Lucia Diaz - Executive Assistant Thomas Wright - Executive VP, Chief Financial & Accounting Officer Paul Varello - Chief Executive Officer

Tahira Afzal - KeyBanc John Rogers - D.A. Davidson William Bremer - Maxim Group

Greetings and welcome to the Sterling Construction First Quarter 2015 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. It is now my pleasure to Lucia Diaz, Manager of Corporate and Investor Relations. Thank you, you may begin.

Thank you, Danielle. Good morning. On behalf of Sterling Construction, I welcome you to our first quarter ended March 31, 2015 investors call. I'm joined today with our CEO, Paul Varello; and our CFO, Tom Wright. Today's conference call includes statements to fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act. Such statements are subject to risks and uncertainties, including overall economic and market conditions; competitor and customer actions or weather conditions; and other risks identified in the company's filings with the Securities and Exchange Commission, which could cause actual results to differ materially from those anticipated. Such statements should be considered in light of these risks. Any predictions by the company is only a statement of the management's beliefs at the time the prediction is made, management's beliefs may change over time and the company does not undertake to publicly update those predictions. Now, I turn over the call to Tom Wright, our Chief Financial Officer.

Thank you, Lucy. I would like to discuss our 2015 first quarter financial performance. Revenues for the 2015 first quarter were $117.7 million, which were 12,5% lower than the first quarter of 2014. The decrease in revenues compared to the first quarter of 2014 was primarily due to a downward revision for the estimated [Indiscernible] of certain projects in the first quarter of 2015, particularly in Texas as well as the completion of certain large projects in Texas which were ongoing during the first quarter of 2014. The decrease in project revenue in Texas excluding the downward percent complete revisions related to certain projects in Texas was largely offset by an increase in the number of projects currently under construction in California. Gross loss in the first quarter of $6.8 million represented a gross margin percent of negative 5.8% reflecting downward percent-complete revisions made to certain projects in the first quarter of 2015. These revisions were largely related to construction projects in Texas, primarily as a result of updated labor rates due to the intense competition for craft labor, increased costs due to rework of certain project phases caused by defective material purchased from a supplier, unapproved change orders that after negotiations with our customers during the quarter, are now considered uncollectable, along with unseasonably heavy rainfall in Texas which caused declines in productivity and unanticipated delays. General and administrative expenses in 2015 first quarter were $11.6 million or 9.9% of revenues, compared to $8.5 million, or 6.3% of revenues in the first quarter of 2014. This increase is primarily related to approximately $2.4 million of non-recurring employee severance costs recognized in the first quarter of 2015. The operating loss for 2015’s first quarter was $16.7 million compared to an operating income of $0.4 million in the first quarter of 2014. Net loss attributable to Sterling common stockholders for 2015 first quarter was $17.0 million compared to a net income of $0.2 million in the first quarter of 2014. Net loss per diluted share attributable to Sterling common shareholders for 2015 first quarter was $0.90 compared to a net earnings of $0.01 in the first quarter of 2014. Per share of calculations in the 2015 first quarter included 18.9 million shares. Capital expenditures for the 2015 first quarter were $1.2 million, compared to $2.3 million in the first quarter of 2014. The year-over-year declines reflect efforts to optimize utilization of the existing fleet while supplementing the leased equipment. Capital expenditures for the full year 2015 are expected to be materially lower than 2014 levels. Total backlog was $745 million at March 31, 2015, down 2.5% since December 31, 2014 and down 6.8% from March 31, 2014. Total backlog at March 31, 2015 excluded $58 million of projects where the Company was the apparent low bidder but had not yet been awarded the contract. We estimate that the current average gross margin of our projects in backlog is in the low 6% range. 2015 first quarter working capital totaled $37.1 million including$17.2 million of cash and cash equivalents and we also had $1.2 million available on the company’s credit facility. Trailing [ph] end in the 2015 first quarter had borrowings of $30.8 million under its credit facility and tangible net worth of $69.6 million. The Company is in the process of replacing its existing credit agreement with a new credit facility with less restrictive covenants through a new lender. The new credit facility is expected to be in place by the end of May 2015. If the Company does not replace the existing credit facility with other long-term financing as anticipated, it would likely be in non-compliance with the tangible net worth covenant of its existing agreement, which will be measured based on financial results as of April 30, 2015. I will now turn the call over to our CEO, Paul Varello

