Brian Manning - Executive Vice President & Chief Business Development Officer Tom Wright - Chief Financial Officer, Executive Vice President, Chief Accounting Officer, Treasurer Peter MacKenna - President, Chief Executive Officer, Director

Saagar Parikh - KeyBanc Jack Kasprzak - BB&T Cory Mitchell - D.A. Davidson Matthew Paul - Sidoti Bill Nasgovitz - Heartland Funds

Greetings, and welcome to the Sterling Construction Company's Fourth Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference your host, Brian Manning, Executive Vice President and Chief Business Development Officer. Thank you, sir. Please go ahead.

Good morning, and welcome to Sterling Construction's fourth quarter 2013 and year end conference call. I am here today with our President and CEO, Peter MacKenna, and our Executive Vice President and Chief Financial Officer, Tom Wright. I would like to 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 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, which could cause actual results to differ materially from those anticipated. Any such statement should be considered in light of these risks. Predictions that we make at any time may not continue to reflect management's beliefs and we do not undertake to publicly update them. May the road arise to meet you as [blessing] [ph] for Sterling today on St. Patrick's Day, as we expect significantly improved performance in 2014. As of December 31, 2013, there was plenty of work for our hands to do as we enjoy a healthy backlog of $687 million. I will now turn over the call to Tom Wright, our Chief Financial Officer.

Thank you, Brian. I would like to discuss 2013 fourth quarter financial performance. The fourth quarter financial results for Sterling Construction reflect the previously announced charges primarily attributable to three large Texas projects rewarded prior to 2012. Operating results for the fourth quarter are consistent with the last range previously announced. Revenues for the fourth quarter were $125.9 million, which were 20.4% lower than the fourth quarter 2012. The decline in revenues compared to the fourth quarter 2012, was due largely to the write-downs on the three large projects in Texas, already mentioned and also due to the impact of weather issues that negatively impacted these jobs. Additionally, revenues in the fourth quarter of 2012 benefitted from revenue attributable to a large project in Utah, which was substantially completed at that time. Gross margin for 2013 fourth quarter was negative 18.3% of revenue compared to positive 10.3% in the fourth quarter 2012. Fourth quarter gross margin decline was driven by the write-downs on the three large Texas projects mentioned. For the full year 2013, margins were negatively affected by downward revisions on the projects awarded prior to 2012. These pre-2012 projects accounted for 45% of total fourth quarter 2013 revenues. General and administrative expenses in Q4 were 10.9% of revenue compared to 5.8% in the fourth quarter 2012. The increase in G&A expense was due primarily to $2.9 million of one-time expenses in the 2013 fourth quarter attributable to investments made to enhance our management team and cost associated with the evaluation in pursuit of acquisition opportunities. For the full year 2013, G&A was 7.4% of revenue due to one-time cost. In 2014, we expect this figure to revert back to the 6% of revenue range. Operating loss for the quarter was $37 million, compared to operating profit of $7.1 million in the fourth quarter 2012. Net loss attributable to Sterling common shareholders which included $28.2 million non-cash tax valuation allowance was $52.1 million compared to net income of $2.9 million in the fourth quarter 2012. Net loss per share attributable to common shareholders, including this allowance was $3.52 compared to net income per share of $0.01 in the fourth quarter 2012. Also, included in the fourth quarter was the negative impact from the revaluation of the liability to non-controlling interest dollars of $0.40 per share. A new agreement was reached with this partner that will eliminate this entry in the future. Due to the charges in the 2013 fourth quarter, the company was in a three-year cumulative loss position. As a result, we determined it was necessary to recognize $28.2 million tax valuation allowance. This valuation allowance does not impact the company's cash position. As profits are realized in the future, the deferred tax asset could be adjusted upward and we had net operating losses available to offset income that mostly do not expire for 20 years. CapEx for the fourth quarter was $3.6 million and totaled $14.9 million for 2013. This compares to $9.5 million in the fourth quarter of 2012 and $37.4 million for the full year 2012. The decline in capital expenditures reflects the company's efforts to carefully manage capital expenditures and we expect 2014 expenditures to be consistent to 2013 levels. Bookings for the fourth quarter were $119 million and for the full year 2013 were $635 million. Total backlog as of December 31 was $687 million, which is 4.7% higher than the end of 2012 at approximately the same as the September 30, 2013 levels. Approximately 18% or $123 million of our backlog reflects projects awarded prior to 2012, which are scheduled to be substantially completed by the second quarter 2014. Our year end 2013 working capital was $8.7 million. Year end borrowings under our credit facility were $7.8 million, and 2013 year-end tangible net worth was $78 million. Due to the write-downs taken in the fourth quarter 2013, as of December 31, the company was not in compliance with certain covenants of its credit facility that has since successfully negotiated a waiver with its primary lender. I will now turn the call over to our CEO, Peter MacKenna.

