James Allen - Senior Vice President and Chief Financial Officer Joe Harper - President and Chief Operating Officer Pat Manning - Chairman and Chief Executive Officer

Craig Bell - SMH Capital Jack Kasprzak - BB&T Capital Markets John Rogers - D. A. Davidson Mark Rogers - Gagnon Securities Richard Wesolowski - Sidoti & Company Jeff (Paggello)

Good day, everyone, and welcome to the Sterling Construction Third Quarter 2008 conference call. At this time, I would like to inform you that this conference call is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Mr. James Allen, Chief Financial Officer. Please go ahead Mr. Allen James Allen - Senior Vice President and Chief Financial Officer: Thank you, Rachel and good morning to each of you. And I would like to welcome you to this Sterling Constructions Company's conference call to discuss our results for the third quarter and the first nine-month of 2008 which we released this morning. I am joined today by Pat Manning, our Chairman and Chief Executive Officer, and Joe Harper, our President and Chief Operating Officer. First I must remind you that this call may include certain statements that fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act of 1995. Any such statements, including our 2008 guidance are subject to risks and uncertainties, including overall economic and market conditions, competitors, customers, and suppliers' actions, weather conditions and other risks identified in our filings with the Securities and Exchange Commission, into the guidance could cause actual results to differ materially from those anticipated. Accordingly, any such statements should be considered in light of these risks. Although we may give guidance about future results, this is only a statement of management’s beliefs at the time the statement is made. Predictions that we make may not continue to reflect the management's beliefs, and we do not undertake to publicly update guidance. Turning to the financial results, I am very pleased to report that the company's results for the third quarter and first nine months of 2008 were much improved over the comparable periods of 2007. Revenues were $306 million in the first nine months of 2008 including a $114 million in the third quarter both record results. This represents a 40% and a 47% increase respectively over the comparable periods in 2007. Gross profit was 32 million in the first nine months of 2008 and 13 million in the third quarter or 10.6% and 11% of revenues for those periods respectively. Operating income was $22 million in the first nine months of 2008 including $9 million in the third quarter. This represents an increase of 68% and 102% respectively over the comparable periods in 2007. Net income was $14.2 million in the first nine months of 2008 including $6 million in the third quarter versus $9.8 million and $3.4 million in the comparable 2007 periods. Diluted earnings per share were $1.04 for the first nine months of 2008 and $0.34 for the third quarter of 2008 as compared with the $0.83 and $0.29 respectively for the first nine months and third quarter of 2007. The respective increases of 25% and 52% for the comparable period after giving effect to the 16% increase in average diluted shares from our public stock offering in December 2007. These results also include those of our Nevada operations which we acquired on October 31, 2007. Net cash provided by operations was $19 million in the first nine months of 2008, versus 15 million for the comparable period of 2007. During the first nine months of this year our principal investments and activities were 17 million of capital expenditures, 17 million purchases of short term securities and 5 million of net reduction in our credit facility. At September 30 2008, we have working capital of 92 million with a current ratio of 2.4 to 1. Including working capitals 80 million of cash, cash equivalents and short term investments, total assets were 297 million, borrowings is under $75 million line of credit or $60 million, and shareholders and equity was $154 million at the quarter end, all of which gives us the resources we acquired for bonding, bidding and executing projects as we go forward. Additional financial and business information maybe found in our third quarter 2008 Form 10-Q which will be filed today with the Securities and Exchange Commission. I would now like to turn the call over to Joe Harper to talk about the operating results in more detail. Joe Harper - President and Chief Operating Officer: On our call last quarter I discussed some negative impacts on the Company resulting from spikes in commodity prices. Let me give you a quick update. The steel supplier who failed to honor their contract with the Company is negotiating with us to reduce prices for our shipments in the past month or so, as well as our shipments yet to be delivered. There are also early discussions making us whole on future orders for our cost overruns under current project. This incident has caused us to step up our diligence efforts with all suppliers and subcontractors, so maybe this will all end on the good side. The situation on our Nevada projects caused by the Sem bankruptcy is not resolved as of today. We are in continuing negotiations with NDOT, including potential design changes. We still believe there will be no material negative results other than delays in the completion of the contracts. With crude oil prices down with $70 per barrel range, the prices we are currently paying for diesel and gasoline have obviously come back down to earth. We have chosen to take a conservative stance with our forward looking estimates and have made no significant changes to estimate a cause for jobs in process since the increases reflected in our second quarter numbers. We will obviously continue to monitor this cause closely. Field operations