Q3 2020 Granite Construction Inc Earnings Call
Good morning, My name is the Nader and I will be your conference facilitator today at this time I would like to welcome everyone to the granite construction Investor Relations third quarter 2020 conference call. This call is being recorded.
All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer period. The ask a question. Please press Star then one. Please note that we've only take one question and one follow up from each participant. It is now my pleasure to turn the floor over to your host granite construction incorporated of Vice President of fine.
Yeah, Mike Barker, Sir the floor is yours.
We begin today with an overview of the company's safe Harbor language some.
Some of the discussion today may include forward looking statements. 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.
The performance outcomes outlook guidance backlog of committed and awarded projects and results.
Actual results could differ materially from statements made today.
Please refer to granite 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.
Please note that some metrics may may reference or exclude nonrecurring acquisition related expenses nonrecurring legal and accounting investigation costs and noncash impairment charges.
Reconciliations of certain 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 the granite construction incorporated chairman of the board of directors class of your.
Thank you Mike Good morning, everyone and thank you for joining us today.
Before I introduce kind of Lisa I wanted to touch on the independent investigation led by the Board's audit compliance Committee.
Shortly before we were about two five of our Tucson 2019 form 10-K in early February of 2020.
Our audit committee in conjunction with the independent external counsel.
We began a thorough investigation of prior period reporting what day.
Have you see it on the operating group.
The investigation income passed have you sort of an operating group projects in various stages of completion.
From 2017 through 2019.
And completed the well.
So that affected the accuracy of project forecast and reported results.
For a more detailed explanation I direct you to our 2019 form 10-K filed on February 22nd 2021.
From the investigation the company determined it had dropped James forecasting issues.
Related primarily to the time the recording of forecasted cost.
The address the issues the company has developed and implemented the very robust remediation plan, which is well underway.
Kind of Linda is that low talk in more detail on these the investigations and remediation Netflix.
But on behalf of the board and audit Committee, who worked tirelessly over the last year I want to thank all of those who work so hard to get the granite through this process.
No.
Of the introductions.
So yes of course, joining the board in 2006 and then.
Serving as chairman beginning in 2018, I've had the pleasure of watching granite grow and develop.
This includes our most recent leadership changes.
I would like to formally introduce kind of walking as our new president appointed in September of last year, and Lisa cookies and sort of more recently appointed CFO.
Yes.
As you likely already know kind of law has been an integral part of granite evolution since joining the company back in 1996 of the project estimate them and.
And most recently he served as the Grand as Chief operating Officer.
On behalf of the board I'm equally pleased to introduce the SEC Curtis as our Chief Financial Officer.
She brings with her a wealth of experience in accounting.
The Investor Relations and project management from various companies and industries.
As we emerge from the investigation with many lessons learned.
Chile has hit the ground running and he is leading a cultural shift within the organization to ensure grantees moves forward as a unified team.
Now, let me close by saying I know that kind of Liza and the rest of the leadership team I'm looking forward to engaging with you.
Kind of Nissan we have identified leaders, who we believe can shape, our future and drive execution across the company in of what.
Way that creates value for our shareholders and positions granite to continue as an industry leader for another 100 years.
With that I will turn the call over to Thailand, Lisa chime.
Yeah.
Thank you Klaus and good morning, everybody.
I am very excited to be able to talk with you today.
A lot has happened in the world granted over the last 16 months I will start by addressing the investigation.
As Klaus mentioned, the internal investigation into the heavy civil operating group and associated projects reveal of project forecasting issues related primarily to the timely reporting of forecasted costs.
Through this process. We also learned a lot about ourselves and that in certain areas. We did not live up to the high expectations that we set as a company.
This is not granite and we cannot allow this to happen again.
I have been with granite from more than 25 years, and I know of the great people at all levels of the organization.
I want to make it very clear that we are committed to fixing the shortcomings of existing by making meaningful changes to our processes. We have spent a lot of time, reflecting on our core values and developing a framework that encourages and allows our employees to fully understand and comply with all of our policies and procedures. We're also leading the cultural reinvigoration.
Which will emphasize our refreshed core values and promote transparency across the company.
Now, let me touch on a few aspects of our remediation plan for.
First.
