Q3 2024 Sterling Infrastructure Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Sterling infrastructure, three Q twenty-four webcast and conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero.
Speaker Change: The operator this call is being recorded on Thursday November seven 'twenty 'twenty four I would now like to turn the conference over to Noelle Dilts. Please go ahead.
Noelle Dilts: Thank you good morning to everyone, joining us and welcome to Sterling infrastructures 'twenty 'twenty four third quarter earnings conference call and webcast I'm pleased to be here today to discuss our results, but the jokes Hello, Sterling Chief Executive Officer and <unk>.
Noelle Dilts: Karen Boulevard, a sterling Chief Financial Officer, Joe well open the call with an overview of the company and its performance in the quarter. Sharon will then discuss our financial results and guidance after which Joe will provide a market and full year outlook. We will then open the call up for questions. As a reminder, there are accompanying slides on the Investor Relations section of our web.
Right.
Noelle Dilts: Slides includes details on our updated financial guidance before turning the call over to Joe I will read the safe Harbor statement.
Noelle Dilts: The discussion today may include forward looking statements actual results could differ materially from the statements made today. Please refer to Sterling. The 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 obligations to update forward looking statements as a result of new information.
Noelle Dilts: Future events or otherwise. Please also note that management may reference EBITDA adjusted EBITDA adjusted net income or adjusted earnings per share on this call, which are all financial measures not recognized under U S. GAAP.
Required by SEC rules and regulations. These non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday afternoon.
Speaker Change: Now I'll turn the call over to our CEO Joe Cutillo.
Joe Cutillo: Thanks Noel.
Joe Cutillo: Morning, everyone and thank you for joining Sterling's third quarter 2024 earnings call.
Noelle Dilts: I'd like to start by thanking our teams for delivering another record quarter to our shareholders.
Noelle Dilts: For the quarter, we delivered $1.97 of earnings per share up 56% over prior year.
Noelle Dilts: Our gross profit margin reached 22%, reflecting our continued focus on the most attractive.
Noelle Dilts: Highest return opportunities.
Noelle Dilts: We grew operating income by over 50% on revenue growth of 6% as we continue to shift our mix towards higher margin services.
Backlog at the end of the quarter totaled $2 $1 billion, an increase of 2% over the prior year.
Noelle Dilts: Combined backlog was $2 $3 $7 billion relatively flat with the prior year period.
Noelle Dilts: Backlog alone does not capture the magnitude of opportunity ahead of us.
Noelle Dilts: As our work shifts towards large multi phased projects in both transportation and infrastructure.
Noelle Dilts: We have greater visibility into future phases of work.
Noelle Dilts: Our historical award rate for these additional phases is near 100%.
Noelle Dilts: Our pipeline of high probability work remains at over a half a billion dollars.
Noelle Dilts: In addition.
Noelle Dilts: In our infrastructure segment or line of sight in the jobs being awarded.
The fourth quarter and the first quarter makes us confident both our backlog and future phase pipeline will grow significantly into 2025.
Noelle Dilts: The bottom line is we are seeing strong tailwind across our markets and have excellent visibility for multiple years ahead.
Noelle Dilts: Shifting to our balance sheet, we had another great cash generation quarter with operating cash flow of $152 million.
Noelle Dilts: Our net cash position is now $326 million.
Noelle Dilts: And we are in great shape to pursue acquisitions that will build upon our strong platform and accelerate growth.
Noelle Dilts: The Sterling way continues to guide us as we grow and expand our company.
Noelle Dilts: This is our commitment to take care of our people our environment, our investors and our communities, while we build America's infrastructure.
Noelle Dilts: Now I'd like to discuss our results for the third quarter of 2024.
Noelle Dilts: And he infrastructure, our largest and highest margin segment revenue increased 4% and operating profit grew 89%.
Noelle Dilts: Operating margins expanded over 1100 basis points to reach a very strong 25, 8%.
