Sterling Infrastructure Inc.
02/26/2026 | Press release | Distributed by Public on 02/26/2026 08:12
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following "Management's Discussion and Analysis of Financial Condition and Results of Operations" is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes thereto.
OVERVIEW
General-Sterling operates through a variety of subsidiaries within three segments specializing in E-Infrastructure, Transportation and Building Solutions in the United States, primarily across the Southern, Northeastern, Mid-Atlantic and Rocky Mountain regions and the Pacific Islands. E-Infrastructure Solutions provides advanced, large-scale site development services and mission-critical electrical services for data centers, semiconductor fabrication, manufacturing, distribution centers, warehousing, power generation and more. Transportation Solutions includes infrastructure and rehabilitation projects for highways, roads, bridges, airports, ports, rail and storm drainage systems. Building Solutions includes residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs, other concrete work, plumbing services, and surveys for new single-family residential builds. From strategy to operations, we are committed to sustainability by operating responsibly to safeguard and improve society's quality of life. Caring for our people and our communities, our customers and our investors - that is The Sterling Way.
SIGNIFICANT TRANSACTIONS
RHB Deconsolidation-Since 2012, the Company has held a 50% ownership interest in Road and Highway Builders, LLC ("RHB"), with Rich Buenting holding the remaining 50% ownership interest. Historically, the Company fully consolidated the entity as a result of its exercise of control of the entity. On December 31, 2024, the parties executed an amendment to the RHB operating agreement to ensure the continuation of this mutually beneficial relationship while addressing the evolving needs and interest of both parties. This amendment modified the way RHB would be dispositioned in the event of the death or disability of Mr. Buenting and provides that in such event, Sterling and Mr. Buenting's estate must agree on one of four alternatives: (1) continuation of the existing ownership structure, (2) acquisition of Sterling's 50% interest by Mr. Buenting's estate at fair market value, (3) acquisition of Mr. Buenting's 50% interest by Sterling at fair market value or (4) the joint sale of RHB to a third party at fair market value.
Under GAAP, this contractual change required Sterling to no longer consolidate RHB's results with its own and to use equity method accounting with respect to Sterling's interest in the entity. Beginning January 1, 2025, the Company reports its portion of RHB's income as a single line item ("Other operating income (expense), net") in the Consolidated Statements of Operations and reports its interest in RHB at December 31, 2024, and thereafter, as a single line item ("Investment in unconsolidated subsidiary") in the Consolidated Balance Sheets. RHB's revenue is no longer included in Sterling's consolidated revenue in 2025 and Sterling's consolidated backlog figures as of December 31, 2024, and thereafter, do not include RHB's backlog.
Drake Acquisition-During the first quarter of 2025, Sterling acquired Drake Concrete, LLC ("Drake") (the "Drake Acquisition"). Drake provides concrete slabs for residential home builders in the Dallas-Fort Worth market. The acquisition strengthens Sterling's geographic footprint within the DFW metroplex and expands and deepens the customer base, given limited customer overlap with Tealstone. The purchase price was $25 million in cash plus a four year earn-out opportunity. The results of Drake are included in our Building Solutions segment.
CEC Acquisition-On September 1, 2025, the Company acquired substantially all of the assets of Irving, Texas-based CEC Facilities Group, LLC ("CEC") a leading specialty electrical and mechanical contractor. The purchase price was $562 million, consisting primarily of $443 million in cash and $79 million in common stock. Additionally, CEC has an earn-out opportunity of up to an aggregate of $80 million, contingent upon achieving certain operating income targets. CEC is included in the Company's E-Infrastructure Solutions segment.
MARKET OUTLOOK AND TRENDS
We see favorable opportunities for long-term growth across each of our business segments. We remain focused on our strategic objectives, as described in Item 1 "Business - Business Strategy." These objectives include: 1) growth in our E-Infrastructure Solutions segment, with particular focus on large, high-value projects; 2) risk reduction through a continued shift in our Transportation Solutions business away from low-bid heavy highway work, and toward alternative delivery and design-build projects; 3) continuing to grow market share and geographic presence in Building Solutions; and 4) improving our margins in each of our segments.