With the shortfall in our project forecasting processes, we have implemented additional processes controls and accountability for compliance with our policies and procedures vs.
We will discuss this in more detail.
Second we have begun what I call a cultural reinvigoration, we are of Great company full of great people and limited shortcomings do not take away from that reality.
Our cultural reinvigoration involves all of our employees working together to.
Promote best practices and to be an industry leader.
In connection with this we have recently refreshed our core values to reflect what is most important and relevant to how we operate as a company today as well as the granite we want to be in the future.
Our refreshed core values of our safety.
Integrity.
<unk> inclusion in sustainability.
Although consistent with our long standing core values. We believe these values of more modern more meaningful and better resonate with our employees and stakeholders today.
Finally.
We have also made leadership changes as part of our remediation plan.
At the end of 2019, we made changes in the heavy civil operating group management team.
Since that time and through the investigation additional changes were made in this group to ensure an open and compliant environment for our employees.
We've also hired additional personnel and dedicated existing resources to support our efforts to ensure the project teams had the required areas of expertise to prepare the project forecast.
I strongly believe that these actions along with the progress we have made on our heavy civil strategic review that was completed in the communicated back in October of 2019 positions granite well for return to sustained success I will get into the strategic review and status of little later in the call.
Before I turn my attention to the road ahead I wanted to discuss several key successes as well as of few challenges experienced in our business over the course of 2020.
Since we last spoke our vertically integrated businesses of continued to perform exceptionally well in key markets, such as California, and the states within our northwest operating group there.
There continues to be robust opportunities in these markets post pandemic, which are diverse and size of procurement type and the public and private sectors.
While the majority of our work is in the public sector, we have been successful and strategically targeting opportunities in developing relationships and various private markets.
This has helped US diversify our project portfolio to include a wide array of work, including commercial site development for data centers mining operations and renewable energy projects.
As a key component of our vertically integrated business. The materials segment has been another bright spot for granite during 2020.
Our year to date third quarter gross margin over 16% in this segment reflects both the strong demand in our markets and the proactive initiatives, we have introduced across our materials business to gain operational efficiencies. Additionally in the past year. We have opened two large quarries in California that will drive our materials business in those markets for years to come.
These new quarries are designed with the latest technology for both efficiency and sustainability and our significant additions to our aggregate reserves, we continually evaluate additional opportunities to reinvest in our materials business and strengthen our existing footprint.
Now, let me touch on claims settlements another bright spot for us our teams have been successful in bringing several difficult claims resolution during the year.
As expected these claim resolutions generally the non impact our income statement.
They are in line with what was recorded in previous periods. However, they did positively impact cash during the first three quarters of 2020.
Moving on transforming the risk profile of granite committed and awarded or cap portfolio has been another key objective for our teams.
Continue throughout 2020 as I will highlight in more detail later in the call. We have made significant progress in this area by rethinking the way, we assess and pursue opportunities. Ultimately we believe this derisking initiative will drive far more consistent financial performance as our portfolio continues to evolve.
The last thing I wanted to touch on for our 2020 highlights relates to granite progress and commitment to ESG.
Out of dedicated resources, who are focused on sustainable operations.
As the key foundational element of our ESG program during.
During 2020, we expanded our initiatives to promote important social priorities of granted this journey began back in 2019, when we launch that includes the diversity program with measurable targets.
Inclusive of diversity has gained momentum of granite throughout 2020 and will remain at the forefront with our core value of inclusion we look forward to highlighting our comprehensive ESG objectives in more detail as these practices continue to evolve during the months and years ahead.
Now that I've touched on the favorable areas of progress during 2020, let.
Let me shift of some of the challenges we have addressed during the year.
The internal investigation was a long process that absorb financial capital and human resources over the past year. In addition, while granite teams have done an exceptional job of mitigating the impact it has hampered our ability to obtain work in certain limited areas of our business due to the lack of audited financials.
This was not significantly impacted our financial condition, becoming current with all financial reporting requirements as a key priority we expect to complete by the end of March.
We continue to have challenges with certain projects within the heavy civil operating group. This portion of our backlog continues to shrink as intended and any new work added to the project portfolio will be in accordance with our updated the risk criteria.