Thanks, Tom. While the financial results for Q1 are certainly disappointing we believe that we are now well positioned to consistently deliver positive earnings in the second half of this year and beyond. Tom and his financial team are wrapping up the few remaining items required to replace our existing credit facility in addition our new leadership team in Texas is already starting to make a positive impact on performance in that region. In April, we completed the deep dive of essentially all of the projects and backlog. We pushed hard to finalize this effort so that we could select the results in this quarter’s earnings report. The deep dive focused on estimating the amount of growth and time required to complete more than 120 projects in backlog and appointing our most current cost of labor, equipment, materials and sub contracts, as a result we are now confident that we have accurately determined the percent complete on every project, the work remaining the resulting margin impact and the time required to complete these projects. This effort has been particularly helpful in Texas where we have substantially strengthened our leadership by adding new players in key roles including President of the Texas operation, project managers, project engineers, contract administrators and estimates. As Tom has already mentioned, the total net loss for this quarter was $17 million of that amount $2.4 million was attributable to one time severance cost. Approximately 1.5 million in weather related impacts with the remaining $13.1 million attributable to the adjustments we made for the project completion figures mentioned earlier. These projects were primarily in Texas. While the vast majority of these adjustments impacted Q1 earnings, some will also impact Q2. However, we remain on track to return to profitability in the second half of this year and beyond. While our backlog was reduced by $19 million during the quarter we were a little better on $58 million in new projects which were subsequently awarded during the second quarter. Most significantly that new work was at higher margins than the existing backlog. We believe that this is a direct result of our strategy of being far more selective in bidding projects that hit our capabilities, provide better returns and represent meaningful growth opportunities. As an example our affiliate in California, Myers & Sons was recently awarded the $13.4 million water treatment projects at an accretive margin. We anticipate that there are many similar water projects in the future as state and local governments particularly in the west aggressively address major water shortage concerns. We are well positioned in those states and intend to actively participate in those projects. Our project management and administrative efforts including the rigorous pursuit of change orders and run required claim has also started to show results. To date we have collected more than $850,000 in net claims settlements and we expect to see continued positive results from these efforts for the rest of this year and in the future. Looking ahead, we may anticipate substantial increases in bidding opportunities particularly in Texas, Utah and California and steady improvement in bid margins as both federal and state governments improved much needed infrastructure projects but in the end of 2015 revenue and backlog numbers made decrease but margins and most importantly earnings will increase. That is ultimately our objective. Now we’ll be happy to take your questions.

Thank you. [Operator Instructions] Our first question comes from Tahira Afzal with KeyBanc. Please proceed with your question. Your line is live.

Hi, Paul and Tom.

Hi, Tahira.

Good morning, Tahira.

Paul, first of all would love to get a sense that large Texas project, did it finally complete or did you see some extension in the progress there as well?

The projects are really three in Texas, two up in North Texas and one out in San Antonio. The North Texas project it’s been completed in the first quarter and the one in San Antonio will complete in the second quarter. And so those are or will be behind us probably within the next week or two.

Okay, that’s great. And the $13.5 million outside of the severance and the weather. How much of that is really related to really refreshing your backlog post your due diligence?