Noelle Dilts: This exceptional margin expansion reflects our continued focus on large mission critical projects and excellent execution.
Noelle Dilts: The data center market was the primary driver of the infrastructure revenue growth in the quarter.
Noelle Dilts: As revenue from this market increased 90% over the prior year period.
Noelle Dilts: Data Center work now represents over 50% of our infrastructure backlog.
Noelle Dilts: The strength in data centers more than offset challenging revenue comparison and the manufacturing market.
Noelle Dilts: While the small project market remained below prior year levels, we did see some nice sequential improvement in the quarter.
Noelle Dilts: Infrastructure awards were $314 million driving backlog to $919 million up 3% from the prior year period, and an increase of 13% from the beginning of the year.
Noelle Dilts: The data center market was again the largest driver of awards.
Noelle Dilts: As customers are racing to build the capacity needed for technology advancements, including AI.
Noelle Dilts: We continue to lever our resources across the business segments to expand the infrastructure into the Rocky Mountain region, where we now have multiple datacenter projects.
Noelle Dilts: As our work continues to shift towards large multi phase projects, our pipeline of high probability future work has expanded providing strong visibility into 2025 and 2026.
Noelle Dilts: Moving to transportation solutions revenue increased 18% and operating profit grew 28%.
Noelle Dilts: Margins expanded 67 basis points from the prior year to reach eight 2%.
Noelle Dilts: Our markets are the strongest we have seen in our company's history and margin opportunities are very attractive.
Noelle Dilts: We ended the quarter with transportation solutions combined backlog of $1 4 billion approximately flat with the prior year period.
Noelle Dilts: Third quarter awards for transportation solutions for $150 million and unsigned awards totaled $308 million.
Noelle Dilts: In addition, we continue to work through the initial design phase of multiple large progressive design build highway projects.
Noelle Dilts: The design work and backlog represents only a fraction of the anticipated total value of the projects.
Noelle Dilts: Moving to building solutions.
Noelle Dilts: <unk> segment revenue declined 10% in the quarter and operating income declined 12%.
Noelle Dilts: Results varied across our markets and our geographies.
Noelle Dilts: Revenue from our residential concrete slab business declined 29%.
Noelle Dilts: Given primarily by softness in the Dallas market.
Noelle Dilts: Affordability remains challenging and homebuilders believes that the potential for additional rate cuts may be keeping buyers on the sidelines. However, the builders are bullish regarding a significant rebound in 2025.
Noelle Dilts: TPG continues to generate strong margins, but also saw some revenue softness in the quarter related to the Dallas slowdown.
Noelle Dilts: Building solutions operating margin of 11% or slightly below prior year levels.
Noelle Dilts: As a reminder, we are able to quickly adjust the cost structure in this business to match demand.
Noelle Dilts: We remain very bullish on the long term demand dynamics in our key residential markets and anticipate strengthening as we move into 2025.
Noelle Dilts: With that I'd like to turn it over to Sharon to give you more details on the quarter and our full year guidance Sharon.
Sharon: Thanks, Joe and good morning, I'd like to take you through some of the details of our financial results beginning with our backlog metrics.
Sharon: Our third quarter backlog totaled 2.06 billion, a two 2% increase over the year ago period. The gross margin of this backlog was 16, 8% a 170 basis point improvement from the same quarter last year.
Sharon: Higher level of infrastructure backlog margin and an increase of both the amount of transportation backlog and its backlog margin drove this improvement.
Speaker Change: I'm Fine awards totaled $319 6 million in the quarter.
Sharon: We closed the quarter with combined backlog of $2 $3 7 billion, which was in line with prior year levels.
Sharon: Third quarter 2024 book to burn ratios were <unk> 92 times for backlog and <unk> 86 times for combined backlog award timing is inherently lumpy in our business and is best viewed over a multi quarter period.
Sharon: Year to date book to burn ratios were <unk> 99 times for backlog and 1.0 times.
