Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q ("Report") contains statements that are, or
may be considered to be, "forward-looking statements" regarding the Company
which represent our expectations and beliefs concerning future events. These
forward-looking statements are intended to be covered by the safe harbor for
forward-looking statements provided by the Private Securities Litigation Reform
Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as
amended, or the Securities Act, and Section 21E of the Securities Exchange Act
of 1934, as amended, or the Exchange Act. The forward-looking statements
included herein relate to matters that are predictive in nature, such as our
industry, business strategy, goals and expectations concerning our market
position, future operations, margins, profitability, capital expenditures,
liquidity and capital resources and other financial and operating information,
and may use or contain words such as "anticipate," "assume," "believe,"
"budget," "continue," "could," "estimate," "expect," "forecast," "future,"
"intend," "may," "plan," "potential," "predict," "project," "should," "will,"
"would" and similar terms and phrases.
Forward-looking statements reflect our current expectations as of the date of
this Report regarding future events, results or outcomes. These expectations may
or may not be realized. Some of these expectations may be based upon assumptions
or judgments that prove to be incorrect. In addition, our business and
operations involve numerous risks and uncertainties, many of which are beyond
our control, that could result in our expectations not being realized or
otherwise could materially affect our financial condition, results of operations
and cash flows.
Actual events, results and outcomes may differ materially from those
anticipated, projected or assumed in the forward-looking statements due to a
variety of factors. Although it is not possible to identify all of these
factors, they include, among others, the following:
•potential risks and uncertainties relating to the ultimate impact of the
ongoing COVID-19 pandemic, including the duration of the COVID-19 pandemic,
additional actions that may be taken by governmental authorities to contain the
COVID-19 pandemic or to address its impact and the potential ongoing or further
negative impact of the COVID-19 pandemic on the global economy and financial
markets;
•factors that affect the accuracy of estimates inherent in the bidding for
contracts, estimates of backlog, and over time recognition accounting policies,
including onsite conditions that differ materially from those assumed in the
original bid, contract modifications, mechanical problems with machinery or
equipment and effects of other risks referenced below;
•actions of suppliers, subcontractors, design engineers, joint venture partners,
customers, competitors, banks, surety companies and others which are beyond our
control, including suppliers', subcontractors' and joint venture partners'
failure to perform;
•cost escalations associated with our contracts, including changes in
availability, proximity and cost of materials such as steel, cement, concrete,
aggregates, oil, fuel and other construction materials, including changes in
U.S. trade policies and retaliatory responses from other countries, and cost
escalations associated with subcontractors and labor;
•changes in costs to lease, acquire or maintain our equipment;
•our dependence on a limited number of significant customers;
•the presence of competitors with greater financial resources or lower margin
requirements than ours, and the impact of competitive bidders on our ability to
obtain new backlog at reasonable margins acceptable to us;
•any prolonged shutdown of the federal government;
•our ability to qualify as an eligible bidder under government contract
criteria;
•changes in general economic conditions, including recessions, reductions in
federal, state and local government funding for infrastructure services, changes
in those governments' budgets, practices, laws and regulations and adverse
economic conditions in our geographic markets, such as those caused by the
ongoing COVID-19 pandemic;
•delays or difficulties related to the completion of our projects, including
additional costs, reductions in revenues or the payment of liquidated damages,
or delays or difficulties related to obtaining required governmental permits and
approvals;
•design/build contracts which subject us to the risk of design errors and
omissions;
•our ability to obtain bonding or post letters of credit;
•our ability to raise additional capital on favorable terms;
•our ability to attract and retain key personnel;
•increased unionization of our workforce or labor costs and any work stoppages
or slowdowns;
•adverse weather conditions;
•our ability to successfully identify, finance, complete and integrate
acquisitions;
•citations issued by any governmental authority, including the Occupational
Safety and Health Administration;
•federal, state and local environmental laws and regulations where
non-compliance can result in penalties and/or termination of contracts as well
as civil and criminal liability; and
•the factors discussed in more detail in the Company's annual report on Form
10-K for the year ended December 31, 2019 (the "2019 Form 10-K") under "Part I,
Item 1A. Risk Factors" and "Part II, Item 1A. Risk Factors" of this Report.
In reading this Report, you should consider these factors carefully in
evaluating any forward-looking statements and you are cautioned not to place
undue reliance on any forward-looking statements. Investors are cautioned that
many of the assumptions upon which our forward-looking statements are based are
likely to change after the forward-looking statements are made. Further, we may
make changes to our business plans that could affect our results. Although we
believe that our plans, intentions and expectations reflected in, or suggested
by, the forward-looking statements that we make in this Report are reasonable,
we can provide no assurance that they will be achieved.
The forward-looking statements included herein are made only as of the date
hereof, and we undertake no obligation to update any information contained
herein or to publicly release the results of any revisions to any
forward-looking statements to reflect events or circumstances that occur, or
that we become aware of after the date of this Report.
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OVERVIEW