Not so much the backlog as we looked at each project that we said, what’s left to do? How much revenue will be taken and more importantly what will the cost be to complete every item of work on each job. It was a monumental job but it was particularly important to Texas because we have a group of new managers and I didn’t want to hear them say, I’ve inherited whatever it is. I wanted them to buy in and where you can get them to do that is to do that is to study every job, know every quantity and tell me exactly what it’s going to take to finish those jobs because I wanted them to be pregnant with it, brought in a responsible for the number that they created as opposed to say, well I just inherited something I did the best I could do. So I would tell you that the effort was really primarily circulated around Texas although we had some adjustments in the other geographic regions, but primarily those were Texas and it was primarily looking at those 61 jobs in Texas including those 3 big ones.

Got it okay Paul. And I’ve got lots of questions but I’ve got to see to the others, I’ll just ask one more and then hop back in the queue. You expect to different like showing profitability in the third quarter, how do you look at the second quarter, should we see anything close to breakeven so that investors feel a little more comfortable and I know you have some overhead issues into the second quarter but would love to get into across on that?

I think that we are directionally certainly heading towards the break even part and now ensure we are about halfway through that quarter and now I could tell you that I feel confident that we are going to quite be there, but we are going to be very close and heck of a lot closer than we worry Q1 obviously but directionally we are moving exactly where I want to be, I just, I think it’s a little optimistic to think we’ll be at breakeven in future.

Got it. Thanks very much Paul and I’ll hop back in the queue.

Thank you.

And our next question is from John Rogers with D.A. Davidson.

Hi, Good morning.

Good morning, John.

Couple of things, first of all the one operating seen in the quarter I know there was some sale of equipment I saw in the Q [ph] about a $8000 gain I think, but the $1.76 that you are showing for other, what was that?

I have to dig up which line you are looking at, John.

Sorry, that’s below the SG&A line.

Yes that’s I think that has to do with a basically a loss in the quarter with a prior round RHPs [ph] eliminate a lots of shares to have a profit there, that’s usually the other way for us because that units is profitable but they had one job that they had to take some issues on in Q1 and that’s behind us and we don’t see any other issues with that, but when you eliminate half of the loss you get a profit in that line.

Okay, all right, so mostly related to RHP [ph] and the gain on the sale of equipment.

That’s right.

Okay. And then I guess Paul in terms of your backlog you noted that margins in that being low 6% range, you would certainly be consistently profitable at that level?

No, we’ve got a – if you think about the fad [ph] on the SG&A even the 5.5% you are not making enough money it’s a hobby not a profitable business. And so we have to move that marginally backlog up a couple of point minimum and then we need to start executing in a way that we get another two of that three or more points at administering the projects like including change order or claims but running the jobs right. When you do it has a gigantic effect on profitability. So you don’t need to go completely nuts to get there, but you need it to be better than 6% or it’s just a hobby.

And the new work that you are getting, I don’t want to ask on specific projects but are the margins moving up?

Yes, yes and almost the problem is we don’t have enough evidence to say we have a definite or positive but boy they are moving up in a meaningful way and I am thrilled with that, I still think it’s because we are being far more selective in what we bid our batting average is far better because we are passing on many more projects, but the ones we are getting are at much better margins and that will all have such an impact on this backlog but don’t forget these real losers are going to be finished and so they have got away and terrible backlogs and what comes back on is nice work and good backlogs and that moves that backlog average, it takes a while but it moves it up in the direction you want to be. So, yes although I caveated by saying it’s a bit early there to say that that’s going to be the pattern for us for the year but I’m certainly encouraged.

Okay and in terms of bid opportunities, I mean some of the reports that I’ve seen now is that particularly out of Texas that also California now broadly suggest that bidding activity or bidding opportunities for civil contractors have increased. Are you seeing that?

Absolutely. In fact in the next four months we are looking at 80 jobs that fit in Texas that fit in our sweet spot you can’t do them all, so we are being firmly selective. But absolutely we are seeing that. And on top of that California has been growing and the water projects will kick away or starting to really take over but also road and bridges are important out there and Utah [Indiscernible] has the transportation fuel packs of $0.05 a gallon in Utah so they too are funded up to start putting some more infrastructure in roads and bridges particularly in and we’re encouraged by all of those things.