We have several complex of Aimco projects remaining in our heavy civil operating group backlog, which do not meet our current risk criteria and we are working diligently to complete these riskier projects as soon as possible.
We expect backlog for them to be substantially reduced by the end of 2021.
As part of our new risk criteria, we have made the decision to not pursue large design build projects, where we have limited Andrew or incomplete project design at the time of bid.
And lastly, although our business has been remarkably resilient to the unique challenges associated with the pandemic are water and specialty businesses obtained through the Layne Christensen company acquisition were disproportionately impacted by COVID-19 headwinds to the third quarter of 2020.
These headwinds resulted in project opportunities being significantly delayed or canceled and our water in mineral services operating group to a limited crew availability and extended shutdowns of some customers mining operations.
To close out the 2020 summary, the core of our portfolio is resilient and performing very well, but we fully recognize the I understand the challenges I just discussed will continue to require our steadfast attention.
The job is to ensure that our teams are focused on working diligently to confront and mitigate these challenges in the months ahead.
This takes us to the next slide which houses our near term priorities with the understanding and improving granite performance and reshaping our business requires a clearly defined plan underpinned by key priorities.
Our leadership and cultural reinvigoration changes are the initial steps in our multiyear journey to deliver value to our shareholders customers and employees.
The first phase and this process is to stabilize the business and achieve consistent financial performance.
We intend to do that by first the TV compliance with the SEC and lifting the exchange requirements.
With the imminent filing of our quarterly reports for the first second and third quarters of 2020.
We are now focusing on the completion of our annual report for 2020, which we expect will be filed by the end of March.
We will also focus on strengthening our people processes and controls.
These initiatives will be combined with the reinvigoration of our culture led by our refreshed core values to the steps. We believe we are taking action. So the granite will never be in this position again. Additionally.
Additionally, delivering on the heavy civil operating group backlog, while continuing to align our project pipeline to our new project bidding risk strategy is imperative to achieving consistent financial performance for all of our stakeholders executing on these priorities show our granite to achieve expected levels of profitability in future quarters and years.
Finally, I intend to revisit our strategic plan with my New leadership team and our board to chart granite new strategic direction.
Two of defining strategic direction, we will grow by leveraging our competitive advantages, while continuing to achieve sustainable and consistent financial performance.
Okay.
Now I would like to highlight the portfolio of piece of our key near term priorities a bit more.
Granite has made significant progress in reshaping of our project portfolio and capabilities as we work to drive better growth and achieve sustainable and consistently better margins.
We are gradually continued to diversify our end market exposure as we built upon our relationships in both the private and public markets driving the increase in our specialty segment capped at 18% of our portfolio as of the fourth quarter of 2020.
All of the transportation segment will remain our primary end market I am very pleased with our progress with customers in the specialty segment and look for growth in this segment to continue.
Importantly, we continued to derisk our portfolio by shifting away from the higher risk design build projects, which have historically been the focus of the heavy civil operating group, while replacing it with low risk best value procurement work.
Type of work includes construction management general contractor referred to the <unk> construction management at risk or EMR and progressive design build projects, where contractors are awarded work on qualifications as compared to the more traditional word criteria of low bid on the project.
From 2018 to 2020, the percentage of higher risk design build projects included in cap has been nearly cut in half from the percentage of best value procurement projects has more than doubled we have made tremendous progress in this area by bidding and winning in attractive high growth, particularly integrated markets with strong funding trends, which I will discuss the <unk>.
Surely.
Finally.
We have also seen a shifting of our cap across operating groups. Since 2018 as these historically higher risk design build projects are completed the percentage of our of our portfolio of within the heavy civil operating group will continue to decrease as seen by the almost 20% decline between 2018 and 2020. This.
This is in line with objectives outlined in our heavy civil strategic review completed in October of 2019, Conversely cap in the northwest and California operating groups have increased by successful bids on the best value procurement projects.
Are there still of lot of work left to do I'm pleased with the progress made thus far and look forward to provide an update in the coming quarters.
Finally, before I turn it over to Lisa I want to discuss what we're currently seeing in terms of public funding trends and importantly, what they mean for granite.
So we are optimistic around long term spending across all levels of government federal state and local.
