# STERLING INFRASTRUCTURE, INC. (STRL) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from STERLING INFRASTRUCTURE, INC.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/874238/000087423825000025/strl-20241231.htm
Accession: 0000874238-25-000025
Filing date: 2025-02-26
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/STRL/
All MD&A years: /company/STRL/mda/
Previous year: /company/STRL/mda/fy2023/ (FY 2023)
Next year: /company/STRL/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes thereto.

OVERVIEW

General—Sterling operates through a variety of subsidiaries within three segments specializing in E-Infrastructure, Transportation and Building Solutions in the United States, primarily across the Southern, Northeastern, Mid-Atlantic and Rocky Mountain regions and the Pacific Islands. E-Infrastructure Solutions provides advanced, large-scale site development services for manufacturing, data centers, large scale distribution centers, warehousing, power generation and more. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, rail and storm drainage systems. Building Solutions includes residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs, other concrete work, plumbing services, and surveys for new single-family residential builds. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society’s quality of life. Caring for our people and our communities, our customers and our investors – that is The Sterling Way.

SIGNIFICANT TRANSACTIONS

Myers Disposition—On November 30, 2022, we sold the Company’s 50% ownership interest in its partnership with Myers for $18 million in cash. In accordance with the payment terms, the Company received two payments totaling $14 million in the first quarter of 2023, and two additional payments of $2 million each are due by the end of 2025 and 2027, respectively. The disposition is consistent with the Company’s strategic shift to reduce its portfolio of low-bid heavy highway and water containment & treatment projects in order to reduce risk and improve the Company’s margins and to focus on its strategic geographies outside of California. The disposition represented a strategic shift that had a major effect on our operations and consolidated financial results, and accordingly, the historical results of Myers have been presented as discontinued operations in our Consolidated Statements of Operations. Prior to being disclosed as a discontinued operation, the results of Myers were included within our Transportation Solutions segment. The following discussion reflects continuing operations only, unless otherwise indicated. See Note 4 - Dispositions for further discussion.

PPG Acquisition—On November 16, 2023, we completed the acquisition of Professional Plumbers Group, Incorporated (“PPG”), a corporation headquartered in Wylie, Texas for a purchase price of approximately $57 million. PPG’s business provides services for all the major plumbing phases required for new single-family residential builds, which expands our suite of residential services in the Dallas-Fort Worth market to include the next critical phase of the build once the slab is complete. The results of PPG are included within our Building Solutions segment. See Note 3 - Acquisitions for further discussion.

RHB Deconsolidation—Since 2012, the Company has held a 50% ownership interest in Road and Highway Builders, LLC (“RHB”), with Rich Buenting holding the remaining 50% ownership interest. Historically, the Company fully consolidated the entity as a result of its exercise of control of the entity. On December 31, 2024, the parties executed an amendment to the RHB operating agreement to ensure the continuation of this mutually beneficial relationship while addressing the evolving needs and interest of both parties. This amendment modified the way RHB would be dispositioned in the event of the death or disability of Mr. Buenting and provides that in such event, Sterling and Mr. Buenting’s estate must agree on one of four alternatives: (1) continuation of the existing ownership structure, (2) acquisition of Sterling’s 50% interest by Mr. Buenting’s estate at fair market value, (3) acquisition of Mr. Buenting’s 50% interest by Sterling at fair market value or (4) the joint sale of RHB to a third party at fair market value.

Under GAAP, this contractual change requires that Sterling no longer consolidate RHB’s results with its own and use equity method accounting with respect to Sterling’s interest in the entity. Beginning January 1, 2025, the Company will report RHB’s operating income as a single line item (“Other operating income (expense), net”) in the Consolidated Statements of Operations and will report its interest in RHB at December 31, 2024, and thereafter, as a single line item (“Investment in unconsolidated subsidiary”) in the Consolidated Balance Sheets. RHB’s revenue will no longer be included in Sterling’s consolidated revenue in 2025 and Sterling’s consolidated backlog figures as of December 31, 2024 do not include RHB’s backlog.