Okay, that’s good to hear. And then just in terms of your new financing that you got in place or moving towards getting in place I guess, it looks like you be in violation as of the end of April and the financing closes at the end or what mid May, but I’m just want to understand, will there be…Tom.

That will be based on April results, we haven’t closed April yet. So we shift 30 days after the end of the month to report to Comerica so it will actually be the end of May that we would be a lot in violation of that covenant that we anticipate having the new financing in place before then.

Okay. So if you have the new financing in place are there any additional costs, because I was looking at I think it was a $75 million network hurdle.

That’s all cost for the new financing…

But -- so I mean under the old finance there are additional fees that you have to pay at that point if you are out of compliance at the end of May and the new finance…

If we know if for some reason the new financing would fall apart we would have to go back to the existing vendors and negotiate a waiver because we’ll be out of compliance, but we anticipate that the new financing will be in place and we won’t do that.

Okay. All right. Just want to make sure on that. Great. Thank you.

Our next question comes from Tahira Afzal with KeyBanc.

Thank you. So, Paul as a follow-up and Tom this might fall into your today in as well, the $0.85 million you’ve collected and its mean, how much is it as a percentage of what you think it collectable over the next let’s say, year or two?

Tahira, I think the order of magnitude is closer to $7 million to $8 million collective over the next two years, some of that this year. You have to sort of go through a process, so you can’t get it all in one year, but I think the order of magnitude of that is probably $7 million or $8 million.

Okay. And Paul you said, something in our prepared commentary about your team is now tracking well versus the reset benchmark, so we would love to get a sense from you on any color around that even if it’s been a few weeks?

It’s too early to make a lot of statement about trends, but we were in fact that seems to be more conscious that we work. Thanks for dive effort, it was giving me comfort that when the road ahead of you, where you got to go. It’s a lot easier to anticipate that people will get here because they can finally figure it out. I’m not sure fairly I could say that consistently up until now, but I feel very good about the early returns, because when I drill down and ask a project manager now, how he’s got left and in what quantity. He’s able to tell me and that sort of more consistently possible.

Got it. And then if I were to go back to your backlog margins, that commentaries in that Paul, even though you do have some sort of project provision which means you do have some maybe zero margin type of project going to your backlog. So is that just thing offset by really even new backlog you spoke in the margins within that which are higher or are you also sort of ratcheting cost down little more than you talk to really offset that?

No. I think first of all a slide down, it decreased slightly as a result of our efforts on the big guide, so we could expect that to happen. The improvement, the $58 million which were awarded, but I’m sorry, won but not awarded until second quarter. Their returns which are good don’t show themselves until the second quarter and so we don’t see that much of an impact -- we have no impact on the Q1 backlog market. But in Q2 it starts impacting it and if we keep on hitting good profitable work as we by the way continue to do I think we’ll see more of those improvements in the subsequent quarters.

Got it. Okay. And am I pushing my luck by asking what type of margin range you’re looking for, for that $58 million. Are we sort of in to mid 6% range, maybe a little beyond that?

You are pushing your luck. But having said that, if you earn mid 6% range, it still makes you just a bit better than a hobby, we have to move up more than that in order to start making this business really attractive. And I think we’ll get there. I just think it’s remarkable. We start doing the modeling about what 1% that’s due in their backlog if you deliberate and certainly 2% or 3% what it does to you and that’s where we’re going. But it’s not 10% or 15%, it’s a couple of 20% that we are looking for between better bidding quality, margins and also budget institution.

If you were to place a hunch for all on which quarter we see that in and I know it’s just a hunch or can we see it within this year a quarter with those back of margin or is it something that we work towards into the early part of the next fiscal year?

I think we have to see the margin increase in the backlog for the next three quarters. Even if we’ve recorded another disappoint in Q2 that margin will have to move up. And I think just doing the math I know it will not be. The question now is how much we’ll move up, how much we’ll see. I would tell that by the end of the year our backlog which maybe slightly lower, we’ll have a richer margins in it.