At the federal level several approvals for pass over the last few months, including a one year extension of the fast act as well as of $13 $6 billion infusion from the General fund to the Highway Trust fund for 2021 construction programs. Additionally, the Congress approved a $10 billion in relief spending for state of <unk> in response to the pandemic.
Based on formulaic estimates from the Federal Highway administration or $1 5 billion of this relief fund is expected to be allocated to granite six vertically integrated states, Alaska, Arizona, Nevada, Utah, and Washington could receive approximately $650 million in the aggregate and California alone could receive almost $1 billion in <unk>.
The funding we will.
The likely begin to see the impact of these approvals in late 2021 and in the 2022.
We are optimistic the the bipartisan federal infrastructure Bill that could be passed this year, which would meaningfully drive our transportation end markets on the water related construction side Congress approved the water resources Development Act in December of 2020, which authorized nearly $10 billion in spending from <unk> 46 projects on waterways nationwide.
Now, let me touch on what we're seeing at the state and local level overall funding remains solid as $14 billion of infrastructure improvements for approved by voters during the elections in November of 2020. Additionally, the pandemic had a smaller impact on budgets and initially anticipated. Although some related headwinds are expected in select states in the first nine months of 2021.
However, I want to make clear the spending and project Lettings and many of our key core states are strong for example in California, our top revenue generating state infrastructure spending funded to SB. One is still on track to increase over the next five years. The annual average level of spending anticipated for SP, one $6 2 billion between fiscal <unk>.
2021 and 2027.
States municipal authorities are weighing options for overdue water and wastewater infrastructure investment, which suggests the number of opportunities in the future.
As you can tell.
There are a lot of good things in terms of funding and government spending taking place in which we expect of fund and drive growth in 2021 and 2022.
With that I'm going to turn it over to Lisa to discuss our financial results.
Lisa.
Thank you Kyle.
Im very excited to be able to talk with you today.
The four my current position as CFO I served granite in the Investor relations role and I am fully aware that we have been in a very long quiet period, having this call today is a significant milestone for granite.
Now from my comments from the numbers I will be discussing our financial performance for the first nine months of 2020 as compared to the corresponding restated amounts in the prior year 2019.
Consolidated revenue grew a little over 2% to $2 6 billion with gross profit, increasing almost 40% year over year to $238 million due primarily to improved performance in our transportation segment.
Within our transportation segment, our vertically integrated construction business had a very strong performance. During this period driving overall revenue growth of over 7% year over year to one 5 billion. However, net.
<unk> performance was partially offset by write downs in our heavy civil operating group.
While the gross loss recognized by the heavy civil group decreased significantly from 2019 to 2020. It remained at a level that prevented us from achieving the gross margins that we expect overall from this segment.
And our water segment revenue of $318 million was down 8% year over year due to bid and project delays, resulting from the effects from the pandemic and to a lesser extent impacts from the lack of audited financial statements. However, the water segment gross profit increased.
Almost 11% year over year due mostly to write downs from 2019 on projects primarily associated with the line Chris just an acquisition that were not repeated in 2020.
Specialty segment revenue was down just under 5% year over year.
Although the pandemic negatively affected the mining industry shutting down these operations for a period of time. These declines were partially offset by strong site development and renewables work in certain markets.
Segment gross profit was down 35% year over year, driven by a dispute on a tunneling project and impacts arising out of the pandemic.
Finally materials segment demonstrated strong performance with revenue increase of almost 3% and a gross profit increase over 29% year over year. These increases were primarily driven by operational efficiencies and higher volumes.
Despite the significant headwinds associated with our heavy civil operating group and the ongoing pandemic effects adjusted EBITDA increased $63 million for the first nine months of 2020, resulting in an adjusted EBITDA margin of four 8%, while adjusted net income.
At $41 million increased from the loss of $15 million in the first nine months of 2019.
As a reminder, we exclude non recurring or non operational items from adjusted EBITDA.
And net income, which includes acquisition related expenses nonrecurring legal and accounting costs related to the investigation and the noncash impairment charges.
Altogether these costs or charges totaled $194 million for the nine months ended September 32020, and 26 million for the same period in 2019.