General-Sterling Construction Company, Inc. ("Sterling" or "the Company"), is a
construction company that has been involved in the construction industry since
its founding in 1955. The Company operates through a variety of subsidiaries
within three segments specializing in Heavy Civil, Specialty Services and
Residential projects in the United States (the "U.S."), primarily across the
southern U.S., the Rocky Mountain States, California and Hawaii, as well as
other areas with strategic construction opportunities. Heavy Civil includes
infrastructure and rehabilitation projects for highways, roads, bridges,
airfields, ports, light rail, water, wastewater and storm drainage systems.
Specialty Services projects include construction site excavation and drainage,
drilling and blasting for excavation, foundations for multi-family homes,
parking structures and other commercial concrete projects. Residential projects
include concrete foundations for single-family homes.
Plateau Acquisition-On October 2, 2019, the Company consummated the acquisition
of Plateau and entered into a credit agreement with the financial institutions
from time to time party thereto as lenders, BMO Harris Bank N.A., as
administrative agent, Bank of America, N.A., as syndication agent, and BMO
Capital Markets Corp. and BofA Securities, Inc., as joint lead arrangers and
joint book runners. The Credit Agreement provides the Company with senior
secured debt financing in an amount up to $475 million in the aggregate with a
maturity date of October 2, 2024. With the acquisition of Plateau, we now have
three reportable segments: Heavy Civil, Specialty Services and Residential.
Refer to Note 9 - Debt for a discussion of our financing arrangements and Note
16 - Segment Information for a discussion of reportable segments and related
financial information.
Impact of COVID-19-On March 11, 2020, the World Health Organization declared the
outbreak of COVID-19 as a pandemic, and on March 13, 2020, the U.S. President
announced a National Emergency relating to COVID-19. Federal, state and local
authorities have advised social distancing and many imposed shelter-in-place and
stay-at-home orders, including some mandatory business closures. Authorities in
some areas of the U.S. began to relax these quarantine and isolation measures in
the second quarter of 2020, but a resurgence of COVID-19 cases in mid-July in
many regions of the country, including some areas where the Company does
business, has, in some cases caused authorities to either defer the phasing out
of these restrictions or re-impose quarantine and isolation measures. The number
of new cases had been decreasing since the most recent spike, and authorities
continued to relax certain restrictions during the third quarter 2020. However,
recent reports indicate there may be another resurgence in cases currently
occurring as of mid-October 2020. The measures taken have had, and are expected
to continue to have, serious adverse effects on the U.S. and global economies of
an unknown severity and duration. The Company continues to monitor closely the
actual and expected impacts of the COVID-19 pandemic on our business, financial
condition and results of operations. Sterling's business has been identified as
a component of "Essential Critical Infrastructure" per the National
Cybersecurity and Infrastructure Agency, and to date, we have not experienced
significant shutdowns of project sites or operational interruptions. Consistent
with governmental orders and public health guidelines, the Company has continued
to operate across its footprint. For the Company's office-based personnel, the
Company is social distancing and, where practical, working from home. For
personnel onsite at the Company's construction sites, the Company has taken
mitigation measures to prevent the spread of COVID-19, including but not limited
to, social distancing, wellness checks, providing sanitation stations and
wearing personal protective equipment. While the Company has not incurred
significant disruptions thus far from the COVID-19 pandemic, the pandemic may
impact our business, condensed consolidated results of operations and financial
condition in the future. However, the significance of the impact on our
operations going forward is not yet certain and depends on numerous evolving
factors as discussed further in Part II, Item 1A "Risk Factors" in this Form
10-Q.
MARKET OUTLOOK AND TRENDS
Heavy Civil-Sterling's Heavy Civil business is primarily driven by federal,
state and municipal funding. Federal funds, on average, provide 50% of annual
State Department of Transportation ("DOT") capital outlays for highway and
bridge projects. Several of the states in Sterling's key markets have instituted
actions to further increase annual spending. In November 2018, various state and
local transportation measures were passed securing, and in some cases
increasing, funding of $1.57 billion in California, $1.27 billion in Texas,
$528.5 million in Arizona, $128.2 million in Colorado and $87 million in Utah.
In October 2018, the Federal Aviation Administration reauthorized $3.35 billion
annually for the next five years. This reauthorization also includes more than
$1 billion a year for airport infrastructure grants and about $1.7 billion for
disaster relief. In addition to the state locally funded actions, this is the
final year of the five-year $305 billion 2015 federally funded Fixing America's
Surface Transportation ("FAST") Act that increased the annual federal highway
investment by 15.1% over the five-year period from 2016 to 2020. With the FAST
Act set to expire this year, the federal government is currently working towards
a bipartisan Federal Infrastructure Bill (America's Transportation
Infrastructure Act) that would both increase and solidify funding for the next
five years. Should the federal government approve this incremental
infrastructure investment, it would be an additional growth catalyst; however,
it would be unlikely to create a significant business impact before the end of
2020 or 2021. The Heavy Civil segment continues to see an unfavorable
productivity impact related to the pandemic as customers and back offices began
to work virtually and new procedures and protocol were developed and implemented
into field operations beginning in the first quarter of 2020.