Sharon: Our combined backlog.
Sharon: Turning to our third quarter income statement revenue was $593 7 million, an increase of 6% over the prior year quarter.
Sharon: Current quarter consolidated gross profit was $129 8 million an increase of 41, 3% over the 2023 period.
Sharon: Gross margin increased to 21, 9%, a 550 basis point improvement over the third quarter of 2023.
Sharon: This margin increase reflects improvements in it infrastructure and transportation.
Sharon: General and administrative expense was five 2% of revenue in the quarter, which was consistent with our expectation.
Sharon: Operating income for the third quarter was $87 5 million or 53, 1% increase over the prior year quarter.
Sharon: Our operating margin increased 454 basis points to 14, 7%.
Sharon: Our effective income tax rate for the third quarter was 26, 4%, we expect our full year effective income tax rate to be approximately 24%.
Sharon: The net effect of these items resulted in a record third quarter with net income of $61 3 million or $1 97 per diluted share an improvement of 55, 8% and 56, 3%, respectively compared to the third quarter of 2023.
Sharon: Third quarter EBITDA totaled $100 8 million, an increase of 41, 5% over the prior year quarter.
Sharon: EBITDA margin improved to 17% up from 12, 7% in the prior year quarter.
Sharon: Cash flow from operating activities for the first nine months of 2024 was a strong $322 8 million compared to $331 2 million in the prior year period.
Sharon: Cash flow used in investing activities for the first nine months of 2024 included $57 5 million of net Capex.
Sharon: As a result of the significant growth in our transportation segment, we are raising our expected net capex for the year to $65 million to $70 million.
Sharon: Year to date cash flow from financing activities was $84 million outflow, primarily different driven by share repurchases of $50 6 million at an average price of $103 90 per share.
Sharon: 25 million was used in the quarter to purchase roughly 188000 shares at an average price of $108.99.
Sharon: $149 $4 million remains available under the existing repurchase authorization.
Sharon: We ended the quarter with a very strong liquidity position consisting of $648 1 million of cash and debt of $322 6 million for a cash net of debt balance of $325 5 million.
Sharon: In addition, our $75 million revolver.
Sharon: Solving credit facility remained unused during the period.
Sharon: With our strong year to date results and significant opportunities in each of our operating segments. We are updating our financial guidance for the year. Our updated guidance ranges are as follows revenue of $2. One 5 billion to $2 175 billion gross profit margin of 19% to 20%.
Sharon: Net income of 180 million to $185 million.
Sharon: Diluted EPS of $5 85 to $6 each.
Sharon: EBITDA of 310 million to $315 million.
Sharon: Considering the diversity and strength of our portfolio of businesses, our strong liquidity position and are comfortable one times EBITDA leverage ratio.
Speaker Change: We are well positioned to take advantage of additional opportunities to generate significant shareholder value in 2024 and beyond now I'll turn the call back to Joe.
Joe Cutillo: Thanks Sharon.
Speaker Change: We see years of opportunity ahead associated with the revitalization of America's infrastructure.
Speaker Change: Sterling is playing a critical role in building the data infrastructure that enables today's way of life.
Speaker Change: The manufacturing production coming back to the U S.
Speaker Change: The highways bridges in the airports that connect us and the homes we live in.
Speaker Change: In infrastructure solutions, we anticipate that the current strength in data center demand will continue for the foreseeable future as current capacity represents only a fraction of what is needed to support artificial intelligence and other emerging technologies.
Joe Cutillo: Our customers are discussing multiyear capital deployment plans and our focus on how to align with the right partners to help them achieve their targets.
Joe Cutillo: Our customers are highly focused on speed to market and.
Joe Cutillo: And we're looking for proven trusted partners.
Joe Cutillo: On the manufacturing front.
Joe Cutillo: We anticipate that in the remainder of 2024 and 2025.
Joe Cutillo: We will see a fairly steady pace of mid to large sized onshoring related projects.