The impairment charges of $157 million during the first nine months of 2020 relates to goodwill and our investment in equity and affiliates obtained through our acquisition of Layne Christensen company in 2018.
The impacts of the pandemic triggered the need to perform an interim impairment analysis.
The charges reflect revised growth and margin expectations for the related reporting units.
Now moving on to our balance sheet granite balance sheet shows continued strength. Despite some of the headwinds that we have discussed today.
As of the end of the fourth quarter 2020, we had $671 million of available liquidity, including $441 million of cash and marketable securities.
In addition to increasing our cash and marketable securities.
We have also reduced our outstanding debt during 2020 by 25 million to $339 million and did not have any draws outstanding on our revolver as of the fourth quarter of 2020.
Additionally, while many companies suspended dividends during 2020.
Maintained our quarterly dividend and our payout ratio remained consistent with our capital allocation framework.
On the cash flow front I am pleased to report the granite generated over $138 million in operating cash flow in the first nine months of 2020.
This was the highest level of cash generation for the first nine months of its fiscal year since 2000 and checks we.
We were able to achieve this through prudent cash management intense focus on working capital and the settlement of several clients during the period.
Going into 2021 with our strong balance sheet granite is well positioned to invest in our business and achieve the long term sustainable consistently profitable growth.
Kyle described earlier on.
On the basis of this strength I look forward to presenting our capital allocation strategy in the coming months.
Before handing it back to Kyle I want to dive deeper into the improvements we are making to strengthen our people processes and controls as a component of our overall improvements.
This is our key priority for 2021.
First we are strengthening and improving controls that engage every level of the organization.
In addition, we have already improved organizational structures impacting both operations and finance so that priorities are aligned across granite to achieve compliance at every level function and department.
Next we are already actively training, both operational and finance members across the company to ensure that all teams clearly understand what is required and are held accountable for complying with our policies and procedures.
Finally, our cultural reinvigoration will engage all employees in this important effort.
I believe that we will execute these actions in a timely manner.
And complete our remediation plan by the end of 2021.
And finally I wish to personally thank everyone on the call today for your support and patience, while we work to reestablish full SEC compliance with filing requirements.
As we have stated we expect our 2020 annual report to be delayed but expect to be in full compliance with all of the SEC in stock exchange listing requirements by the end of March.
Kyle and I are very eager to put this process in the rearview mirror and we are excited to share more about the granite story with you very soon.
I have told many of you in the investment community over the past year stay tuned.
With that I will turn it back over to Kyle for closing comments.
Thanks Lisa.
Our team is excited about the road ahead for granite and let me close with the following points the core of our business is healthy and generating consistent financial returns we.
We are focused on ensuring that we are compliant with all of our reporting requirements and we of reinvigorating our corporate culture with a focus on our refreshed core values that will benefit grants customers employees and the communities in which we work.
The implementation of our remediation plan, which is well underway will continue to strengthen our people processes and culture.
Big picture trends in our industry markets and geographies of providing fresh tailwind to the alignment of <unk> core competencies and we are reshaping our portfolio to maximize value to you our shareholders.
We take these responsibilities very seriously and we appreciate your continued support in the months of ahead, we look forward to engaging with you in more detail about our vision and strategy is the move the company forward of.
Operator, I will now turn it back to you for questions.
Thank you the App.
Ask the question. Please press Star then one please limit yourself to one question and one follow up question and feel free to jump back in the queue. If you have additional questions.
Our first question comes from Michael Lewis with vertical Research partners. Please go ahead.
Good morning, everybody in the.
Welcome Great Great to hear your voices and congratulations on your.
The promotions and the job you've done the up to date.
Thank you, yes, thank you Mike.
So Kyle.
You mentioned in your prepared remarks about Derisking the company.
I understand it's probably more focused on the heavy construction division, but maybe a sense of and the derisked like on the core business on the vertical integration of transportation and the water and specialty side.
Is there much adjustment required there to achieve what you perception will be for margins and growth based on the tailwind going forward and having said that the timeframe of HCV and the rapid that she can get through that is that something that will start to blend of weigh in.
And not so significant.
Significantly impactful to say 2022 and March the beyond given what I'm sure of the drag will be in 'twenty one.