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Specialty Services-Sterling's Specialty Services business is primarily driven by
investments from end users and developers. Key end users, including Amazon,
Facebook and Home Depot, have begun implementing publicly announced multi-year
capital infrastructure campaigns. In our primary market in the southeastern
United States, and specifically Georgia, the availability rate remains low and
positive new square footage development trends continue. In our key commercial
markets forecasted net absorption continues to be positive, with more space
leased than supplied to the market. Additionally, the lending environment
continues to sustain new development within our Specialty Services space.
However, the outlook for multifamily vacancy rate continues to be below its
long-term average and we are experiencing a slowdown in investment in this
space.

Residential-The Company's Residential business is directly related to new home
starts in its key markets. The Company's core customer base is primarily made up
of leading national, regional and custom home builders, including D.R. Horton,
Lennar and PulteGroup. The Company has continued its expansion of its
Residential business into the Houston market. Although our customers anticipated
a slowdown in the housing market and demand for new developments for the second
quarter of 2020, our actual revenues exceeded those expectations. However, due
to the recent resurgence of COVID-19 infections, we may still experience a
slowdown in the demand for new developments in future periods.
BACKLOG
At September 30, 2020, our backlog ("Backlog") of construction projects, made up
of our Heavy Civil and Specialty Services segments, was $1.24 billion, as
compared to $1.07 billion at December 31, 2019. The contracts in our Backlog are
typically completed in 6 to 36 months. Contracts in which we are the apparent
low bidder for projects ("Unsigned Low-bid Awards") are excluded from Backlog
until the contract is executed by our customer. Unsigned Low-bid Awards were
$270 million at September 30, 2020 and $273 million at December 31, 2019. The
combination of our Backlog and Unsigned Low-bid Awards, which we refer to as
"Combined Backlog," totaled $1.51 billion and $1.34 billion as of September 30,
2020 and December 31, 2019, respectively.
The Company's margin in Backlog has increased from 11.5% at December 31, 2019 to
12.4% at September 30, 2020 and the Combined Backlog margin increased from 11.0%
at December 31, 2019 to 11.6% at September 30, 2020, driven by a greater mix of
Specialty Services awards.
RESULTS OF OPERATIONS
Consolidated Results
Summary-For the third quarter of 2020, the Company had operating income of $28.8
million, income before income taxes of $21.7 million, net income attributable to
Sterling common stockholders of $15.2 million and net income per diluted share
attributable to Sterling common stockholders of $0.54.
Consolidated financial highlights for the three and nine months ended
September 30, 2020 as compared to the three and nine months ended September 30,
2019 are as follows:
                                                           Three Months Ended September 30,           Nine Months Ended September 30,
(In thousands)                                              2020                   2019                   2020                    2019
Revenues                                             $       383,458           $ 291,699          $       1,080,184           $ 779,734
Gross profit                                                  49,916              29,216                    144,760              74,215
General and administrative expenses                          (15,154)            (10,239)                   (51,209)            (32,302)
Intangible asset amortization                                 (2,866)               (600)                    (8,569)             (1,800)
Acquisition related costs                                       (401)             (1,896)                    (1,013)             (2,158)
Other operating expense, net                                  (2,664)             (4,366)                    (9,989)             (9,936)
Operating income                                              28,831              12,115                     73,980              28,019
Interest, net                                                 (7,154)             (2,693)                   (22,391)             (8,002)
Income before income taxes                                    21,677               9,422                     51,589              20,017
Income tax expense                                            (6,280)               (913)                   (14,712)             (1,782)
Less: Net income attributable to noncontrolling
interests                                                       (240)               (552)                      (395)               (635)
Net income attributable to Sterling common
stockholders                                         $        15,157           $   7,957          $          36,482           $  17,600

Gross margin                                                    13.0   %            10.0  %                    13.4   %             9.5  %



