Q1 2024 Granite Construction Inc Earnings Call

Good morning, My name is spike in it and I will be your conference facilitator today at this time I would like to welcome everyone to the granite construction incorporated 2024 first quarter conference call. This call is being recorded.

Megan: Good morning, my name is Megan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Incorporated 2024 first quarter conference call.

Megan: All lines have been placed on mute to prevent any background noise.

Megan: After the Speakers' remarks, there'll be a question and answer period to ask a question. Please press star one.

Speaker Change: Please note we will take one question and one follow up question from each participant today.

Megan: This call is being recorded. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer period. To ask a question, please press star 1. Please note, we will take one question and one follow-up question from each participant today. It is now my pleasure to turn the floor over to Vice President of Investor Relations, Mike Barker.

Megan: It's now my pleasure to turn the floor over to Vice President of Investor Relations, Mike Barker.

Michael W. Barker: Good morning, and thank you for joining us I'm pleased to be here today, with President and Chief Executive Officer of collagen and executive Vice President and Chief Financial Officer, Lisa Curtis.

Michael W. Barker: Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer Kyle Larkin and Executive Vice President and Chief Financial Officer Lisa Curtis. Please note that today's earnings presentation will be available on the Events and Presentations page of our Investor Relations website. We will 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.

Michael W. Barker: Note that today's earnings presentation will be available on the events and presentations page of our Investor Relations website.

Michael W. Barker: We begin today with a brief discussion regarding forward looking statements and non-GAAP measures.

Michael W. Barker: Some of the discussion today may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Michael W. Barker: These forward-looking statements are estimates reflecting the current expectations and best judgment of senior management regarding future events, occurrences, opportunities, targets, growth, demand, strategic plans, circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, committed and awarded projects, or CAB, and results. However, 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 these forward-looking statements. Accept them only as required by law.

Michael W. Barker: These forward looking statements are estimates, reflecting the current expectations and best judgment of senior management regarding future events occurrences opportunities targets growth.

Michael W. Barker: Man strategic plans circumstances activities performance shareholder value outcomes outlook guidance objectives.

Michael W. Barker: They did an awarded projects per cap.

Michael W. Barker: Results.

Michael W. Barker: Actual results could differ materially from statements made today.

Michael W. Barker: 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.

Michael W. Barker: The company assumes no obligation to update forward looking statements.

Michael W. Barker: Except as required by law.

Michael W. Barker: 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.

Kyle T. Larkin: 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. Now, I would like to turn the call over to Kyle Larkin.

Kyle T. Larkin: The required disclosures regarding our non-GAAP measures are included as part of our earnings press releases and the company presentations, which are available on our website granite construction dot com under Investor Relations.

Kyle T. Larkin: Now I would like to turn the call over to Carlos.

Kyle T. Larkin: Good morning, and welcome to our first quarter conference call.

Kyle T. Larkin: Good morning, and welcome to our first quarter conference call. I'm pleased to report that we are off to a strong start in 2024. Before diving into our first quarter results, I would like to share an update on our organizational structure. During the quarter, we reorganized our operations to more closely align with our reportable segments, construction, and materials. We believe that this new structure better positions our leadership team to manage the performance of these segments. As a reminder, we were previously organized into three operating groups: California, Mountain, and Central.

Kyle T. Larkin: I'm pleased to report that we're off to a strong start in 2024.

Kyle T. Larkin: In the prior structure, our leaders managed both construction and materials operations within their respective groups; our new structure results, and our construction experts overseeing construction operations, and our materials experts overseeing materials operations. Of course, our teams will continue to work together, but we believe the new structure will allow us to better leverage our expertise to drive top and bottom line growth. Construction leadership is focused on supporting regions with growth strategies and project execution while leveraging resources across the company to better serve our national climate.

Kyle T. Larkin: Before diving into our first quarter results I would like to share an update on our organizational structure.

Kyle T. Larkin: During the quarter, we reorganized our operations to more closely align with our reportable segments construction and materials. We believe this new structure better positions our leadership team to manage the performance of these segments.

Kyle T. Larkin: As a reminder, we previously organized into three operating groups, California Mountain Central and the prior structure, our leaders manage both construction and materials operations within their respective groups.

Kyle T. Larkin: Our new structure results.

Kyle T. Larkin: Struction experts overseeing construction operations.

Kyle T. Larkin: Experts overseeing materials operations of course, our teams will continue to work together, but we believe the new structure will allow us to better leverage our expertise to drive top and bottom line growth.

