Q2 2021 Granite Construction Inc Earnings Call
Good morning My.
Matt and I will be your conference facilitator today at this time I would like to welcome everyone to the granite construction incorporated 2020, 1 second quarter Conference call. This call is being recorded.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
My name and ask a question. Please press star 1. Please note that we will take 1 question and 1 follow up question from each participant today.
It is now my pleasure to turn the floor over the Vice President of Investor Relations, Mike Barker.
Good morning, and thank you for joining us I'm pleased to be here today with president and.
CEO and co marketing and executive Vice President and Chief Financial Officer, Lisa Curtis Please.
Please note that today's earnings presentation will be available on our events and presentations page of our Investor Relations website.
We begin today with an overview of the Companys Safe Harbor language.
2 and some of the discussion today may include forward looking statements with the meaning of the private Securities Litigation Reform Act of $19.95 the.
These forward looking statements are estimates, reflecting the current expectations and best judgment of senior management regarding future events of currency.
Currencies growth demand strategic plans circumstances activities performance outcomes outlook guidance committed and awarded projects or cap and results.
Actual results could differ materially from statements made today.
Please refer to granites, 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 colors and.
Good morning, and welcome.
In past calls.
<unk> is part of our cultural reinvigoration, and our refreshed core values and provided an overview of our core values of safety inclusion and the sustainability and how they drive our culture and actions every day of granite.
Today, I will discuss our remaining 2 core values of integrity and excellence and how our teams.
And these 2 values into their daily work.
Yes.
Integrity is the foundation of core value, which underpins all of the values, we operate with integrity and the highest ethical standards, we know and do what is right and we expect all of our employees and speak up when something is not right.
The audit Committee investigation.
Integrate and completed this year identified areas, where we did not live up to the high expectations that we set as a company.
To ensure that we are falling and best practices.
This year, we rolled out of cultural reinvigoration and across the entire company and we are clarified and strengthen our employees and understanding and commitment to integrity and everything we do.
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Acting with integrity and he is doing the right thing all the time honoring our commitments hold and each other accountable and voicing our opinions questions and concerns and a respectful of and transparent way.
Acting with integrity allows us to attract and retain the best employees and enables us to be the best builders and materials.
For our clients as we approach our second 100 years.
Excellence has been of focus within granite culture since our beginning in 19 and 22.
And it is now of core value. This is an area, where if we are not willing to compromise. The granite excellence is achieved through a high performance culture of continuous.
Cereal, Purdue innovation and quality and all aspects of our work through.
And through excellence, we strive to be our customers' contractor of choice generate efficiencies of drive Bottomline results and transform and how we bring value to our stakeholders.
There are many examples of excellence through innovation and technology across the company we.
The improvement apology to automate our materials facilities and to provide remote visibility to identify potential issues.
And we employed 3 D modeling and augmented reality to visualize projects and the design phase and enhanced productivity and the construction phase we use technology to enhance safety and save lives by preventing works on and intrusions.
He used to and enhancing traffic control systems and.
And finally, we use data analytics as a guide to help us make better decisions for increased production for accurate scheduling and improving safety. These are just a few of the areas, where we are focused on using technology to change the way, we work and add more value to our clients and consistent profitability.
City for our shareholders.
Underlying the core value of excellence is our focus on lean principles. We are revisiting means and methods to promote efficiency throughout our operations and support functions as we enhance competitive advantages by being lean.
Our goal is to get a little better every day by empowering our teams.
The challenge the status quo promote new ideas and technologies and.
Streamline execution through doing things the right way of the first time and eliminating rework.
And I am energized the talk to our teams across the country, who are innovating and driving excellence in all parts of the granite.
We have already made good progress.
Continued to innovate as we renew our emphasis on excellence.
Okay, let's get into our business segments, starting with transportation.
The transportation segment includes results of our core businesses and continues to be the primary driver of our revenue and gross profit.
And the second quarter, we saw.
The continuation of our strong first quarter results led by the performance of our California, and northwest operating groups and by solid execution by the heavy civil operating group as it works through the old risk portfolio or whole RP.
And within the ORP as Lisa will discuss further our teams are currently doing a great.
We are moving the projects forward.