MARKET OUTLOOK AND TRENDS

We see favorable opportunities for long-term growth across each of our business segments. We remain focused on our strategic objectives, as described in Item 1 “Business — Business Strategy.” These objectives include: 1) growth in our E-Infrastructure Solutions segment, with particular focus on large, high-value projects; 2) risk reduction through a continued shift

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in our Transportation Solutions business away from low-bid heavy highway work, toward alternative delivery and design-build projects; 3) continuing to grow market share and geographic presence in Building Solutions; and 4) improving our margins in each of our segments.

E-Infrastructure Solutions—Our E-Infrastructure Solutions business is driven by our customers’ investments in the development of data centers, advanced manufacturing centers, e-commerce distribution centers and warehouses. We foresee significant growth opportunities tied to the implementation of multi-year capital deployment plans by data center customers, including hyperscalers, colocation providers and others. These investments are driven by the need to support the increasing use of cloud computing applications, increasing adoption and complexity of artificial intelligence applications and digital transformation across industries. Additionally, we continue to see significant opportunity related to the construction of manufacturing capacity in the U.S., including semiconductor fabrication. Following a decline in activity that began in 2023, awards in the e-commerce distribution sector began to strengthen in late 2024. Similarly, small warehouse activity, which began to decline in 2023 and remained soft in 2024, is beginning to exhibit signs of recovery.

Transportation Solutions—Our Transportation Solutions business is primarily driven by federal, state and municipal funding. Federal funds, on average, provide 50% of annual State Department of Transportation capital outlays for highway and bridge projects. We benefit from a number of federal, state and local infrastructure investment programs. At the state and local level, the November 2020 elections saw strong support for transportation initiatives with the passage of many ballot measures that secured, and in some cases increased, funding. At the Federal level, the Infrastructure Investments and Jobs Act (“IIJA”), which establishes funding for the 2022 through 2026 time period, drove significant increases in transportation funding relative to the previous five-year law. The IIJA includes approximately $643 billion in funding for transportation programs ($432 billion for highways, $109 billion for transportation and $102 billion for rail), of which $284 billion is an increase over historic investment levels that will fund new transportation infrastructure. The IIJA also includes $25 billion of funding for airport modernization As a result of the IIJA, we saw an increase in bid activity and project awards which started in the third quarter of 2022 and continued through 2023 and 2024. We expect that the combination of strong state and federal funding will allow the transportation market to remain elevated relative to historical levels in 2025 and 2026.

Building Solutions—Our Building Solutions segment is comprised of our residential and commercial businesses. The segment is driven by new home starts in Dallas-Fort Worth, the segments largest market, and continued expansion in the Houston and Phoenix markets. Building Solutions' core customer base includes top national, regional and custom home builders in our areas. In 2022, the residential market experienced significant price volatility and availability for key materials, including concrete, steel and lumber, as well as increases in subcontractor labor costs and decreased labor availability. The Company negotiated with customers to successfully recoup the increases in material and labor costs through price increases. We saw strong, consistent recovery in residential activity through 2023 and experienced volume growth across each geography. While this strength continued into early 2024, in the second quarter of 2024 the combined impact of interest rate uncertainty, affordability challenges, and developed land availability drove a decline in the market which continued through the remainder of the year. We believe the dynamics in our markets, including population growth and structural housing shortages, support a return to growth over a multi-year time period.

BACKLOG

Our remaining performance obligations on our projects, as defined in ASC 606, do not differ from what we refer to as “Backlog.” Our Backlog represents the amount of revenues we expect to recognize in the future from our contract commitments on projects. The contracts in Backlog are typically completed in 6 to 36 months. Our unsigned awards (“Unsigned Awards”) are excluded from Backlog until the contract is executed by our customer. We refer to the combination of our Backlog and Unsigned Awards as “Combined Backlog.” Our book-to-burn ratio is determined by taking our additions to Backlog and dividing it by revenue for the applicable period. This metric allows management to monitor the Company’s business development efforts to ensure we grow our Backlog and our business over time, and management believes that this measure is useful to investors for the same reason. As noted above, due to the deconsolidation of RHB, Sterling’s consolidated backlog figures as of December 31, 2024 do not include RHB’s backlog.

