort of the demonstration that we are getting price increases, but were not be able to keep up with a continuous price increases we have.
From again.
Every day, whether it's material or even a shortage of labor.
Yeah.
Yes understood.
Just on the short term stuff the guidance for revenue I mean, you're sort of implying flat to lower revenue for the fourth quarter, I guess, where do you feel like you're being most conservative when you what do you see in to justify that.
Sit here today understanding it.
<unk> you can add some seasonality to it.
Yes, well I think theres a couple of drivers.
We certainly run into the winter months, so some of the large.
Alternative delivery projects out in Utah, and Colorado will get shut down.
Or could be shutdown personnel, Utah has already had two big snow storms.
So we have that.
What I'll call the seasonal slowdown in the residential that happens in the fourth quarter as you can imagine the public builders don't want to have a lot of.
<unk> built houses on the ground coming into year end try to preserve their cash for year end numbers start.
Gone Crazy at the beginning of the year.
And then we've just factored in just the natural we got two holidays. Our teams have been running nonstop all year, we did in all of our vacation and all of that stuff usually the back half of December for most of our teams and we've got to do our annual maintenance.
And all of that on our equipment. So part of it is scheduled on our part to kind of regroup and get ready going into the next year part of it is driven by just.
Weather in the fourth quarter and holidays and then the last piece, we always run the risk now that with some of these material delays.
Where the stuff just gets pushed out the work gets pushed out of the quarter and ended the first quarter.
Yes, Okay, and then back to the margin.
I guess for residential land specialty just given your comments this could continue on through the first half of <unk>.
Next year, which which seemed fair I mean is it your expectation we're going to continue to have around these levels for those segments.
<unk> kind of.
Going in through the first half of next year.
I think Thats I think thats fair to assume.
If the material prices can stabilize we can start catching up.
But I'll give you. An example, the good news with our specialty service sector as projects are normally only six months long. So they are pretty quick.
The new projects, we're bidding, we're obviously building into new pricing and try to forecast to the best of our ability with the pricing is going to be but with these rapid changes.
And in a lot of cases, you don't even get pricing until it's delivered it's a little bit of a guessing game once it once it plateaus.
Or at least comes in at normal level levels. Then we can start eating back at some of that margin erosion.
Don't see us, losing any significant amounts more unless something really changed for.
For the worst but it is right now in the supply chain.
But part of US believes that the material, it's gone up a 100% or 200% or 300%.
I don't see it going up another 100%, 200% or 300%. It may go up another 10% or 15% or 20%, but we're feeling the brunt of the pain of those real big fast moving items.
<unk> early in the cycle and move consistently over the last six months.
Okay. Thank you I'll get back in queue.
Thank you.
Our next question is from Sean Eastman with Keybanc capital markets. Please proceed.
Thanks for taking my questions.
So we've got these three year revenue growth targets out there. They all look intact, the 3% to 5% heavy civil 5% to 7% specialty 79% residential.
Is there any reason those segments shouldnt be in those ranges in 2022.
It sounds like the demand side of the equation.
It really improved over the course of this year, but I don't know maybe labor is a constraint there how should we think about that.
Well certainly the market is there.
The issues that we run into as we go into 2022 that we're trying to proactively get ahead of you hit on one of them is labor alright.
As you grow 7% to 10% in some of these you need 7% to 10% more labor.
While we were running into.
Had equipment on order for eight to 10 months that still hasnt come in for this year.
And equipment rental is getting tighter and tighter so we've got to get more equipment more people and all that kind of stuff.
As you can imagine those are good problems to have because the market is so strong but the reality problems out there.
They are having.
I was talking to.
Here recently.
In our industry and knock on wood, we haven't run into this yet but what they have.
Where they're running into just spare part issues.
For a lot of other big equipment and he was telling me how many pieces of idle equipment. He is sitting there and it was staggering debate.
Anything from.
$25 to $30 filters to $1000 part that they just can't get so those are the things that worry me Sean.
How much ducking and weaving do we have to do and that sort of stuff, but I will tell you. The market is out there and we are going to bust our hump to do everything we can to capture as much of that market.
For the private sector work.
Sure.
Specialty.
Leaders supervisors to hard people to get we can't find 20% increase in those people available to help us so that's.