As a reminder, the ORP is comprised of projects within our transportation segment, which do not fit our current strategy due to their higher risk nature.
As I've stated previously.
We are no longer pursuing design build mega projects and non sponsored joint venture projects the <unk>.
Risks inherent in these mega projects related to the design duration size and partners are no longer acceptable within our strategy.
The heavy civil operating group continues to pursue projects under our new risk criteria.
There is significantly different and projects and the ORP.
We are now pursuing and best value procurement projects such as <unk>.
<unk> projects as well as bid build projects and smaller less complex design build projects for the risks are well understood and priced into the bid.
We are leveraging the model that has worked well for a vertically integrated groups and pursuing projects, where we believe we have a competitive advantage.
Both of our.
<unk> integrated groups recognize revenue increases during the quarter as compared to prior year transportation cap for our vertically integrated businesses also ended the quarter strong led by the California group with an increase and cap of 25% year over year to $1.2 billion as of the second quarter.
Our teams continued to do an excellent job of working.
Working with state and local municipalities to secure projects suited to our expertise for the spending of SB 1 expected to increase from an annual average of $4.4 billion and 2017 through 2021, 2 and annual average of $6 billion for 2022 through 2027.
We believe we are well positioned to continue to.
Grow our business and California.
For infrastructure funding, we continue to monitor the discussions in Washington, as Congress debates and the infrastructure Bill but.
While we are hopeful that and agreement will be reached and the near term. We believe the deal will most likely not be completed until the fourth quarter result, and the need for another continuing resolution of.
In fact at the end of the third quarter.
And the current funding environment and our markets are robust and the state and local levels and there are many opportunities we are pursuing.
Federal Bill will only serve to strengthen the environment further with meaningful impact starting to be felt and mid to late 2022, and then building and the 2023 and beyond.
Of the fast turning to the water segment the business climate is largely recovering from the pandemic related decline.
The water resources division of our water and mineral services operating group, which provides water supply maintenance services across the U S has been very active of drought conditions covering most of the western states.
For the drought and the west.
And shows no sign of relief and is expected to continue through the summer and into fall of.
This should result in a busy schedule for our teams and this division for the remainder of the year.
Segment cap as of the second quarter of stands at $532 million, including the addition of the 160 million Leon Hearst and project during the quarter.
This is an increase of 129% year over year for water segment cap of $232 million as of the second quarter of 2020.
Whether it is the water and mineral services group the vertically integrated groups or the heavy civil group there are many opportunities and the water and market that we are pursuing.
The market for this.
Continues to be strong and draft legislation such as the drinking water and wastewater infrastructure Act will further the positive environment if completed.
Moving to the specialty segment growth of private and public markets spread of strong increase in activity and this segment and the second quarter.
This was led by.
By recovery of the mineral exploration business within the water and mineral services group.
This business line had been largely shut down and the prior year quarter.
And 2021 commodity prices are driving increased mineral exploration by mining clients.
And the second quarter, we began and ended with specialty cap of over $1 billion.
The markets. The continued to drive the segment include public work with the U S government such as our projects with the U S military and Guam.
Private projects within the mining industry, such as mineral exploration civil construction and reclamation projects site development work for private clients such as data center work for a technology.
Companies and renewable and solar energy projects, where opportunities are increasing with the countries focused on expanding energy from renewable sources.
The growth and cap and our specialty segment.
As well as and the water segment highlights our team's ability to execute on the horizontal civil construction projects across end markets for.
Public and private owners and the future we will continue to grow capped by leveraging our team's capabilities and expertise, where we believe we of the greatest competitive advantage regardless of the end market.
And the materials segment, the second quarter continued the themes of the first quarter with demand driving volume increases for.
The same period year over year, and aggregates of 42% and asphalt the 25%, including both internal and external and construction materials sales.
These increases were broad across our locations and both the vertically integrated groups with California, and leading the way.
This is an impressive increase in volume when compared to a strong.
For both the quarter of 2020.
Our investments and new aggregate and asphalt plants, and California, and the last year helped position us to respond to the increased demand and.
In addition, we continue to invest in technologies and make our facilities as of.
And as possible through automation and innovative energy conservation projects and water site of recycling initiative.
And secondly, it's.