E-Infrastructure Solutions-Our E-Infrastructure Solutions business is driven by our customers' investments in the development of data centers, advanced manufacturing centers, e-commerce distribution centers and warehouses. We foresee significant growth opportunities tied to the implementation of multi-year capital deployment plans by data center customers, including hyperscalers, colocation providers and others. These investments are driven by the need to support the increasing use of cloud computing applications, increasing adoption and complexity of artificial intelligence applications and digital transformation across industries. Additionally, we continue to see significant opportunity related to the construction of manufacturing capacity in the U.S., including semiconductor fabrication. Following a decline that began in 2023, the e-commerce distribution sector began to strengthen in 2025 and we expect this momentum to continue in 2026.
Transportation Solutions-Our Transportation Solutions business is primarily driven by federal, state and municipal funding. Federal funds, on average, provide 50% of annual State Department of Transportation capital outlays for highway and bridge projects. We benefit from a number of federal, state and local infrastructure investment programs. At the Federal level, the Infrastructure Investments and Jobs Act ("IIJA"), which establishes funding for the fiscal 2022 through 2026 time period, drove significant increases in transportation funding relative to the previous five-year law. The IIJA includes approximately $643 billion in funding for transportation programs ($432 billion for highways, $109 billion for transportation and $102 billion for rail), of which $284 billion is an increase over historic investment levels that will fund new transportation infrastructure. The IIJA also includes $25 billion of funding for airport modernization. As a result of the IIJA, we saw an increase in bid activity and project awards which started in the third quarter of 2022 and continued through 2025. In 2026, we expect that the combination of strong state-level funding in our core geographies and elevated federal funding will allow the transportation market to remain strong relative to historical levels.
Building Solutions-Our Building Solutions segment is comprised of our residential and commercial businesses. The segment is driven by new home starts in Dallas-Fort Worth, the segment's largest market, and continued expansion in the Houston and Phoenix markets. Building Solutions' core customer base includes top national, regional and custom home builders in our areas. Beginning in the second half of 2024, demand from residential home builder customers began to decline, as prospective homebuyers struggled with affordability challenges. We anticipate that demand will remain muted in the near-term, but believe the dynamics in our markets, including population growth and structural housing shortages, support a return to growth over a multi-year time period.
BACKLOG
Our remaining performance obligations on our projects, as defined in ASC 606, do not differ from what we refer to as "Backlog." Our Backlog represents the amount of revenues we expect to recognize in the future from our contract commitments on projects. The contracts in Backlog are typically completed in 6 to 36 months. Our unsigned awards ("Unsigned Awards") are excluded from Backlog until the contract is executed by our customer. We refer to the combination of our Backlog and Unsigned Awards as "Combined Backlog." Our book-to-burn ratio is determined by taking our additions to Backlog and dividing it by revenue for the applicable period. This metric allows management to monitor the Company's business development efforts to ensure we grow our Backlog and our business over time, and management believes that this measure is useful to investors for the same reason.
At December 31, 2025, our Backlog was $3.01 billion, as compared to $1.69 billion at December 31, 2024, with a book-to-burn ratio of 1.6X for the year ended December 31, 2025. Included in Backlog at December 31, 2025 is $488.9 million contributed from the electrical and mechanical business acquired late in the third quarter 2025. The Company's margin in Backlog has increased to 17.8% at December 31, 2025 from 16.7% at December 31, 2024, driven by a greater mix of E-Infrastructure Solutions backlog and an improved backlog margin mix within Transportation Solutions.
Unsigned Awards were $300.7 million at December 31, 2025 and $137.9 million at December 31, 2024. Included in Unsigned Awards at December 31, 2025 is $226.4 million contributed from the electrical and mechanical business acquired late in the third quarter 2025. Combined Backlog totaled $3.31 billion and $1.83 billion at December 31, 2025 and 2024, respectively, with a book-to-burn ratio of 1.7X for the year ended December 31, 2025.
Backlog and gross margin:
| (In thousands) | Backlog | Gross Margin in Backlog | |||||||||
| Fourth quarter of 2025 | $3,010,942 | 17.8% | |||||||||
| Third quarter of 2025 | $2,575,370 | 18.0% | |||||||||
| Second quarter of 2025 | $2,008,695 | 17.8% | |||||||||
| First quarter of 2025 | $2,128,405 | 17.7% | |||||||||
| Fourth quarter of 2024 | $1,693,223 | 16.7% | |||||||||
A detailed discussion of our financial and operating results for the years ended December 31, 2025 and 2024 is presented in the following sections. Discussions of year-over-year comparisons for 2024 and 2023 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2024.
RESULTS OF OPERATIONS
Consolidated Results
The financial highlights for 2025 as compared to 2024 are as follows:
| Years Ended December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Revenues | $ | 2,490,049 | $ | 2,115,756 | |||||||
| Gross profit | 572,314 | 426,123 | |||||||||
| General and administrative expenses | (154,814) | (118,424) | |||||||||
| Intangible asset amortization | (22,188) | (17,037) | |||||||||
| Acquisition related costs | (8,327) | (421) | |||||||||
|
Earn-out income (expense)
|
731 | (4,756) | |||||||||
| Other operating income (expense), net | 18,200 | (20,863) | |||||||||
| Operating income | 405,916 | 264,622 | |||||||||
| Interest, net | 2,561 | 2,367 | |||||||||
|
Gain on deconsolidation of subsidiary, net
|
- | 91,289 | |||||||||
| Income before income taxes and noncontrolling interests | 408,477 | 358,278 | |||||||||
| Income tax expense | (98,752) | (87,360) | |||||||||
| Less: Net income attributable to noncontrolling interests | (19,572) | (13,457) | |||||||||
| Net income attributable to Sterling common stockholders | $ | 290,153 | $ | 257,461 | |||||||
| Gross margin | 23.0% | 20.1% | |||||||||
Revenues-Revenues were $2.49 billion for 2025, compared to $2.12 billion the prior year. Excluding $235.9 million of RHB revenue from 2024, revenues increased $610.2 million, which was driven by a $543.0 million increase in E-Infrastructure Solutions and a $92.9 million increase in Transportation Solutions, partly offset by a $25.8 million decrease in Building Solutions.
Gross profit and margin-Gross profit was $572.3 million for 2025, an increase of $146.2 million, or 34.3%, compared to the prior year. The Company's gross margin as a percentage of revenue increased to 23.0% in 2025, as compared to 20.1% in the prior year. The increases were driven by the aforementioned higher revenue volume and an improved project margin mix across our E-Infrastructure and Transportation Solutions segments.
Our contracts are of various sizes, of different expected profitability and in various stages of completion. The nearer a contract progresses toward completion, the more visibility the Company has in refining its estimate of total revenues (including incentives, delay penalties and change orders), costs and gross profit. Thus, gross profit as a percentage of revenues can increase or decrease from comparable and subsequent quarters due to variations among contracts and the stage of completion of contracts.
General and administrative expenses-General and administrative expenses were $154.8 million, or 6.2% of revenue, for 2025, compared to $118.4 million, or 5.6% of revenue, in the prior year. The increase in expense reflects higher performance based compensation, one-time severance costs, increased headcount to support growth, and inflation in 2025.
Other operating income (expense), net-Other operating income (expense), net, includes the 50% portion of earnings related to our 50% owned subsidiary and occasionally other miscellaneous operating income or expense. In 2025, Sterling's 50% portion of earnings is treated as income and increases the investment in unconsolidated subsidiary account. In 2024, the Members' 50% portion of earnings was treated as an expense and an increase to the liability account. During 2025, Sterling's 50% portion of earnings was $15.9 million (including basis step-up depreciation and amortization of $8.6 million), compared to $20.9 million of expense for the Members' 50% portion of earnings in 2024.
Income taxes-The effective income tax rate was 24.2% in 2025 and 24.4% in the prior year. The rate varied from the statutory rate primarily as a result of state income taxes, nondeductible compensation, gain on the deconsolidation of subsidiary
and other permanent differences. On July 4, 2025, the One Big Beautiful Bill Act was enacted into law, introducing changes to the U.S. tax code. The changes did not have a material impact on our effective tax rate. See Note 12 - Income Taxesfor more information.
Segment Results
The Company's operations consist of three reportable segments: E-Infrastructure Solutions, Transportation Solutions and Building Solutions. We incur certain expenses at the corporate level that relate to our business as a whole. A portion of these expenses are allocated to our business segments by various methods, but primarily on the basis of usage. The balance of the corporate level expenses are reported in the "Corporate G&A Expense" line, which is primarily comprised of corporate headquarters facility expense, the cost of the executive management team and other expenses pertaining to certain centralized functions that benefit the entire Company, but are not directly attributable to any specific business segment, such as corporate human resources, legal, governance, compliance and finance functions.
| Years Ended December 31, | ||||||||||||||||||||||||||
| (In thousands) | 2025 |
% of Revenues |
2024 |
% of Revenues |
||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
|
E-Infrastructure Solutions
|
$ | 1,466,777 | 59% | $ | 923,728 | 44% | ||||||||||||||||||||
|
Transportation Solutions
|
640,674 | 26% | 783,659 | 37% | ||||||||||||||||||||||
|
Building Solutions
|
382,598 | 15% | 408,369 | 19% | ||||||||||||||||||||||
| Total Revenues | $ | 2,490,049 | $ | 2,115,756 | ||||||||||||||||||||||
| Operating Income | ||||||||||||||||||||||||||
|
E-Infrastructure Solutions
|
$ | 346,041 | 23.6% | $ | 203,359 | 22.0% | ||||||||||||||||||||
|
Transportation Solutions
|
77,810 | 12.1% | 50,869 | 6.5% | ||||||||||||||||||||||
|
Building Solutions
|
39,067 | 10.2% | 53,839 | 13.2% | ||||||||||||||||||||||
| Segment Operating Income | 462,918 | 18.6% | 308,067 | 14.6% | ||||||||||||||||||||||
|
Corporate G&A Expense
|
(49,406) | (38,268) | ||||||||||||||||||||||||
| Acquisition Related Costs | (8,327) | (421) | ||||||||||||||||||||||||
| Earn-out Income (Expense) | 731 | (4,756) | ||||||||||||||||||||||||
| Total Operating Income | $ | 405,916 | 16.3% | $ | 264,622 | 12.5% | ||||||||||||||||||||
E-Infrastructure Solutions
Revenues-Revenues were $1,466.8 million for 2025, an increase of $543.0 million, or 58.8%, compared to the prior year. The increase was primarily driven by higher volume from data centers and the inclusion of $170.4 million of revenue from the electrical and mechanical business acquired late in the third quarter 2025, partly offset by lower volume from warehouses and the timing of advanced manufacturing projects.
Operating income-Operating income was $346.0 million, or 23.6% of revenue, for 2025, an increase of $142.7 million compared to $203.4 million, or 22.0% of revenue, in the prior year. The increase in operating income is partly attributable to a $19.4 million (inclusive of $3.0 million of intangible amortization) contribution from the electrical and mechanical business acquired late in the third quarter 2025, and the remaining increases in operating income and margin were driven by a project mix shift toward large mission-critical projects, partly offset by lower volume from warehouses and the timing of advanced manufacturing projects.
Transportation Solutions
Revenues-Revenues were $640.7 million for 2025, compared to $783.7 million in the prior year. Excluding $235.9 million of RHB revenue from 2024, revenues increased $92.9 million or 17%. The increase was driven by higher heavy highway and other non-highway service revenue, partly offset by lower aviation revenue.
Operating income-Operating income was $77.8 million, or 12.1% of revenue, for 2025, an increase of $26.9 million compared to $50.9 million, or 6.5% of revenue, in the prior year. The increases in operating income and margin were driven by an improved project margin mix.
Building Solutions
Revenues-Revenues were $382.6 million for 2025, a decrease of $25.8 million, or 6.3%, compared to the prior year. The decrease was driven by lower commercial volume compared to 2024. Our residential concrete slab and plumbing businesses have also been impacted by a slowdown in all markets in 2025, driven by prospective homebuyers struggling with affordability challenges.