At December 31, 2024, our Backlog was $1.69 billion, as compared to $2.07 billion at December 31, 2023. Excluding RHB, the book-to-burn ratio was 1.02 for the year ended December 31, 2024. The Company’s margin in Backlog has increased to 16.7% at December 31, 2024 from 15.2% at December 31, 2023, driven by a greater mix of E-Infrastructure Solutions backlog. Backlog includes $73.6 million and $112.4 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner at December 31, 2024 and 2023, respectively. We anticipate that approximately 74% of our Backlog will be recognized as revenues during 2025, with substantially all remaining recognized in the twelve months following.

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Unsigned Awards were $137.9 million at December 31, 2024 and $303.2 million at December 31, 2023. Combined Backlog totaled $1.83 billion at December 31, 2024 and $2.37 billion at December 31, 2023. Excluding RHB, the book-to-burn ratio was 1.01 for the year ended December 31, 2024.

Backlog and gross margin:

[[GREPCENT_TABLE]]
[["(In thousands)","Backlog","","Gross Margin in Backlog"],["Fourth quarter of 2024 (1)","$1,693,223","","16.7%"],["Third quarter of 2024","$2,055,081","","16.8%"],["Second quarter of 2024","$2,098,781","","16.0%"],["First quarter of 2024","$2,352,126","","15.6%"],["Fourth quarter of 2023","$2,067,016","","15.2%"]]
[[/GREPCENT_TABLE]]

(1)    The decrease in backlog in the fourth quarter of 2024 is due to the deconsolidation of our 50% owned subsidiary RHB as of December 31, 2024. RHB’s 2024 year end backlog of $491.3 million is not included in the Company’s consolidated backlog at December 31, 2024.

A detailed discussion of our financial and operating results for the years ended December 31, 2024 and 2023 is presented in the following sections. Discussions of year-over-year comparisons for 2023 and 2022 can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2023.

RESULTS OF OPERATIONS

Consolidated Results

The financial highlights for 2024 as compared to 2023 are as follows:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(In thousands)","2024","","2023"],["Revenues","$","2,115,756","","","$","1,972,229"],["Gross profit","426,123","","","337,638"],["General and administrative expenses","(118,424)","","","(98,703)"],["Intangible asset amortization","(17,037)","","","(15,226)"],["Acquisition related costs","(421)","","","(873)"],["Other operating expense, net","(25,619)","","","(17,041)"],["Operating income","264,622","","","205,795"],["Interest, net","2,367","","","(15,180)"],["Gain on deconsolidation of subsidiary, net","91,289","","","\u2014"],["Income before income taxes and noncontrolling interests","358,278","","","190,615"],["Income tax expense","(87,360)","","","(47,770)"],["Less: Net income attributable to noncontrolling interests","(13,457)","","","(4,190)"],["Net income from Continuing Operations","$","257,461","","","$","138,655"],["Gross margin","20.1%","","17.1%"]]
[[/GREPCENT_TABLE]]

Revenues—Revenues were $2.12 billion for 2024, an increase of $143.5 million, or 7.3%, compared to the prior year. The increase was driven by a $152.8 million increase in Transportation Solutions and a $4.5 million increase in Building Solutions partly offset by a $13.7 million decrease in E-Infrastructure Solutions.

Gross profit and margin—Gross profit was $426.1 million for 2024, an increase of $88.5 million, or 26.2%, compared to the prior year. The Company’s gross margin as a percentage of revenue increased to 20.1% in 2024, as compared to 17.1% in the prior year. The increases were driven by the aforementioned higher volume, an improved project margin mix in the E-Infrastructure Solutions and Transportation Solutions segments and the inclusion of the Texas plumbing business acquired in late 2023.

The number of contracts in progress that were not substantially complete totaled approximately 180 and 230 December 31, 2024 and 2023, respectively. These contracts are of various sizes, of different expected profitability and in various stages of completion. The nearer a contract progresses toward completion, the more visibility the Company has in refining its estimate of

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total revenues (including incentives, delay penalties and change orders), costs and gross profit. Thus, gross profit as a percentage of revenues can increase or decrease from comparable and subsequent quarters due to variations among contracts and depending upon the stage of completion of contracts.

General and administrative expenses—General and administrative expenses were $118.4 million, or 5.6% of revenue, for 2024, compared to $98.7 million, or 5.0% of revenue, in the prior year. The increase reflects incremental G&A from the Texas plumbing business acquired in late 2023, growth and inflation.