It's exciting to see the improvements innovation is driving and our materials facilities and there are many more and progress to be implemented in the coming months.
As of the second quarter, our consolidated cap was for 4 billion while.
While cash from our vertically integrated operating groups within the transportation segment continues to grow.
Growth Kathryn and the heavy civil operating group continues to decrease and this segment has intended this decrease and cap and the transportation segment as offset by increases and cap and our specialty and water segments as the leverage our diverse expertise and <unk>.
Long customer relationships to pursue projects across all our end markets.
Across our footprint of regional offices, we continued to capitalize on our local relationships and market intelligence to be the contractor of choice for both public and private owners.
And with the decrease and the ORP higher risk design build cap continues to decline as we continue our efforts to transform the heavy civil operating group.
And for all risk profile of the company.
With that I'll turn it over to Lisa to discuss our financial results Lisa.
Thank you Kyle.
Starting with revenue and gross profit the second quarter delivered strong results on both fronts second.
Second quarter consolidated revenue grew 5% year over year to.
<unk> 964 million with gross profit, increasing 32% year over year to $117 million with the gross profit margin of 12%.
And our transportation segment revenue was down $10 million year over year to $525 million as increases and the California and northwest.
Operating groups were more than offset by decreases and the heavy civil operating group. This.
Of this revenue shift was expected as we execute our plan to transform and de risk the heavy civil operating group portfolio.
Transportation gross profit for the quarter increased 91% to $60 million, resulting.
Gross profit margin of 11% up from 6% and the same prior year period. The increase in gross profit was primarily due to fewer project losses from the ORP and the current year.
Yes.
Gross profit from the ORP and the second quarter of 2021.
<unk> and of $2.5 million on revenue of $116 million compared to gross losses of $35 million and the second quarter of 2020.
Oh, RP cap decreased by $112 million during the quarter, which keeps us on pace to meet our previously discussed expected project burn.
Of $425 million to $475 million during 2021 as a reminder, the projects within the portfolio remained challenging and complex and there have been gains and fades that have to date largely offset during 2021, we are optimistic that our team's solid.
With performance will continue for the remainder of the year.
And our water segment second quarter revenue increased 3% for the same period year over year, driven by continued recovery from the COVID-19, pandemic and strong demand for water supply and maintenance services amidst the drought conditions across.
Cross the western United States.
The water gross profit for the second quarter decreased 16% to $11 million, resulting and a gross profit margin of 9%.
This decrease in gross profit was primarily due to $5.3 million and write downs on 2 projects while not individually.
Material they were impactful to the segment results for the quarter move.
Moving to the specialty segment second quarter revenue increased 15% over the same period year over year to $200 million led by the recovery of mineral exploration within the mining industry and progress on a federal side.
Selling and project that is being constructed by our heavy civil operating group.
The specialty gross profit decreased 4% to $24 million ending the quarter with the gross profit margin of 12%.
The decrease is primarily due to ongoing dispute at work on a previously disclosed tunnel project.
Jack.
Finally, the materials segment continued their exceptional performance ended the second quarter with a revenue increase of 30% over the same period year over year 2 of $125 million.
This increase was largely driven by strong sales and both the California and northwest operate.
Site of us.
Volumes are key in this segment materials gross profit increased 17% to $22 million, resulting in the gross profit margin of 18% in the quarter.
The increase in gross profit was primarily related to higher volumes across the business led by the California group.
Rating grid gross profit margin and the quarter decrease for.
From the same period year over year due in part to the benefit received in 2020 from decreasing oil prices.
Turning now to our non-GAAP financial metrics adjusted EBITDA for the second quarter increased $30 million year over year to 80.
And resulting in an adjusted EBITDA margin of 8% for the quarter.
At the end of the second quarter, we closed on the sale of an office building, including adjacent property and recognized a gain on sale of $30 million.
This gain on sale is included in EBITDA, but has been removed from adjusted.
<unk> 80 million.
This asset sale was completed as part of our ongoing asset optimization plan and the increase and adjusted EBITDA year over year. During the quarter was largely driven by the improvement and project execution and the transportation segments ORP.
Our second.
Quarter resulted and an adjusted net income of $42 million, which was a $23 million improvement from an adjusted net income of $19 million for the same period and the prior year as.