Okay. So thanks, Mike So let me let me start with really the first question, it's really around our vertically integrated business of water mineral services business and the risks associated with those business lines and those inherently are less risky obviously than what we've seen with the heavy civil group of the project sizes.
Our.
Are drastically different I think our vertically integrated business average job sizes is really the western around $5 million, if not lower in certain markets and water mineral services. The average job size is less than two relative to the heavy civil group, where the average job size is significantly larger as we know.
And so I don't think.
As we look at Derisking, our portfolio of its really around the heavy civil group and how we transition away from really the way we were looking at bidding and what type of projects we are pursuing.
And transitioning that into what we want to look like in the future in terms of the size of the projects the duration of projects, where we're building work in view of our building work for and the contract method in which we're getting the work. So so that's really where we're headed.
From a company wide portfolio of standpoint.
The second question was really around.
Of the heavy civil group and what does it look like in terms of timing of that backlog.
So because we ended 2020, our heavy civil group backlog versus the over $1 billion.
Sure.
And we want to look at things a little bit different in terms of we have maybe under our old of risk profile work versus our new risk profile work. So all of that $1 billion of heavy civil group backlog. We would say there is roughly 60% was under the old risk profile.
As we kind of move the move the timeline forward into 2021 through the end of this year, we think we'll be sitting on around $331 million of backlog of $350 million or so at the end of 2021.
And.
And then of course as we get later out in the years of till 2020 to the end.
2022, the backlog is just over about $50 million. So you can start to see the kind of winding down of those projects.
And that assumes no new work within the heavy civil group and of course, we anticipate they will procure work within the heavy civil group. It will just be under the new risk profile.
So hopefully that answers the question Mike.
Yes, yes, yes. It does thank you and my follow up of if I may.
Well when you talk about the.
Of the overall positive tailwind from post pandemic.
Can maybe cash.
Raise how the states and municipalities have come through from the pandemic and do you get the sense from them that with all of the stimulus discussion in Washington and away from the Federal Highway Bill, but just.
Improvements of state and local areas in the economy picking up is there and the ability or.
Sure.
Need I guess of one of our desire for these to start the reaccelerate and get the projects, let quicker and start working through the opportunities to the kit.
Kind of take advantage of the opportunity and the funding and do you think those.
And such or prepare the caltrans would have of your prepared to.
Get that work out and get it to you. So you guys can start to accelerate your backlog of new revenues.
Yes, so there might be maybe two parts to that question I think certainly than what we saw in 2020.
Funding was there.
The initial in the beginning of the some of the agencies states.
Held back they were challenged to actually get projects out the door under the Covid environment or are they just they held back in terms of lettings for that period of time. So there is a little bit of pent up.
Lettings that are coming out as a result of of really what we saw with the COVID-19 impacts in 2020.
As we move forward in terms of funding.
Obviously, we're interested how the COVID-19 relief spending as impacts our business.
And when those projects are going to come out for us to pursue.
So the more to come on that we do think thats going to give several of the states. So the operating and confidence to to put work out on the street.
And then of course.
Looking at what with some sort of federal Bill will look like later in the year that would impact us more long term into 2022.
The state and local funding level I think for the states, they're all a little bit different.
Certainly we highlighted California, we see that the <unk>.
California.
The Caltrans USB one.
Is it still looking like it's going to continue funding.
Very high levels for the entire state.
Which is which is great.
But we are seeing a little bit of softening in some other states within the northwest operating group nothing significant I think initially we were of.
Getting some feedback of or some bigger concerns, but I think I think those states or even gaining more confidence that the funding levels are going to be relatively strong moving forward. So.
Theres still a lot of state and local funding thats out there.
The Swift.
Of the.
Smaller agencies that we operate in that have some local self help funding. We think those are still in place. So all in all.
We think there is the pent up demand in terms of letting them kind of held off during the COVID-19 environment, and we think that the funding levels moving forward are still looking very strong.
Thank you Carl.
Thank you.
The next question comes from Steve Ramsey with Thomson Research. Please go ahead.
Good morning.
Yes.
All of you guys again after a low break.
Hey, good morning, gentlemen, good morning.
Yes, maybe jumping into the SG&A how much of.
SG&A.