Other operating expense, net—Other operating expense, net, includes 50% of earnings and losses related to members’ interest of our formerly consolidated 50% owned RHB subsidiary, earn-out and other miscellaneous operating income or expense. Members’ interest earnings are treated as an expense and increase the liability account. The change in other operating expense, net, was an increase of $8.6 million during 2024 compared to the prior year. Members’ interest earnings increased by $3.2 million during 2024 to $20.9 million from $17.7 million in the prior year, and earn-out expense increased by $5.4 million during 2024 to $4.8 million compared to income of $0.7 million in the prior year.

Interest, net—Combined interest expense and income was net income of $2.4 million in 2024, compared to net expense of $15.2 million in the prior year. The decrease in net expense was driven by higher interest income due to increased interest rates in 2024 on our growing cash balance.

Gain on deconsolidation of subsidiary, net—As a result of the RHB deconsolidation, the Company recognized a $91.3 million non-cash net gain on the transaction in accordance with GAAP, which requires the Company’s 50% retained interest in RHB to be measured and recorded at fair value on December 31, 2024. See Note 6 - 50% Owned Subsidiary for more information.

Income taxes—The effective income tax rate was 24.4% in 2024 and 25.1% in the prior year. The rate varied from the statutory rate primarily as a result of state income taxes, non-deductible compensation, gain on the deconsolidation of subsidiary and other permanent differences. In 2024 and 2023, the Company’s non-deductible compensation was offset by increased tax deductions related to stock compensation. See Note 13 - Income Taxes for more information.

Segment Results

The Company’s operations consist of three reportable segments: E-Infrastructure Solutions, Transportation Solutions and Building Solutions. We incur certain expenses at the corporate level that relate to our business as a whole. A portion of these expenses are allocated to our business segments by various methods, but primarily on the basis of usage. The balance of the corporate level expenses are reported in the “Corporate G&A Expense” line, which is primarily comprised of corporate headquarters facility expense, the cost of the executive management team and other expenses pertaining to certain centralized functions that benefit the entire Company, but are not directly attributable to any specific business segment, such as corporate human resources, legal, governance, compliance and finance functions.

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["(In thousands)","","2024","","% of Revenues","","2023","","% of Revenues"],["Revenues"],["E-Infrastructure Solutions","","$","923,728","","","44%","","$","937,408","","","48%"],["Transportation Solutions","","783,659","","","37%","","630,908","","","32%"],["Building Solutions","","408,369","","","19%","","403,913","","","20%"],["Total Revenues","","$","2,115,756","","","","","$","1,972,229"],["Operating Income"],["E-Infrastructure Solutions","","$","203,359","","","22.0%","","$","140,997","","","15.0%"],["Transportation Solutions","","50,869","","","6.5%","","41,911","","","6.6%"],["Building Solutions","","49,083","","","12.0%","","46,193","","","11.4%"],["Segment Operating Income","","303,311","","","14.3%","","229,101","","","11.6%"],["Corporate General and Administrative Expense","","(38,268)","","","","","(22,433)"],["Acquisition Related Costs","","(421)","","","","","(873)"],["Total Operating Income","","$","264,622","","","12.5%","","$","205,795","","","10.4%"]]
[[/GREPCENT_TABLE]]

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E-Infrastructure Solutions

Revenues—Revenues were $923.7 million for 2024, a decrease of $13.7 million, or 1.5%, compared to the prior year. The decrease was primarily driven by the timing of advanced manufacturing projects, lower volume from warehouses and other small projects, partly offset by higher volume from data centers.

Operating income—Operating income was $203.4 million, or 22.0% of revenue, for 2024, an increase of $62.4 million compared to $141.0 million, or 15.0% of revenue, in the prior year. The increases in operating income and margin were driven by a mix shift toward large mission-critical projects, partly offset by lower volume from warehouses and other small commercial projects and by the timing of advanced manufacturing projects.

Transportation Solutions

Revenues—Revenues were $783.7 million for 2024, an increase of $152.8 million, or 24.2%, compared to the prior year. The increase was driven by higher heavy highway, aviation and other non-highway services revenue.

Operating income—Operating income was $50.9 million, or 6.5% of revenue, for 2024, an increase of $9.0 million compared to $41.9 million, or 6.6% of revenue, in the prior year. The increase in operating income was driven by the aforementioned higher revenue.