                                       25

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Revenues-Revenues were $383.5 million for the third quarter of 2020, an increase
of $91.8 million or 31% compared with the third quarter of 2019. The increase in
the third quarter of 2020 was driven by a $107.1 million increase in Specialty
Services due to the inclusion of the quarter results from Plateau, which was
acquired on October 2, 2019, and a $2.5 million increase in Residential, partly
offset by a $17.8 million decrease in Heavy Civil. Revenues were $1,080.2
million for the nine months ended September 30, 2020, an increase of $300.5
million or 39% compared with the nine months ended September 30, 2019. The
increase in the nine months ended September 30, 2020 was driven by a $289.0
million increase in Specialty Services due to the inclusion of nine months of
results from Plateau, a $7.5 million increase in Heavy Civil, and a $4.0 million
increase in Residential.
Gross profit-Gross profit was $49.9 million for the third quarter of 2020, an
increase of $20.7 million or 71% compared to the third quarter of 2019. The
Company's gross margin as a percent of revenue increased to 13.0% in the third
quarter of 2020, as compared to 10.0% in the third quarter of 2019. The
increases in gross profit and gross margin as a percent of revenue are primarily
driven by Specialty Services due to the inclusion of a full quarter results from
Plateau. Gross profit was $144.8 million for the nine months ended September 30,
2020, an increase of $70.5 million or 95% compared with the nine months ended
September 30, 2019. The Company's gross margin as a percent of revenue increased
to 13.4% in the nine months ended September 30, 2020, as compared to 9.5% in the
nine months ended September 30, 2019. The increase in gross profit and gross
margin as a percent of revenue are primarily driven by Specialty Services due to
the inclusion of nine months of results from Plateau operations in 2020.
Contracts in progress which were not substantially completed totaled
approximately 215 and 183 at September 30, 2020 and 2019, respectively. These
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 percent of revenues can increase or
decrease from comparable and subsequent quarters due to variations among
contracts and depending upon the stage of completion of contracts.
General and administrative expenses-General and administrative expenses were
$15.2 million for the third quarter of 2020, an increase of $4.9 million
compared to the third quarter of 2019. General and administrative expenses were
$51.2 million for the nine months ended September 30, 2020, an increase of $18.9
million compared to the nine months ended September 30, 2019. These increases
were primarily due to the inclusion of the results from Plateau operations in
2020 and higher stock compensation and other corporate related cost.
Intangible asset amortization-Intangible asset amortization was $2.9 million for
the third quarter of 2020, an increase of $2.3 million compared to the third
quarter of 2019. Intangible asset amortization was $8.6 million for the nine
months ended September 30, 2020, an increase of $6.8 million compared to the
nine months ended September 30, 2019. The increases were a result of the Plateau
Acquisition.
Acquisition related costs-The Company had acquisition related costs of $0.4
million and $1.9 million during the third quarter of 2020 and 2019,
respectively, and $1.0 million and $2.2 million for the nine months ended
September 30, 2020 and 2019, respectively, all of which related to the Plateau
Acquisition.
Other operating expense, net-Other operating expense, net, includes 50% of
earnings and losses related to Members' interest of consolidated 50% owned
subsidiaries (included within Heavy Civil), earn-out expense and other
miscellaneous operating income or expense. Members' interest earnings are
treated as an expense and increase the liability account. The change in other
operating expense, net, was a decrease of $1.7 million during the third quarter
of 2020 compared to the third quarter of 2019. Earn-out expense decreased by