Thanks, Tom. Good morning. In these short prepared remarks, I would like to take a few minutes to address some of the issues and trends that we are seeing in our business. Of course, we will be available to answer your specific questions in a couple of minutes. First and foremost, I want you to know how extremely proud I am of men and women at Sterling, especially as we remain focused on providing a safe working environment for our employees during these difficult times. For the year ending on December 31, Sterling and its subsidiaries delivered best-in-class safety performance. For the year Sterling had a loss time injury rate of 0.17, but our best-in-class safety statistic is no substitution to having no accidents. We will be rolling out our Sterling Safe and Sound program during the first quarter and it is designed to take our safety program to the next level. I look forward to telling you about it in more detail in the near future. As Tom described, our fourth quarter financial performance was unacceptable as we continue to be plagued by several large projects in our Texas subsidiary. During the fourth quarter, a series of events, including chronic raw material shortages, subcontractor failures and other operational issues pushed our paving operations into the winter months, the result of which was our work being impacted by some of the harshest winter weather in recent memory. This combined with other less impactful but nonetheless negative items caused us to incur record loss in the quarter. While we were dealing with these issues throughout the fall 2013, the full impact, including impact of the harsh winter weather did not become clear until January. We continue to be encouraged by our level of order bookings and the margins associated with our new projects. As Tom described, at the end of December, our year-to-date low bid-to-bill ratio was 1.14 to 1. As Tom also said, our backlog at the end of the year was $687 million, but I want to mention that does not include more than $123 million worth of work pending contract execution. We have been effectively implementing our strategies to pursue alternative delivery projects and achieve better collaboration between our business units. A good example of this is the $80 million contract awarded in January to Myers and J. Banicki Construction for work at LAX Airport. Just last week we announced the successful $52 million [effort] [ph] between Myers & Sons and Ralph Wadsworth on a project in Mariposa County, California. Following my comments, Brian Manning, our Chief Development Officer will briefly discuss our marketplace and the opportunities we are tracking. Looking forward to 2014, we expect revenues to be higher than 2013, but more importantly the loss making pre-2012 projects will be completed. At the end of the first quarter 2014, the loss making projects in aggregate will be 96% complete. We also anticipate the favorable booking trend to continue both in terms of revenue and gross margin. As Tom noted earlier we expect our capital expenditures to be consistent with 2013, as we continue to believe that our [current fleet are ventured] [ph] by leased assets as appropriate will give us more than adequate capacity to support our operations in 2014 and beyond. And I want to say we are off to a strong start. As of the end of January, budgets and project performance were tracking as we expected. At the end of February, we have been low bidder on approximately $139 million worth of new work. Our IT investments are beginning to pay dividends as we continue to roll out controls for use both at the tendering stage for projects and also for enhanced project execution. We believe that our Texas subsidiary and all of Sterling has turned the corner from the last three very difficult years. I will now turn the call over to Brian Manning. Brian?