Kyle T. Larkin: Construction leadership is focused on supporting our regions with growth strategies project execution are leveraging resources across the company to better serve our national clients.

Kyle T. Larkin: For our materials segment, newly centralized management functions, such as sales and quality control, should drive consistency and improved financial performance. Grant has invested significantly in the materials segment over the last several years, with both acquisitions and strategic investments. And our materials segment leadership will be tasked with identifying opportunities to build shareholder value through further organic investments and M&A. Importantly, this new structure does not change our vertical integration strategy in our home market.

Kyle T. Larkin: Raw materials segment newly centralized management functions, such as sales and quality control and drive consistency and improved financial performance.

Kyle T. Larkin: And it has invested significantly in the materials segment over the last several years with both acquisitions and strategic investments in our materials segment leadership will be tasked with identifying opportunities to build shareholder value further organic investments and M&A.

Kyle T. Larkin: Importantly, this new structure does not change our vertical integration strategy in our home markets.

Kyle T. Larkin: Regional leadership in both construction and material segments will maintain the partnership that has differentiated granite for decades. I believe this organizational change sets the foundation for Granite's next chapter and will accelerate our ability to provide shareholders with higher levels of retention. Moving to the construction segment, I'm very pleased with the strong start to the year. No matter whether it's the first quarter, he's typically our slowest.

Kyle T. Larkin: Our leadership in both construction and materials segments, while maintaining the partnership with its differentiated granted for decades I believe this organizational change sets. The foundation for granted next chapter will accelerate our ability to provide shareholders with higher levels of return.

Kyle T. Larkin: Moving to the construction segment I'm very pleased with the strong start to the year.

Kyle T. Larkin: Mineral whether it is the first quarter is typically our slowest.

Kyle T. Larkin: But our teams are off to an outstanding start, in part because of more favorable weather conditions in 2024. So far in 2024, we have bid on and won more work than in 2023, but the cap remains flat from the fourth quarter, but increasing significantly year over year. While cap is unchanged during the quarter, the market has been consistent with our expectations. Our markets in the public and private sectors continue to be strong in California and across our geographies.

Kyle T. Larkin: Our teams are off to an outstanding start in part because of more favorable weather conditions in 2024.

Kyle T. Larkin: So far in 2024, we have bid and won more work than in 2023 with cap remained flat from the fourth quarter, but increasing significantly year over year.

Kyle T. Larkin: While cap was unchanged during the quarter the market has been consistent with our expectations our markets in the public and private sectors continued to be strong in California and across our geographies, we expect cap to grow in 2024.

Kyle T. Larkin: We expect CAP to grow in 2024. Thus, value projects continue to be a focus and represent $2.5 billion, or 46% of our total capital expenditures. The collaborative delivery methods captured in this number, like construction manager, general contractor, or progressive design build, better position us for success by allowing us to collaborate with our clients to mitigate risk. Larger best value projects are often separated into smaller work packages that are reviewed through multiple project workshops.

Kyle T. Larkin: That's value projects continued to be a focus and represent $2 5, billion% to 46% of our total cap.

Kyle T. Larkin: The collaborative delivery methods captured in this number like construction manager general contractor, a progressive design build better position us for success by allowing us to collaborate with our clients to mitigate risk.

Kyle T. Larkin: Larger best value projects are often separated the smaller work packages that are reviewed through multiple project workshops.

Kyle T. Larkin: This provides more opportunities to assess and address risks for large bid-bill projects. In the last 15 years, we have completed, or have under contract, 87 best value projects. Generally, these projects are constructed more quickly and with fewer claims.

Kyle T. Larkin: This provides more opportunities to assess and address risk the large they build projects.

Kyle T. Larkin: In the last 15 years, we have completed or have under contract.

Kyle T. Larkin: Seven best value projects generally these projects are constructed more quickly and fewer claims.

Kyle T. Larkin: In the first quarter, construction revenue increased 18% year-over-year, led by our teams in California, Utah, and the Midwest. This is primarily a result of the higher cap entering the year and the more favorable weather conditions compared to the first quarter of 2023. With our current cap and the bidding opportunities ahead of us, we are on track to win the work needed to meet our revenue guidance in 2024 and continue our organic growth in 2025.

Kyle T. Larkin: The first quarter construction revenue increased 18% year over year led by our teams in California, Utah and the Midwest. This was primarily a result of the higher cap during the year and the more favorable weather conditions compared to the first quarter of 2023.

