Sterling Infrastructure Inc (STRL) 2021 Q3 法說會逐字稿

Greetings. Welcome to Sterling Construction Company's Third Quarter 2021 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded (Operator Instructions). There are accompanying slides on the Investor Relations section of the company's website.

Before turning the call over to Joe Cutillo, Sterling's Chief Executive Officer, I will read the safe harbor statement. Some discussions made today may include forward-looking statements. Actual results could differ materially from the statements made today. Please refer to Sterling's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events or otherwise.

Please also note that management may reference EBITDA, adjusted EBITDA, adjusted net income or adjusted earnings per share on this call, which are all financial measures not recognized under U.S. GAAP. As required by the SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued yesterday.

I would like to now turn the call over to Mr. Joe Cutillo. Thank you, sir. Please go ahead.

Thanks, Sherry. Good morning, everyone, and welcome to Sterling's Third Quarter 2021 Earnings Call. The third quarter marked the 15th quarter of period-over-period earnings improvements since 2017, and the sixth time during that same period that we have raised our annual guidance. This consistent level of exceptional performance is a tribute to the strength of our strategy and the culture of our people. Their entrepreneurial spirit, coupled with their ability to address challenges head on, is what enables us to continue to deliver strong results in challenging times.

Before we get into the quarterly results, I'd like to spend a little time talking about our end markets in each sector. Our specialty service sector continues to see very strong activity throughout the East in data and e-commerce distribution centers, or what we call e-infrastructure. During the quarter, we booked over $150 million of new business. In addition to our core customers, our geographic expansion has opened up opportunities to new e-retailers, building out their distribution networks. To date, we have not seen any slowdown in new project activity and do not anticipate any change as we go into 2022.

Our residential sector continues to see strong double-digit growth in both the Texas and Arizona markets. We poured over 1,000 slabs in the month of July and set a record for slabs poured in a quarter. Demand of first-time homebuyers remains very strong, and inventory remains very low. We anticipate this demand will continue into 2022.

Bid activity for our heavy civil sector remains softer than normal as the DOTs and airports awaited decision on the next infrastructure bill. Regardless of the outcome of the infrastructure bill, we believe bid activity will pick up in early 2022, driven by billions of dollars of stimulus money sitting at the state level allocated to infrastructure.

On the supply chain front, we continue to see significant challenges with material availability and inflation in all our sectors and all our geographies. This inflation and availability has gone beyond the normal big ticket items like steel, lumber and fuel and is now impacting almost every item we use. We currently do not see any relief in sight and anticipate these challenges will continue through the first half of 2022. We will continue to work diligently to find ways to pass these increases on or offset them in other ways.

Now let's talk about our results for the quarter. The first and most important result for us is keeping our people safe and ensuring they go home every evening to their families. Coming into the quarter, we had not had a lost time incident in 2021. Unfortunately, after going over 5 million hours without a lost time incident, we had one in the third quarter. This incident was a strong reminder that no matter how hard we work at keeping everyone safe, we have to continue to do more. Being 10x better than the industry average is not good enough when it comes to safety, and we will never stop making our workplace safer every day.

On the financial front versus prior year, our revenue increased 21%, and our gross profit increased 16%. We saw our gross margins decline to 12.5%, driven by material inflation and negative productivity associated with supply chain delays. Our operating income increased 11.5%, and our earnings per share increased 33% to $0.72 per share. The driver behind our operating income increasing when our gross margin decreased is just one example of the things we are doing in addition to passing on price to offset the negative impacts of inflation and deliver improved bottom line results.

Our backlog finished the quarter at $1.411 billion, and our margin in backlog is 12.3%. We continue to generate record cash flow from operations and as a result, have generated $135 million year-to-date. In our heavy civil sector, we saw our revenues grow 24%. But more importantly, our operating income almost tripled versus Q3 prior year. This strong income improvement is driven by the continued shift away from low-bid heavy highway work to aviation and alternative delivery highway projects.

Our specialty service sector and residential sector were the areas most impacted by inflation and supply chain delays. On the residential front, we're able to offset our year-over-year margin decline by producing a record number of slabs in the quarter. For the quarter, our residential revenue was up 54% versus prior year, and our operating income was up 29%. We continue to work hard to pass on increases but still have a 40-plus day delay in doing so.

On the specialty service side, we saw revenues increase 6% year-over-year in the quarter. But this increase was not large enough to offset the material inflation and negative productivity we're seeing associated with material delays.