Thank you, Peter. According to American General Contractors Association, the overall industry had seen total construction spending in January experienced the steepest year-over-year increase since 2006, despite adverse weather conditions. Most of this growth was attributed to homebuilding, a leading indicator for the heavy civil construction industry. The federal highway bill, the MAP-21 will expire on October 1, 2014. The expected series of continuing resolutions for the bill, with similar funding levels until the new one is approved by Congress and signed by the President. President Barack Obama's budget proposal for fiscal year 2015, allocates $302 billion for transportation projects over the next four years. The highway trucks fund, the source of approximately 52% of all highway funds is almost insolvent and the lack of for the projects may be realized as early as the summer. Sterling's backlog is more diversified than ever, which is in line with our strategies and objectives to position our business for future infrastructure spending and is currently away from traditionally [funded] work. One example where we had had recent success is in modern infrastructure. This infrastructure relies on user fees for funding, and each year over 5,000 miles of waterlines are replaced with the biggest opportunities for water infrastructure growth being in the south and west. Today, our backlog has the highest dollar a month of water infrastructure projects and privately funded projects than in the past five years. Peter to mentioned, our coordinated subsidiary JVs. As of 2014, we have a unified customer relationship management system, where we sharing information about customers and potential projects across all subsidiaries. Today, within this system, we are tracking and pursuing over $9.5 billion in opportunity and bid builds in alternative delivery projects. Now, we welcome your questions.

Thank you. We will now be conducting a question and answer session. (Operator Instructions). Our first question comes from the line of Saagar Parikh with KeyBanc. Please proceed with your question. Saagar Parikh - KeyBanc: Hi. Good morning.

Good morning Saagar. Saagar Parikh - KeyBanc: First question on your backlog numbers you provided in the press release. Just looking at it this quarter versus the prior quarter, it seems like your gross margin profile for the work that was booked in 2013 has decreased going from 8.3% last quarter to 7.3% this quarter. So can you just give us some color on maybe what's happening with pricing in the market and/or - and did you guys book a project that was at lower margin and the reasons why?

Saagar, it's Peter. The project mix is changing around a little bit and some of the higher margin work in the prior quarter revolves around some of the water work that Brian talked about, but also we have been pursuing some alternative delivery projects in particular, projects that are referred to as CMAR, which is Construction Manager at Risk and also CMGC, which is Construction Manager General Contractor. They have different risk profiles and different margins associated with them. They also allow for certain amount of negotiated work in addition to the margin that we close when we book it, so I wouldn't read too much into that dropping down a little bit. I think initially they come in a little lower and then they wind up having a fair amount of negotiated work following on, but I think that's probably the best explanation that I’d go for. Saagar Parikh - KeyBanc: Okay. Thank you. Then another question on backlog real quick, looking at your pre-2012 backlogs that you guys announced last quarter to your pre-2012 backlog that you announced this quarter in the both the press releases. Seems like the number was flat to even slightly up a little bit this quarter? Could you just give us color on what's going on there then what's the confidence that that pre-2012 backlog will start to decrease substantially over the next six months?

Saagar, this is Tom. When we took our charges and adjusted the revenue on these jobs, resulting and pushing out some of the work into 2014, so that's why you saw the backlog associated with these projects is actually a little bit higher than it was at the end of last quarter. As far as the confidence that they will actually be done and Peter mentioned this in his comments that will be 96% complete by second quarter and we have jobs schedules to support, so we will be substantially complete on all those pre-2012 jobs by the end of the second quarter.

Matter of fact, one of them will be finished substantially complete within the next few weeks , so that they are burning off, but whenever you take these big charges, you wind up having earned revenue sort of reversal on them. Saagar Parikh - KeyBanc: Okay. Perfect. Thank you for the color. Last question on my end, you mentioned the uptick in the fourth quarter, because of higher G&A expenses, specifically mentioning management team enhancements. Can you just give us additional clarity on what may be you exit in the fourth quarter and what specifically you added? Thank you.

We are adding new positions within the Texas Sterling group to enhance the controls within that business. That business has been the source of the write-off that we had taken, so we have identified some new position that are needed to enhance the controls, so we make sure that we never get in this situation again.

Saagar, so you know there is now a dedicated project control function within Texas Sterling that has some very high profile and very competent people within it. Of course, the object here is to make sure this never happens again, but more important they make sure that information is getting back to the people that can effect change when projects encounter challenges. Saagar Parikh - KeyBanc: All right. Perfect. Thank you very much.

Thank you. Our next question comes from the line of Jack Kasprzak with BB&T. Please proceed with your question. Jack Kasprzak - BB&T: Thanks. Good morning, everyone. The waiver that you got from your lending group, does that occur within the last day or two. Just wondered why if it was a different timeframe than your earnings release why you wouldn’t have put out a separate press release or was it just kind of concurrent with today?

