Granite Construction Incorporated

Good day. My name is Ilie and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Investor Relations first quarter 2021 conference call. This call is being recorded. All lines have been placed on mute to prevent any background noise and after the speaker's remarks, there will be a question and answer period. To ask a question, please press star 1. Please note we will take one question and one follow-up question from each participant today. It is now my pleasure to turn the floor over to your host, Granite Construction Incorporated Vice President of Investor Relations, Mike Barker. Sir, the floor is yours.

Good morning, and thank you for joining us. I'm pleased to be here today with Granite President Kyle Larkin and Executive Vice President and Chief Financial Officer Lisa Curtis. Please note that today's earnings presentation will be available on the Events and Presentations page of Granite's Investor Relations website. We begin today with an overview of the company's Safe Harbor language. Some of the discussion today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are estimates reflecting the current expectations and best judgment of senior management regarding future events, occurrences, growth, demand, strategic plans, circumstances, activities, performance, outcomes, outlook, guidance, backlog, committed and awarded projects, and results. Actual results could differ materially from statements made today. Please refer to Granite's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these forward-looking statements. The company assumes no obligation to update forward-looking statements, whether they are results of new information, future events, or otherwise, except as required by law. Certain non-GAAP measures may be discussed during today's call and from time to time by the company's executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net income or loss, and adjusted earnings or loss per share. Reconciliations of non-GAAP measures are included as part of our earnings press releases and in company presentations, which are available on our investor relations website. Now, I would like to turn the call over to Granite President, Powell Larkin.