And with adjusted EBITDA the gain on sale of the property has been excluded from adjusted net income this quarter.
<unk> EBIT.
The second quarter of 2021 marks the first time, we are showing accounting dilution and our diluted earnings per share related to our convertible notes as our average share price reached above the stipulated conversion price of $31.47.
As a reminder.
<unk>.
When we issued our convertible notes at the end of October 2019, we simultaneously entered into a purchased equity derivative instruments to mitigate the impacts of dilution from the convertible notes. However, under U S. GAAP. We are currently not able to recognize the dilution.
<unk> mitigation of the derivative.
Because there is no actual dilution when factoring in the derivative until our average share price is above $53.44.
We have removed the potential dilution from our adjusted weighted average diluted shares outstanding and both the quarter.
<unk> and year to date periods.
The reductions of potential shares for the 3 and 6 month periods for $1.5 million and 1 million shares respectively.
Now turning to cash and liquidity, our cash and marketable securities balance remains very strong at 404 million.
As of the end of the second quarter, which is up $109 million compared to the same period and the prior year and down sequentially for $464 million and the first quarter.
Our current period cash balance includes $40 million received from the office property sale.
Our business is seasonal with the summer months being our busiest construction season and with projects ramping up and the second quarter as expected. Although we saw this dynamic during the second quarter with an outflow of cash I am pleased with our cash position going into the second half of the year.
Now let me provide a brief update on the shareholder litigation settlement.
We have not yet received preliminary court approval and have therefore, not paid our portion of the settlement as of the end of the second quarter and.
As such the settlement liability of $129 million remains on the balance sheet and.
And accrued expenses with an offsetting insurance receivable for the portion of the settlement that is covered by insurance and the amount of $63 million.
At the beginning of the year, we provide it expected annual capex of $80 million to $100 million.
And increasing this expectation.
2 of 105 to a $115 million for the year.
The primary driver of the increase in Capex relates to the recently awarded tunnel project.
Our total SG&A for the quarter was $74 million or just under 8% of revenue compared to $78 million.
Our 8.5% of revenue and the same prior year period.
We are focused on improving efficiency across our administrative departments as we work to meet our expected SG&A expense of 8.5% to 9% of revenue for the full year.
<unk> pleased with our performance through the second quarter, but with the majority of our construction season still in front of us potential for adverse weather and the fourth quarter, coupled with approximately $470 million of our ORP still and cap.
I am reiterating our guidance for the full fiscal year of.
I am <unk>, 5% to 7.5% adjusted EBITDA margin.
We will reassess the guidance following the third quarter.
With that I will turn it back over to Kyle for closing remarks.
Thanks, Lisa let me close with the following points.
We had a strong second.
Quarter highlighted by solid execution, and the ORP, and we're making progress and all segments towards mid teens gross margins.
We are pleased with our chop moving into the second half of the year. The demonstrates our strength is the diversified horizontal civil contractor and the illustrates how we provide value of across end markets.
Geographies and types of customers.
We will continue to grow the business the transportation, but also and other end markets by leveraging our relationships and expertise and vertically integrated structure.
Our cash and balance sheet remains strong as we head into the second half of the year.
And finally, we continue.
To be optimistic about the funding of environments and the public markets and the strength of the economy and the private market.
And we look for greater expansion when the federal infrastructure Bill is completed op.
Operator, I'll now turn it back to you for questions.
We will now begin the question and answer session to ask a question you May press star.
Continue on your Touchtone phone.
You are using a speakerphone, please pick up your handset before pressing and the keys.
Anytime you question has been addressed and you would like to withdraw your question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.
Okay.
Our first question will come from Brent Thielman with D. A Davidson. Please go ahead.
Thank you and good morning.
Good morning, Good morning, Brian.
Wanted to get your thoughts just on GAAP I mean, it looks like you're picking up a lot of work.
The work.
Working through the ORP do you think it sort of holds at these levels as we move through the remainder of the year.
And the burn off that will work.
Yes, great Great question, Brent and so we have seen.
As you saw a decrease and cap and trade.
And the civil group cap.
Some of the transportation and that was something that we were doing a really intentionally as we've kind of changed what we are pursuing from a risk profile perspective within the heavy civil group. So that was anticipated and then what we saw on the other side.