Kyle T. Larkin: With our strong start to the year.

Kyle T. Larkin: Our current cap the bidding opportunities ahead of US we're on track to win the work needed to meet our revenue guidance between 24 and continue our organic growth in 2025.

Kyle T. Larkin: Moving to the materials segment, the first quarter benefited from price increases and higher volumes associated with more favorable weather and our most seasonally impacted quarter.

Kyle T. Larkin: Moving to the materials segment, the first quarter benefited from price increases and higher volumes associated with more favorable weather in our most seasonally impacted quarters. As mentioned previously, we are focused on price increases, targeting a 10% increase on average in aggregates and 5% in aspects. So far this year, our price increases align with this expectation. We will continue to monitor progress as the year continues as we approach the heart of the construction season.

Kyle T. Larkin: As mentioned previously.

Kyle T. Larkin: Focused on price increases targeting a 10% increase on average now aggregates and 5% in asphalt so far this year our price increases aligned with this expectation we will continue to monitor progress as the year continues we approached the heart of the construction season.

Kyle T. Larkin: Over the past three years, we have significantly invested in our materials segment.

Kyle T. Larkin: Over the past three years, we have significantly invested in our materials segment. We expect this pattern to continue in 2024 with approximately $50 million of planned strategic investments in further automation projects at plants, new reserve expansion, and a new aggregate plant that is expected to come online later this year. We ended 2023 with 1.3 billion tons of reserves, an increase of 294 million tons, or 30% since 2021. This includes 140 million tons of reserves added through acquisitions in 2023.

Kyle T. Larkin: We expect this pattern to continue in 2024, and approximately 50 million of planned strategic investments and further automation projects at plants, New reserve expansion, a new aggregate plant that is expected to come online later this year.

Kyle T. Larkin: We ended 2023 with $1 3 billion tons of reserves and increase of 294 million tons or 30% since 2021.

Kyle T. Larkin: This includes a 140 million tons reserves added through acquisitions in 2023.

Kyle T. Larkin: In 2024, we will continue to explore M&A options for both bolt-on opportunities and possible expansion in the new geography. You remain very selective in our pursuits, but I'm hopeful we will complete additional material M&A transactions in 2024. Now, I'll turn it over to Lisa to review our financial performance for the quarter.

Kyle T. Larkin: 'twenty 'twenty four.

Kyle T. Larkin: We will continue to explore M&A options for board, both bolt on opportunities and possible expansion into new geographies.

Lisa: I mean very selective in our pursuits.

Kyle T. Larkin: We will complete additional materials M&A transactions in 2020 for now I'll turn it over to Lisa to review, our financial performance for the quarter.

Lisa: Thank you Tom.

Elizabeth Lisa Curtis: Kyle, in the first quarter of 2024, we saw significant improvement in our financial performance compared to the first quarter of 2023. Revenue increased $112 million, or 20%. Gross profit increased $22 million, or 68%. Adjusted net loss improved $5 million. Adjusted EBITDA improved $18 million, and Operating Cash Flow improved $101 million. It was an exciting start to the year.

Lisa: In the first quarter of 'twenty 'twenty four we saw significant improvement in our financial performance compared to the first quarter of 2023.

Elizabeth Lisa Curtis: Revenue increased $112 million or 20% gross profit increased 22 million or 68%.

Elizabeth Lisa Curtis: Adjusted net loss improved 5 million adjusted EBITDA improved 18 million and operating cash flow improved 101 million. It is an exciting start to the year.

Elizabeth Lisa Curtis: In the construction segment, revenue increased $92 million or 18% year-over-year to $595 million, driven by higher levels of cap and favorable weather. The increases in revenue were led by California, Utah, and the Midwest. Construction segment gross profit improved $20 million with a gross profit margin of 9.5%. The improvement in gross profit margin was largely due to a decrease in negative net revisions in estimates. The increase in gross profit was offset by $5 million of seasonal gross losses from acquired businesses, including purchase accounting-related depreciation and intangible asset amortization of $3 million.

Elizabeth Lisa Curtis: And the construction segment revenue increased 92 million or 18% year over year to 595 million.

Elizabeth Lisa Curtis: Driven by higher levels of cat and favorable weather.

Elizabeth Lisa Curtis: The increases in revenue were led by California, Utah and the Midwest construction.

Elizabeth Lisa Curtis: Construction segment gross profit improved 20 million with a gross profit margin of nine 5%.