Thank you, Mike. Good morning, and thank you all for joining us on our call today. To start off the call, I would like to comment on our press release where we announced that we had reached a settlement to resolve securities litigation subject to court approval. Although it was a difficult decision, we concluded that it was in the best interest of the company, as well as our shareholders, to move forward. Following court approval, we will be able to put this litigation behind us and focus on our business and people. Grant's portion of the settlement excluded insurance, is $66 million and we expect it to be paid from existing cash on hand. As Lisa will explain in further detail later in the call, despite this event, our liquidity and cash position remains strong. As I've discussed in previous calls, our core values guide us in our day-to-day operations and are serving as the foundation of our cultural reinvigoration. On the last call, I provided an overview of our sustainability core value and the efforts that are underway to drive sustainability forward at Granite. Today I will touch on two more of our core values, safety and inclusion, and how we are integrating them into our day-to-day operations to drive desired behaviors. Granite's choice to continue to include safety as a core value is embedded in our culture and reflects our belief that the safety and well-being of our people, our partners, and the public is our greatest responsibility. Every level of our organization supports our safety culture with training, planning, and engagement. We approach every task with safety built into the process and we do not sacrifice anyone's safety to get the job done. While safety is front of mind every day at Granite, it is particularly timely to talk about our safety commitment on the heels of Safety Week, which is just concluding today. Safety Week is an industry-wide national event and Granite was one of the founding members almost a decade ago. Across the country on grant projects and in our offices, we conduct daily activities to reinforce and strengthen our commitment to safety. This week, I had the opportunity to visit grant project teams and take part in safety meetings across the country. The planning and attention to detail that our teams put into these safety meetings are impressive and demonstrate our focus on safety. Inclusion is a core value that was added this year, but has been an important focus since 2019. Since it's a new core value, we want to provide additional detail to why we chose to recognize the importance of inclusion. Inclusion is how we build value in our company by welcoming contributions from all of our employees. Our differences enhance creativity and innovation to create a high-performance culture and have a positive impact on how we achieve our business goals and objectives. At Granite, when we build the value of inclusion, We value and respect a workforce diverse in perspective, experience, knowledge, and culture, and we are committed to an inclusive environment in which everyone feels a sense of belonging and can grow. To live this value, we must understand a couple of things. First, we know that diversity is the mix of our employees, our clients, and our community, and inclusion is how we make that mix work. We have made significant progress in our inclusive diversity journey, starting with our employee resource groups, granted resources and opportunities for women or GROW, and supporting and recognizing the veteran community or service. GROW advocates for and supports women through mentoring, networking, and career development. Service supports and recognizes employees that have served and friends and family members and employees that have served in all branches of the military. We have also established executive inclusive diversity and multicultural councils, conducted leadership training, and establish relationships with historically black colleges and universities. In 2020, we had over 200 interns and more than half were diverse. In addition, one-third of our executive team and nearly half of our board of directors are diverse. Looking forward, we will continue to create clarity around inclusive diversity by having dialogue concerning how we can be more inclusive. We will continue to develop talent and strengthen our talent pipeline at all levels with a focus on women and people of color. and we will continue to build capability through training leaders and employees to challenge ourselves to be more inclusive. We know that having an inclusive environment doesn't happen overnight. It happens over time. I am proud of our inclusion efforts, and I am excited about the culture we are creating here at Granite. Okay, let's switch gears and talk about our business segments, starting with transportation. The first quarter is typically our slowest quarter with cold and wet weather regularly hampering work in many of our markets. Even with the challenges of weather, I'm pleased with the performance of the segment, not only on the top line, but also at the gross profit level due to good execution across our operating groups. Some good news to share, we continue to burn through the backlog of the heavy civil operating group old risk portfolio with a minimal impact to gross profit during the quarter. This was a marked improvement over the last two years. The remainder of the segment, which is primarily comprised of vertically integrated projects, also completed a solid first quarter, setting the stage for a busy remainder of the year. The bidding environment is strong, with robust opportunities in our markets, resulting in an increase in our bid volume year over year. While we routinely share information about our larger project wins, we also continue to have success in winning the smaller to medium-sized projects that are the foundation of our portfolio. The first quarter of the year is historically a very competitive bid environment with contractors more aggressively bidding to build backlog early in the year. We have seen this dynamic in the first quarter of 2021 with increased bid volume and strong competition. As anticipated, transportation committed and awarded projects, or CAP, decreased year over year with a shift in the portfolio as heavy civil operating group CAP is burned and replaced with CAP from our vertically integrated businesses. including best value procurement work. The extension of the FAST Act, the $13.6 billion infusion to the Highway Trust Fund for 2021, and the enactment of coronavirus relief bills have combined to provide direct and indirect support for transportation funding. Funding is positive across our markets, and we are hopeful that a federal infrastructure bill will be signed into law this year. Turning to the water segment, in the first quarter, we continued to see a recovery from the pandemic, but the deep freeze in Texas during the quarter interrupted the supply chain, resulting in a spike in resin costs. Resin is a product used in our trenchless, secured-in-place pipe rehabilitation business, Granite Endliner. Although this segment was hardest hit by the pandemic, we are seeing an increase in bid opportunities, a positive indication for the remainder of the year. As a result, water segment cap remains strong as of the end of the first quarter at $339 million. This figure does not include the recently awarded Leon Hurst Dam project in Texas for approximately 160 million, which will be included in our second quarter cap. This award is a component of the overall Lake Ralph Hall project, which will be one of Texas' newest lakes and one of the state's biggest water projects in the last 30 years. Granite has a long history of working on complex dam projects, and we are proud to continue this work on the Leon Hurst Dam. All levels of the government recognize the critical need to repair and support water infrastructure across the country, as seen in the ongoing discussion with the federal infrastructure bill and the Senate's recently passed $35 billion water infrastructure bill. We have been successful in winning water infrastructure projects, and there are multiple opportunities in the water market that Granite is currently pursuing. We believe we are well positioned to continue to procure work in this area. Moving on to the specialty segment. our teams turned in a solid quarter and ended with a record cap of over $1 billion. In the first quarter, we added to cap a significant new $267 million tunnel project in Columbus, Ohio. We are excited to continue our relationship with the City of Columbus, where we successfully completed a large tunnel project just a couple years ago. Additionally, operating groups continue to foster new relationships as well as build upon existing relationships to expand our footprint with both public and private clients. Recent project wins include several projects with a variety of mining clients in different geographies across our business, a project to establish a new rail yard in the Port of Stockton, California, and a federal project to expand a military facility in Guam. Both the private and public markets within the diverse specialty segment continue to be strong, with investment driven by the overall positive economic outlook. This segment is a growing area of our business, and we look for that to continue in 2021 and beyond. Moving on to the materials segment, the first quarter results were terrific in our seasonally slowest quarter. We entered the quarter with significantly higher material orders compared to the prior year, which resulted in higher sales volumes in 2021 led by the California operating group. As of the end of the quarter, materials orders continued to outpace the prior year with strong demand in both the California and Northwest operating groups. This demand is a positive indicator for the remainder of 2021, not only in the materials segment, but also for our vertically integrated construction businesses. As of the end of the first quarter, our consolidated cap is $4.5 billion, an increase during the quarter of over $170 million compared to year-end levels. Cap in our specialty and water segments continues to grow as we pursue end-market diversification. The old risk portfolio design bill cap continues to decline as our risk profile is transformed following our new project selection criteria. And finally, our cap portfolio is more evenly distributed across operating group geographies. As I mentioned on previous calls, we have been transforming our cap portfolio focused on reducing risk. Our teams have made significant progress and continue to execute on our plan. With that, I'm going to turn it over to Lisa to discuss our financial results. Lisa.