And as our vertically integrated businesses are working really hard to pick up cap within transportation.
<unk> of about 200 million on cap on there and so we're seeing nice improvement and the vertically integrated business, we're seeing a drop and transportation because were burning to that of <unk> as we planned.
And just as a reminder, we're focused within heavy civil group are really pursuing projects not just within the transportation.
But within all of our segments. So when we picked up that recent neon her stand project assets and the example of how the heavy civil group is now transitioning over to really looking at projects outside of where they typically have been.
Which is really encouraging for us I think really get back to your question and we feel good about our cap.
There's a really nice pipeline of projects that.
They are out there so and we look at our heavy civil group of projects and the pipeline today, even though we really changed the risk profile of the projects that we're pursuing we're still we still have the same number of opportunities out there in terms of the dollar amount to bid that we had in prior years. So there is still a really healthy pipeline of larger projects that fit within the risk criteria.
Syria that we've established so we feel really good about where we're headed in terms of GAAP.
Okay. That's helpful and apologize if you mentioned this lease them, but the $470 million and still in there for.
For the ORP.
Can you say how much do you expect the burn up this year and what you would expect for 2022.
Yes, definitely so for the remainder of the year.
And what we've talked about the we've kept our burn rate thus far that we talked about at the beginning of the year. So we burned a little over 200 million year to date through June so for the remainder of the year and into.
A little bit into 2023.
And it will have 225 million to $275 million to burn again with the majority of that.
Burning and 2022 and about $50 some odd million burning into 2023.
And again.
What we talked about that what we have and our guidance at.
Zero percent margin.
Okay great.
And then.
Love to just get your expectations for the water business and as you move into the second half of the year it seems like they've.
And they've been challenged and kind of get back to the levels of profitability that I know you're expecting from it.
And you are picking up some the new good work there so.
And the expectation for water and because it seems like some of the bigger picture of factors are starting to align for us.
Yes, it is and I think I think certainly with the pandemic last year of water segment was.
And it hit hard there was a pullback in terms of spending.
And for municipalities.
It sounds like all of us on the wall drawing business. So we saw the water business and take a little bit of a and <unk>.
And then it hit in 2020, the sensory covered I think certainly with the drought conditions that we've seen out and the west.
Really shored up our well joined business and we're seeing nice improvement there and then we are seeing increased spend again and the rest of and water.
Water business and the cannot includes whether it's some of the on her stamp of.
Our cured in place pipe business as well as well Julien. So we've seen really nice improvement are getting back to.
And where things were at pre pandemic.
Okay and then just the last 1 is on the materials profit margin.
Headwind.
And attached to commodity prices I assume that's sort of baked into the guidance for the second half of the year.
As far as you guys can see today that that should continue and the short term.
Yes, we feel really good I think if you look at Q2 of our performance materials business was strong and might be down just slightly from where we're at and Q2 last year, but we feel really good about kind of the.
The 18% margins and that business, we got a nice volumes in Q2, and so we did have really nice weather and Q1 and again and in Q2 and I think our teams have done a really nice job of <unk>.
And and producing materials and.
And that segment, we think moving forward for the rest of the year, we think things will be a lot of and alignment with where we were at last year.
Finished the year and alignment with where we're at in 2020.
And I'd, probably caution that certainly in Q4, there's there could be some weather.
<unk> that might be out in front of us and that's not just for materials, but our entire business Q4 is always a little bit of a wildcard of what we're going to see from a weather perspective last year and 2020, we had a really dry Q4.
So okay. Thank you for taking the questions.
Thank you thank you Greg.
Our next question will come from Michael Dudas with vertical research partners. Please go ahead.
Good morning, Mike Coyle Lisa.
Good morning.
So maybe a couple of.
The material side.
Any any.
Observations on pricing.
And also is there a concern as things pick up over the next 12, 18, 24 months and more projects and larger projects.
And being a lot of tightness and certainly different markets for the amount of materials.
Hi.
How do you can see that you get the sense of that or how are you guys of planning for that.
So if I get back to really the materials margin and <unk>.
Materials business question.
So from a.
Yes.
I guess on the supply side standpoint, we've been able to really pass on the cost of the oil.