It happened [Friday] [ph]. Jack Kasprzak - BB&T: Okay. Jumping on sort of last question, but we have had several quarters in a row, where we thought worst was behind us in terms of the Texas projects. You have been investing in the high teen over site and supervision functions as well along the way. What’s sort of the confidence level that we really are toward the end of these problem projects just given the elongation of them over the last year. I think, people are probably rightly skeptical that the end may not be as close as you think it is even now.

That's a fair question, Jack, and I certainly understand it. We have deployed a lot of resources from all round the organization to these troubled Texas jobs to make sure that we are deploying every resource this company has to get them done. One of them as I mentioned to Saagar a few minutes ago we’re within a couple of weeks of substantial completion. The second one essentially is substantially complete right now and the last one looks like it will finish up in June or early July. Frankly, I mean, the jobs are just finished. They will be opening traffic shortly, so in terms of how much more can we go, I mean, we are finishing the projects physically, so I don't think we can go much further. Just looking at our backlog split, in 2012 projects, sort of this post-legacy issue, there is about $175 million worth of backlog and that's performing in roughly the 7% range, so and it's holding and it's performing as we expected, so I don't know whether that gives you any comfort, but it does for us as we see this as all crap stuff burn-off and see the quality of the stuff behind it and more importantly the post-2012 projects are holding their margins and are being executed as we expected. And our focus on smaller projects now where we have much better visibility while we get these controls in place it's kind of like changing the engines mid-flight, so we focus on smaller jobs until we can get the controls in place to go after big jobs. Jack Kasprzak - BB&T: Okay. That's fair. I mean, with regard to the three projects is there any thought that once that complete, you might be able to recoup or claw back any of the problems, any of the write-downs on those jobs, or it will just be time to move on.

It is certainly something we will be looking at closely. Jack Kasprzak - BB&T: Okay. Some other companies in the construction industry just in the last quarter, earnings season talked about some stability in the number of bidders, maybe even a reduction in the number of bidders versus one or two years ago, that's not necessarily pushing pricing up, but certainly has stabilized pricing. What are you guys seeing in terms of competition for jobs?

I think there were pockets of intense competition out there, particularly, Nevada and Utah as well. Frankly, those are those highly commoditized projects that are no longer the focus of our efforts. We really want to get into things that are more alternative delivery that have more margin potential. It doesn't make a lot of sense to pursue these highly competitive jobs. We think in Phoenix, to the lesser degree, which is why you are seeing Phoenix subsidiary working in California with the California subsidiary and same thing with Utah, working in California as well. Total margins improved. We are not going to chase low margin work. Texas is continuing to be strong. Jack Kasprzak - BB&T: Okay. Thanks very much. That's all I have. Appreciate it.

Thank you. Our next question comes from the line of Cory Mitchell with D.A. Davidson. Please proceed with your question. Cory Mitchell - D.A. Davidson: Hi. Good morning all.

Hey, Corey. Cory Mitchell - D.A. Davidson: Tom, I have a couple of housekeeping questions. Just as far as a model, can you talk a little bit more on seasonality? Not only weather impacts, but also just the progress of the gross margin improvement too. Is it more of a back half event and then also if you could talk about the tax rate we would expect to see this year?

Sure. I think the seasonality of the business has had a summer busy season and then much slower. The gross margins I think has to do with the jobs and just because it's slower - it could be better or worse than the busy season. I am not sure if that's a seasonal trend. On the tax valuation allowance, what's your specific question, Corey? Cory Mitchell - D.A. Davidson: I mean, like are you guys are not going to have to pay taxes this year?

That's right. We had to have $77 million net operating losses that carryout through the next 20 years. Some of that is federal funds day. We have just over $18 million in tax been associated with that, so I would not anticipate that we would pay any taxes for a while. Cory Mitchell - D.A. Davidson: Okay. Good. Thanks. Then with HAD we are staying on transportation expected to double. Have you seen this yet as far as project out for bid and then also if you could give us an indication as far as the capacity you guys have out there, I am really just looking for an indication on how much of that growth Sterling can participate in?