Year to date 'twenty was due to cost for the investigation and associated work and maybe thinking of Gulfport SG&A will remain elevated.
On a permanent basis to some degree of should be expected to subside over time.
Yeah, Stephen I'll take that question. So for four of SG&A. If you add if you take out the cost the accounting and legal costs related to the investigation year over year year to date September SG&A was relatively flat now obviously there were some.
Puts and takes throughout the year of course travel and entertainment was down during the year due to COVID-19 related impacts.
But there wasn't with the heavy civil work, that's being done there were some increases in personnel.
That offset that a little bit so when we had the water acquisition. The line Christiansen acquisition in 2018 that cost structure was a little bit higher than the average run rate for granite. So that's definitely an area that we're going to be looking at and focused on on a go forward basis.
So.
<unk>.
Going into 2021 will be taking a look at it but we expect by the time, we get to 2022.
To be at a more what we hope to be a more normalized level on a go forward basis.
Great and can you share normalized level.
<unk>.
Percentage of sales or just any thoughts on what normalized.
It looks like.
Yes, so we're really as Carl mentioned in his.
Earlier that we are looking at are.
Strategic plan on a go forward basis. So we definitely have more work that we want to do on that level.
So it's really kind of to be determined we're looking at the historical levels.
The eight 5%. So so really kind of more to come we will be able to talk with you again towards the end of March.
Okay, Great and then a quick one on the specialty.
The segment the site development strength is that primarily.
Data centers.
Thus far in 2020 or as renewables.
Picking up.
Maybe kind of a sense of order of magnitude.
Of of data centers and renewables as a percentage of.
Maybe revenue or cap for specialty.
Yes, and I don't know if I have.
The numbers completely in front of me, but I would say that it's kind of across the board on our specialty and kind of as a whole lot of commercial development reverse of contractor oftentimes the vertical builders.
Obviously, the data center work that we talked about in the.
The renewables and we think the renewables has actually been a highlight we've seen.
The whole bunch of renewable activities from from battery storage to solar fields that we've been working on across the country and so that's been actually very exciting for us and we do believe moving forward.
Tremendous opportunities in the renewables market for us I would say in general.
The revenues for those specifically for the data centers and renewables are under 5% for the company today.
Great. Thank you.
The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Yes.
Hi, This is Adam <unk> on behalf of Jerry Revich today.
Congratulations on the ground.
Really impressive.
But I wanted to talk about some of the.
The.
Amended returns.
The particularly in the civil.
Can you talk about the relative size of the heavy civil business that youll be comfortable with going forward.
How does that compare with the size of the business year to date.
So your broker you broke up.
A little bit out, but I think if I heard the question correctly.
It was kind of getting back I think in Q3 of 19, we talked about.
The heavy civil group being roughly 15% of our overall revenue of the company I think your question was about.
What do we see in the future for the heavy civil group and I think thats.
That's a good follow up question to our strategic review back in 2019, and we've made progress.
From where we were in 2019 and kind of where we are today.
We've made a lot of changes certainly around.
I think our project selection, primarily in our approval process.
So it might be good for me to highlight what that looks like today for US. We go to on these projects and how we select them to group leadership approval. It goes up to a large project committee.
Which is comprised of our executive team and also go through our newly formed board risk Committee, if it hits certain criteria.
Those criteria around size duration home market contract terms et cetera, and then we also want to make sure that as we price work. It really reflects the risks associated with different types of projects. We've shifted away from back in 19, I think we were still talking about projects.
Over $500 million I think today, we're not looking at those we're shifting away from what I would call maybe of Mega project, we're targeting projects under $500 million, we're still with.
We would entertain design build projects for this would be very small in size.
By our home markets and we've got to build the price.
Work Accordingly.
<unk> is obviously, you're still a focus but this does value based selection opportunities for us is really where we want ahead and many of the markets that we're in so we're really changing.
The heavy civil group I can tell you what's interesting is our average projects of pursuing today within the heavy civil group range from 20 million to $500 million.
A very different type of work that we're pursuing within the heavy civil group regions as we kind of the scale of Derisked the business. So.
The average job size today is only $225 million in terms of pursuit size for the heavy civil group as an average so I think the teams are doing a really nice job of of.