$0.1 million during the third quarter of 2020 to $0.1 million from $0.2 million
in the third quarter of 2019. Members' interest earnings decreased by $1.6
million during the third quarter of 2020 to $2.6 million from $4.2 million in
the third quarter of 2019. The change in other operating expense, net, was an
increase of $0.1 million during the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019. Earn-out expense decreased
by $0.6 million during the nine months ended September 30, 2020 to $1.1 million
from $1.7 million in the nine months ended September 30, 2019. Members' interest
earnings increased by $0.7 million during the nine months ended September 30,
2020 to $8.9 million from $8.2 million in the nine months ended September 30,
2019.
Interest expense-Interest expense was $7.2 million in the third quarter of 2020
compared to $3.0 million in the third quarter of 2019 and interest expense was
$22.5 million in the nine months ended September 30, 2020 compared to $9.0
million in the nine months ended September 30, 2019. The increases were due to
borrowings related to the Plateau Acquisition.
Income taxes-The effective income tax rate was 29.0% and 28.5% in the third
quarter of 2020 and the nine months ended September 30, 2020, respectively,
compared to 9.7% and 8.9% in the third quarter of 2019 and the nine months ended
September 30, 2019. The increases in both periods are in part due to a reduction
in the tax valuation allowance that reduced the effective income tax rate in
2019 and in part due to additional state taxes in 2020 primarily related to
Plateau. Due to its net
                                       26
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operating loss carryforwards, the Company expects no cash payments for federal
income taxes for 2020 or 2019. See Note 13 - Income Taxes for more information.
Segment Results
                                                  Three Months Ended September 30,                                              Nine Months Ended September 30,
                                                       % of                                  % of                                     % of                                  % of
(In thousands)                     2020              Revenue              2019             Revenue               2020               Revenue              2019             Revenue
Revenue
Heavy Civil                    $  201,078              52%            $ 218,894              75%            $    577,141              54%            $ 569,635              73%
Specialty Services                139,971              37%               32,863              11%                 380,397              35%               91,436              12%
Residential                        42,409              11%               39,942              14%                 122,646              11%              118,663              15%
Total Revenue                  $  383,458                             $ 291,699                             $  1,080,184                             $ 779,734

Operating Income
Heavy Civil                    $    2,405              1.2%           $   7,420              3.4%           $      2,679              0.5%           $  11,020              1.9%
Specialty Services                 21,474             15.3%               1,371              4.2%                 55,834             14.7%               3,284              3.6%
Residential                         5,353             12.6%               5,220             13.1%                 16,480             13.4%              15,873             13.4%
Subtotal                           29,232              7.6%              14,011              4.8%                 74,993              6.9%              30,177              3.9%
Acquisition related costs            (401)                               (1,896)                                  (1,013)                               (2,158)
Total Operating Income         $   28,831              7.5%           $  12,115              4.2%           $     73,980              6.8%           $  28,019              3.6%