And online with Joe is talking to but in another situation, where you just you just can't hire enough people aegis are not out there. Unfortunately.
Unfortunately.
Okay.
Just as it relates to the equipment side that you were describing there Joe its interesting that you actually took up capex guidance.
Is there something strategic in there that's a little counter intuitive.
Well there is.
Two drivers that its taking us longer to get equipment and so we're having to put it on and buy it. So we're buying next year's equipment now actually put an order in a couple of months ago.
The other thing that we have historically levered as kind of flex capacity as rental equipment and lease equipment and it's very hard to get right now the availability of that is very low.
So in some instances, where we might lease historically.
Today, it actually makes more sense to buy and we're always looking at that model every time, we look at a piece of equipment do we rent that we leased do we buy.
Bob.
On pricing and availability that can shift any quarter or any year.
Okay. Okay.
If you go back to last year, our specialty group.
Increased revenues, 37%.
This year with our large.
Joint venture contracts cranking up that you saw in the quarter all of that revenue takes you up more yellow iron and so you can kind of we kind of peak at that at this point at least for this year.
Okay interesting.
And then of course this past quarter you guys rolled out these.
Big 2024 targets.
The margin numbers are definitely notable so I.
I guess, what you guys are saying is you think you can get to 16% gross margin organically through 2024 and that kind of 250 basis points was mostly from a shift in mix and then if you execute more M&A. You think you can get to 20% by 2024 is that how we should think about it yes.
And I think the only.
Thing Thats been added to that is obviously, we got to claw back some of the some of the margin. We've we've lost with the inflation right. So there is probably another couple of points of of challenge to us as we as we go forward, but that's right. If you just look at the the growth patterns in the mix change.
Overly continue with time plus.
The continued movement, we will see in the heavy civil sector as we continue to reduce our low bid heavy highway business and go into alternative delivery in aviation that gets us to that 16% or so.
And then from there.
To get to 'twenty, it's got to be through acquisitions.
Spansion.
Yes.
And do you have line of sight on acquisitions, or a particular end market or business type that gives you confidence on that 20% number at this point Joe.
Yes.
It's always hard to have everything lined up for four years, but we believe.
By continuing to grow out in the residential sector and the specialty service sector.
That will continue to move us towards that point and then at some point in time, I think we're going to need a.
Fourth sector in some way shape or form.
That will help drive that and one of the things that.
We need to focus on two is the bottom line impact of all of that at the end of the day, it's easy for us to talk about the gross margin and Thats what were shooting for internally, but look falls through and how do we get that impact to the bottom line.
So there's other levers just besides the gross margin for us to get to the ultimate number as well.
Okay. That's helpful. Last one this one is for you Ron I mean, if we just look at the ratio.
Operating cash flow expectations.
Relative to EBITDA or.
2021.
Is there anything moving around there as we look out to 2022 or should you guys be kind of converting that EBITDA at a similar clip as we look into next year.
Yes, it's probably the hardest thing to predict for us because it just timing of projects.
Front end payments burn off and everything else, but.
The good news is we even in the margin challenges this year.
That cash flow is beat our expectations by a fair amount.
But having said that I've said that for two years in a row. So I think we'll continue to kind of start with the way I look at it as kind of start with operating income.
Generally.
Each of our sectors or segments.
We don't really have working capital move with revenues just because of the way we build for they'll very quickly short cycle for residential and then the b.
Cash terms, we get from property start structuring contracts. So I would expect it to beat operating income a bit continuously that that's where I start with the most predictable one and beat that as we've done the last couple of years.
Okay.
Thank you Keith you can't keep the beating it by 20% to run out of improvement opportunities.
Totally.
Sure.
Understood. Thanks for the help.
Uh huh.
Thanks Pat.
And we do have a follow up question from Brent Thielman with D. A Davidson. Please proceed.
Hey, Ron on the cash flow question.
Like you are sort of pulling forward some capex in order to get frightened.
Security equipment, you need could that imply cash flow could be even a free cash flow could be even stronger next year.
No, we will probably need to add.
Right now we're going to have to add more capital next year.
So we go back to the growth rates in the market.
The markets are growing faster today than we can grow.
So as you can imagine we're working diligently to find operators working diligently to find equipment. The hardest ones for us as Rod said is when you get into our project management teams and that sort of stuff. That's the critical piece, but we will or.