continue to perform exceptionally well throughout the quarter across all of our markets. As I expect you are aware Houston had to deal with Hurricane Ike and its aftereffects. I am very proud of our management group and superintendents for their exceptional performance in preparing for the storm and organizing our workforce in the job sites n the aftermath. Company losses were limited to minor damage at our shop facility and one truck, all covered by insurance. In spite all the challenges, the scattered workforce, poor communication with no power, very scarce gasoline or diesel et cetera, operations in Houston were back to normal in less than two weeks. And with power out at our headquarters our office staff managed to get payroll run and the subcontractors paid on time. We estimate the short term impact of approximately 10 to 12 million on the revenue line, but the potential opportunities that we are building damage infrastructure are yet to be determined. Everyone is aware of the crisis we are all facing in the financial markets. We've been reassured by Comerica that they and the other members of the syndicate on our credit facility are not having difficulty meeting their commitments, but current stock price valuations make M&A activity very challenging. We are currently in ongoing discussions with several potential target companies. However, our expectations are that closing a deal is unlikely until multiples return to historical norms. With backlog north of 500 million, our resource schedules are booked through the first half of 2009, with a few exceptions in the Houston market. We continue to plan on utilizing some Houston resources in the Dallas area, as we've discussed on previous calls, and we are optimistic that the market will provide opportunities to book new work for those crews who are now showing up as available. Pat? Pat Manning – Chairman and Chief Executive Officer: Thanks, Joe. As Joe just mentioned, we are pleased that we have maintained our backlog at just over $500 million for the second straight quarter. We have continued to pick up new work in the fourth quarter, the largest of which was a $16 million bridge and paving project in Dallas adjacent to our current project for the NTTA on Highway 121. With the nation having suffered a severe financial crisis, we have had no indication from owners that any of our projects would be either postponed or curtailed. Our crews are fully booked through the end of the year and are slightly overbooked going into the first quarter. We believe budgets will tighten on the municipal side and continue to monitor those markets closely. We anticipate that this will be offset by increased spending by TxDOT. We are seeing more competition on the smaller projects, which is putting some pressure on margins. I mentioned last quarter numerous areas of focus that we are exploring potential streams of revenue. We are continuing those and see new ones appearing. The Metropolitan Transit Authority, while still not having awarded a contract on the lightrail, is proceeding with a number of design/build projects for a commuter rail, with estimates in the range of $100 million per each. The city of El Paso, along with the county and TxDOT, are planning on spending $1.7 billion on infrastructure over the next three years. The Corps of Engineers has a $1.5 billion program which is beginning to bid at Fort Bliss. The Harris County Toll Road Authority is moving forward with their plans to add to the system here in Houston, with over $1 billion in new construction. TxDOT continues to move forward with their 2009 budget, in excess of $4 billion. On October 30, the Texas Transportation Commission, by unanimous vote, approved more than $1.8 billion in spending on new construction projects using bonds funded in 2003 under Proposition 14. We are continuing our quest of joint venture partners on the larger design/build projects and are excited about the potential that presents. As we announced last month, we have taken the first small step in the design/build arena, having been awarded a $6 million project for the Corps to design and build a bridge in San Antonio. Design/build projects are in the early stages in the Rio Grande Valley, and we have two structure crews beginning work in McAllen on a levy improvement project. The city of Galveston has applied to FEMA for a $2 billion grant for repair work related to Hurricane Ike. A portion of that work will be dedicated to the infrastructure rebuild. A billion-dollar-plus program design/build is proceeding on Highway 161 north of Dallas for 2009. We are optimistic about our future. As we close out this record year, we are confident that our management team can continue to meet the challenges that this economy brings us. With their commitment and what we see as a reasonable market, we will continue to deliver and to meet our goals. We thank all of them, as well as our employees, for their continued hard work and dedication. I might add one other point about the economy in Houston, as well as Texas as a whole. For instance, the average price of a single-family home in Houston rose 4.4% in September to $211,660, the highest level ever for a September, and inventory was at 6.4 months as compared with 6.3 months in September 2007. Job creation from August '07 to August '08 was 250,000. The economy here remains strong and steady. On a lighter note, I paid regular this morning. That doesn't hurt! Now I will turn the call back over to James Allen. James Allen – Senior Vice President and Chief Financial Officer: Thank you. I want to welcome Jack Kasprzak, Managing Director BB&T Capital Markets to our conference call. BB&T has recently commenced coverage of our company and Jack's first report on the Company was a very comprehensive one. Now Joe, Pat, I will be happy to answer any of your questions.

