Sterling Infrastructure, Inc. (NASDAQGS: STRL) recently announced an amendment to its operating agreement with Road and Highway Builders, LLC (RHB), which has resulted in changes to the way RHB's results are reported under Generally Accepted Accounting Principles (GAAP).
Under the amended agreement, Sterling will no longer consolidate RHB's results, and instead, 50% of RHB’s operating income will be presented on one line in Sterling’s consolidated statements of operations starting in 2025. This change is expected to have a significant impact on Sterling’s financials.
For the year 2024, RHB’s revenue is expected to be between $230 million and $240 million, and its backlog, which will no longer be included in Sterling’s consolidated backlog figures, is estimated to be between $425 million to $475 million at the end of the year.
The amendment also addresses the disposition of RHB in the event of the death or disability of Mr. Rich Buenting, who holds the remaining 50% ownership interest in RHB. The amendment provides that in such an event, Sterling and Mr. Buenting’s estate must agree on one of four alternatives: continuation of the existing ownership structure, acquisition of Sterling's 50% interest by Mr. Buenting’s estate at fair value, acquisition of Mr. Buenting’s 50% interest by Sterling at fair value, or the joint sale of RHB to a third party at fair market value.
Sterling anticipates recognizing a significant non-cash net gain on the transaction in its 2024 consolidated statement of operations in accordance with the accounting requirements.
Joe Cutillo, Sterling’s Chief Executive Officer, expressed his confidence in the continued success of the partnership, stating, “RHB consistently delivers strong growth and profitability and we look forward to continuing this mutually beneficial relationship in the years ahead.”
Sterling Infrastructure, Inc. operates through a variety of subsidiaries within three segments specializing in e-infrastructure, transportation, and building solutions in the United States. Their operations cover a wide range of services, including site development, infrastructure and rehabilitation projects, and residential and commercial concrete foundations.
The amendment to the RHB operating agreement reflects Sterling’s commitment to adapt to evolving needs and interests while ensuring the continuation of a mutually beneficial relationship with its joint venture partner, Mr. Rich Buenting. Following these announcements, the company's shares moved -5.9%, and are now trading at a price of $167.59. For the full picture, make sure to review Sterling Infrastructure's 8-K report.