Moving the transforming that business into the right work in the right markets. So getting back to your question around the 15% of what percentage.
It's hard to say because.
And that was an easier number to come up with when we're looking at our heavy civil group is simply large projects significant size and risk profile and now that we're transforming that business and the starting to look a lot like our other businesses in many ways I don't think its applicable so im not sure we can come out of today and tell you what the percentages but.
But I think we're kind of moving away from that being of necessary need for us to identify so hopefully that makes sense Adam.
No that makes sense and that's very helpful. Thank you.
Then in the past before these charges.
Your earnings have range from slight losses to just over $3 at the peak of 2008.
What do you view of your peak earnings per test this.
Michael.
Well.
That might be a question that we.
We come back in March and revisit I think would probably be more appropriate than us trying to come up with that number for your secure on this call today.
Okay sure.
Just one last question if I may it's nice to hear about the legal settlements that you've reached can you talk about how many projects reach settlements and what the cash flow and the income statement benefit was.
Yes, I can I can.
Update us I mean, we sort of multiple claims in 2020.
It's the generate increased our cash balance of around $66 million.
All in all from the net income standpoint of is relatively flat.
We still do we still have several claims that are outstanding I think in excess of about $100 million of granite.
If we were to get some sort of settlement along the way again, we see that more is from a cash growth not necessarily from a net income front.
But obviously these things take a long time to resolve.
Okay, great. Thanks, so much.
Thank you.
Again, if you have a question. Please press Star then one the next question comes from Eugene Gilligan with information.
Please go ahead of us.
Hello, Good morning, Thanks for taking my call.
I'm curious is granite entertaining any possibility of.
Divesting itself of the heavy civil operations group.
No the gene, but not not.
And at this time are not in any sort of discussions in terms of sale with the heavy civil group.
Great Okay. Thank.
Thank you very much.
Okay.
Thank you.
The next question is a follow up from Michael Davis with vertical Research partners. Please go ahead.
How would you characterize the competitive nature of the markets primarily in the vertically integrated business and the small project side, maybe translate that to the other specialty in water.
Is it different from prior to the pandemic or trends you. All of you were talking about numbers through September 30, but now we're almost into March have trends and visibility improved or how would you characterize that as we think about what 'twenty, one and beyond could be like.
Yes, that's a good question and I think there is there is post pandemic and pre pandemic and then there is there is this kind of the normal cycles that our business goes through.
In general and so as we look at the kind of the kind of of the bid environment normally.
The contractors tend to pick up work late Q4, Q1, and as they start to put work on their books, we see the competitive landscape.
Being very general start to back off a little bit in the summer months, while contractors are busy building work I think I think the pandemic may have shifted things a little bit as I mentioned before that the.
Lettings were delayed in some markets, so that kind of move things around.
For contractors in order to put backlog on their books.
But in general I think we're seeing the market a little more competitive than it's been in the past I think as there was a little bit of a slowing of lettings.
Of the contractors went through some backlog and I think I think theyre looking to put more on their books. So I think.
I'm being very broad brush across a big organization, but in general we're seeing a little bit more bid activity than we were probably pre pandemic.
I mean, the sense of more competition than pre pandemic and.
Is that wishes of tariff referring to the client for probably both I mean, I think I think it's probably of both a little bit of more competition in the.
Obviously, the our competitors of looking for a little bit of work early in the year.
And would <unk>.
Some of the stimulus or funding that flows through to these the six states that youre talking about.
As of as seasonally things get better could be more helpful. As you're looking to bid some of the work for the second half of the year end of 'twenty two.
Yes, we think it will absolutely be helpful. I think.
While some confidence for those.
<unk> going to receive the money to put more work out to bid and sort of looking for later this year.
Thanks Carl.
Thank you.
This is the end of Q&A and now I would like to turn the call back over to Mr. Lockett.
Okay, well. Thank you for your questions and before we conclude I do want to thank all of our employees and our financial stakeholders for their own yielding professionalism dedication and support under extraordinary circumstances.
On behalf of granite management, and our board of directors. Thank you and with that thanks for your continued interest in granite, we look forward to speaking with everyone very soon.
This conference has now concluded. Thank you for attending today's presentation you may now.