To help put some perspective around some of these increases and delays we are seeing, let me talk about a couple of simple examples. We use approximately 300,000 gallons of diesel fuel a month in this sector. With the recent increases, we saw close to a $1.5 million negative impact in the third quarter alone. Our standard PVC water pipe is normally priced at the beginning of a job and delivered the same week that you need it.

Today, it's taking up to 6 months to get, and pricing is determined on the day that it ships. Our current prices are up over 100% on these products. Our hope is that these unprecedented increases begin to taper by mid-2022 and begin to follow similar trends to what we've seen in lumber.

Even with all these challenges, our great third quarter and year-to-date results are enabling us to increase our full year guidance range as follows: Revenues will be between $1.51 billion and $1.52 billion, and our net income will be between $61 million and $64 million.

With that, I'd like to turn it over to Ron to give you more details on the quarter and the full year. Ron?

Thanks, Joe, and good morning, everyone. I'm pleased to provide a summary of our strong third quarter 2021 results. Today's conference call, together with our earnings release, Form 10-Q and the investor deck posted to our website, should provide insight into our strategic progress in delivering strong earnings and cash flow.

Now let me take you through our financial highlights for the third quarter. At September 30, 2021, our backlog totaled $1.411 billion, a 20% increase over the beginning of 2021. The backlog increase was evenly split with 50% of the growth attributable to both heavy civil and specialty services. The gross margin in our third quarter backlog was 12.3% compared to 12% at the beginning of the year. This higher backlog gross margin primarily reflects an increase in specialty services backlog, which generally has higher margin characteristics, higher than heavy civil projects. Unsigned low-bid awards totaled $115 million at the end of September 2021.

We finished the third quarter with combined backlog of $1.530 billion, essentially the same as at the beginning of the year. The gross margin of our combined backlog increased to 12.1%, up from 11.8% at the beginning of the year.

Our year-to-date 2021 book-to-burn factors were 1.2x and 1x for backlog and combined backlog, respectively. Residential, which accounted for 13% of our year-to-date consolidated revenues, does not report backlog as it is recognized -- revenue is recognized as individual concrete slabs are completed.

Moving to our operating results. Our current quarter revenues totaled a record $463 million and $80 million or 21% increase over the prior year quarter. Third quarter revenue growth by segment was 24%, 6% and 54% for heavy civil, specialty services and residential, respectively. The significant increase in heavy civil revenues was primarily due to the ramp-up on construction of our large design-build joint venture projects. Our low-bid heavy highway revenues decreased slightly in the current quarter, reflecting our strategic intent to continue the shift of our mix to the higher-margin alternative delivery projects.

This change in revenue drove an approximate 3x improvement in heavy civil operating income in the current quarter. The 6% revenue increase in specialty services was driven by higher volumes from site development activities. Current quarter operating margins declined 320 basis points driven by continued headwinds from supply chain issues and related impact on productivity and efficiencies as well as slightly lower project margin mix in the quarter.

Residential revenues were $65.3 million for the current quarter, an increase of $22.9 million or incredibly 54% over the prior year quarter and up 40% over our second year '21 -- second quarter '21 revenue. The strong revenues were driven by the completion of a number of uncompleted slabs, which shifted from second quarter up to 2021 due to the weather-related delays and the continuing strong demand for our new housing markets into Texas footprint and to a lesser extent, our recent expansion into Phoenix.

Current quarter operating income margins decreased by 20 basis points over the prior year quarter due to the higher material cost for concrete and steel and the lack of consistent availability of these materials as well as increased subcontractor labor costs. While we continue to work with our customers to pass on increases in material and labor costs, there continues to be a timing delay in obtaining price increases that correspond with the timing and volatility of the increased costs.

The current quarter consolidated gross profit increased $7.9 million to $57.8 million, while gross margins declined to 12.5% from 13% for the comparable 2020. The increase in gross profit and decrease in margin was primarily driven by higher revenues from each of our segments offset by the continued headwinds from inflation, material supply and labor availability challenges, particularly for residential and the special services segments.

General and administrative expenses totaled $19.6 million or 4.2% of revenues in the current quarter compared to $15.2 million or 4% of revenues in the prior year quarter. These increases reflect the high volume of revenues in the quarter and the same pressures, as I discussed earlier, on costs. We expect our full year 2021 G&A expense to be approximately 4.8% of revenues compared to 5% in 2020.

