Sterling’s 2026 Q2 Earnings Call: M&A Priorities Shift, CEC Margin Timelines Clash, Rocky Mountain Outlook Divides

Date of Call: Aug 4, 2026

Financials Results

• Revenue: $4.3 billion backlog at quarter end, up 116% YOY; combined backlog $5.6 billion, up 150% YOY
• EPS: Adjusted diluted EPS grew 116% YOY from $2.69 to $5.80
• Operating Margin: Adjusted operating margin for e-infrastructure remained strong at 24%; transportation solutions reached 19.5%, up more than 500 basis points YOY

Guidance:

• Revenue for 2026 expected to be $4B to $4.15B.
• Diluted EPS expected to be $17.25 to $17.85; adjusted diluted EPS $19.70 to $20.30.
• EBITDA expected to be $829M to $854M; adjusted EBITDA $891M to $916M.
• E-infrastructure segment revenue growth expected to be over 100%.
• Transportation solutions revenue expected to decline 7% to 10%.
• Building solutions revenue expected to decline modestly.
• Adjusted operating profit margins for e-infrastructure expected in mid-20% range; transportation margin expansion of 150-200 bps.

Business Commentary:

Revenue and Backlog Growth:

• Sterling Infrastructure reported revenue growth of 90% and adjusted diluted EPS growth of 116%, from $2.69 to $5.80, for the second quarter.
• Adjusted EBITDA more than doubled, with margins expanding 150 basis points year-over-year to reach 22%.
• The growth was driven by strong demand across markets, particularly in e-infrastructure, and exceptional execution by teams.

E-Infrastructure Performance:

• The e-infrastructure segment saw revenue grow 192%, with adjusted operating income increasing 148%, and margins remained strong at 24%.
• This performance was primarily driven by mission-critical activities, including work on data centers and semiconductor campuses.

Transportation Solutions and Shift in Focus:

• Revenue for transportation solutions declined 20%, reflecting a reallocation of resources to higher-margin e-infrastructure projects.
• Despite the decline, adjusted operating margins reached 19.5%, up more than 500 basis points from the prior year period.
• The shift was due to increased activity in e-infrastructure projects in regions like the Rocky Mountain and Texas, prompting a focus on more attractive opportunities within the transportation market.

Increased CapEx and Cash Flow:

• Given the significant increase in full-year 2026 revenue expectations, CapEx guidance was raised by $30 million to $130 to $140 million.
• Cash flow from operating activities for the first half of 2026 was $328 million, indicating continued strength in operating cash flow.
• The increased CapEx is aimed at investing in the fleet to drive productivity and expand capacity to support sustained growth.

Future Outlook and Strategic Investments:

• The company anticipates e-infrastructure segment revenue growth of over 100% for full-year 2026, with legacy site development business growth rates approaching 70% or higher.
• Strategic investments in people, equipment, and capabilities are being made to support sustained growth, including tuck-in acquisitions like Stone Ridge to expand in attractive markets.

Sentiment Analysis:

Overall Tone: Positive

• Management stated 'Sterling delivered another outstanding quarter' with 'revenue growth of 90% and adjusted diluted EPS growth of 116%'. They see 'exceptionally strong demand' and 'confidence and our multi-year outlook'. Backlog and visibility into future work 'further strengthens our confidence'. The tone is optimistic about growth markets and strategic positioning.

Q&A:

• Question from Brent Philman (Open Online): Concerns about backlog growth not translating to bigger revenue step-up in second half due to longer lead times or later start.
  Response: Management is being conservative on Q4 outlook due to weather uncertainty but is confident in project schedules and has raised guidance; they have strong bid activity for later quarters.

• Question from Brent Philman (Open Online): Profile of new work, size, scope, and margin evolution for CEC.
  Response: CEC margins are improving significantly as they exit low-margin segments and take on larger, higher-margin projects like data centers; growth is rapid but mix dilutes overall segment margin.

• Question from Brent Philman (Open Online): Update on cross-selling opportunities between CEC and legacy site development.
  Response: Joint projects are increasing but limited by CEC's capacity; demand is high and expected to grow as capacity expands via hiring and potential acquisitions.

• Question from Louie DePalma (William Blair): Long-term margin potential for CEC and why site development margins differ significantly.
  Response: Electrical margins will not reach site development peaks due to project nature, but CEC aims for 300-500 bps improvement over 12-18 months and long-term goal near 20% EBITDA margins.

• Question from Louie DePalma (William Blair): Why future phase work metric doesn't capture full visibility.
  Response: Future phase work doesn't include projects where customers expand property or extend project duration; visibility is higher as projects grow larger and longer, but management remains conservative in reporting.

• Question from Ryan Griffey (CFO): Pricing and conditions in e-infrastructure backlog versus a year ago.
  Response: No fundamental shift in pricing; some minor electrical side attempts at adding terms not accepted.

• Question from Ryan Griffey (CFO): Spare capacity and tightest constraints.
  Response: Tightest constraints are electricians and site development capacity due to geographic expansion; will address via equipment investments, training, and strategic acquisitions.

• Question from Alex Vigil (Texas Capital): Whether additional phases are competitively bid and competition increase.
  Response: Future phases are typically negotiated with customers unless scope changes; competition is generally local and not a major issue on large projects.

• Question from Alex Vigil (Texas Capital): Progress in other end markets like Pharma and Semi.
  Response: Pharma and semiconductor markets remain strong; EV plant in Atlanta started; no delays seen; semiconductor project in New York is ahead of schedule.