(Operator Instructions) Your first question comes from the line of Richard Wesolowski of Sidoti & Company.

Thanks, good morning.

Good morning Rich.

Do you guys, have any even rough estimates about how much of your backlog is now from TxDOT, from NDOT and from Texas municipal work?

If we include the tollroad activity which is highway work, virtually the same as TxDOT, it's a little over two-thirds.

Two-thirds TxDOT?

Right.

Okay.

I would say two third highway and that were we are in count slow move operations.

Right. And the highway work can you're not seeing a lot more competition on. I suspect those are the bigger jobs. But you are seeing more competition for smaller and municipal?

Yeah. That’s correct.

Okay. Good news on the $1 billion Proposition funding that you mentioned, but there was also a $5 billion measure that the legislature was set to consider in January. Is that still the case?

Yes. Consider it is -- the legislature begins in January of '09 and they are still considering that.

We have seen early estimates, Rich, of 2010 and '11 numbers that do include sales from that bond referendum passing.

Whose estimates are those? Is that a private company or is that the government?

That’s TxDOT and in appeared be $5 billion for those two year including net 5 billion of bunch. The more important on the public private partnership expires on 2009 some mistaken to the current environment includes some of those chance going forward that can be possibility.

I don’t -- I am not sure where we have the clear insight to where to that, Rich, I mean, the tollroad authority in Dallas recently sold just short of 0.5 billion of bond for pricing lend from 6% versus 5 and 58 on the other most recent issuance of bonds. So obviously there is a cost impact that the market is acceptable pretty regularly. We haven't seen or heard of a municipal sale being cancel down here which I have not saw, I think as I am clear, obviously it’s a lot more difficult.

Okay. And then finally you discuss the s strategy of hedging fuel cost and as discussed previously locking in forward to your prices a little bit larger and larger tail jobs?

Yeah, on fuel we haven't taken any action there. We have the authority to do that amongst through this year in this call and we are watching on these markets, we are not here to bring in fuel to this s day. And steel, we have been getting pricing on for the last six months or so, maybe a little bit longer good for contract deletion most of bond being accorded with the escalator as we go out cash the nine months or years. So we are pretty comfortable that we don’t to be hedging on the steel side we have two good sounds supplier in all of our markets and we are comfortable with steel right now.

So, as you mentioned in the second quarter you had some project write-downs due to commodity cost escalation, but you haven’t changed the estimates as of know, so that means that over the course of next couple of quarter that money could come back on the income statement?

Yes. It could Rich.

Right thanks.

Your next question comes from the line of Craig Bell with SMH Capital.

Hi guys.

Good morning.

Good morning.

Joe you talked about some of the impacts from the commodity cost on second quarter earlier, just wondering that one of the other items you mentioned in the second quarter call was some operational issues in the Dallas market, did they get resolved during the quarter as you would expected?

Well, realize that call was like in August or so, yes, I mean to say that we have resolved Dallas transaction most of the issues out there, we still have some impact on the third, but we think we have got in our control right now.

Okay. And then with regards to some bankruptcy and the delay there, if you would -- last time you said it was about $25 million that was going to be pushed out, is that amount reflected in your backlog or is that separated out?

No, we are continuing to work on the project and it is still in backlog.

Okay.

I mean, I am not sure how the whole thing is going to settle out, but I believe we will have answers and we are moving forward with full stream within the next 30 days or so. So there is no reason to be pulling it from backlog.

Right. So that means you are pretty optimistic that you are going to have a resolution with NDOT in the near future then?

Yeah, we are I should say, I believe that the way it is just waiting for all over prices as it pertains to asphalt oil to come back down to earth.

Okay. And then lastly, if we look at your backlog here in north of 500 million and as you look -- how much of that doing you think is going to burn off in 2009, should that be about an 80% rate, do you think for the year or maybe looking at it for the next 12 months rather than '09?

We will likely going to be putting our guidance out certainly before the holidays, Craig and I would rather not, if we tell you that number then you zero in on the revenue line, we have been -- we got advice we shouldn’t be doing that.

I would say certainly a force that will got onto that one.

Okay. And then just real quickly, what about your CapEx expectations for Q4?

Though we are down from the rate that we have been incurring them for the rest of the year, less than a couple of million.

Okay, great. Thanks a lot guys.