Operating income in the current quarter was $32 million or 6.9% of revenues compared to $28.8 million or 7.5% of revenues in 2020. The net interest expense declined by $3.2 million to $3.9 million in the current quarter, reflecting the lower interest rates resulting from our late June 2021 credit facility amendment and our continued reduction in our debt levels.

During the quarter, the Small Business Administration forgave our partially owned affiliate's PPP loan. The related $1 million gain is included in the gain from debt exclusion on our income statement.

Our effective income tax rate was 25.2% in the current quarter, down from 29% in the prior year quarter. This decrease was primarily driven by the nontaxable gain on debt extinguishment I just spoke to. We expect our full year 2021 effective income tax expense rate to be approximately 27.5%.

Our current quarter net income totaled $21.1 million or $0.72 per diluted share compared to $15.2 million or $0.54 per share in the prior year quarter. Current quarter EBITDA was $40 million, an increase from $36.7 million in 2020. For the 9 months ended September 30, 2021, EBITDA totaled $110.9 million, an increase of $12.7 million or 13% over the prior year quarter.

Based on our year-to-date performance, including better-than-expected revenues and operating income and improved nonoperating costs, including interest expense, income taxes and debt extinguishment gains, we are now providing updated guidance for 2021. We now expect to generate full year revenues of $15.51 billion to -- I'm sorry, $1.51 billion to $1.52 billion, and net income of $61 million to $64 million.

Now let me provide you an update on our strong cash flow generation and liquidity strategy. As you may recall, with the October 19 Plateau acquisition and the new 5-year credit facility, our September 30, 2019, pro forma EBITDA coverage ratio was approximately 3.5x. We set the objective to bring the coverage ratio down to 2.5 by the end of 2021. We exceeded our objective and achieved the 2.5x target coverage in the first quarter of 2021, 9 months earlier than anticipated in our strategic plan. Our EBITDA coverage ratio was a very comfortable 2.2x at the end of the current quarter. We have not had any borrowings under our $75 million revolving credit facility in 2021.

Lastly, a few additional 2021 cash flow comments. Our cash and cash equivalents totaled $117 million as of September 30, 2021, up $51 million from the beginning of the year. Year-to-date cash flow from operating activities totaled a record $135.7 million compared to $92.3 million for the comparable 2020 period. We invested $37.2 million in net capital expenditures. And lastly, but certainly not least, we reduced our total debt by $49.1 million, thus far, in 2021.

Finally, we expect to continue to explore additional revenue growth through strategic acquisitions of businesses that meet our gross margin and overall profitability targets while managing our liquidity and cash. Please note that we've included modeling consideration slides to the current quarter investor deck to assist our stakeholders with understanding the key components of our 2021 financial expectations.

Now I'll turn the call back over to Joe. Joe?

Thanks, Ron. We've had 3 great quarters and are positioned to finish with another record year. More importantly, we have positioned ourselves to continue this trend into 2022. As we look at closing out 2021 and into 2022, we believe the supply chain and inflation issue will continue to be a challenge for us throughout the first half of 2022. However, it's very comforting to know our end markets remain extremely strong and our current backlog and backlog margins are near record highs.

Our diverse culture continues to exceed our expectations in delivering outstanding results and generating record cash. Our strategy to diversify our business towards higher-margin, lower-risk jobs and end markets continues to pay significant dividends and will not change. We will continue to look for accretive acquisitions that either help us build out our existing sectors with additional services or potentially add on a fourth.

This will enable us to continue to grow our combined margins and further reduce risk and volatility. We will ultimately become an infrastructure solution provider able to build or service our customers' greatest needs. Whether it's building something new, rehabilitating something old or serving infrastructure throughout its useful life, we will be there in the critical time of need.

We have truly come a long way in transforming our company from what it was, but we are only at the beginning of what it will be. We're positioned well to make another significant transformational step forward in 2022 and deliver another record year to our shareholders.

With that, I'd like to turn it over for questions.

(Operator Instructions) Our first question is from Brent Thielman with D.A. Davidson.

Great. Joe and Ron, great quarter.

Thanks, Brent.

I guess the first question is on the residential segment. I've heard slowness with respect to labor capacity, supply chain constraints for homebuilders, but the business is up 54% this quarter. I guess I'm just trying to flush out what else is going on there because it doesn't seem like that's holding you back at all.