Building Solutions

Revenues—Revenues were $408.4 million for 2024, an increase of $4.5 million, or 1.1%, compared to the prior year. The increase was primarily driven by the inclusion of $61.1 million of revenue from the Texas plumbing business acquired in late 2023 and an increase in residential slabs completed in the Arizona market compared to 2023, partly offset by fewer residential slabs completed in the Texas markets compared to 2023.

Operating income—Operating income was $49.1 million, or 12.0% of revenue, for 2024, an increase of $2.9 million compared to $46.2 million, or 11.4% of revenue, in the prior year. The increases in operating income and margin were driven by the inclusion of the Texas plumbing business and a mix shift towards residential, which has higher margins than commercial.

LIQUIDITY AND SOURCES OF CAPITAL

Cash and Cash Equivalents—Total cash and cash equivalents at December 31, 2024 and 2023 were $664.2 million and $471.6 million, respectively, and included the following components:

[[GREPCENT_TABLE]]
[["","As of December 31,"],["(In thousands)","2024","","2023"],["Generally available","$","566,399","","","$","362,884"],["50% owned subsidiary (1)","\u2014","","","72,007"],["Construction joint ventures","97,796","","","36,672"],["Cash and cash equivalents","$","664,195","","","$","471,563"]]
[[/GREPCENT_TABLE]]

(1)    The decrease in 50% owned subsidiary cash and cash equivalents as of December 31, 2024 is due to the deconsolidation of our 50% owned subsidiary RHB. RHB’s cash balance at December 31, 2024 of $103.8 million, is not included in the Company’s Consolidated Balance Sheet as of December 31, 2024.

The following table presents consolidated information about our cash flows:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(In thousands)","2024","","2023"],["Net cash provided by (used in):"],["Operating activities","$","497,104","","","$","478,584"],["Investing activities","(185,849)","","","(87,752)"],["Financing activities","(118,623)","","","(104,534)"],["Net change in cash and cash equivalents","$","192,632","","","$","286,298"]]
[[/GREPCENT_TABLE]]

Operating Activities—During 2024, net cash provided by operating activities was $497.1 million compared to net cash provided by operating activities of $478.6 million in the prior year. The improvement in cash flows provided by operating

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activities was primarily driven by higher net income and net improvements in our accounts receivable, net contracts in progress and accounts payable balances (collectively, “Contract Capital”), as discussed below.

Changes in Contract Capital—The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital. The changes in components of Contract Capital during the years ended December 31, 2024 and 2023 were as follows:

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["(In thousands)","2024","","2023"],["Contracts in progress, net","$","194,306","","","$","226,066"],["Accounts receivable","(6,888)","","","12,805"],["Receivables from and equity in construction joint ventures","7,428","","","(3,384)"],["Accounts payable","(9,336)","","","10,307"],["Change in Contract Capital, net","$","185,510","","","$","245,794"]]
[[/GREPCENT_TABLE]]

During 2024, the change in Contract Capital was $185.5 million. The Company’s Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects.

Investing Activities—During 2024, net cash used in investing activities was $185.8 million, compared to net cash used of $87.8 million in the prior year. In 2024, the amount of net cash used in investing activities was primarily driven by $103.8 million of cash removed from the Company’s Consolidated Balance Sheet due to the deconsolidation of RHB and $81.0 million for purchases of capital equipment. Capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment.

Financing Activities—During 2024, net cash used in financing activities was $118.6 million compared to net cash used of $104.5 million in the prior year. In 2024, the amount of net cash used in financing activities was primarily driven by $70.6 million for the repurchase of common stock, $26.3 million of repayments on the Term Loan Facility and $21.5 million for withholding taxes paid on the net share settlement of vested equity awards.

Discontinued Operations—Cash flows from discontinued operations are disclosed below and in Note 4 - Dispositions, rather than separately presented in the statement of cash flows. The year ended December 31, 2022 represents the period ending November 30, 2022, the date of disposition.