Joe Cutillo: And as we look to 2026 and 2027.
Joe Cutillo: There is a very big pool of Mega projects on the horizon.
Joe Cutillo: This would include planned semiconductor fabrication facilities.
Joe Cutillo: The size and duration of these projects is staggering.
Joe Cutillo: Given the complexity involved with their development, we believe it will take some time before awards start to flow.
Joe Cutillo: We expect the e-commerce and small warehouse markets will remain soft through 2024.
Joe Cutillo: But are encouraged by the preliminary activity we are seeing for 2025.
Joe Cutillo: These dynamics support strong profitability growth opportunities over a multiyear period for infrastructure.
Joe Cutillo: For 2024, we expect to deliver strong operating profit and believe we are all we are well positioned for both revenue and profitability growth in 2025.
Joe Cutillo: And transportation solutions, we are now in the second half of the federal funding cycle.
Joe Cutillo: We have built over two years of backlog and continue to see a robust level of activity ahead.
Joe Cutillo: We believe we are now in a market environment, where we can sustain elevated growth relative to historical levels. So long as margins remain at current levels or higher.
Joe Cutillo: We are very confident that our transportation business will deliver strong revenue and profitability growth in 2024.
Joe Cutillo: In building solutions, the business is well positioned for growth over a multiyear period.
Joe Cutillo: Our key geographies with Dallas, Houston, and Phoenix are expected to see continued population growth driving demand for new homes.
Joe Cutillo: Additionally, there is a significant opportunity for share gain in both Houston and Phoenix.
Joe Cutillo: We anticipate that affordability challenges and the timing of interest rate cuts will continue to impact demand in the near term.
Joe Cutillo: Our conversations with our customers indicate a significant step up in activity in 2025.
Joe Cutillo: We're continuing to work hard to find the right acquisitions to grow the company and enhance our service offering.
Joe Cutillo: The infrastructure market remains our top priority for M&A.
Joe Cutillo: We will remain patient and disciplined in our inorganic growth strategy.
Joe Cutillo: As it relates to share repurchases, we will continue to be opportunistic.
Joe Cutillo: As a result of our strong year to date performance and our backlog position.
Joe Cutillo: We are raising full year profitability guidance.
Joe Cutillo: The midpoint of our new guidance would represent 10% revenue growth.
Speaker Change: 33% diluted EPS growth of 21% EBIT growth with that I'd like to turn it over for questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on you touched on so you will hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press the star followed by the two if you are using.
Speaker Change: Speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
Speaker Change: And your first question comes from Brent.
Speaker Change: Tillman from D. A Davidson. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Hey, Brett.
Speaker Change: Hey, Joe just on.
Speaker Change: Infrastructure, I mean tremendous profitability here in the quarter and look.
Speaker Change: To me right.
Speaker Change: You finish out somewhere in excess of 20%.
Speaker Change: This year, I guess with the backlog increasingly skewing towards.
Speaker Change: Data centers.
Speaker Change: Trying to think about that in the context of maybe some of these other markets that might come back for you that don't carry as high margins E Commerce manufacturing.
Speaker Change: How do you how do you sort of think about sustaining this level of profitability in the infrastructure and debt.
Speaker Change: 2020, I would tell you. It makes the thing there's a couple of things, yes couple of things.
Speaker Change: We did see a nice rebound in some of the small.
Speaker Change: Projects, the industrial projects in the quarter in the hard thing for US as these projects kind of give you a perspective, we can get a call today.
Speaker Change: I can give you a real life example that happened last week when I was with our ecommerce guys. We can get a call of the day negotiated contract tomorrow can be started by Monday.
Speaker Change: On the small on the small deals so they pop up quick move quickly we saw a nice rebound in the in the quarter.
Speaker Change: I think most.
Speaker Change: Most people would have thought would have diluted our margins are.
Speaker Change: But they didn't.
Speaker Change: The growth of the margin.