Oil increases diesel increases onto our customers.
That's been something that we've been able to do could you kind of go back in the 2020, and we saw oil prices and diesel prices drop.
And so our pricing was fixed and we're able to kind of get a little bit of of pickup on that.
And of things, but as we look into this year, but really trying to pass those costs onto our customers and we've been able to do that and we've seen price increase pretty much and alignment with our cost increases. So further out Mike I'm not sure we have the visibility yet and certainly 2018 and 24 months.
I would say that.
Certainly if the us of federal.
Bill was passed we're going to see an opportunity where where that might be something that we can see for meaningful price increases down the road.
Turning to your specialty business some of the interesting there is an uptick activity certainly in the mining side on exploration and getting worse.
And it'll prices arent.
And capital, especially in Nevada.
And the Arizona or any other areas on the private sector side.
And see some improved maybe potential bookings and the size and the bookings is that going to pull and some of your heavy civil folks as well as youre thinking about where they're going to be allocated.
Located and some of the larger.
The risk mitigate projects.
I think and the specialty segment you can see our cap increase I think that just really kind of tells you. The strength of what we think is predominantly private and private type of work. So we see really nice strong market opportunities and the private market.
And.
The heavy civil group doesn't necessarily participate a whole lot today and that private market, certainly and opportunity as we kind of partner across the different groups internally.
But all in all of them and we're seeing we're seeing private market increases on site development of data center work opportunities, it's really across the board and it really.
With all of our groups.
And businesses have an opportunity to participate.
I appreciate it thanks Carl.
Our next question will come from Steven Ramsey with Thompson Research Group. Please go ahead.
Hey, good morning, everyone.
Good morning, and you start with.
Hey, good morning.
And to start with.
On the residential side clearly extending times between start of the home and finish due to labor and supply constraints is that happening.
And your project.
On the set either currently or in the cap or are you seeing extended times.
I would say no we're not seeing anything out of the ordinary and typically when a project comes out to bid at the bid process will take somewhere between say 4 of 5 to 8 weeks, we've actually provided of price or proposal.
Particularly we're seeing 60 to 90 days to award.
And that's when we started that work and that's pretty consistent and some some owners can confirm projects from letting.
Letting to actually performing the work of a little bit of quicker.
But that hasn't really changed for us at all of a whole lot.
Yes, and Steve and I would add that on the.
Labour side for our Western States a lot of that labor comes from the Union tool and so that really helps from a stability perspective, the have the labor that we need.
To build the work.
And I'll just add the.
And we're in a lot of our markets had been and our markets for a long time so.
And so we have really strong relationships.
And with with our Union partners out in the West. We also have a lot of our craft employees of and what the company for years and so we have the opportunity to have lots of different types of projects and work out in front of ourselves, which provides that continuity of work for our employees, which they value and so we do have longevity in terms of our craft workforce.
Ships, and then you add that with our safety performance. We believe we're an employer of choice for for our Kraft Heinz.
Okay. Okay, great Great and then wanted to ask about vertically integrated cap up $200 million, excluding specialty. So further strength there can you maybe describe.
The magnitude of this kind of increase.
Relative to total vertically integrated cap and then.
Is that broad based.
I'm just trying to put it in the context of that $200 million could see the first half.
Revenue for the materials Division.
I mean, the it's got the signal pretty strong volume for materials curious of that debt.
Foreshadow the strong results well into 2022 or if that burns off this year.
So maybe make sure I understand the question. The question is is our vertically integrated channel growing at a pace of significantly.
Difficult and especially when you look at the aggregate business and.
And the volume increases is it an indicator that we're really getting back into a healthier market and thats going to continue is that what the.
And maybe your questions.
Exactly and then kind of.
His down to vertically integrated is this level of growth outside.
Size versus the norm for vertically integrated.
Well I don't think its necessarily outside of the norm and it gets kind of in line with what we anticipated.
But I will say the.
And the pipeline of projects that we're bidding.
There are smaller and under what we recall and large project of $150 million and.
Inefficiently year over year, and how that coming off of a pandemic year and 2020, so that shouldn't be a huge surprise, but the work.