Elizabeth Lisa Curtis: The improvement in gross profit margin was largely due to a decrease in negative net revisions in our students the.

Elizabeth Lisa Curtis: The increase in gross profit was offset by five known as seasonal gross losses from acquired it.

Elizabeth Lisa Curtis: Including purchase accounting related depreciation and intangible asset amortization of 3 million.

Elizabeth Lisa Curtis: In the material segment, revenue increased $20 million year-over-year to $77 million, with gross profit increasing $2 million to a gross loss of $3 million. The increase in materials revenue was primarily due to acquired businesses, as well as increases in sales prices and volumes. The increase in gross profit was led by higher sales prices for both aggregates and asphalt, which was offset by losses from acquired businesses of $3 million, including $2 million due to purchase accounting-related depreciation and intangible asset amortization.

Elizabeth Lisa Curtis: In our materials segment revenue increased 20 million year over year to 77 million with gross profit increasing to two.

Elizabeth Lisa Curtis: To a gross loss of 3 million.

Elizabeth Lisa Curtis: The increase in materials revenue was primarily due to acquired businesses.

Elizabeth Lisa Curtis: As well as increases in sales prices and volumes.

Elizabeth Lisa Curtis: The increase in gross profit was led by higher sales prices in both aggregates and asphalt which was offset by losses from acquired businesses of 3 million, including 2 million due to purchase accounting related depreciation and intangible asset amortization.

Elizabeth Lisa Curtis: Building on the momentum from the second half of 2023 cash flow significantly improved over the first quarter of 2023 with operating cash flow of 24 million or 101 million improvement.

Elizabeth Lisa Curtis: Building on the momentum from the second half of 2023, cash flow significantly improved in the first quarter of 2023, with operating cash flow of $24 million, or a $101 million improvement. We have made significant strides in this area, and our teams remain focused on cash generation. With our performance in the first quarter, I believe we are on track to meet the operating cash flow target of 7% of revenue for 2024. During the quarter, total debt decreased $102 million due to the full paydown of the revolver, with a corresponding decrease in cash and marketable securities of $116 million.

Elizabeth Lisa Curtis: We have made significant strides in this area and our teams remain focused on cash generation.

Elizabeth Lisa Curtis: With our performance in the first quarter I believe we are on track to meet the operating cash flow target of 7% of revenue for 2024.

Elizabeth Lisa Curtis: During the quarter total debt decreased 102 million due to the full pay down of the revolver with a corresponding decrease in cash and marketable securities of $116 million.

Elizabeth Lisa Curtis: With our cash and marketable securities of 337 million and availability under our credit agreement of 333 million, we have the liquidity to continue to invest in growing our operations.

Elizabeth Lisa Curtis: With our cash and marketable securities of $337 million and availability under our credit agreement of $333 million, we have the liquidity to continue to invest in growing our operations, both organically and through M&A. We are continually reviewing opportunities for bolt-on acquisitions to infill our existing footprint as well as expansion opportunities into new geographies, such as the Lehman Roberts and Memphis stone and gravel transactions that closed late last year. While we continue to be very selective, I expect that we will pursue further M&A in 2024 that will add to our cash flow generation and lead to increased shareholder value.

Elizabeth Lisa Curtis: Organically and through M&A.

Elizabeth Lisa Curtis: We are continually reviewing opportunities for bolt on acquisitions.

Elizabeth Lisa Curtis: And fill our existing footprint.

Elizabeth Lisa Curtis: As well as expansion opportunities into new geographies, such as the Lehman Roberts and Memphis stone and gravel transaction that closed late last year.

Elizabeth Lisa Curtis: While we continue to be very selective and I expect that we will pursue further M&A in 2024.

Elizabeth Lisa Curtis: That will add to our cash flow generation and lead to increased shareholder value.

Elizabeth Lisa Curtis: Now I'll briefly touch on our guidance for 2024.

Elizabeth Lisa Curtis: Now, I'll briefly touch on our guidance for 2024. We are raising our adjusted EBITDA margin range from 9% to 11% to 9.5% to 11.5%. The only change in our assumptions from last quarter is that we have excluded non-cash stock-based compensation from adjusted EBITDA. This allows for Adjusted EBITDA to be more comparable to our industry peers; excluding non-cash stock-based compensation for the full year 2023 would have increased adjusted EBITDA margin from 7.7% to 8%.