Speaker Change: And these large mission critical jobs just continues to get better.
Speaker Change: And even as that stuff comes back we believe we're still going to see margin improvement.
Speaker Change: In the infrastructure as we go into 2025.
Speaker Change: Yeah.
Speaker Change: And I've never I've never been able to say, a 100% improvement or.
Speaker Change: Or 100 basis point improvement year over year.
Speaker Change: Got it.
Speaker Change: Really good Brent we're in we're in the best shape, we've ever been in.
Speaker Change: And when I look at what we see on the horizon in the fourth quarter and first quarter, we're not even to the second quarter projects.
Speaker Change: It's it's unbelievable, we're very very optimistic on both margin and growth in the infrastructure right now.
Speaker Change: Yes, yes.
Speaker Change: I mean, it seems like the.
Speaker Change: The mountain market sort of organic expansions working out really well for you any infrastructure are there other areas you can do that organically or at this point.
Speaker Change: To your point you are sort of looking at acquisitions in that segment is that what you need to do in order to get into new regions.
Speaker Change: Yes, so we've seen some nice nice growth organically through the Rocky Mountains.
Speaker Change: As we look at kind of outflow or we can take the assets at some point in time, there is a diminishing rate of return to all equipment around the country, we still have some room.
Speaker Change: Their footprints to expand another call it half a state to state.
Speaker Change: But what we've done is we've put a map together, we think the highest growth opportunities or where we could reach.
Speaker Change: And then looking at acquisitions to fill those fill goes on again.
Speaker Change: Okay.
Speaker Change: And then just last one on building solutions.
Speaker Change: It sounds like some slowness in Dallas, maybe that persists for a couple of quarters here interested in your feedback on that just given what youre hearing from builders, but also Joe just what maybe what's going on in Houston and Phoenix are you still seeing growth in those markets.
Joe Cutillo: Yeah, so a little different dynamics in each one of the markets.
Speaker Change: Dallas definitely down in the quarter.
Speaker Change: Combination of affordability, we've heard some rumblings with one or two builders on land availability is the overall market is down Kennedy.
Speaker Change: We'll tell you though.
Joe Cutillo: In October.
Speaker Change: On the plumbing side.
Speaker Change: The starts doubled.
Speaker Change: October from where they finished in September which is which is a great sign.
Speaker Change: For us.
Speaker Change: That could be going in the right direction very quickly.
Speaker Change: That's a leading indicator to us on what's happening.
Speaker Change: So that's good.
Speaker Change: <unk> see growth in Houston.
Speaker Change: So a nice growth year over year.
Speaker Change: Not only as a market growing but.
Speaker Change: We're working on how to be even a little more aggressive on growing market share in that market Phoenix I would tell you is still growing.
Speaker Change: Phoenix is core.
Speaker Change: Third quarter is a little bit more volatile than with the Houston and Dallas markets are they usually very consistent up into the right Phoenix those up into the right, but we tend to see.
Speaker Change: A little more of a spike one quarter, a little less of a growth in the next quarter, but directionally, we're certainly happy with the Phoenix market and where that's going and don't have long term concerns with it remember these are the three biggest markets in the U S. All have population growth.
Speaker Change: People are either going to be buying homes are renting apartments, and well balanced between the commercial business if the apartment world multifamily.
Speaker Change: Takes off or back to the.
Speaker Change: First time home buyers on the residential side, so I think a little bit of a lull.
Speaker Change: The other feedback we're getting from builders is it looks like Theres a lot of people on the sidelines waiting for interest rates to drop again, so they're trying to figure out how fast and how far these rates are going to drop and I get it if I was them and I hear all the buzz at the interest rates are going to drop them I'm out there looking at the house and I believe I could get into.
Speaker Change: Other quarter point or half point by weight in a couple of months.
Speaker Change: I, probably do the same thing so.
Speaker Change: We're not.
Speaker Change: Negative at all I think we saw a little slowdown in the quarter.