Got it. And then, one last question along those lines. When we met and we saw often based on your last calls, to some John said, the discovery you’ve seen to the second half maybe that games could, all of that its really the last that we see in the first half of this year, is that still true or is the backlog sort of basically the exercise you’ve done to really reset the profitability benchmark in the first half, is that been a little bit pronounced than you thought?

It’s a little more pronounced than I think said it different way, you got yourself a good hold in Q1, can you point that a bit in the balance of the year. And I’d say, that would be a challenge. But today, what I hope investors see what I certainly see is by year-end you see profitability coming out of the company in the remaining part of the second half of the year and you see an improve margin in the backlog and to me you start getting very comfortable with this company has got a very good 2016 starting and that’s really what I’m going with this.

Got it. Okay. And I guess last question is really on your – as sort of opportunities in California fall, can you talk a bit about the water infrastructure in terms of competitive landscape and are you pretty well positioned there? Is a competitive dynamic improving?

The water project inevitable will continue to rollout and do substantial in terms of numbers and quantity. We’re building credentials in the water area. I can’t tell you we are anywhere near the number one performer in that area, but we’ll see the market come in –it’s in the built credentials. What I found interest in is only initial jobs this first jobs we’re winning in that area We didn’t have that win credentials by thinking that as a ridiculously low margins. We got very margins and still on the work. So -- and it’s not as much competition and there will be I think as others see that. So I think it’s nice to think that that will continue. But we’re building credentials on these projects and I think that the margins are considerably better as they are in some of our other strategy objective such as railroad, some more complex projects that we’ve got through the country coming on where we got some value add and we can really bring something to it at a better margin.

All right. Thank you. And I’m halt back in the queue.

Our next question comes from William Bremer with Maxim Group.

Good morning, Paul. Good morning, Tom.

Good morning

Good morning.

Just wondering a sense in terms of your project, the percentage roundabout way letting us know the breakout between public versus private project. And then secondly on the underlying project are you seeing more fix price or more lump-sum at this point? What’s really to be going into backlog?

Tom, I’ll handle that. While most of our project are public project and in the way the pricing typically works as if it fixed price per unit and it just not a lump-sum fixed prices per unit.

Okay. Great. And then, any particular investments now that you’ve got a good sense fall of your capacity and the targeted investments going forward with the CapEx -- Investment meeting on the CapEx strategy?

Yes. I think – first of all, I think we’ll go to wonder what in terms of this new platform, I’m not going to grow nuts on the CapEx, but I think we want to continue to have a very tight control over the CapEx and the live share of that is in the equipment. We will certainly upgrading and continue to replace equipment then it will be replaced, but so much equipment these days is available on a lease basis as opposed to having to own it that we’re looking very hard if we can handle that, that best optimize that equipment operation. My guess is the CapEx this will continue to run short of what we had budgeted, what we had certainly had in way of expenditures last year which was about what 60.

60

$60 million and I think we’re well under that for this year.

Okay. Great. Gentlemen. Thank you.

Our next question comes from Tahira Afzal with KeyBanc.

Sorry folks I’m back.

Hi, Tahira.

I just had a couple of more questions. When you looked at labor cost and Paul we talked about this on the call last time, you did see some loosening happening with the sort of decline on the shale side. I know you’ve increase your labor productivity costs in our recent due-diligence, but are you see there being some upside to that based on the availability you’re seeing. And the second question is around fuel savings, how much does that help you so far and what do you think benefit could be going forward?