[[GREPCENT_TABLE]]
[["(In thousands)","Year Ended December 31, 2022"],["Net cash used in:"],["Operating activities of Discontinued Operations","$","(7,334)"],["Investing activities of Discontinued Operations","(723)"],["Financing activities of Discontinued Operations","(81)"],["Net change in cash, cash equivalents and restricted cash of Discontinued Operations","$","(8,138)"]]
[[/GREPCENT_TABLE]]

Credit Facilities, Debt and Other Capital

General—In addition to our available cash, cash equivalents and cash provided by operations, from time to time we use borrowings to finance acquisitions, our capital expenditures and working capital needs.

Credit Facility—Our amended Credit Agreement provides the Company with senior secured debt financing consisting of the following (collectively, the “Credit Facility”): (i) a senior secured first lien term loan facility (the “Term Loan Facility”) in the aggregate principal amount of $350 million and (ii) a senior secured first lien revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $75 million (with a $75 million limit for the issuance of letters of credit and a $15 million sublimit for swing line loans). At December 31, 2024, we had $317.2 million of outstanding borrowings under the Term Loan Facility and no outstanding borrowings under the Revolving Credit Facility. The obligations under the Credit Facility are secured by substantially all assets of the Company and the subsidiary guarantors, subject to certain permitted liens and interests of other parties. The Credit Facility will mature on April 2, 2026.

Compliance and Other—The Credit Agreement contains various affirmative and negative covenants that may, subject to certain exceptions, restrict our ability and the ability of our subsidiaries to, among other things, grant liens, incur additional indebtedness, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or

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make other distributions with respect to equity interests, purchase, redeem or otherwise acquire or retire capital stock or other equity interests, or merge or consolidate with any other person, among various other things. In addition, the Company is required to maintain certain financial covenants. See Note 10 - Debt for further discussion of these financial covenants. As of December 31, 2024, we were in compliance with all of our restrictive and financial covenants. The Company’s debt is recorded at its carrying amount in the Consolidated Balance Sheets. Based upon the current market rates for debt with similar credit risk and maturities, at December 31, 2024 the fair value of our debt outstanding approximated the carrying value, as interest is based on Term SOFR plus an applicable margin.

Borrowings—Based on our average borrowings for 2024 and our 2025 forecasted cash needs, we continue to believe that the Company has sufficient liquid financial resources to fund our requirements for the next year of operations. Furthermore, the Company is continually assessing ways to increase revenues and reduce costs to improve liquidity. However, in the event of a substantial cash constraint, and if we were unable to secure adequate debt financing, our liquidity could be materially and adversely affected.

Issuance of Common Stock—In addition to our available cash, cash equivalents and cash provided by operations and borrowings, from time to time we issue common stock to finance acquisitions.

Bonding—As is customary in the construction business, we are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. We have pledged all proceeds and other rights under our construction contracts to our bond surety company. Events that affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. To date, we have not encountered difficulties or material cost increases in obtaining new surety bonds.

Capital Strategy—The Company will continue to explore additional revenue growth and capital alternatives to improve leverage and strengthen its financial position in order to take advantage of trends in the civil infrastructure and E-infrastructure markets. The Company expects to pursue strategic uses of its cash, such as investing in projects or businesses that meet its gross margin and overall profitability targets, managing its debt balances and repurchasing shares of its common stock.

Material Cash Requirements

The following table sets forth our material cash requirements from contractual obligations at December 31, 2024:

[[GREPCENT_TABLE]]
[["","Payments due by period"],["(In thousands)","Total","","1 Year","","1 - 3 Years","","4 \u2013 5 Years","","5 Years"],["Credit Facility","$","317,188","","","$","26,250","","","$","290,938","","","$","\u2014","","","$","\u2014"],["Credit Facility interest","25,638","","","19,507","","","6,131","","","\u2014","","","\u2014"],["Other notes payable (inclusive of outstanding interest)","554","","","174","","","290","","","90","","","\u2014"],["Total","$","343,380","","","$","45,931","","","$","297,359","","","$","90","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

Capital Expenditures—Capital equipment is acquired as needed by increased levels of production and to replace retiring equipment. Capital expenditures, net of disposals, incurred in 2024 were $70.8 million. Management expects net capital expenditures in 2025 to be in the range of $70 to $80 million; however, the award of a project requiring significant purchases of equipment or other factors could result in increased expenditures.

NEW ACCOUNTING STANDARDS

See the applicable section of Note 2 - Basis of Presentation and Significant Accounting Policies for a discussion of new accounting standards.