Speaker Change: The outlook in talking to the builders actually just two weeks ago.
Speaker Change: What I will tell you is the numbers that they gave us for growth in 2025 are higher than historical numbers, they've given us the last three years on growth projections.
Speaker Change: So we're hoping they are correct. They are much more bullish than we thought they were going to be.
Speaker Change: And so they they obviously know more about that market and dynamics that we do.
Speaker Change: Got it really helpful. I'll pass it on thank you.
Speaker Change: And your next question comes from Adam Thalheimer from Thompson Davis. Please go ahead.
Adam Thalheimer: Hey, good morning, guys.
Speaker Change: Actually I just wanted to keep going on that.
Speaker Change: If they gave you a good growth projections for 2025 is that does that start early in 'twenty five or would you experience tell you it's kind of a mid 25 recovery.
Speaker Change: Adam where we will really know.
Adam Thalheimer: In January.
Adam Thalheimer: One of the biggest sales seasons or the builders is that spring sale.
Speaker Change: And for them to hit that spring sale number.
Speaker Change: They've got to come out of the blocks pretty heavy in January to get the we're the first first operation with slabs, they've got to get the slabs in there.
Speaker Change: I call. It 90 to 120 days after that Theyre selling the house, so sometimes youll see it late December but with the holidays, it's usually doesn't kick off until until January again, we're pretty we're very happy.
Speaker Change: With the starts that we saw in the plumbing world.
Speaker Change: In October we would not have expected that.
Speaker Change: So that's encouraging and then we'll watch the slab side as we as we get through the rest of this year.
Speaker Change: Okay. That's good.
Speaker Change: Can you talk about top line five.
Speaker Change: By segment in Q4, I'm, having a little trouble getting to getting to the revenue guidance.
Speaker Change: Yeah.
Speaker Change: I think.
Speaker Change: Broken down by segment in the quarter.
Speaker Change: I think we will.
Speaker Change: It's kind of a matrix to fill ins blades you have the exact numbers.
Speaker Change: More detail on them.
Speaker Change: No I I can't provide specific guidance I think that we continue to look strong in infrastructure as well.
Speaker Change: Compared to prior year.
Speaker Change: And likewise for welfare transportation last year had a had a pretty strong comps that we probably won't be as strong as in Q4 24 is the warranty for 'twenty three.
Speaker Change: And then building solutions remains a.
Speaker Change: Relatively flat.
Speaker Change: Up a little.
Speaker Change: With Q3.
Speaker Change: Or you are comparing to.
Speaker Change: Cute prior year.
Speaker Change: Okay got it.
Speaker Change: And then Joe can you just talk high level, what you're seeing with.
Speaker Change: First data centers and second if you could just expand on.
Speaker Change: What you are seeing with the.
Speaker Change: E Commerce distribution centers.
Speaker Change: Yeah, So I'll start I'll go backwards.
Speaker Change: We had said if you remember going back to 'twenty two.
Speaker Change: Amazon was discussing between 'twenty three we did zero.
Speaker Change: I was prepared to tell everybody in 'twenty four we did zero.
Speaker Change: But as of last week.
Speaker Change: We started Monday.
Speaker Change: We literally this is a job we got last week on Tuesday negotiated and final pricing on Wednesday, and we started this Monday.
Speaker Change: For the.
Speaker Change: Amazon distribution center they are starting up in the program. We're looking at it another one that will kick off either late this year early next year. So we're encouraged by that.
Speaker Change: They had told US 25 that we're going to start the program back up and it looks like there are certainly on track and maybe a little bit early but that coupled that with the rebound that we see happening on the small industrial.
Speaker Change: Today, if we drop interest rates and drop them again before the end of the year. We think that's going to start coming back we said second quarter next year.
Speaker Change: Hopefully that comes back a little sooner than we anticipated so we're becoming more bullish on both of those areas.
Speaker Change: When it comes to data centers, there's I'm going to tell you.