Elizabeth Lisa Curtis: We are raising our adjusted EBITDA margin range from 9% to 11% to nine and a half 211.5%.

Elizabeth Lisa Curtis: The only change in our assumptions from last quarter is that we have excluded noncash stock based compensation from adjusted EBITDA.

Elizabeth Lisa Curtis: This allows for adjusted EBITDA to be more comparable to our industry peers.

Elizabeth Lisa Curtis: Excluding noncash stock based compensation for the full year 2023 would've increased adjusted EBITA margin from seven 7% to 8%.

Elizabeth Lisa Curtis: The first quarter of 2023 has been recast to reflect the adjustment. There is no other change to our guidance for 2024, and based on the first quarter results, I believe we are on track to meet our guidance. Now, I'll turn it back over to Kyle.

Elizabeth Lisa Curtis: The first quarter of 2023 has been recast to reflect the adjustment.

Elizabeth Lisa Curtis: There is no other change to our guidance for 'twenty 'twenty four and based on our first quarter results. I believe we are on track to meet our guidance now I'll turn it back over to Kyle.

Kyle T. Larkin: Thanks Lisa. I'll close with the following points. We started 2024 strong with significant growth in revenue, adjusted EBITDA, and operating cash flow compared to 2023. This builds upon the momentum carried into 2024 from the growth experienced in the second half of 2023. Our cap supports this growth and remains high at 5.5 billion. We see a continued strong public and private market environment supported by the IIJA and healthy state budgets across our geography.

Kyle: Thanks, Lisa I'll close with the following points.

Kyle T. Larkin: Started 'twenty 'twenty four is strong with significant growth in revenue adjusted EBITDA and operating cash flow compared to 2023.

Kyle T. Larkin: This builds upon the momentum carried into 2024 and the growth experienced in the second half of 2023.

Kyle T. Larkin: Our cap supports this growth remains high at $5 5 billion.

Kyle T. Larkin: We see a continued strong public and private market environment supported by the I R. J, a healthy state budgets across our geographies.

Operator: The leading opportunities ahead of us are robust and should provide excellent opportunities to continue to grow CAP, meet our growth objective in 2024, and continue organic growth in 2025. Our guidance for 2024 is largely unchanged except for an increase in our adjusted EBITDA margin range to 9.5 to 11.5% based upon the exclusion of stock-based compensation expense. I believe we are on track to meet our guidance for 2024. With our de-risk portfolio, we are seeing the positive effects of our ability to generate cash.

Kyle T. Larkin: The opportunities ahead of us are robust and should provide excellent opportunities to continue to grow cat meet our growth objective in 2024 and continued organic growth in 2025.

Operator: Our guidance for 'twenty 'twenty four is largely unchanged except for an increase in our adjusted EBITDA margin range to 9.5 to 11, 5% based upon the exclusion of stock based compensation expense I believe we are on track to meet our guidance for 'twenty 'twenty four.

Operator: With our diverse portfolio, we are seeing the positive effects of our ability to generate cash.

Operator: In a seasonally slow quarter, we generated positive operating cash flow, and I expect to reach our target of operating cash flow of 7% of revenue for 2024. Finally, I expect further M&A to be completed in 2024. We're actively pursuing M&A that should drive cash flows and shareholder value. Operator, I will now turn it back to you for questions. We will now begin the question.

Operator: Usually slow quarter, we generated positive operating cash flow and I expect to reach our target of operating cash flow of 7% of revenue for 'twenty 'twenty four.

Operator: Finally, I expect further M&A to be completed in 'twenty 'twenty four for actually pursuing M&A that should drive cash flow and shareholder value.

Speaker Change: Operator, I will now turn it back to you for questions.

Speaker Change: We will now begin the question and answer session.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: I ask a question you May press Star then one on your telephone keypad.

Operator: If you are using a speakerphone please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. As a reminder, we will take one question and one follow-up question from each participant today. At this time, we will pause momentarily to assemble our roster. The first question comes from Brent Thielman with D.A. Davidson. Please go ahead.

Operator: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: As a reminder, we.

Brent Edward Thielman: We'll take one question and one follow up question from each participant today.

Operator: At this time, we will pause momentarily to assemble our roster.

Operator: Yeah.

Operator: The first question comes from Brent Thielman with D. A Davidson. Please go ahead.

Brent Edward Thielman: Hey, Thanks, good morning.