Your next question comes from the line of the Jack Kasprzak with BB&T Capital Markets.

Thanks. Good morning.

Good morning Jack.

Good morning.

I wanted to ask about G&A expense which was down slightly in the quarter in absolute dollars of course down significantly as a percentage of sales. Could you just talk about what's going on there and when to view good performance on that line?

Well one of the things that we will expect G&A expenses, the timing of we incurred professional fees and we have as you know, a number professionals will be operators and SOX and so forth like that. So part of that is just the timing between the professional fee we incurred. And they hit it from the big quarter like say, if were to the last years third quarter. Otherwise G&A does not vary directly with revenues, so it's sort of a – I don’t look at it so much as percentage, but look at it in more in absolute dollars over the past. Another thing that’s affecting it this year is that we don’t have a much stock option expense as we did last year, and we haven't granted stock options in the last couple of quarters and so we are not amortizing those like we don’t have to amortize any expense like we were at least other than that the hang over from earlier years. Those are the basic reasons. There is nothing else happening in G&A.

Got you. If I just look at it more on a year-to-date run rate?

I think, I would always do that. Any quarter can fluctuate, because of timing of paid expenses.

Yeah.

But look at it on a overall basis, you will be pretty close.

And you mentioned in the press release there was a project that I guess went well helped your margin in the quarter, one of your Texas contractors. Does that contract finished?

It's probably about 95%.

Almost finished. Okay, and I was just going to ask two or more broad sense, you know, there has been a lot of talk recently about stimulus plan out of Congress that might include some infrastructure spending and of course there is a new highway bill, a new federal highway bill due to be reauthorized I guess some time next year. You detailed several spending initiatives just in Texas that seem to be pretty positive and obviously more money is better I guess. From your perspective, what would you – how do you characterize any infrastructure related stimulus, is that something that would just be a more longer-term positive?

No, I believe it will be a short-term positive. They are talking about pumping money quickly into the accounting and the best way to do it is through public works and therefore infrastructure so yeah, we are I guess guardedly optimistic and waiting to see what happens.

Jack, this is Joe. I mean our -- my expectation at least for those was that we are likely to see the money from a stimulus package go straight to have projects really on the shelves, but they didn’t get an immediate impact from. And with the VOT budget having gone from 4 plus billion in ’06 and ’07 pull back to 2.8 last year, 2008 numbers, we are very well aware of projects sitting on the shelf in the Houston district to a large extent and in our other markets as well. So I think we will get an impact pretty quickly after Congress passes that kind of a package.

Great. Thanks a lot.

Your next question comes from line of John Rogers with D. A. Davidson.

Hi. Good morning.

Good morning John.

You talked a little bit about Texas, but I was wondering if you could give us an update on what you are seeing out of Nevada in terms of their spending levels and how that market looks in terms of opportunities especially out in the next couple of quarters?

The sort of broad numbers, John, we’re going to see about 200 million come off of table out there, so 700 plus bound to the 500 range.

Because of budget cutback?

Yes.

Okay.

We are also challenged with having to repay old bond issues that are coming out of the highway funds. It’s going to hit them for both ’09 and 2010 the way it looks right now. But I think likewise, Nevada has a large number of projects and with several projects we have been tracking since pre-acquisition of Road and Highway that are designed and right away is acquired and they are virtually sitting out on shelf. So we are hopeful that we see some activity out there as a result of the stimulus program.

And in terms of branching into California still opportunities go into that market, it looks like there is some more projects coming up in that area from the border?

There is still some projects to complete I-80 through the mountainous region there and there is some on the other highways going north off of 80, they are close enough for us in the region and yes, we are going to be participating in those on a bid basis and looking forward to it as a matter of fact.

And on (inaudible) can you give us a sense of – I mean was it accretive in the quarter?

Yes.

Yeah, okay.

I mean I am very comfortable saying that even with the 20 million coming off of revenue lines, 20 plus, they have exceeded our expectations at purchase time. It is a very accretive deal.

And they have – and there has been upwork for them out into – especially out into – or opportunities for work out into ’09?

We will be busy through ending of third quarter.

Okay.

So we are continuing to monitor closely anything is coming out of there.

Alright. And in your comment on multiples in terms of acquisition, is it your sense of when you said you have to wait for multiples to come back, is it what buyers or sellers willing to accept?

Yeah, that’s pretty much it, John. I mean most of these or all of these are private companies and their expectation is that financial markets be what they are, their companies are still worth they thought they were. And getting a deal done, it was from four times on EBITDA line, this isn’t going to happen.