On the labor, we have updated all of our estimates to complete based on the actual true labor rate and more importantly the true labor productivity numbers. And so, I would tell you that the numbers have got good quality and good strength to measure as of now. Our labor costs are pretty stable. Right now, the shale price slow down has allowed more people to come back in the market. Not exactly the same skill set entirely that we need there is not many [Indiscernible] types that ran up there to do it, but truck drivers and other skills is some of lease we’re seeing come back. I’d tell you that labor rates and availability of labor is still an issue because the Texas market is pretty hot, it kind of lot of building going on as well as infrastructure just remains a fairly robust construction industry and the people who draw from also putting in parking horizon and high-rise buildings, inflation [ph] concrete and lot of industry plans and so there is always that competition. But I’d tell you that we have a good handle on the labor rates and we know where we’re going with that. I’d call it stable but I’d also say its continuing to increase as availability becomes the challenge. Fuel cost, last time we spoke we thought we’ve about $4 million year savings and I think that that’s very much still the case. Fuel price particularly have stayed stable in the low and we see that being the case through the balance of this year. We’ve essentially cut up from the hedging program we had when the prices were in the other direction. Today we don’t need to spend the money in the hedging program, it’s just about run out and will be run out in the next quarter or so.

Next few quarters.

Next few quarters. So we’re feeling good about the fuel savings this year over what was in the estimate that was the net positive. But like the numbers were about a wash, but the amount of work we needing was the negative draw. We had more – we hadn’t progress as low as we could have, there was more work to finish themselves.

Okay. And if I was to think about G&A, I know you guys have said it’s a 5.5% type of run rate. I mean, I guess part of that depends on your revenue fall essentially, so can you give an idea of what that revenue run rate is under which we see 5.5%, so maybe I’m asking too much about guidance of a sense?

No, no, no. I think it’s a fair question. First of all, direction certainly run rate from G&A when we pull out the termination costs, that termination costs which were huge in the first quarter, $2.4 million. We continue to tighten down pretty hard on G&A spending and that would be the case for our long time here. I think we’ve got to continue to control it, but you can’t make all your money by simply cutting down G&A. We probably got a couple of $3 million a year out of G&A run rate when pulls out the effect of the one-time impact. Obviously if we don’t have degradation and much of a degradation in our revenue number, which we think would be 6.50, 6.30 6 to 7 probably a million. I’ll give you a big range, our 5.5% topic that is still probably very good, but when you normalize out, but one time effects we had in the first quarter.

Got it. And Paul, I think it’s commendable towards profitable outlook on your revenue for this year and shrink a base that would be, but the trade next year should be been some growth at least next year just kind of a stable outlook because you’re being more selective?

I think 2016 is going to be a great year, the reason I saying I signed up a three years worth of a contract on the [Indiscernible] year contract is that I never thought 2015 was going to be a cake walk, but I’m confident that all the moves are lined up here 2016, 2017 are going to be strong years for us, because just the macro case costly the stronger organization should led us exactly where we want to go. And that’s really the messaging I’ve got for our investors on this call. We are really position ourselves for some good growth in the second half of the year and particularly in the 2016 and beyond.

Thank you so much for your patients.

Thank you, Tahira.

Our next question comes from John Rogers from D.A. Davidson.

Hi. Thanks. Just one follow-up from me. In terms of the revenue in the quarter, you talked about I guess re-estimating where you were on projects and moving some of the revenue recognition round. Can you give us a better sense of how much revenue came out of the quarter as a result of percentages of completion estimate revision in I guess moving it into different periods?

Revenue in the quarter $12 million less than it would have been without been exercise.

Sorry, Tom, it was $12 million less…

Less than it would have been without that exercise. I think it’s in the queue as well, John.

Okay. I’m sure.

It’s a $12 million reduction.

Okay, great. Thank you.

At this time, I’d like to turn the floor back over to Paul Varello for closing comments.

Thanks, Danielle. We would like to encourage anyone with follow-on questions to contact our Investor Relations team from the equity group. Their contact information is on the bottom of our press release. They will be able to schedule a follow-up call with us to address any questions that you might have. I'd like to thank you for joining us on this call. We look forward to reporting to you in the future on our progress. Thanks very much.

This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.