Granite Construction Incorporated

Good morning. My name is Andrea, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Incorporated 2023 First Quarter 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, then one. 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 Vice President of Investor Relations, Mike Barker. Please go ahead.

Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer, Kyle Larkin. Our chief financial officer, Lisa Curtis, is recuperating from a minor unplanned medical procedure and is unable to join us today. We're happy to report that Lisa is doing well and she'll be back with us soon. 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 the 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 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, and adjusted earnings 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 website, graniteconstruction.com, under Investor Relations. We'll also be discussing comparable results, which excludes the effects of granite inliner, which was sold in March, 2022. Now I'd like to turn the call over to Kyle Larkin.

Good morning and welcome to our first quarter conference call. The typical winter quarter is often a slower one for granite, as many of our businesses are seasonal. Early in the year, many of our locations are focused on maintenance and preparing for the construction season, while waiting for cold and wet weather to pass. As everyone is aware, the first quarter of 2023 was not a typical winter quarter. Extreme weather events occurred across the country, with the western U.S. particularly impacted. Atmospheric river became a familiar term of art, and these storms, hitting one after another, traveled across the country, bringing extreme weather with them. Many of our home markets were in the path of these storms. with historic precipitation across Nevada, Utah, and Arizona, and even more intense impacts in California. For context, in the Wasatch Mountains of Utah, snowpack more than doubled historical averages, and the same was seen in the northern Sierra. The southern Sierra received nearly 300% of normal snow totals, while many locations from southern California to central California collected more than 150% of normal rainfall totals. All of this precipitation delayed work while causing true hardship to many of our home market communities, as well as many of our employees. It also impacted our revenue and growth projections for the quarter. This is obviously unfortunate, but I said in the last call, if it's going to rain, we want it to rain early in the year during our slowest quarter. As I will discuss today, opportunities also arise with the extreme weather. With the good weather in April and most of our regions, our teams are starting to catch up on planned construction, and we are confident that we have the capacity to deliver on our growth expectations this year, despite the poor weather of the first quarter. Now, let's jump into the construction segment and the performance of our operating groups. Although the weather did not cooperate in Q1, the market is strong, as illustrated by the substantial growth of our cap this quarter to $5.1 billion. This is an increase of $619 million and 14% from the fourth quarter, and a record cap total for Granite. The growth in cap during the first quarter of 2023 built upon our momentum from the several most recent quarters. This is strategic growth. We are winning work while being selective in our bidding. We are pursuing fewer jobs while still winning more work at higher margins than the prior year. This trend is a really nice result for our pursuit teams across the company. I believe that we have a significant opportunity in this strong market environment to continue building high quality cap throughout the remainder of 2023. In the California group, we ended the quarter with another record cap of $1.9 billion. This reflects a 10% increase from the group's fourth quarter cap and a 29% increase over the same period of the prior year. Despite the deficit in the proposed California budget, bidding activity in the state remains robust. aided by the Federal Infrastructure Bill, or IIJA. IIJA funds a variety of projects and creates a variety of opportunities for us. One IIJA opportunity that at first glance would appear to be outside our traditional transportation scope includes middle-mile broadband projects. Although these projects sound as though they would be outside of our core capabilities, they offer scopes of work that align well with our construction expertise. In the first quarter, we were awarded three middle-mile broadband infrastructure projects where our scope of work consists primarily of excavation. These projects added $132 million to California's cap. In these projects, fiber optic cables are laid in conduits connecting global Internet networks to local networks across the state of California. While each state is different, California is moving quickly to capitalize on the funding provided by the IIJA for these types of projects, and Granite is well-positioned to partner with Caltrans to construct them. Our long partnership with Caltrans and local municipalities also allowed Granite to participate in emergency storm response across the Golden State. In the midst of record rainfall, Granite was tapped by Caltrans for critical response projects throughout California in the first quarter, and we secured approximately $100 million of emergency work with $18 million in revenue recognized in the first quarter. We are proud to support our communities with timely, high-quality work when and where the need is the greatest. Moving to the Mountain Group, our largest group by revenue in 2022, we increased cap by $364 million, or 34%, since year-end, with a 40% increase since the first quarter of 2022. The cap increase in the first quarter was led by the Alaska region, with an increase of $215 million, largely from two Best Value projects booked in the quarter. In recent years, Alaska's funding has been limited due to decreases in oil production in a challenging tourism industry. New federal funding for infrastructure has increased opportunities in Alaska, including in best value procurement work. Utah region, including the Salt Lake City market, continues to be a highlight in the diverse mountain group and 160 million to its cap during the quarter. Salt Lake City has been a growing market for several years and has been one of Granite's key home markets for decades. Last year, we announced significant materials investments in the area We expect our Utah business to grow along with the local economy. Finally, the Central Group continued to grow CAP in its home markets, led by the Federal Division and Arizona region. In Arizona, the Phoenix and Tucson markets, led by the influx of new residents, have been among the fastest-growing economies in the country. The state is investing heavily in infrastructure to support its growth, and we are seeing that dynamic in our CAP portfolio. In the federal division, the cap increase was primarily driven by the recently announced $126 million contract awarded by the Naval Facilities Engineering Systems Command, or NAVFAC, for the construction of buildings and infrastructure to support the relocation of U.S. Marines to Marine Corps Base Camp Blas in Guam. Grant has been working on various projects in the construction of Camp Blas for over a decade. Given the high level of government funding available, our federal division has numerous significant opportunities to build its portfolio with several different branches of the federal government. As I take a step back and look across the central group, the transformation over the last three years has been impressive. The vertically integrated Arizona region is capitalizing on a booming market. Texas region has been very successful in winning projects in its home markets. The Illinois region has built an impressive cap portfolio in the Chicago area, and the federal division continues to expand relationships across multiple agencies. Overall, despite the slow start of the year, the near and longer-term prospects for all of our groups are bright. We have successfully grown our cap during the quarter, and I believe we will continue to grow quality cap in 2023 as further projects funded by the IIJA are released for bid. Now on to the materials segment. While the first quarter of the year is generally a slower time for our materials business, This quarter was particularly difficult. In too many of our markets in the western U.S., wet and cold weather prevented us from delivering the results to be expected to start the year. We entered 2023 with healthy order volumes, but many projects were disrupted. Overall, weather has improved significantly across our footprint in April. Our teams are off and running following the wet first quarter, and I expect them to make a lot of progress towards our projections during the second quarter. Last year, I spoke about several investments in the materials business. These included new reserves, a liquid asphalt terminal, and automation projects at multiple aggregate plants. In 2023, we have continued investing in our materials business through small bolt-on transactions in Nevada and the Pacific Northwest. The Brunswick Canyon Quarry and Asphalt Plant in Carson City, Nevada, purchased in Q1, supports Granite's vertically integrated home market in northern Nevada. We also recently announced the purchase of Coast Mountain Resources in April, an aggregate vendor for our Pacific Northwest region. These bolt-on transactions and materials assets are representative of the acquisitions that I expect us to continue to pursue to grow our materials business and work to further develop and vertically integrate our home markets. Now, I'll turn it over to Mike to review our financial performance.