CRITICAL ACCOUNTING ESTIMATES

The discussion and analysis of the financial condition and results of operations are based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting policies generally accepted in the U.S. (“GAAP”). The preparation of these Consolidated Financial Statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. The Company continually evaluates its estimates based on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different

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assumptions or conditions. The Company believes the following critical accounting estimates involve more significant judgment used in the preparation of the Consolidated Financial Statements.

Revenue Recognition

Performance Obligations Satisfied Over Time—Revenue for contracts that satisfy the criteria for over time recognition is recognized as the work progresses. The Company measures transfer of control of the performance obligation utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as materials and labor, and indirect costs that are attributable to contract activity. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and is a significant factor in the accounting for such performance obligations. Significant estimates that impact the cost to complete each performance obligation are materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor or supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingencies, among others. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on performance obligations in progress. Due to the various estimates inherent in contract accounting, actual results could differ from those estimates, which could result in material changes to the Company’s Consolidated Financial Statements and related disclosures. See “Contract Estimates” within Note 5 - Revenue from Customers for further discussion.

Fair Value Measurements

The Company may use fair value measurements that involve the input of estimates that require significant judgment. The Company’s use of these fair value measurements include:

•determining the purchase price allocation for an acquired business;

•determining the value of retained interest after the deconsolidation of a subsidiary;

•goodwill impairment testing when a quantitative analysis is deemed necessary; and

•long-lived asset (such as property, equipment and intangible assets) impairment testing when impairment indicators are present.

When performing quantitative fair value or impairment evaluations, the Company estimates the fair value of assets by considering the results of income-based and/or a market-based valuation method. Under the income-based method, a discounted cash flow valuation model uses recent forecasts to compare the estimated fair value of each asset to its carrying value. Cash flow forecasts are discounted using the weighted-average cost of capital for the applicable reporting unit at the date of evaluation. The weighted-average cost of capital is comprised of the cost of equity and the cost of debt with a weighting for each that reflects the Company’s current capital structure. Preparation of long-term forecasts involve significant judgments involving consideration of backlog, expected future awards, customer attribution, working capital assumptions and general market trends and conditions. Significant changes in these forecasts or any valuation assumptions, such as the discount rate selected, could affect the estimated fair value of our assets and could result in impairment. Under the market-based method, market information such as multiples of comparable publicly traded companies and/or completed sales transactions are used to develop or validate our fair value conclusions, when appropriate and available.

Purchase Price Allocations—The aggregate purchase price for the PPG and CCS acquisitions were allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of the closing date, which were based, in part, upon internal and external valuations of certain assets, including specifically identified intangible assets and property and equipment. The valuations were based on the income-based and market-based valuation methods noted above. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. See Note 3 - Acquisitions for further discussion.

Deconsolidation of a subsidiary—As a result of the RHB deconsolidation, the Company’s 50% retained interest in RHB was required to be measured and recorded at fair value on December 31, 2024 under U.S. GAAP. The fair value measurement utilizes level 3 inputs, which includes unobservable data, to measure the fair value of the retained non-controlling interests. The fair value determination was based on a combination of multiple valuation methods, which included the income-based and market-based valuation methods noted above. See Note 6 - 50% Owned Subsidiary for further discussion.

Goodwill—Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any indicators of impairment or when other actions require an impairment assessment. The Company performs the annual impairment assessment for its reporting units during the fourth quarter of each year based on balances as of October 1. During the fourth quarter of 2024, 2023 and 2022, the Company performed a qualitative assessment of goodwill, and based on this

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assessment, no indicators of impairment were present. Factors considered include macroeconomic, industry and competitive conditions, financial performance and reporting unit specific events. These are discussed in a number of places including Item 1A “Risk Factors.” Our annual assessments indicated there was no impairment of goodwill during the years ended December 31, 2024, 2023 and 2022.

Long-lived Assets—Long-lived assets, which include property, equipment and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, the estimated future cash flow associated with the asset or asset group will be compared to their respective carrying amounts to determine if an impairment exists. Actual useful lives and cash flows could be different from those estimated by management, and this could have a material effect on operating results and financial position. For the years ended December 31, 2024, 2023 and 2022, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets.