Sterling Infrastructure Announces Amendment to Road and Highway Builders Operating Agreement
Sterling Infrastructure, Inc. (NasdaqGS: STRL) recently revealed that on December 31, 2024, the company executed an amendment to its Road and Highway Builders, LLC (RHB) operating agreement. This adjustment alters how RHB’s financial results are reported under Generally Accepted Accounting Principles (GAAP), while maintaining RHB’s ongoing contribution to Sterling’s consolidated net income, both historically and in the future.
Overview of RHB’s Ownership and the Operating Agreement Amendment
Since 2012, Sterling has held a 50% stake in Road and Highway Builders, LLC (RHB), with Rich Buenting retaining the other 50% interest. The amendment, executed on December 31, 2024, serves to ensure the continuation of their partnership, taking into account the changing needs and interests of both parties. Key changes made to the operating agreement include provisions for how RHB would be managed in the event of Mr. Buenting’s death or disability.
The new agreement offers four options to be considered should such a situation arise: (1) continuation of the existing ownership structure, (2) the acquisition of Sterling’s 50% interest by Mr. Buenting’s estate at fair value, (3) the acquisition of Mr. Buenting’s 50% interest by Sterling at fair value, or (4) a joint sale of RHB to a third party at fair market value. These provisions are designed to protect the interests of both parties and ensure a fair and structured resolution in the event of unforeseen circumstances.
Changes to Reporting and Consolidation Under GAAP
Before the amendment, Sterling fully consolidated RHB’s results, which included incorporating all of RHB’s assets and liabilities on Sterling’s consolidated balance sheets. Additionally, RHB’s revenue, cost of revenue, and general administrative expenses were reflected in Sterling’s consolidated financial statements. Mr. Buenting’s 50% share of RHB’s operating income was included as an other operating expense within the reports.
However, under the new agreement, Sterling no longer consolidates RHB’s financial results. As a result, Sterling’s interest in RHB will now be presented on one line within the company’s 2024 Consolidated Balance Sheet. While this amendment may lead to a significant non-cash net gain on 2024 Consolidated Statement of Operations, the operating income from RHB will continue to impact financial performance. Starting in 2025, 50% of RHB’s operating income will be reflected in Consolidated Statements of Operations on a single line.
Another change stemming from the amendment is that RHB’s revenue, projected to fall between $230 million and $240 million in 2024, will no longer be included in Sterling’s consolidated revenue starting in 2025. Additionally, RHB’s standalone backlog, which is estimated to be between $425 million and $475 million at the end of 2024, will no longer be reflected in consolidated backlog figures as of December 31, 2024.
CEO’s Comments on the Partnership and the Amendment
CEO, Joe Cutillo, expressed his confidence in the long-standing relationship with Rich Buenting and RHB. “Rich Buenting is an excellent business leader and has been a trusted and valued joint venture partner for more than a decade,” Cutillo said. “RHB consistently delivers strong growth and profitability, and we look forward to continuing this mutually beneficial relationship in the years ahead.”
This positive outlook reinforces the importance of the partnership and the ongoing collaboration between Sterling and RHB, which continues to thrive and contribute to the company’s overall growth.
About Sterling Infrastructure
Sterling Infrastructure operates through various subsidiaries within three primary segments: E-Infrastructure, Transportation, and Building Solutions, with a strong presence across the Southern, Northeastern, Mid-Atlantic, and Rocky Mountain regions of the United States, as well as the Pacific Islands. The company provides advanced, large-scale site development services for industries such as manufacturing, data centers, e-commerce distribution centers, warehousing, and power generation through its E-Infrastructure Solutions segment. Its Transportation Solutions segment is focused on infrastructure and rehabilitation projects related to highways, roads, bridges, airports, ports, rail, and storm drainage systems. The Building Solutions segment handles residential and commercial concrete foundations for single-family and multi-family homes, parking structures, elevated slabs, and plumbing services for new residential builds.
Sterling is committed to sustainability and operating responsibly to enhance the quality of life for society. The company prides itself on caring for its people, communities, customers, and investors through “The Sterling Way,” which underpins the company’s values and approach to business.