We don't see.
Not buying are slowing down in the next year based on.
What our end customers are forecasting for next year and the year after and the e-commerce space and datacenter space.
The other thing Thats coming on Brent, we haven't seen any projects yet but it is.
It's coming out quickly.
Is the <unk>.
I'll call it re shoring or onshoring of manufacturing and onshoring of inventory.
With all the supply chain issues and there are a lot of projects out there looking for land looking for.
<unk> and that to build these warehouses and we think that's going to be a nice little bump for us probably late 'twenty two early 'twenty three.
When you think about our largest so over half of our Capex is in our specialty group as you might guess.
That.
When you think about the site.
Development business. It is all about moving dirt and if you've got more volume you need more equipment.
So that's why I don't I don't see us going back.
And we'll put some more clarity around that as we work on our 2021.
Our 2022 planned releases things at the end of the year, but.
And it also means that goes every now and then and it also I wouldn't underestimate that.
If we picked up an incremental project that we needed 30 piece of equipment. We can go across the street to the cat dealer and put together a package, it's a rental package for that project.
We saw the long term demand for that we flip it into the Capex spent.
If you go to that same cat dealer today actually is John Deere AG equipment sitting on his lot because theres no cat equipment available right.
It's kind of like the car dealers right now, there's just not a lot of equipment out there.
So we.
We want to keep feeding the beast and we're going to we're going to be required to spend a little more capital as originally.
Okay and then.
I wanted to talk about the gross margin targets, you've laid out for 2004 to 2016% to 20% obviously.
Time and predict.
M&A I think it'd be helpful to hear just some of the actions.
You are already taking.
And then it gets yourself towards those targets, whether it be geographic expansion et cetera.
To hear a little more about that and what youre doing today already to get yourself in.
The matrix. So so a couple of things and as we go into.
2022.
There is something structurally as well to help drive a more enhanced focus on things like aviation.
We really like that business.
The infrastructure Bill ever comes through that spend rate doubles over the next five years.
Do we take advantage of that and again, that's on the heavy civil side, but the expansion of the Phoenix is a great example.
<unk> very well.
As a matter of fact, if we had a lot more people we would be doing even.
Even better.
Pricing is better in Phoenix than the Houston market.
And that seems to be growing even faster than the Houston market rates.
So we will continue to build that out and growth. So every dollar we bring in and the residential side. Obviously helps move that margin geographically, we will continue to move further north with our plateau business as we get into the more of the Virginia, Maryland market and then the.
D C proper area and we're trying to figure out strategically how we go all the way up to I'll call It, Pennsylvania, New Jersey.
Come together there that market is very similar.
To Atlanta in the sense that that seems to be a real big distribution hub, where the Amazons and all of those folks are putting these distribution centers there.
And their close proximity to still get into New York City.
D C and some of the big markets, but far enough out rural areas that they can buy hundreds of acres of land and be able to afford doing it. So you do go up and.
On the acquisition front.
Look the market is good.
We.
Seeing and looking at a lot of deals.
But.
I think the more important thing is.
We're seeing more quality deals here.
And have some opportunities for bolt I'll call quick tuck ins to add goods and services to our sectors and some out there that look a little bigger on the surface too early to tell at this point in time.
But we're optimistic.
That will be able to start using some of this free cash flow and cash and we're building up to do something.
Before the certainly before the end of the first half of 2022.
And Joe are you finding as you are moving plateau into new regions, you can still get the margins that business.
Historically I believe there we tend to get the inflation issue.
Believe it or not we tend to get better margins.
The newer areas.
Because it's more of a pull from our customers that really want us there. The most competitive market for US is the Atlanta proper area, just because theres a lot of contractors there.
Those jobs we.
We do big jobs around there, but a lot of those jobs are those b, what we call the <unk> jobs with smaller jobs.
So our team has actually done better as they've expanded into these these other geographies.
Okay. Thanks.
Thank you guys.
Yes.
We have reached the end of <unk>.
<unk> and answer session I would like to turn the conference back over to Joe Cutillo for closing comments.
Thanks, Jerry I'd like to thank everyone again for joining today's call. If you have any follow up questions. Please refer to the information provided in the press release related to our Investor Relations group at Sterling or our partners at the equity group.
I hope everyone has a great day and thanks again.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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