No. We -- I will tell you, it's much more of a struggle. We don't get stuff the hour we want it. We may get it in the afternoon, so the morning or the next day, in some cases, but our team has done a great job of maneuvering crews and projects and all that stuff to keep the volume up. You've seen the hit we've taken on the margin side, a couple of hundred basis points. But that's due to the combination of the inflation and what we're having to do to keep up.

The market is staying incredibly strong. We're not seeing any slowdown. We'll see, what I'll call, the seasonal slowdown in the fourth quarter. That's natural. It slows down a little bit. And it will give the builders time to regroup and get land available for first quarter, second quarter of next year. But first-time homebuyers continue to remain strong. Inventory is virtually nonexistent in the places that we're working today, and we think that trend is going to continue.

And Ron, do you have the increase in slab count for the quarter? I know you said it was a record. Just wondering what the year-on-year change was?

Yes, the slab count was up 36% for all -- that's all the 3 -- it's Texas and...

Arizona?

The ramp-up of Arizona compared to that 50-some percent (inaudible). So it's sort of the demonstration that we're getting price increases, but we're not being able to keep up with the continuous price increases we've been getting every day, whether it's material or even shortage of labor.

Yes. Understood. And just, I mean, on the short-term stuff, the guidance for revenue, I mean, you're sort of implying flat to lower revenue for the fourth quarter. I guess where do you feel like you're being most conservative? What are you seeing to justify that? As you sit here today, understanding it's -- 4Q can have some seasonality to it.

Yes. Well, I think there's a couple of drivers. We certainly run into the winter months. So some of the large alternative delivery projects out in Utah and Colorado will get shut down or could be shut down for snow. Utah has already had 2 big snowstorms. So we have that.

You've got, what I'll call, the seasonal slowdown in the residential that happens in the fourth quarter. As you can imagine, the public builders don't want to have a lot of half-built houses on the ground coming into year-end, trying to preserve their cash for year-end numbers and then start going crazy at the beginning of the year.

And then we've just factored in just the natural -- we got 2 holidays. Our teams have been running nonstop all year. We get in all our vacation and all that stuff, usually, the back half of December for most of our teams, and we've got to do our annual maintenance and all of that on our equipment. So part of it is scheduled on our part to kind of regroup and get ready going into the next year, part of it is driven by just weather in the fourth quarter and holidays. And then the last piece, we always run the risk now with some of these material delays where the stuff just gets pushed out, the work gets pushed out of the quarter and into the first quarter.

Yes. Okay. And then back to the margins, the -- I guess, for residential and specialty. Just given your comments, this could continue on through the first half of next year, which seems fair. I mean is it your expectation we're going to continue to hover around these levels for those segments that you saw in 3Q kind of going in through the first half of next year?

I think that's fair to assume. If the material prices can stabilize, we can start catching up. But I'll give you an example. The good news with our specialty service sectors projects are normally only 6 months long, so they're pretty quick. The new projects we're bidding, we're obviously building in the new pricing and trying to forecast to the best of our ability what the pricing is going to be. But with these rapid changes, and in a lot of cases, you don't even get pricing until it's delivered, it's a little bit of a guessing game.

Once it plateaus or at least comes in at normal levels, then we can start eating back in some of that margin erosion. I don't see us losing any significant amounts more unless something really changed for the worse than it is right now in the supply chain. But part of us believes that the material has gone up 100% or 200% or 300%. I don't see it going up another 100%, 200% or 300%. It may go up another 10% or 15% or 20%, but we're feeling the brunt of the pain of those real big, fast moving items that happened early in the cycle and moved consistently over the last 6 months.

Our next question is from Sean Eastman with KeyBanc Capital Markets.

So we've got these 3-year revenue growth targets out there. They all look intact, the 3% to 5% heavy civil, 5% to 7% specialty, 7% to 9% residential. Is there any reason those segments shouldn't be in those ranges in 2022? I mean it sounds like the demand side of the equation has only really improved over the course of this year. But I don't know, maybe labor is a constraint there. How should we think about that?

Well, certainly, the market is there. And the issues that we run into, as we go into 2022 that we're trying to proactively get ahead of, you hit on one of them, is labor, right? As you grow 7% to 10% in some of these, you need 7% to 10% more labor.

The other one we're running into, we've had equipment on order for 8 to 10 months that still hasn't come in for this year. And equipment rental is getting tighter and tighter. So we've got to get more equipment, more people and all that kind of stuff. As you can imagine, those are good problems to have because the market is so strong, but the reality problems out there that we're having.