Brent Edward Thielman: Hey, thanks. Good morning. All right, Kyle, Kyle, or Lisa, I guess, maybe just first on the construction segment, could you just talk about what you see in terms of performance of the new portfolio of work versus the old portfolio? Doesn't appear to be any meaningful drag from kind of the legacy stuff this quarter, but maybe you can just parse those two areas and how you see things progressing there in that business. Sure. All right.

Speaker Change: Hi, Brian.

Brent Edward Thielman: Kyle Kyle or at least I guess, maybe just first on the construction segment could could you just talk about what you see in terms of performance of the new portfolio of work versus the old portfolio doesn't appear to be any meaningful drag from kind of legacy stuff. This quarter, but maybe you could just parse that those two areas.

Brent Edward Thielman: And how you see things progressing there in that business segment.

Kyle T. Larkin: Sure, well certainly we're off to a good start in the first quarter, certainly on the top line and the bottom line relative to where we were in 2023. And I think it's, as you mentioned, it's the first year we haven't had the drag of really the ORP projects that we spoke about in the past, and really good cap. So we came in, we've been building up high-quality capacity, and we continue to do that, and so we're seeing the benefits of that, certainly as we get going here in 2024.

Kyle: Sure well certainly we're off to a good start in the first quarter, certainly the topline and bottom line relative to where we were in 2023.

Kyle T. Larkin: It's as you mentioned.

Kyle T. Larkin: The first year, we haven't had the drag out really the ORP projects that we used to talk about in the past and really good cat. So we came in we've been building up a high quality cab.

Kyle T. Larkin: We continue to do that and so we're seeing kind of the benefits of that certainly as we get going here in 2024.

Kyle T. Larkin: Okay.

Brent Edward Thielman: And I guess second, just... The Materials Business Group. I know you've been doing a lot within that segment internally, just in terms of investments, obviously, externally as well. It's always a little difficult to see the effects of that on the bottom line for the first quarter, just because of the seasonality, obviously. But maybe you could talk about the impact you're seeing from some of those investments you've made in that business group, what that's having on productivity and efficiencies.

Kyle T. Larkin: And I guess second just.

Brent Edward Thielman: The materials business group.

Brent Edward Thielman: I know you've been doing a lot within that segment internally just in terms of investment obviously externally as well.

Brent Edward Thielman: It's always a little difficult to see the effects of that in the bottom line for the first quarter, just because of the seasonality, obviously, but maybe you could talk about the impact you're seeing from some of those investments you've made in that business group, what that's having on productivity efficiencies those sorts of things would be interested to hear kind of.

Speaker Change: Yeah. So it's a good question and really we've been reinvesting in that business as you. All know now for a couple of years been focused a lot on reserves and reserve expansion.

Kyle T. Larkin: Yeah, so it's a good question. And really, we've been reinvesting in that business, as you all know, now, for a couple years, we've focused a lot on reserves and reserve expansion. And so a lot of that's replacing reserves that we had under invested in probably in previous years. So we're getting caught up in many ways.

Kyle T. Larkin: That is replacing reserves that we had underinvested in probably break in previous years, So were getting caught up in many ways and we're starting to see the acquisition of Brunswick Canyon, a CMO or up in Canada start to play in a late last year and into this year, we will start seeing those ramp up.

Kyle T. Larkin: We're starting to see the acquisition of Brunswick Canyon CMR up in Canada start to pay off late last year and into this year. So the last is really the automation effort, making a lot of investments in automation. The first plant that's fully automated came online this year in Arizona, so we'll really start to see that ramp up for us in 2024 and beyond. And then we have another one coming online in Bakersfield in June.

Kyle T. Larkin: So the last is really the automation that are making a lot of investments in automation. The first plant is fully automated came online this year.

Kyle T. Larkin: In Arizona, So, we'll really start to see that ramp up for us in 2024 and beyond and then we have another one coming online in Bakersfield in June. So I think it's still a little bit to come I think we've been making a lot of those incremental investments are going to pay off over really the long haul I think from a structure perspective.

Kyle T. Larkin: So, I think there's still a little bit to come. I think we've been making a lot of those incremental investments that are going to pay off over the long haul. And I think from a structure perspective, the timing is right for us. You know, our materials team has done a really nice job of growing the materials business. And it's a big part of our business today. And, as you mentioned, we continue to reinvest in our materials business.

Kyle T. Larkin: The timing is right for US you know a materials team has done a really nice job.

Kyle T. Larkin: Drilling the materials business and it's a big part of our business today and it is.