And we're back of pre pandemic and bid levels. I think we were really of concern last year about state funding that that has not lived up to kind of on our worries where there are some states. So a little more challenged and others, but we're still seeing really strong.
Funding and the states that we're in within the VA businesses. So I would say that we expect that to continue.
We think that there is really a nice pipeline of projects and more than we've seen and in a long time, we're also really.
I guess excited about what we're seeing in California, and we're seeing an increase and our California market.
Where the spending is around $6 billion over the next 6 to 7 years or so so we're seeing really nice annual spend within the California market.
And so we think we haven't really healthy environment that we're pursuing today.
Yes, and 1 thing to keep in mind too Steve is that our business is obviously cyclical and so we've just.
The entered our busiest and.
Construction season, So as Kyle mentioned award activity and Lettings and actually the bidding activity has been really and.
Robust and so that obviously has contributed to the increase but then we are going to start kind of a little bit of a quicker burn rate as we proceed into the busy.
And mid year for us.
Excellent. Thank you for the color.
Thank you. Thank you.
And again, if you have a question. Please press Star then 1 our next question will come from Jerry Revich with Goldman Sachs. Please go ahead.
Yes, hi, and good morning, everyone I'm wondering.
If you can talk about the.
SG&A outlook from here at least it looks like you're on track to be.
I think well below the low end of your target range for the year, considering how back half weighted.
The revenue is expected to be this year. So can you just talk about the drivers of the sequential.
<unk> will increase and SG&A that youre looking for or is that.
Just a function of.
Wanting to make sure we.
The deliver on the commitment this year.
Well, there's definitely an element of wanting to deliver on the commitment. This year. So as you mentioned, we start off of the year and the percentage of SG&A to revenue.
And it's typically a little higher and trends downward as as the year progresses, so for the quarter worried about 7.7% and.
And we continue to look at our SG&A spend and ensure that we're spending.
Wisely, but as we look at it for the rest of the year I mean, theres, no particular anomalies or things that we expect to have it spike, but we just wanted to.
And we kind of see.
Our normal trend as we continue out through the rest of the year.
And that's nice to see and then in terms of the.
Overall.
Of our money bid environment I'm wondering can you just talk about the way the pipeline looks and any differences by region Kyle anything that.
Jumps out at you in terms of the types of work that you're.
Bidding on and.
1 part of the footprint versus another and if you could just comment on.
The competitive discipline that youre seeing.
And the cycle compared to a couple of years ago.
Sure and we are seeing as I mentioned before really nice pipeline of projects.
Both on the larger project size as well as those that arent large projects within RBI footprint. So we're seeing just across the board and really help.
The business more.
Just a better and better bid environment for sure, especially.
Since these what we saw last year with the pandemic, but we're back as I mentioned, a couple of times now pre pandemic levels, which is really nice I don't want to mentioned within the heavy civil group.
The right now there's still the very strong pipeline of projects.
<unk> for bidding work and the range of say $20 million and $500 million of average job size still remains within that group around $270 million. What's interesting is really the contracting method that we're pursuing today on the pipeline of projects.
And Bill is really only about 18% of the projects that we're pursuing today and of <unk>.
The first firm of closely around 25%, but this best value CPUC and progressive design build is actually about 60% of the contracting method of the work that we're pursuing within the heavy civil group today, which is the big shift for us.
So we're excited to see that happen I mentioned and our last call that typically are our competitors burn through backlog.
<unk> from Q2, Q3, and then Q4 and Q1 are a little bit more competitive on the bid environment.
And that held true what we see and the last couple of quarters for sure and Q4, and Q1 and I mentioned and the last call that that might of extending a little bit and Thats certainly was the case with.
And with the pandemic and lower Lettings across the board.
And a lot of the competitors burn through backlog and they were looking to pick that up and in Q1. So it did extend I think things are kind of getting back to what we're used to.
And general and so I think the market is definitely on the on the improvement side.
Okay I appreciate the the discussion thanks.
Thank you. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Kyle Larson for any closing remarks.
Okay, well, thank you for your questions and as I.
All of these I want to thank all of our employees for everything you do for granite and for your continued focus on safety every day you are.
The hard work and dedication as the cornerstone.
Granite success and with that thank you for your continued interest and granite we look forward to speaking with everyone very soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.