Operating income-Operating income was $39.1 million, or 10.2% of revenue, for 2025, a decrease of $14.8 million compared to $53.8 million, or 13.2% of revenue, in the prior year. The decrease in operating income and margin were driven by the aforementioned lower volume and the slowdown in residential markets in 2025.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and Cash Equivalents-Total cash and cash equivalents at December 31, 2025 and 2024 were $390.7 million and $664.2 million, respectively, and included the following components:
| As of December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Generally available | $ | 314,567 | $ | 566,399 | |||||||
| Construction joint ventures | 76,154 | 97,796 | |||||||||
| Cash and cash equivalents | $ | 390,721 | $ | 664,195 | |||||||
The following table presents consolidated information about our cash flows:
| Years Ended December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 439,988 | $ | 497,104 | |||||||
| Investing activities | (551,923) | (185,849) | |||||||||
| Financing activities | (161,539) | (118,623) | |||||||||
| Net change in cash and cash equivalents | $ | (273,474) | $ | 192,632 | |||||||
Operating Activities-During 2025, net cash provided by operating activities was $440.0 million compared to net cash provided by operating activities of $497.1 million in the prior year. Cash flows provided by operating activities were primarily driven by higher operating income, the collection of receivables from affiliate, distributions of earnings from our unconsolidated subsidiary, and changes in our accounts receivable, net contracts in progress and accounts payable balances (collectively, "Contract Capital"), as discussed below.
Changes in Contract Capital-The change in operating assets and liabilities varies due to fluctuations in operating activities and investments in Contract Capital. The changes in components of Contract Capital during the years ended December 31, 2025 and 2024 were as follows:
| Years Ended December 31, | |||||||||||
| (In thousands) | 2025 | 2024 | |||||||||
| Contracts in progress, net | $ | 84,024 | $ | 194,306 | |||||||
| Accounts receivable | (170,996) | (6,888) | |||||||||
| Receivables from and equity in construction joint ventures | (368) | 7,428 | |||||||||
| Accounts payable | 33,111 | (9,336) | |||||||||
| Change in Contract Capital, net | $ | (54,229) | $ | 185,510 | |||||||
During 2025, the change in Contract Capital was $54.2 million, which was primarily driven by the E-Infrastructure Solutions segment due to the increased size and duration of its projects in progress. The Company's Contract Capital fluctuations are impacted by the mix of projects in Backlog, seasonality, the timing of new awards and related payments for work performed and the contract billings to the customer as projects are completed. Contract Capital is also impacted at period-end by the timing of accounts receivable collections and accounts payable payments for projects.
Investing Activities-During 2025, net cash used in investing activities was $551.9 million, compared to net cash used of $185.8 million in the prior year. The net cash used during the period was primarily driven by $482.3 million for acquisitions (including $442.9 million for the CEC Acquisition and $25 million for the Drake Acquisition) and $77.3 million for purchases
of capital equipment, partly offset by $5.7 million of cash proceeds from the sale of property and equipment. Capital equipment is acquired as needed to support changing levels of production activities and to replace retiring equipment.
Financing Activities-During 2025, net cash used in financing activities was $161.5 million compared to net cash used of $118.6 million in the prior year. The financing cash outflow during the period was primarily driven by $74.2 million for the repurchase of common stock, $40.1 million for distributions to our noncontrolling interest partners, $24.7 million of repayments on the Term Loan Facility, and $21.0 million for withholding taxes paid on the net share settlement of vested equity awards.
Credit Facilities, Debt and Other Capital
General-In addition to our available cash, cash equivalents and cash provided by operations, from time to time we use borrowings to finance acquisitions, our capital expenditures and working capital needs.
Credit Facility-Our amended and restated Credit Agreement provides the Company with senior secured debt financing consisting of the following (collectively, the "Credit Facility"): (i) a senior secured first lien term loan facility (the "Term Loan Facility") in the aggregate principal amount of $300 million and (ii) a senior secured first lien revolving credit facility (the "Revolving Credit Facility") in an aggregate principal amount of up to $150 million (with a $75 million limit for the issuance of letters of credit and a $15 million sublimit for swing line loans). At December 31, 2025, we had $292.5 million of outstanding borrowings under the Term Loan Facility and no outstanding borrowings under the Revolving Credit Facility. The obligations under the Credit Facility are secured by substantially all assets of the Company and the subsidiary guarantors, subject to certain permitted liens and other customary exceptions. The Credit Facility will mature on June 5, 2028.