And I was talking to someone here recently, who's in our industry, and knock on wood, we haven't run into this yet, but they have, where they're running into just spare part issues for a lot of their big equipment. And he was telling me how many pieces of idle equipment he has sitting there, and it was staggering to me for anything from $25 to $30 filters to $1,000 part that they just can't get. So those are the things that worry me, Sean, on how much ducking and weaving do we have to do and that sort of stuff. But I will tell you, the market is out there, and we are going to bust our hump to do everything we can to capture as much of that market.

And certainly for the private sector work of residential and specialty, leaders, supervisors, the hard people to get, we can't find 20% increase in those people available to come and help us. So that's -- I don't know what Joe was talking to, but another situation where you just can't hire enough people. They just are not out there, unfortunately.

Okay. And just as it relates to the equipment side that you were describing there, Joe, it's interesting that you actually took up CapEx guidance. Is there something strategic in there that's a little counterintuitive?

Well, there's 2 drivers that we're -- it's taking us longer to get equipment in, so we're having to put it on and buy it. So we're buying next year's equipment now. We actually put an order in a couple of months ago.

The other thing that we have historically levered is kind of flex capacity as rental equipment and lease equipment. And it's very hard to get right now. The availability of that is very low. So in some instances where we might lease historically, today, it actually makes more sense to buy. And we're always looking at that model. Every time we look at a piece of equipment, do we rent, do we lease, do we buy? And based on pricing and availability, that can shift any quarter or any year.

And if you go back to last year, our specialty group increased revenues 30-some percent. This year, with our large joint venture contacts cranking up that you saw in the quarter, all that revenue takes you -- up more yellow iron. And so you kind of -- we kind of peak at that at this point, at least for this year.

Okay. Interesting. And then, of course, this past quarter, you guys rolled out these big 2024 targets. The margin numbers are definitely notable. So I guess what you guys are saying is you think you can get to 16% gross margin organically through 2024, and that kind of 250 basis points is mostly from a shift in mix. And then if you execute more M&A, you think you can get to 20% by 2024. Is that how we should think about it?

Yes. And I think the only thing that's been added to that is, obviously, we've got to claw back some of the margin we've lost with the inflation, right? So there's probably another couple of points of challenge to us as we go forward. But that's right. If you just look at the growth patterns and the mix change over the continuum of time, plus the continued movement we'll see in the heavy civil sector as we continue to reduce our low-bid heavy highway business and go into alternative delivery and aviation, that gets us to that 16% or so. And then from there, to get to 20%, it's got to be through acquisitions or expansions.

Okay. And do you have line of sight on acquisitions or a particular end market or business type that gives you confidence on that 20% number at this point, Joe?

It's always hard to have everything lined up for 4 years, but we believe by continuing to grow out in the residential sector and the specialty service sector, that will continue to move us towards that point. And then at some point in time, I think we're going to need a fourth sector in some way, shape or form that will help drive that.

And one of the things that we need to focus on too is the bottom line impact of all that. That's -- at the end of the day, it's easy for us to talk about the gross margin, and that's what we're shooting for internally but what falls through and how do we get that impact to the bottom line. So there's other levers just besides the gross margin for us to get to the ultimate number as well, Sean.

Okay. That's helpful. Last one, this one's for you, Ron. I mean if we just look at the ratio of operating cash flow expectations relative to EBITDA for 2021, is there anything moving around there as we look out to 2022? Or should you guys be kind of converting that EBITDA at a similar clip as we look into next year?

Yes. It's probably the hardest thing to predict for us just because timing of projects and front-end payments and burn off and everything else. But the good news is we -- even in the margin challenges this year, that cash flow has beat our expectations by a fair amount. But having said that, I've said that for 2 years in a row. So I think we'll continue to kind of start with -- the way I look at it is kind of start with operating income.

And generally, in each of our sectors or segments, we don't really have working capital move with revenues just because of the way we build for -- build very quickly, short cycle for residential and then the cash churn we get from properly structuring contracts. So I would expect it to beat operating income a bit, continue that -- that's where I start, with the most predictable one and beat that as we've done in the last couple of years. But something like that, you can't keep beating it by 20%. You'll run out of improvement opportunities, unfortunately.

And we do have a follow-up question from Brent Thielman with D.A. Davidson.

Ron, on the cash flow question, it sounds like you're sort of pulling forward some CapEx in order to get in front and secure the equipment you need. Could that imply cash flow could be even -- or free cash flow could be even stronger next year?