Heavy Civil
Revenues-Revenues were $201.1 million for the third quarter of 2020, a decrease
of $17.8 million or 8.1% compared to the third quarter of 2019. The decrease was
driven by lower aviation revenue for the third quarter of 2020 compared to the
third quarter of 2019. Revenues were $577.1 million for the nine months ended
September 30, 2020, a increase of $7.5 million or 1.3% compared to the nine
months ended September 30, 2019. The increase was driven by higher heavy highway
revenue for the nine months ended September 30, 2020 compared to the nine months
ended September 30, 2019, partly offset by the aforementioned third quarter
impact.
Operating Income-Operating income was $2.4 million for the third quarter of
2020, a decrease of $5.0 million, compared to the third quarter of 2019. The
decrease was the result of a charge for increased estimated cost to complete the
construction of three separate bridges in Texas and a margin shift due to lower
volume on aviation work and higher volume of lower margin heavy highway work.
The company expects the margin mix to improve in 2021 with the ramp up of
several large projects which are in backlog. Operating income was $2.7 million
for the nine months ended September 30, 2020, a decrease of $8.3 million,
compared to the nine months ended September 30, 2019. The decrease was the
result of the aforementioned third quarter impact and greater project mix shift
to our 50% owned subsidiaries which increased members interest by $0.7 million
and additional costs associated with COVID-19.
Specialty Services
Revenues-Revenues were $140.0 million for the third quarter of 2020, an increase
of $107.1 million compared to the third quarter of 2019. The increase was driven
by the inclusion of Plateau's operations in the third quarter of 2020, partly
offset by a decrease in Commercial revenues. Revenues were $380.4 million for
the nine months ended September 30, 2020, an increase of $289.0 million compared
to the nine months ended September 30, 2019. The increase was primarily
attributable to the inclusion of nine months of results from Plateau operations
in 2020, partly offset by a decrease in Commercial revenues.
Operating income-Operating income was $21.5 million for the third quarter of
2020, an increase of $20.1 million, compared to the third quarter of 2019 and
operating income was $55.8 million for the nine months ended September 30, 2020,
an increase of $52.6 million, compared to the nine months ended September 30,
2019. The increases were primarily attributable to the inclusion of operating
income generated from Plateau operations in 2020.
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Residential


Revenues-Revenues were $42.4 million for the third quarter of 2020, an increase
of $2.5 million or 6.2%, compared to the third quarter of 2019. Revenues were
$122.6 million for the nine months ended September 30, 2020, an increase of $4.0
million or 3.4%, compared to the nine months ended September 30, 2019. The
increases in revenue were primarily the result of the continued ramp-up of work
in Houston.
Operating income-Operating income was $5.4 million for the third quarter of
2020, an increase of $0.1 million, compared to the third quarter of 2019 and
operating income was $16.5 million for the nine months ended September 30, 2020,
an increase of $0.6 million, compared to the nine months ended September 30,
2019. The increases were driven by the ramp-up of operations and scale in
Houston. Houston as a percentage of completed slabs was 15% for the third
quarter of 2020 compared to 11% for the third quarter of 2019. Operating income
as a percent of revenue decreased 45 basis points compared to the third quarter
of 2019, driven by the ramp-up of operations and scale in Houston, temporary
price concessions implemented to mitigate a potential decrease in demand due to
COVID-19, and an increase in lumber and concrete costs in 2020.
LIQUIDITY AND SOURCES OF CAPITAL
Cash-Cash at September 30, 2020, was $72,593, and includes the following
components:
                                        September 30,       December 31,
(In thousands)                               2020               2019
Generally Available                    $       35,083      $      29,659
Consolidated 50% Owned Subsidiaries            30,658             12,004
Construction Joint Ventures                     6,852              4,070
Total Cash                             $       72,593      $      45,733