Kyle T. Larkin: As he mentioned, we continued to reinvest in our materials business and we want to ensure that we're maximizing the value.

Kyle T. Larkin: We want to ensure that we're really maximizing the value in the materials business to get a return on those investments. And that's why we did this organizational change, to really let our teams do what they do best. And overall, this is part of our... transformation as a company on our journey. I don't think we had the organizational readiness to do this a couple years ago, but we certainly are in a really good place today to make it happen. And so we believe that change will again help drive top line and bottom line growth, beginning in 24, but into future years. Very good Thank you.

Kyle T. Larkin: In the Joe's business and getting return on those investments and that's why we did this organizational change is really that our teams do what they do best and overhauls as part of our.

Kyle T. Larkin: Transformation as a company in our journey I don't think we have the organizational readiness to do this a couple of years ago, but we certainly in a really good place today to make it happen and so we believe that change will again help drive topline and bottomline growth beginning in 'twenty four but in the future years.

Speaker Change: Okay very good thank you.

Speaker Change: Thank you.

Kyle T. Larkin: Our next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Operator: Our next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Operator: Hi, everyone, it's orange, John calling in for Steven.

John Cullinan: Hi everyone. It's John Cullinan for Steven.

John Cullinan: And thanks for taking my question.

John Cullinan: Thanks for taking my question. So digging a little bit more into the material side, are there any kind of price and volume factors you could discuss for this year? You know, decent pricing? Do you kind of see that continuing? And then on the volume side, kind of what your just general thoughts are there?

John Cullinan: So digging a little bit more into the materials side is there any kind of price volume factors you can just got through this year you know do you think pricing.

John Cullinan: Do you kind of do you see that continuing.

John Cullinan: And then on the volume side kind of what your just general thoughts are there.

Kyle T. Larkin: Yeah, pretty consistent with what we shared on the last call. We see this year's aggregate volume being relatively flat, which is healthy, really, compared to 2023. So, the asphalt side is where we saw an improvement coming, which we still believe is going to be the case, primarily in California. On the volume side, we have seen the pricing take hold that we said we were going to do, which was 10% on ag and 5% on asphalt, so that's good news there. And we're going to continue to keep a pulse on the market and see if there's further opportunities for us to adjust prices accordingly.

Speaker Change: Yes, pretty consistent with what we shared on the last call. We see this year aggregate volume being relatively flat.

Kyle T. Larkin: Which is healthy.

Kyle T. Larkin: I'd really like compared to 2023 so.

Kyle T. Larkin: Fault sides, where we saw improvement coming which we still believe it's going to be the case, primarily in California on the volume side.

Kyle T. Larkin: We have seen the pricing take hold that we said we were going to do which was 10% on an aggregate 5% on asphalt. So that's good news there.

Kyle T. Larkin: And we're going to continue to kind of keep a pulse on the market and see further opportunities for us to adjust our pricing accordingly.

Speaker Change: Got you, Okay, and then on the cap on the campus side project bid environment right. Now are you guys seeing any changes there I think.

John Cullinan: Gotcha, okay. And then on the cap, on the cap side, project, the bid environment right now, are you guys seeing any changes there? I think, you know, we're hearing that, you know, it might get it might be getting a little bit more crowded on some projects in some areas. Just curious as to kind of what your thoughts are as the years progress and, you know, the rest of 24. Do you see any changes?

John Cullinan: We're hearing that.

John Cullinan: Get it might be getting a little bit more crowded on some projects in some areas I'm just curious as to kind of what your thoughts are as the year is progressing and you know the rest of the 24 do you see any changes.

John Cullinan: Or can it stayed fairly consistent sequentially, obviously, we're up about 400 million year over year. So we still feel really good about the cap. We have we feel really good about the quality of the cap that we have in place today.

Kyle T. Larkin: Our cap has stayed fairly consistent sequentially, obviously we're up about 400 million year over year, so we still feel really good about the cap we have. We feel really good about the quality of the cap that we have in place today, but I can tell you through April we've been bidding more work this year than last year, so we're seeing a better market from an activity perspective. We've been picking up more work through April of this year than we were last year at the time, and our margins on that work have increased as well. So we think the market is very healthy and will remain healthy, both on the public and the private side. So maybe we're seeing a few things a little bit different than others.

Kyle T. Larkin: But I can tell you through April we've been bidding more work there.