• Question from Manish Somalia (Kantor): Impact of political news (e.g., Texas data center bans) on project delays.
  Response: No delays seen on projects due to political bans; Texas is moving forward; potential future supply chain delays possible but not impacting current schedules.

• Question from Manish Somalia (Kantor): Normalized e-infrastructure margins, CEC margin improvement drivers, and storage margins.
  Response: Site development margins in upper 20s; CEC margins around 12%. CEC margin improvement from exiting low-margin segments and larger project mix. Overall margin dilution is due to mix, not business performance.

• Question from Samita Jain (KBank Capital Markets): Whether margin guidance reflects faster-than-anticipated CEC growth.
  Response: Yes, accelerated CEC growth and mix shift are diluting overall margins; individual business margins are improving.

• Question from Adam Collimer (Thompson Davis): Color on e-infrastructure orders and Stone Ridge contribution.
  Response: Record orders driven by CDC winning next phases and Stone Ridge adding $140M combined backlog; reflects strong execution and customer retention.

• Question from Adam Collimer (Thompson Davis): Explanation of potential softer Q3 awards.
  Response: Award timing is lumpy due to customer cycles; strong activity is expected in Q4 and Q1, but Q3 may see fewer awards; not a demand issue.

• Question from Julio Romero (Sidoti and Company): How the upsized revolver relates to M&A priorities.
  Response: Larger revolver provides flexibility for acquisitions to add capacity; Texas and Southeast markets are key focus areas for geographic and electrical capacity expansion.

• Question from Julio Romero (Sidoti and Company): Ranking M&A priorities (geographic, electrical, specialty mechanical).
  Response: Priorities include adding electrical capacity in Texas/Southeast and site development capacity for growing Texas data center market; all areas are considered based on strategic fit.

Contradiction Point 1

Outlook on Future Awards and Bidding Processes

Contradiction on whether future phases are typically negotiated or competitively bid, impacting expectations for future business acquisition and competition.

What were Alex Vigil's key points from Texas Capital during the earnings call? - Alex Vigil (Texas Capital)

2026Q2: Future phases are typically negotiated directly with the customer unless there is an extreme scope change, which would be bid. - Joe Cotillo(CEO)

Are additional phases of work competitively bid or directly negotiated, and is competition increasing for these phases? - Alex (Texas Capital)

2026Q1: In theory, everything is bid, but customers sometimes ask to work on specific projects (negotiated). - Joe Cutillo(CEO)

Contradiction Point 2

Strategic Ranking of M&A Priorities

Contradiction on the primary focus for geographic expansion in M&A, affecting strategic investment and growth direction.

Julio Romero (Sidoti and Company) - Julio Romero (Sidoti and Company)

2026Q2: The focus has shifted significantly. While the Southeast was the initial focus... the Texas market is now seen as the largest and most critical in the next 3 years. - Joe Cotillo(CEO)

How do your M&A priorities rank in terms of geographical expansion, electrical capacity, and specialty mechanical/site development? - Sangita (KeyBanc)

2026Q1: The strategy is to look beyond just electrical to add services driven by customer needs. - Joe Cutillo(CEO)

Contradiction Point 3

CEC Margin Improvement Trajectory

The expected pace and drivers for improving CEC's margins appear inconsistent, affecting financial forecasts and investor confidence in operational performance.

Louie DePalma (William Blair) - Louie DePalma (William Blair)

2026Q2: CEC margins are expected to improve by 300-500 basis points within 12-18 months through portfolio management and moving to larger projects. - Joe Cotillo(CEO)

What is CEC's long-term margin potential, and what explains the significant margin difference between site development and electrical services? - Brent Thielman (Davidson)

20260226-2025 Q4: Margin improvements are expected from a mix shift... Progress is expected in H1 2026, with margin impact in H2. - Joseph Cutillo(CEO)

Contradiction Point 4

Rocky Mountain Business Margin Outlook

Contradiction on whether the Rocky Mountain business's margin is improving or remains a near-term headwind, impacting overall margin forecasts.

Brent Philman (Open Online) - Brent Philman (Open Online)

2026Q2: The mix is the key factor affecting consolidated margins. Growth is constrained by a shortage of electricians and is being addressed... - Joe Cotillo(CEO)

Can you discuss changes in the size, scope, and margins of new work awarded to CEC? - Louie DiPalma (William Blair)

20260226-2025 Q4: The Rocky Mountain operation currently has slightly lower margins due to ramp-up and equipment profile, but will improve. - Joseph Cutillo(CEO)

Contradiction Point 5

Future Pipeline Visibility and Conversion

Contradiction on the certainty and conversion timeline of the high-probability future phase work, affecting demand forecasting and capacity planning.

Louie DePalma (William Blair) - Louie DePalma (William Blair)

2026Q2: The visibility is growing significantly... The metric is intentionally conservative. It does not include: 1) Ongoing projects... 2) Land expansion... 3) Longer durations... - Joe Cotillo(CEO)

Why is the future phase work metric not capturing full pipeline visibility? - Manish Somaiya (Cantor)

20260226-2025 Q4: This work is tied to projects actively worked on today, with work packages released sequentially. It is solid, internal backlog for capacity planning. ...demand visibility extends 3-5 years with no signs of slowing. - Joseph Cutillo(CEO)