Granite Construction Incorporated

Good morning. My name is Nick. I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the Granite Construction Investor Relation second quarter 2022 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'll be a question and answer period. To ask a question, please press star then 1. Please note, we'll 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. Please go ahead, sir.

Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer 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 our investor relations website. We begin today with a brief discussion regarding forward-looking statements and non-GAAP measures. 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, opportunities, targets, growth, demand, strategic plans, circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, committed and awarded projects, or CAP, and results. Actual results could differ materially from the 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 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. The required disclosures regarding our 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'd like to turn the call over to Kyle Larkin.

Good morning, and welcome to our second quarter call. Before we jump into the results, Lisa and I will discuss a few significant accomplishments during the quarter in the execution of our strategic plan. As I mentioned on our last call, our plan to achieve consistent profitability and sustainable growth is built around four strategic themes. Develop our people, raise the bar, grow market share, and maximize value add. These themes are central to our success. To develop our people, we have seen a historically tight construction labor market become even more competitive as we emerge from the pandemic. The current labor environment is the most challenging I've seen in our industry. This challenge exists at all levels, in craft and project executives. Grant's best-in-class human resource professionals have risen to the challenge with innovative recruiting programs and by providing our existing workforce with training and development in preparation for upward mobility and new opportunities within the organization. The return of our strategic focus to a civil construction and materials provider within our home markets allows us to better leverage our team's recruiting and training programs across the company and meet the people challenge the industry faces. With the rollout and funding of the infrastructure bill, our future success and growth will hinge on our ability to continue to attract the skilled workforce to meet the labor challenges for all of the expected opportunities. To do so, we must be the employer of choice to have the best people in the industry to execute on new opportunities as we grow our market share across the country. I believe we are well positioned and we will continue to invest in our people to make it Within the Raise the Bar and Grow Market Share themes, we are bolstering our standardized processes and best practices across the business while strategically investing in our businesses to position them for further growth. During the quarter, we saw evidence that the focus on our strategic plan is taking hold. Although our results were impacted by the Old Risk Portfolio, or ORP, gross profit was reduced in the quarter by losses in the ORP along with energy and fuel cost inflation. The ORP are challenging jobs, and we are working hard to mitigate the remaining risk. The good news is that we can see the end of these jobs approaching. Our expectations for ORP cap at the end of 2022 remain unchanged at approximately $50 million. Outside of the ORP, our efforts are resulting in incremental improvement in midday margins and project execution in our construction segment. While we are not yet where we want to be, we continue to make measurable and meaningful progress towards the strategic plan targets we shared and the first quarter earnings call. Finally, the maximize value add theme captures our efforts to add value for all stakeholders through industry-leading ESG performance, execution on our capital allocation strategy, and delivery of improved and consistent earnings. We will touch on ESG and capital strategy shortly. Our goal is to be the contractor of choice, and our home market strategy underpins this goal. In a home market, we are an active member of the community, long-standing, trusted relationships with vendors and subcontractors. Through the experience gained with our established presence, we build market intelligence and insights, identify the best project opportunities, and implement the most effective strategy to win and execute work. Our home markets have proven resources, both workforce and quality construction materials. We have long-tenured employees and believe we are the employer of choice for both salaries and craft workforce. We generally leverage our relationships with union partners in our home markets to obtain the workforce that we want and need for our projects, even in the current challenging labor market conditions. We also have access to quality aggregates and asphalt, which we believe is a key differentiator for us. The access to people and material assets are key to fully leveraging our home market strategy through vertical integration from quarry to construction project. We will continue to opportunistically invest in materials assets to strengthen and and expand our home markets as we continue to transform the company and execute upon our strategic plan. Finally, having strong relationships with both public and private project owners and regulators is crucial to our culture and a key aspect of our home market strategy. In our home markets, we know clients and representatives from working together for many years and enjoy strong relationships to support long-term success. We believe this reduces disputes and legal claims, improves profitability, and helps us bring the most value to our clients. Next, I want to walk you through two exciting strategic announcements we made within the materials segment, and I will also give you an update on the previously announced planned divestitures. Last month, we announced the acquisition of a greenfield aggregate operation in Utah. This decision aligns with our strategy to invest in our vertically integrated operations as we strengthen our key home market in Salt Lake City, a metropolitan area that continues to grow steadily and where nearby aggregate supplies are hard to locate. With 99 million tons of recoverable rock, the new quarry provides Granite with long-term access to aggregate resources in a market where aggregates are scarce. Granite is currently in the process of developing the Grantsville, Utah facility. The hot mix plant will be assembled in the coming months, and the facility is expected to ramp up production in 2022 to full production in 2023. In June, we completed the purchase of a liquid asphalt terminal in Bakersfield, California, adding 170,000 barrels of liquid asphalt storage capacity. This additional storage capacity should allow us to be more flexible in the timing of liquid asphalt purchases and proactively manage the volatility of oil prices by, for instance, completing purchases during the winter when prices are historically lower than during the busy summer season. The storage capacity will also allow us to stabilize supply chain, and better achieve mixed specifications to meet our home market demand in case of short-term disruptions. We expect the asphalt terminal to begin full-scale operations in 2023. Next, I want to give you a quick update on the remaining two legacy water and mineral services group divestitures. During the first quarter, we completed the sale of the inliner business, leaving the water resources and mineral service businesses as held for sale and discontinued operations. Both of the remaining businesses well in the second quarter, and discussions with potential buyers are continuing as expected. We believe that the combined proceeds from the expected sales of the businesses should exceed the proceeds of Inliner, and we are working to enter into agreements in the third quarter with the expected closing of both transactions by year-end. Now, I'll turn it over to Lisa.