Okay.

But that’s what we are experiencing in our discussions with them.

Okay, alright. Great, thank you.

Your next question comes from the line of Mark Rogers with Gagnon Securities.

Hi guys. Thank you for taking the question. My question is regarding the hurricane relief and sadly the opportunity presents itself to make a good amount of money building the infrastructure of these coastal communities. So how has the revenue recognition and the project time length look going forward?

Yeah, I think as I mentioned Galveston has applied for a grant from FEMA in excess of $2 billion. They have not yet received that yet, which would be the primary source of any future income. As those jobs come out to bid and let infrastructure repair begins we will obviously bid on them and see what happens.

Revenue recognition, Mark, would be the same as any of our other contracts. I don’t think we will down there on T&M work but that kind of cleanup work is going on now and we are not participating in that. But what we expect to receive our packages of rebuild of infrastructure is in place.

Okay. So if you are to get good amount of work from hopefully this $2 billion grant that gets passed, what would be margin profile of these projects in the hurricane relief area?

I think that would be difficult to tell right now, it still depends on composition and what the projects are and risk evaluation and personnel that we have available to do them. So I couldn’t specifically give a margin idea, but there should be as good or better than any of the margins we are experiencing now.

A lot of that will end up being municipal type work, Jack. So it will depend a lot on how they package them. If these come out in $15 million plus packages, it would be a much more efficiently to do it then we should be very competitive margin should be good.

Great. Thanks a lot guys.

[Operator Instructions]. Your next question comes from the line of Richard Wesolowski with Sidoti & Company.

Thanks. Could you just briefly review the circumstances around the Caltrans job?

Yeah, I don’t want to get into a lot of details, Rich. I mean our bid was – our proposal was deemed to be non-responsive. And there is no definition about in literature coming out of Caltrans. We disagreed with them on that, appealed. They continued – the response was simply that they have not changed their mind, out bid was nonresponsive. They are going to go ahead and proceed with Granite, who was the second bidder. We don’t need to start a war with Caltrans on a single project like this, so we have declined to go any further.

The corollary to the question is basically that doesn’t preclude or impede you from going after other work in the region?

No, I don’t think we made any enemies and I don’t think that there is any sour blood on either side. So yeah, we continue to look at that market as a good opportunity for us.

Okay. And secondly and this is probably treading on the toes of the 2009 guidance, but I look at your profitability gross margins, you mentioned competition going up, diesel prices having effect on the second quarter, there was an incentive here in 3Q but also a minor write-down in Dallas. I mean, to the margins that you are working off approximate the margins implicit on new work?

A lot of the work that we are currently doing have incentive opportunities embedded in them that have tended to keep things up.

Right.

As we know, Florida certainly fewer of those are available where The Dallas district typically does not allow incentives very often.

Nothing out of the historic range reported since to say ’01, ’02?

Say it again Rich?

I am just making sure that the margins out of the historic range at least that you reported over the last five years?

Yeah, we will address that one we talk about – when we issue our guidance. Rich, I am not really prepared to do that at this morning.

Okay, thank you.

Your next question comes from the line of Jeff (Paggello) a shareholder.

Hi. Congratulations on the great quarter. You just entered my question generally on the trans project, but I am still bit of unclear of what it means to be a non-responsive bid number one? And number two; is there anything that you can view in the future since you are worried that happened again?

Nonresponsive is typically a failure to fill out documents correctly, in our experience, so failure to sign someplace where you need to sign or you fail to fill in a unit price and therefore, it didn’t respond everything they asked you and that will be the typical non-responsive disallowance or elimination of a proposal. It negotiate it wasn’t that kind of an item and like I say I think, I think we were correct and I believe we may have had grounds to continue focus what we have chosen out.

Typically it won't happen. Has not happened to us.

I don't think and it’s a new marketplace for us. So they are little high on us they would be normally. I think in the future as Joe mentioned, we are fine to move forward and if we’re a little better we will be awarded the project.

So you don’t foresee it sort of a lack of oversight on local management there.?

No not at all. I just don’t want to get into the why and wherefores of what we did, it has a competitive – it's of a competitive nature. So, yeah, we – they have full in turns of what they did from management.

Okay, thank you very much.

(Operator Instructions). There are no further questions. I will now turn the conference back to management.

We just thank everybody for participating on the call and look forward to next quarter. Thank you all.

Ladies and gentlemen this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.