Compliance and Other-The Credit Agreement contains various affirmative and negative covenants that may, subject to certain exceptions, restrict our ability and the ability of our subsidiaries to, among other things, grant liens, incur additional indebtedness, make loans, advances or other investments, make non-ordinary course asset sales, declare or pay dividends or make other distributions with respect to equity interests, purchase, redeem or otherwise acquire or retire capital stock or other equity interests, or merge or consolidate with any other person, among various other things. In addition, the Company is required to maintain certain financial covenants. See Note 9 - Debtfor further discussion of these financial covenants. As of December 31, 2025, we were in compliance with all of our restrictive and financial covenants. The Company's debt is recorded at its carrying amount in the Consolidated Balance Sheets. Based upon the current market rates for debt with similar credit risk and maturities, at December 31, 2025 the fair value of our debt outstanding approximated the carrying value, as interest is based on Term SOFR plus an applicable margin.
Borrowings-Based on our average borrowings for 2025 and our 2026 forecasted cash needs, we continue to believe that the Company has sufficient liquid financial resources to fund our requirements for the next year of operations. Furthermore, the Company is continually assessing ways to increase revenues and reduce costs to improve liquidity. However, in the event of a substantial cash constraint, and if we were unable to secure adequate debt financing, our liquidity could be materially and adversely affected.
Issuance of Common Stock-In addition to our available cash, cash equivalents and cash provided by operations and borrowings, from time to time we issue common stock to finance acquisitions.
Bonding-As is customary in the construction business, we are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of our backlog and their underwriting standards, which may change from time to time. We have pledged all proceeds and other rights under our construction contracts to our bond surety company. Events that affect the insurance and bonding markets may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. To date, we have not encountered difficulties or material cost increases in obtaining new surety bonds.
Capital Strategy-The Company will continue to explore additional revenue growth and capital alternatives to improve leverage and strengthen its financial position in order to take advantage of trends in the markets in which we operate. The Company also expects to continue to pursue strategic uses of its cash, such as investing in projects or businesses that meet its gross margin and overall profitability targets, managing its debt balances and repurchasing shares of its common stock.
Material Cash Requirements
The following table sets forth our material cash requirements from contractual obligations at December 31, 2025:
| Payments due by period | |||||||||||||||||||||||||||||
| (In thousands) | Total |
<1 Year |
1 - 3 Years |
4 - 5 Years |
>5 Years |
||||||||||||||||||||||||
| Credit Facility | $ | 292,500 | $ | 15,000 | $ | 277,500 | $ | - | $ | - | |||||||||||||||||||
| Credit Facility interest | 37,275 | 15,976 | 21,299 | - | - | ||||||||||||||||||||||||
| Other notes payable (inclusive of outstanding interest) | 382 | 146 | 236 | - | - | ||||||||||||||||||||||||
| Total | $ | 330,157 | $ | 31,122 | $ | 299,035 | $ | - | $ | - | |||||||||||||||||||
Capital Expenditures-Capital equipment is acquired as needed by increased levels of production and to replace retiring equipment. Capital expenditures incurred in 2025 were $77.3 million. Management expects capital expenditures in 2026 to be in the range of $100 to $110 million; however, the award of a project requiring significant purchases of equipment or other factors could result in increased expenditures.
Earn-outs-In connection with certain acquisitions, we have agreed to make future payments contingent upon the achievement of specific financial performance targets by the acquired businesses over designated periods. These earn-out obligations are typically recorded as liabilities at their estimated fair value at the acquisition date and are subsequently remeasured at each reporting period, with changes in fair value recognized in the Consolidated Statements of Operations. As of December 31, 2025, our aggregate earn-out liabilities totaled approximately $57 million. The actual amounts ultimately paid may differ materially from these estimates due to various factors, including the performance of the acquired businesses, changes in market conditions, and other unforeseen events.