Kyle T. Larkin: Susan last year, so we're seeing a better market from from an activity perspective, we've been picking up more work through April of this year than where we were last year at the time and our margins on that work. It has increased as well. So we think the market is very healthy.

Kyle T. Larkin: It remains healthy both on the public and the private side. So maybe we're seeing a few things all the different than others.

John Cullinan: Gotcha. Great. Okay, thanks.

Speaker Change: Gotcha, great Okay. Thanks.

Speaker Change: Thank you. Thank you.

Operator: Thank you. Our next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

John Cullinan: Our next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Adam: Hi, this is Adam on behalf of Jerry today. Thanks for taking my question. Historically, I think 2Q EBITDA margin steps up to above where full year margins end up for the year. How are you thinking about the margin cadence over the course of 2024 versus normal seasonality? Any puts and takes that we should keep in mind there?

Operator: Hi, This is Adam on for Jerry today, Thanks for taking my question.

Adam: Historically, I think <unk> EBITA margin steps up to above where full year margins end up for the year. How are you thinking about the margin cadence over the course of 2024 versus normal seasonality and any puts and takes that we should keep in mind there.

Adam: I don't I don't know I think you could probably go back and look at our typical seasonality I think the hard part is you know we're a lot different business.

Kyle T. Larkin: I don't know. I think you could probably go back and look at our typical seasonality. I think the hard part is, you know, we're a lot different business. We have been historically, so certainly our risk profile of not having these mega projects, our goal has been, for the last couple of years, really de-risking our organization and our portfolio and providing more consistent financial performance. And so I think we're going to start to see that work itself through, and we'll start to see a little bit less volatility, certainly in our EBITDA margin moving forward. So I would probably look back at maybe some of the seasonality, and then we would have to take out some of the bigger movement items that we've had to deal with.

Kyle T. Larkin: Then we have been historically so.

Kyle T. Larkin: Certainly our risk profile with not having these mega projects.

Kyle T. Larkin: Our goal has been now for the last couple of years really Derisking the organization in our portfolio and providing more consistent financial performance and so I think we're going to start to see that work itself through and we'll start to see a little bit less volatility certainly in our EBITDA margin moving forward. So I'd, probably look back and maybe some of the seasonality and then we'd have to take out some of them haven't.

Kyle T. Larkin: Abnormal kind of a bigger movement items that we've had to deal with.

Kyle T. Larkin: And then can you just talk about what level of material cost inflation, you're factoring into your bid.

Adam: And then can you just talk about what level of material cost inflation you're factoring into your bids today? Well, yes.

Adam: Today.

Adam: Yes.

Adam: Well on the on the construction side, we bid every single project and we get coverage on inflationary items use of contractors and suppliers.

Kyle T. Larkin: Well, on the construction side, you know, we bid every single project, and we get coverage on the equationary items through subcontractors and suppliers. And then our owners also cover escalation, escalators, and deescalators. So those are already factored in; it's hard to give you an overall number from that perspective. And then on the materials side, we have been able to increase our pricing, as I mentioned, on aggregate and asphalt, but we've also kept the energy escalator we put in place in April of 2022. So that really covers us on the natural gas and diesel for those costs.

Kyle T. Larkin: Our owners also cover escalation escalators and de escalators. So those are already.

Kyle T. Larkin: Factored in it's hard to give you an overall number from that perspective, and then on the materials side.

Kyle T. Larkin: Have you been able to increase our pricing as I mentioned on aggregate and asphalt, but we've also.

Kyle T. Larkin: Kept the energy escalator that we put in place in April of 2022, so that really covers us on the natural gas and diesel on those costs and cost trends.

Speaker Change: Great. Thanks, so much.

Speaker Change: Yeah. Thank you. Thank you.

Speaker Change: This concludes our question and answer session.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Kyle Larkin for any closing remarks.

Kyle T. Larkin: I'd like to turn the conference back over to Kyle Larson for any closing remarks.

Kyle T. Larkin: Okay, well. Thank you for joining the call today as always we want to thank all of our employees for the work they do every day.

Kyle T. Larkin: Okay, well, thank you for joining the call today. As always, we want to thank all of our employees for the work they do every day. I look forward to seeing many of you next week during Construction Industry Safety Week. Thank you for joining the call and your interest in Granite. We look forward to speaking with you all soon.

Kyle T. Larkin: Good to see many of you next week during the construction industry safety week.

Kyle T. Larkin: Thank you for joining the call and your interest in granite, we look forward to speaking with you all soon.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.