As I mentioned in the past, Hawaii is a very uniquely place and a place that we paid sort of heavy tuition to get into and we were now the second largest paver in Hawaii. The work is coming. The first thing, job is at the airport. Actually, I suppose, we did last week and postponed, I think to the [20th] and that's a $60 million, $70 million project. There is a lot of work there. As I mentioned before, there is really very limited opportunity right now in Nevada and Utah and we have been redeploying those resources to Hawaii to take advantage of that market, so we can certainly take advantage of a fair amount that - Hawaii's most limiting issue is access to labor and the union environment. It is the same union that we have in Nevada and California, which is great. We can deploy people out there, but there is still a local requirement, so I think limiting factor will be how successful we are in recruiting new crews, local crews.

Cory, back to your question about seasonality, we did as the country experience unprecedented weather. Especially in Texas, we had a number of ice days and that certainly had an effect on the overall year, especially towards the end of the year. We experienced more days of ice and snow, especially in Dallas than we have in recent years. Cory Mitchell - D.A. Davidson: Okay. Thanks, Brian.

Thank you. (Operator Instructions) Our next question comes from the line of Matthew Paul with Sidoti. Please go ahead with your question. Matthew Paul - Sidoti: Hi, guys. Thanks for taking my question. In regards to execution, could you address the additional benefit the company plans to realize or has realized in relation to being able to utilize the project management team on a more companywide basis?

Sure. That's two-fold, - three-fold, so there is a [short] component to this as well. We have taken probably the best constructor in our organization and move them to the corporate staff who reports directly to me. We'll redeploy to troubled jobs with the full authority of my office to deploy assets as it sees fit. We currently have about 40 from outside of the Texas operating, in Texas right now, supplementing and enhancing the group here. In addition to that, I mentioned earlier about some of our key investments we have made. We are on the verge of deploying, earned value management tools which tie the schedule into a full research load, so you now have not just the budget and what we have spent, but make that kind of dependent on resources related schedules and really get a full complete picture now the project's health. Because we do have areas of tremendous expertise within the organization, particularly in Utah, and we need to take that and deploy those best practices across the company. We have been successful doing and know while it certainly does not reflect in the numbers in December and they are making very positive impact.

One additional area, Matt, is in estimating where we are working together with the different subsidiaries, their sharing resources back and forth to step up and bid those projects and offer expertise where necessary? Matthew Paul - Sidoti: Great. Thank you. Just one follow-up to that question, if you could provide a little light on the attritional rate within the project management team in the quarter, the year, or maybe how it's compared to historical results?

Not sure if I want to get into those details. I can tell you that our voluntary turnover rate is about 4%, which is pretty strong. We did the fall an engagement survey within our organization and we would be very pleased to see that the workforce is incredibly engaged. The people that are departing the organization are those that we have either asked to depart for ourselves selecting out. I think we have got a very strong, great confident team in place now. It took a while, yet we are very we are very comfortable the folks we have. Matthew Paul - Sidoti: All right. Great, guys. Thanks you.

Thank you. Our next question comes from the line of Bill Nasgovitz with Heartland Funds. Please go ahead with your question. Bill Nasgovitz - Heartland Funds: Yes. Good morning. Thank you. As we move along this turnaround, the end game here in terms of profitability, what are we shooting for? What return on equity do you think is it possible from this business when we are hitting on all cylinders? What are we shooting for? I think in the long run, Bill, we'd like to put together a plan that gets us to the $1 to $1.50 earnings per share range that return on equity question is a little bit more difficult to figure out what's going to split that, but from an operating standpoint, that’s kind of where we think we should be. Bill Nasgovitz - Heartland Funds: Okay. Thank you. Thank you. (Operator Instructions). It seems we have no additional questions at this time. I would like to turn the floor back over to the management for closing the markets.

Thanks, Brenda. It has been a challenging year for Sterling fiscal and that goes without saying, but we are very encouraged that we have rounded the corner and we look towards a much more profitable 2014. Management is excited, the people here who are working here are excited and we are quite confident that we would be able to deliver the results that that this company should be delivering. I look forward to talking to you in May. Thanks.

This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.