NEW ACCOUNTING STANDARDS
See the applicable section of Note 2 - Basis of Presentation and Significant Accounting Policiesfor a discussion of new accounting standards.
CRITICAL ACCOUNTING ESTIMATES
The discussion and analysis of the financial condition and results of operations are based on the Company's Consolidated Financial Statements, which have been prepared in accordance with accounting policies generally accepted in the U.S. ("GAAP"). The preparation of these Consolidated Financial Statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. The Company continually evaluates its estimates based on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting estimates involve more significant judgment used in the preparation of the Consolidated Financial Statements.
Revenue Recognition
Performance Obligations Satisfied Over Time-Revenue for contracts that satisfy the criteria for over time recognition is recognized as the work progresses. The Company measures transfer of control of the performance obligation utilizing the cost-to-cost measure of progress, with cost of revenue including direct costs, such as materials and labor, and indirect costs that are attributable to contract activity. Under the cost-to-cost approach, the use of estimated costs to complete each performance obligation is a significant variable in the process of determining recognized revenue and is a significant factor in the accounting for such performance obligations. Significant estimates that impact the cost to complete each performance obligation are materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor or supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingencies, among others. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on performance obligations in progress. Due to the various estimates inherent in contract accounting, actual results could differ from those estimates, which could result in material changes to the Company's Consolidated Financial Statements and related disclosures. See "Contract Estimates" within Note 4 - Revenue from Customersfor further discussion.
Fair Value Measurements
The Company may use fair value measurements that involve the input of estimates that require significant judgment. The Company's use of these fair value measurements include:
•determining the purchase price allocation for an acquired business;
•determining the value of retained interest after the deconsolidation of a subsidiary;
•goodwill impairment testing when a quantitative analysis is deemed necessary; and
•long-lived asset (such as property, equipment and intangible assets) impairment testing when impairment indicators are present.
When performing quantitative fair value or impairment evaluations, the Company estimates the fair value of assets by considering the results of income-based and/or a market-based valuation method. Under the income-based method, a discounted cash flow valuation model uses recent forecasts to compare the estimated fair value of each asset to its carrying value. Cash flow forecasts are discounted using the weighted-average cost of capital for the applicable reporting unit at the date of evaluation. The weighted-average cost of capital is comprised of the cost of equity and the cost of debt with a weighting for each that reflects the Company's current capital structure. Preparation of long-term forecasts involve significant judgments involving consideration of backlog, expected future awards, customer attribution, working capital assumptions and general market trends and conditions. Significant changes in these forecasts or any valuation assumptions, such as the discount rate selected, could affect the estimated fair value of our assets and could result in impairment. Under the market-based method, market information such as multiples of comparable publicly traded companies and/or completed sales transactions are used to develop or validate our fair value conclusions, when appropriate and available.
Purchase Price Allocations-The aggregate purchase price for acquisitions were allocated to the major categories of assets and liabilities acquired based upon their estimated fair values as of the closing date, which were based, in part, upon internal and external valuations of certain assets, including specifically identified intangible assets and property and equipment. The valuations were based on the income-based and market-based valuation methods noted above. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. See Note 3 - Acquisitionsfor further discussion.
Goodwill-Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any indicators of impairment or when other actions require an impairment assessment. The Company performs the annual impairment assessment for its reporting units during the fourth quarter of each year based on balances as of October 1. During the fourth quarters of 2025, 2024 and 2023, the Company performed a qualitative assessment of goodwill, and based on this assessment, no indicators of impairment were present. Factors considered include macroeconomic, industry and competitive conditions, financial performance and reporting unit specific events. These are discussed in a number of places including Item 1A "Risk Factors." Our annual assessments indicated there was no impairment of goodwill during the years ended December 31, 2025, 2024 and 2023.
Long-lived Assets-Long-lived assets, which include property, equipment and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, the estimated future cash flow associated with the asset or asset group will be compared to their respective carrying amounts to determine if an impairment exists. Actual useful lives and cash flows could be different from those estimated by management, and this could have a material effect on operating results and financial position. For the years ended December 31, 2025, 2024 and 2023, there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets.
Sterling Infrastructure Inc. published this content on February 26, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 26, 2026 at 14:12 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]