Speaker Change: There are more DM datacenters coming our way than we ever anticipated.
Speaker Change: Are these things are falling out of the Sky and every day, we are getting more and more opportunities.
Speaker Change: The piece Adam that I think everybody is missing.
Speaker Change: Is this pipeline of work that we have and how much of that pipeline grows over the next two quarters.
Speaker Change: I think it's highly probable.
Speaker Change: That sometime at the end of the first quarter, we're halfway through the second quarter, we will have the $1 billion or more.
Speaker Change: In this pipeline of incremental work on top of our backlog that will hit in 'twenty five 'twenty six and we're starting to put stuff in the 27.
Speaker Change: So I think people are grossly misled right now by what is in our backlog and I'll give you a perfect example.
Speaker Change: This Amazon distribution center is roughly a $17 billion.
Speaker Change: We have $300000 in our backlog based on how the structure of that contract is laid up.
Speaker Change: So we know.
Speaker Change: What we're going to get our backlog is very deceiving because we don't that's how the contract is written and how we have to.
Speaker Change: You have to put it in so if I was going to be a betting person I always say I like to play cards. When I know what my cards are in with others cards are.
Speaker Change: We are in very very good shape.
Speaker Change: And the activity we are seeing.
Speaker Change: Is not only unlike nothing we've seen in the past.
Speaker Change: But continues to exceed our expectations on what we thought would be coming out.
Speaker Change: Well not only that only covers E infrastructure I think you also said in the prepared remarks that.
Speaker Change: Transport certain transportation projects do you have a really low amount in backlog because it only reflects design and not the actual construction. One of my questions was if you included the actual construction how much would that add to backlog.
Speaker Change: We know it's over a $5 billion today.
Speaker Change: So out of total.
Speaker Change: Hi.
Speaker Change: Most of that to the infrastructure.
Speaker Change: But we will have as we get through the design phase of some of these large design builds will serve multi $100 million of future phase backlog in transportation. So we look at transportation today, we have roughly two years.
Speaker Change: Backlog.
Speaker Change: We're working on stuff that's further out to the.
Speaker Change: Transportation Bill goes for another two years, we anticipated and the transportation Bill.
Speaker Change: A rule.
Speaker Change: We will add somewhere between two or maybe even more than two years of backlog.
Speaker Change: That point in time.
Speaker Change: So we are.
Speaker Change: So it's hard to explain to people.
Speaker Change: But we're sitting here looking at what we have and what's coming and what we're locked into.
Speaker Change: And we feel very very good.
Speaker Change: Great. Thanks, guys.
Speaker Change: And the next question comes from Julio Romero from Sidoti <unk> Company. Please go ahead.
Speaker Change: Thanks, Hey, good morning, Joe Sharon NOL.
Speaker Change: You guys talked about this pipeline of work coming your way on the infrastructure side, you mentioned some near term onshore projects in 'twenty four 'twenty five but also the much larger projects on the horizon for 26, and 27 I guess, how are you balancing the pace of your bids now versus kind of keeping your capacity open.
Speaker Change: For those 'twenty six 'twenty seven Mega projects.
Speaker Change: Well I think the big.
Speaker Change: Good thing is we.
Speaker Change: We didn't go full bore now.
Speaker Change: And as we see those projects coming we have plenty of time, if we need to build excess or extra capacity to do that.
Speaker Change: And we would do that.
Speaker Change: So we're not.
Speaker Change: We're not pulling back on any of these mission critical jobs that we're loading up the boat as much as we can with them and when these mega jobs come out.
Speaker Change: We will be fine.
Speaker Change: We were very good.
Speaker Change: At is expanding up very rapidly.
Speaker Change: And we are not were not concerned about that.
Speaker Change: Okay. That's helpful and then I guess.
Speaker Change: This is one thing.
Speaker Change: Let me clarify one thing on the pipeline go ahead sure we talked about this multi phase pipeline. This isn't work that's out there that we're looking at to bid. This is subsequent work associated with jobs we have.
