Sterling Infrastructure, Inc. (STRL) Earnings

Management highlights

### Overall Company Performance - Sterling delivered 90% total year-over-year revenue growth, 116% adjusted diluted EPS growth (from $2.69 to $5.80), and adjusted EBITDA more than doubled, with margins expanding 150 basis points to 22% - Total signed backlog at quarter end was $4.3 billion (up 116% year-over-year), and combined backlog reached $5.6 billion (up 150% year-over-year); total addressable work across all segments exceeds $7 billion, up over $2.5 billion since year-end - Management is selective in project pursuit, prioritizing opportunities that strengthen customer relationships, drive future growth, and support margin expansion ### Strategic Growth Investments - **Talent development**: Expanded recruiting and training programs (Sterling Academy, CEC University) to attract, develop and retain skilled workers, positioning the company as an employer of choice in new geographies - **Fleet and operational investment**: Increased investments in equipment fleet to expand capacity, improve productivity, and support long-term margin expansion; CEC is ramping up production at prefabrication facilities to drive field productivity and cost savings - **M&A strategy**: Pursues tuck-in acquisitions that add strong local leadership and expand presence in high-demand markets; the recent Stone Ridge acquisition positions the company for future growth in the Pacific Northwest ### Market Demand Trends - Projects are trending larger, more complex, and longer in duration, reflecting the scale and importance of mission-critical assets for customers; the company has been pulled into new geographies based on its delivery reputation - Strong demand is visible across data center and semiconductor markets, with growing momentum in the broader manufacturing market, including electric vehicle projects

Guidance

- Full-year 2026 consolidated guidance was increased to reflect a stronger core business outlook and the addition of Stone Ridge: revenue is guided to $4.0 billion to $4.15 billion, adjusted diluted EPS to $19.70 to $20.30, and adjusted EBITDA to $891 million to $916 billion; at the midpoint, this represents 64% year-over-year revenue growth, 84% adjusted EPS growth, and 79% adjusted EBITDA growth - CapEx guidance was increased by $30 million to $130 million to $140 million, to fund fleet expansion supporting higher projected revenue and demand - E-Infrastructure: Full-year 2026 revenue growth is expected to exceed 100% (including CEC and Stone Ridge contributions), legacy site development revenue is projected to grow ~70% or higher, and adjusted operating margins are expected to be in the mid-20% range - Transportation Solutions: Full-year 2026 revenue is expected to decline 7% to 10% (faster resource shift to E-Infrastructure), with adjusted operating margin expansion of 150 to 200 basis points year-over-year - Building Solutions: Full-year 2026 revenue is expected to decline modestly, with adjusted operating margins in the high single-digit to low double-digit range - Management expects possible softer award activity in Q3 2026, with higher awards in Q4 2026 and early 2027; combined with strong projected revenue burn in Q3, this could lead to a sequential backlog decline, which reflects award timing not a change in underlying demand

Segment performance

1. E-Infrastructure: Second quarter revenue grew 192% year-over-year, with mission-critical work (data centers and semiconductor campuses) as the primary growth driver. Adjusted operating income increased 148% year-over-year, and adjusted operating margins were 24%. Legacy site development organic revenue more than doubled, with expanding margins year-over-year and sequentially. CEC (electrical services) delivered 140% year-over-year revenue growth, with strengthening margins year-over-year and sequentially. At quarter end, mission-critical work represented more than 92% of E-Infrastructure signed backlog, and total addressable work for the segment exceeded $6 billion. CEC's combined backlog increased by $1.7 billion since year-end 2025. 2. Transportation Solutions: Second quarter revenue declined 20% year-over-year, as the company reallocates resources to higher-margin E-Infrastructure projects. Adjusted operating margins reached 19.5% (up 500 basis points year-over-year), and adjusted operating income grew 8% year-over-year. Signed backlog was $969 million, a 35% year-over-year increase; combined backlog increased 8% year-over-year and decreased 11% from year-end 2025. 3. Building Solutions: Second quarter segment revenue declined 1% year-over-year, driven by flat home builder activity. Adjusted operating margins were 9.9%.

Risks & headwinds

- Electrical capacity constraints, particularly a shortage of skilled electricians, currently limits the company's ability to take on all available projects and expand cross-selling of integrated electrical and site work faster - Geographic expansion into more distant regions requires additional resources, creating capacity tightness on the site development side - Uncertainty around permitting and political opposition to data center development in some regions could create potential future project delays, though no projects Sterling is working on have been impacted to date - Weather-related volatility in Q4 could impact revenue relative to conservative guidance projections - Margin dilution can occur in overall E-Infrastructure results from faster growth of lower-margin CEC even as margins improve at the segment level for both site development and electrical businesses

Analyst Q&A

• Q: Backlog has doubled year-over-year with Stone Ridge contributing in H2, so why isn't the second half revenue guidance larger? Are there longer lead times or delayed project starts? /

  A: Management notes guidance is deliberately conservative, particularly for Q4, due to historical uncertainty around winter weather impacts. If Q4 weather matches last year's mild conditions, results would exceed guidance. There is no slowdown in project activity or delayed starts; management has retained a cautious outlook after multiple prior upward guidance revisions, and strong bid activity is expected to translate to awards in Q4 and early 2027.

• Q: Why do margins differ between site development and CEC electrical, and what is the long-term target for CEC margins? /

  A: Site development has more opportunities for scope adjustments and productivity gains that drive higher margins, while electrical projects have fixed designs and more inherent complexity, so CEC will not reach site development margin levels. Management expects 300 to 500 basis points of CEC margin improvement over 12 to 18 months from exiting lower-margin legacy businesses and moving to larger, higher-quality projects. Long-term, the target for CEC is to reach ~20% EBITDA margins, up from the current ~12%.

• Q: What is the trend for pricing on new backlog, and where are capacity constraints the tightest? /

  A: No fundamental shift in pricing conditions has occurred; on the electrical side, management has rejected unfavorable non-price terms without impacting award activity. The tightest capacity is for skilled electricians, which limits the number of projects the company can take on. Site development capacity is also tightening as the company expands across larger geographies, so management is accelerating equipment investments and pursuing smaller tuck-in acquisitions to add local capacity and geographic reach faster.

• Q: What is the on-the-ground impact of Texas political discussions around data center permitting? Have any projects been delayed? /

  A: Sterling has not experienced any delays or impacts to its active or planned projects from recent political discussions. While political debate around large infrastructure projects is normal, all project timelines remain on track. Upstream supply chain delays could potentially impact downstream activity, but no meaningful delays have occurred to date on the site and electrical work Sterling performs.

• Q: Does the upsized $1.5 billion revolving credit facility signal larger M&A targets, or is it just optionality? /

  A: The facility provides dry powder for both organic and acquisition growth, and the company did move to an all-revolver structure for better pricing and flexibility. Given the extremely high level of projected demand for mission-critical infrastructure, the company needs to add capacity faster than organic growth allows, so more acquisitions are planned. Priority targets include additional electrical capacity in Texas and the Southeast, and site development capacity in high-growth markets like Texas and the Pacific Northwest.