The following tables set forth information about our cash flows and liquidity:
                                                 Nine Months Ended September 30,
(In thousands)                                         2020                     2019
Net cash provided by (used in):
Operating activities                      $        90,949                    $   8,477
Investing activities                              (20,531)                      (6,606)
Financing activities                              (43,558)                     (19,436)
Net change in cash and cash equivalents   $        26,860

$ (17,565)




Operating Activities-During the nine months ended September 30, 2020, net cash
provided by operating activities was $90.9 million compared to net cash provided
by operating activities of $8.5 million in the nine months ended September 30,
2019. Cash flows provided by operating activities were driven by net income,
adjusted for various non-cash items and changes in accounts receivable, net
contracts in progress and accounts payable balances (collectively, "Contract
Capital"), as discussed below, and other accrued liabilities.
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 the components of Contract Capital during the nine
months ended September 30, 2020 and 2019 were as follows:
                                                                  Nine Months Ended September 30,
(In thousands)                                                      2020                    2019
Costs and estimated earnings in excess of billings           $        (12,755)         $    (26,060)
Billings in excess of costs and estimated earnings                     41,975                  (874)
Contracts in progress, net                                             29,220               (26,934)
Accounts receivable, including retainage                              (23,095)              (15,486)
Receivables from and equity in construction joint ventures             (4,606)               (3,931)
Accounts payable                                                      (10,257)               11,198
Change in Contract Capital, net                              $

(8,738) $ (35,153)


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During the nine months ended September 30, 2020, the change in Contract Capital
decreased liquidity by $8.7 million. 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 the nine months ended September 30, 2020, net cash
used in investing activities was $20.5 million compared to $6.6 million in the
nine months ended September 30, 2019. The use of cash was driven by purchases of
capital equipment and buildings and improvements. Capital equipment is acquired
as needed to support changing levels of production activities and to replace
retiring equipment.
Financing Activities-During the nine months ended September 30, 2020, net cash
used in financing activities was $43.6 million compared to net cash used of
$19.4 million in the prior year. The financing cash outflow was driven by $52.7
million of repayments on debt, primarily consisting of $12.5 million in payments
on the combined promissory notes and deferred cash payments issued as part of
the Tealstone Acquisition and $20.0 million in repayments on the Term Loan
Facility and $20.0 million in repayments on the Revolving Credit Facility.
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 civil infrastructure and
specialty services markets. The Company expects to pursue strategic uses of its
cash, such as, investing in projects or businesses that meet its gross margin
targets and overall profitability and managing its debt balances.
OFF-BALANCE SHEET ARRANGEMENTS AND JOINT VENTURES
We participate in various construction joint venture partnerships in order to
share expertise, risk and resources for certain highly complex projects. The
joint venture's contract with the project owner typically requires joint and
several liability among the joint venture partners. Although our agreements with
our joint venture partners provide that each party will assume and fund its
share of any losses resulting from a project, if one of our partners was unable
to pay its share, we would be fully liable for such share under our contract
with the project owner. Circumstances that could lead to a loss under these
guarantee arrangements include a partner's inability to contribute additional
funds to the venture in the event that the project incurred a loss or additional
costs that we could incur should the partner fail to provide the services and
resources toward project completion that had been committed to in the joint
venture agreement. See the 2019 Form 10-K under "Part I, Item 1A. Risk Factors,"
as updated herein.
 At September 30, 2020, there was approximately $573.7 million of construction
work to be completed on unconsolidated construction joint venture contracts, of
which $255.9 million represented our proportionate share. Due to the joint and
several liability under our joint venture arrangements, if one of our joint
venture partners fails to perform, we and the remaining joint venture partners
would be responsible for completion of the outstanding work. As of September 30,
2020, we are not aware of any situation that would require us to fulfill
responsibilities of our joint venture partners pursuant to the joint and several
liability under our contracts.
NEW ACCOUNTING STANDARDS
See the applicable section of Note 2 - Basis of Presentation and Significant
Accounting Policies for 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 Condensed Financial Statements, which have been
prepared in accordance with GAAP. The preparation of these Condensed 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 policies
involve more significant judgments and estimates used in the preparation of the
Condensed 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
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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 contingency, 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 our contract accounting,
actual results could differ from those estimates, which could result in material
changes to the Company's Condensed Financial Statements and related disclosures.
Valuation of 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 three and nine
months ended September 30, 2020 and the year ended December 31, 2019, there were
no events or changes in circumstances that would indicate a material impairment
of our long-lived assets.
Goodwill
At September 30, 2020 and December 31, 2019, we had goodwill with a carrying
amount of $192.0 million and $191.9 million, respectively. 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 during the
fourth quarter of each year based on balances as of October 1. During the fourth
quarter 2019, the Company performed a qualitative assessment of goodwill, and
based on this assessment, no indicators of impairment were
present. Additionally, during the three and nine months ended September 30,
2020, the Company noted no indicators of impairment.
Income Taxes
Deferred Tax Realization Assessments-Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis using currently enacted income tax rates for the
years in which the differences are expected to reverse. A valuation allowance is
provided to offset any net deferred tax assets ("DTA(s)") if, based upon the
available evidence, it is more likely than not that some or all of the DTAs will
not be realized. The realization of our net DTAs depends upon our ability to
generate sufficient future taxable income of the appropriate character and in
the appropriate jurisdictions.
As a result of the Company's analysis, management has determined that the
Company does not have any material uncertain tax positions. If our estimates or
assumptions regarding our current and deferred tax items are inaccurate or are
modified, these changes could have potentially material impacts on our earnings.