No, we'll probably need to add -- we don't -- right now, we're going to have to add more capital next year. So we go back to the growth rates in the market. The markets are growing faster today than we can grow. So as you can imagine, we're working diligently to find operators, working diligently to find equipment. The hardest ones for us, as Ron said, is when you get into our project management teams and that sort of stuff, that's a critical piece. But we don't see us not buying or slowing down in the next year based on what our end customers are forecasting for next year and the year after in the e-commerce space and data center space.

The other thing that's coming on, Brent, we haven't seen any projects yet, but it's coming on quickly is the, I would call it, re-shoring or onshoring of manufacturing and onshoring those inventory with all the supply chain issues. And there are a lot of projects out there looking for land, looking for designs and that to build these warehouses. And we think that's going to be a nice little bump for us probably late '22 or early '23.

Yes. When you think about our largest -- so over half of our CapEx is in our specialty group, as you might guess. And that -- when you think about the site development business, it is all about moving dirt. And if you got more volume, you need more equipment. So that's why I don't see us going backwards. And we'll put some more clarity around that as we work on our 2021 -- our 2022 plan release and things at the end of the year, but you got to beat that (inaudible) every now and then.

And it also -- yes. And also, I wouldn't underestimate that if we picked up an incremental project and we needed 30 pieces of equipment, we can go across the street to the Cat dealer and put together a package. It's a rental package for that project. And if we saw the long-term demand for that, we'd flip it into the CapEx spend.

If you go to that same Cat dealer today, he actually has John Deere ag equipment sitting on his lot because there's no Cat equipment available, right? It's kind of like the car dealers right now. There's just not a lot of equipment out there. So it's -- we want to keep feeding the beast, and we're going to be required to spend a little more capital as a result.

Okay. And then I wanted to talk about the gross margin targets you've laid out for 24% to 26%, 16% to 20%. Obviously, you can't time and predict M&A. I think, Joe, it would be helpful to hear just some of the actions you're already taking to get yourself toward those targets, whether it be geographic expansion, et cetera. I'd love to hear a little more about that and what you're doing today already to get yourself in that direction.

Yes. So a couple of things. And as we go into 2022, we'll do some things structurally as well to help drive a more enhanced focus on things like aviation. We really like that business. If the infrastructure bill ever comes through, that spend rate doubles over the next 5 years. How do we take advantage of that? And again, that's on the heavy civil side. But the expansion into Phoenix is a great example. It's going very well. As a matter of fact, if we had a lot more people, we'd -- it'd be doing even better. Pricing is better in Phoenix than the Houston market, and that seems to be growing even faster than the Houston market rates. So we'll continue to build that out and grow it. So every dollar we bring in, in the residential side, obviously helps move that margin.

Geographically, we'll continue to move further north with our Plateau business as we get into the -- more of the Virginia, Maryland market and then the D.C. proper area. And we're trying to figure out strategically how we go all the way up to, I'll call it, Pennsylvania, New Jersey, that come together there. That market is very similar to Atlanta in the sense that, that seems to be a real big distribution hub where the Amazons and all of those folks are putting these distribution centers. They're close proximity to still get into New York City, D.C. and some of the big markets but far enough out in rural areas that they can buy hundreds of acres of land and be able to afford doing it. So we'll continue to go up through there.

On the acquisition front, look, the market is good. We are seeing and looking at a lot of deals. But I think the more important thing is we're seeing more quality deals here and have some opportunities for both, I'll call, quick tuck-ins to add goods and services to our sectors and some out there that look a little bigger on the surface. Too early to tell at this point in time. But we're optimistic that we'll be able to start using some of this free cash flow and cash that we're building up to do something before the -- certainly before the end of the first half of 2022.

And Joe, are you finding with -- as you're moving Plateau into new regions, you can still get the margins of that business historically (inaudible) get the inflation issues.

We tend to -- yes. Believe it or not, we tend to get better margins in the newer areas because it's more of a pull from our customers that really want us there. The most competitive market for us is the Atlanta proper area just because there's a lot of contractors there. And those jobs, we do big jobs around there, but a lot of those jobs are those what we call the B jobs or the smaller jobs. So no, our team has actually done better as they've expanded into these other geographies.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Joe Cutillo for closing comments.

Thanks, Sherry. I'd like to thank everyone again for joining today's call. If you have any follow-up questions, please refer to the information provided in the press release related to our Investor Relations group at Sterling or our partners at The Equity Group. I hope everyone has a great day, and thanks again.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.