Speaker Change: So that's a big difference I'm not looking at a $1 billion, probably getting a lot more than a $1 billion of work out. There. This is work that we have that will tag on is either incremental <unk>.
Speaker Change: Contracts or change orders to the existing contract to complete the project. So this isn't stop that we're hopeful on that might happen. This is stuff that has to happen to complete the project. It's more of the contractual structure of the way they do that.
Speaker Change: It doesn't enable us to book all of that backlog at one time I would tell you today that if we were able to do that our backlog would be up well over $5 billion.
Speaker Change: And everybody would be saying Oh, my God look at all of this work instead people keep getting confused because our backlog is staying relatively flat and we know it's really growth. Okay. So I just wanted to make sure that that's that's.
Speaker Change: Sure.
Speaker Change: No. That's very helpful that gives some context to kind of the sequencing of how you how you see things going forward.
Speaker Change: You also mentioned earlier.
Speaker Change: You said some of these smaller deals and Ive heard your infrastructure that came back a bit in the third quarter.
Speaker Change: Didn't dilute margins.
Speaker Change: Can you maybe expand on that a bit is it are you doing anything different in terms of.
Speaker Change: The smaller industrial kind of a quick return projects in terms of bid margins or contract terms that are.
Speaker Change: Go ahead I think the reality is the smaller projects will carry lower margins. Okay. That's that's not changing what is changing is the pace of the rate of which we're growing these mission critical projects.
Speaker Change: Honest, we're we're realizing the value we bring to customers is even better than we maybe have priced and put out there in the past.
Speaker Change: And then the bigger the projects, we are able to drive much better efficiencies on execution. So we are picking up more points of efficiency on the back end of these projects than we ever have in the past and that's kudos to our team and the great work they've done. It's also we've introduced some things with <unk>.
Speaker Change: Knowledge to know where we are.
Speaker Change: Our bore you to death on this call, but to see what we're doing with drones and measuring monitoring project management, what we can do with drones that can now see down through trees and down through areas that you couldnt get take offs accurately in the past.
Speaker Change: If you missed calculate the amount of dirt.
Speaker Change: By six inches over 400 acres that you have to move it's real money.
Speaker Change: Being able to dial it in to the numbers, we're able to dial it in that's incremental productivity. So theres, a theres 100 things like that.
Speaker Change: We continue to do continue to drive and are looking at how do we even do that better as we go forward.
Speaker Change: Very helpful. There and just last one for me would just be on.
Speaker Change: You had another great quarter of cash flow can you just speak to kind of the drivers of that and how that should trend going forward.
Speaker Change: Yeah, it's going to keep going.
Speaker Change: We've done a great job of of working off customers money. We believe philosophically, we should do that the way we structure our contracts and our data to help us do that early out of the gate.
Speaker Change: These larger projects, we tend to get a higher amount of cash upfront, which is nice I think if you look forward and want to be conservative.
Speaker Change: Cash flow should always be kind of at that operating income level or better and we don't see anything changing.
Speaker Change: That would change the dynamics of the cash flow going forward. Our contract terms are the same or customer end markets are pretty much the same.
Speaker Change: Yeah, So all positive.
Speaker Change: We're working hard on what to do with all that cash.
Speaker Change: Sure.
Speaker Change: That's the key for us.
Speaker Change: Excellent I'll pass it on thanks very much.
Speaker Change: Once again, if you have any question press star one.
Speaker Change: At this time, we have no other questions. Please proceed.
Speaker Change: I want to thank everyone again for.
Speaker Change: For joining today's call and another exciting quarter for the Sterling team. If you have any follow up questions or wish to schedule a call directly with US. Please contact Noelle dilts her informations AMD and the press release, So hope everybody has a great day and we appreciate it. Thanks.
Speaker Change: Ladies and gentlemen. This concludes the conference you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Okay.