Purchase Accounting Estimates
The aggregate purchase price for the Plateau Acquisition was allocated to the
major categories of assets and liabilities acquired based upon their estimated
fair values as of October 2, 2019, which were based, in part, upon an external
appraisal and valuation of certain assets, including specifically identified
intangible assets and property and equipment. The excess of the purchase price
over the estimated fair value of the net tangible and identifiable intangible
assets acquired, totaling $106.8 million, was recorded as goodwill. See Note 3 -
Plateau Acquisition to our Condensed Financial Statements for further
discussion.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We continue to utilize a swap arrangement to hedge against interest rate
variability associated with $350 million of the $380 million outstanding under
the Term Loan Facility. The Company has designated its interest rate
swap agreement as a cash flow hedging derivative. To the extent the derivative
instrument is effective and the documentation requirements have been met,
changes in fair value are recognized in other comprehensive income (loss) until
the underlying hedged item is recognized in earnings. The total fair value of
the contract was a net loss of approximately $8.4 million at September 30, 2020.
For the $30
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million remaining portion of the Term Loan Facility not associated with the
interest rate swap hedge, at September 30, 2020 a 100-basis point (or 1%)
increase or decrease in the interest rate would increase or decrease interest
expense by approximately $0.3 million per year.
Other
The carrying values of the Company's cash and cash equivalents (primarily
consisting of bank deposits), accounts receivable and accounts payable
approximate their fair values because of the short-term nature of these
instruments. At September 30, 2020, the fair value of the term loan, based upon
the current market rates for debt with similar credit risk and maturities,
approximated its carrying value as interest is based on LIBOR plus an applicable
margin.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures include, but are not limited to, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Securities Exchange Act
of 1934 is accumulated and communicated to the issuer's management, including
the principal executive and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
The Company's principal executive officer and principal financial officer
reviewed and evaluated the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of September 30, 2020. As previously disclosed, we completed the
Plateau Acquisition on October 2, 2019 and, as permitted by SEC guidance for
newly acquired businesses, we have elected to exclude the acquired operations of
Plateau from the scope of design and operation of our disclosure controls and
procedures for the quarter ended September 30, 2020. Based on that evaluation,
the Company's principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures were effective
at September 30, 2020 to ensure that the information required to be disclosed by
the Company in this Report is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms and is accumulated and communicated to the Company's management
including the principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended
September 30, 2020 that have materially affected, or are reasonably likely to
materially affect, internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting may not prevent or detect all errors
and all fraud. Also, projections of any evaluation of effectiveness of internal
control to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

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