Granite Construction Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2023

There are 9 speakers on the call.

Operator

Morning. My name is Andrea, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction, 2023 First Quarter Conference Call. This call is being recorded. Prevent any background noise.

Operator

And after the speakers' remarks, there will be a question and answer period. It is now my pleasure to turn the floor over to Vice President of Investor Relations, Mike Barker. Please go ahead.

Speaker 1

Good morning and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer, Kyle Larkin. And Company. Our Chief Financial Officer, Lisa Curtis, is recuperating from a minor unplanned medical procedure and is unable to join us today. And Exchange Commission.

Speaker 1

This presentation will be available on the Events and Presentations page of our Investor Relations website. We begin today with a brief discussion regarding forward looking statements and Non GAAP Measures. Some of the discussion today may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements are estimates reflecting the current expectations and best judgment of senior management regarding the future events, and Company. Occurrences, Opportunities, Targets, Growth, Demand, Strategic Plans, Circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, Committed and Awarded Projects or CAP and Results.

Speaker 1

Actual results could differ materially from statements made today. And Company. Please refer to Granite's most recent 10 ks and 10 Q filings for a more complete description of risk factors that could affect these forward looking statements. Inc. The company assumes no obligation to update forward looking statements, except as required by law.

Speaker 1

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 Company Presentations, which are available on our website graniteconstruction.com under Investor Relations. Company. We'll also be discussing comparable results, which excludes the effects of Granite Inliner, which was sold in March 2022.

Speaker 1

Company. Now, I'd like to turn the call over to Kyle Larkin.

Speaker 2

Good morning, and welcome to our Q1 conference call. The typical winter quarter is often a slower one for Granite as many of our businesses are seasonal. Early in the year, many of our locations are focused on maintenance and and Covenants. As everyone is aware, the Q1 of 2023 was not a typical winter quarter. Extreme weather events occurred across the country with the Western U.

Speaker 2

S. Particularly impacted. And. Atmospheric River became a familiar term of art and these storms hitting one after another traveled across the country bringing extreme weather with them. Many of our home markets were in the path of these storms with historic precipitation across Nevada, Utah and Arizona and even more intense impacts in California.

Speaker 2

For context, in the Wasatch Mountains of Utah, snowpack more than doubled historical averages, The same was seen in the Northern Sierra. The Southern Sierra received nearly 300% abnormal snow totals, while many locations from Southern California and New Century, California collected more than 150% of normal rainfall totals. All of this precipitation delayed work While causing true hardship to many of our home market communities, as well as many of our employees. It also impacted our revenue and growth projections for the quarter. This is obviously unfortunate, but as I said in the last call, if it's going to rain, we want it to rain early in the year during our slowest quarter.

Speaker 2

As I will discuss today, Opportunities also arise with the extreme weather. With the good weather in April and most of our regions, our teams are starting to catch up on planned construction. We are confident that we have the capacity to deliver on our growth expectations this year despite the poor weather of the Q1. Now, let's jump into the construction segment and the performance of our operating groups. Although the weather did not cooperate in Q1, the market is strong, as illustrated by the substantial growth of our cap this quarter to $5,100,000,000 This is an increase of 619,000,000 and 14% in the 4th quarter and a record cap total for Granite.

Speaker 2

The growth in cap during the Q1 of 2023 Company. Built upon our momentum from the several most recent quarters, this is strategic growth. We are winning work, while being selective in our bidding. And Company. We are pursuing fewer jobs, while still winning more work and higher margins than the prior year.

Speaker 2

This trend is a really nice result for our Pursuit teams across the company. I believe that we have significant opportunity in this strong market environment to continue building high quality cap throughout the remainder of 2023. And Company. In the California Group, we ended the quarter with another record cap of $1,900,000,000 This reflects a 10% increase Inc. 4th quarter cap and a 29% increase over the same period of the prior year.

Speaker 2

Despite the deficit in the proposed California budget, Community activity in the state remains robust aided by the Federal Infrastructure Bill or IIJA. IIJA funds a variety of projects and creates a variety of opportunities for us. 1 IIJA opportunity that at first glance would appear to be outside our traditional and Construction scope includes middle mile broadband projects. Although these projects sound as though they would be outside of our core capabilities, The offer scopes of work that align well with our construction expertise. In the Q1, we were awarded 3 middle mile broadband infrastructure projects Our scope of work consists primarily of excavation.

Speaker 2

These projects added $132,000,000 to California's cap. And. In these projects, fiber object cables are laid in conduits connecting global Internet networks to local networks across the state of California. While each state is different, California is moving quickly to capitalize on the funding provided by the IIJA for these types of projects and Granite is well positioned to partner with Caltrans to construct them. Our long partnership with Caltrans and local municipalities also allowed Granite to participate in emergency storm response across the Golden State.

Speaker 2

In the midst of record rainfall, Granite was tapped by Caltrans for critical response and Construction Projects throughout California in the Q1 and we secured approximately $100,000,000 of emergency work with $18,000,000 of revenue recognized in the Q1. We are proud to support our communities with timely high quality work when and where the need is the greatest. Moving to the Mountain Group, our largest group by revenue in 2022. We increased cap by $364,000,000 or 34% since year end, Incorporated with a 40% increase since the Q1 of 2022. GAAP increase in the Q1 was led by the Alaska region Inc.

Speaker 2

With an increase of $215,000,000 largely from 2 best value projects booked in the quarter.

Speaker 3

And Construction. In recent years,

Speaker 2

Alaska's funding has been limited due to decreases in oil production and a challenging tourism industry. New federal funding for infrastructure has increased opportunities in Alaska, and Communities in Alaska, including in best value procurement work. Utah region, including the Salt Lake City market, continues to be a highlight in the diverse Mountain Group, adding $160,000,000 to its cap during the quarter. And Co. Salt Lake City has been a growing market for several years and has been one of Granite's key home markets for decades.

Speaker 2

Last year, we announced and Significant Materials Investments in the area, and we expect our Utah business to grow along with the local economy. Community. Finally, the Central Group continued to grow cap in its home markets, led by the Federal Division and Arizona region. In Arizona, the Phoenix and Tucson markets, led by the influx of new residents have been among the fastest growing economies in the country. The state is investing heavily in infrastructure to support its growth.

Speaker 2

And Company. We are seeing that dynamic in our CAP portfolio. In the Federal division, the CAP increase was primarily driven by the recently announced and $126,000,000 contract awarded by the Naval Facilities Engineering Systems Command or NAVFAC for the construction of buildings and infrastructure Institute to support the relocation of U. S. Marines to Marine Corps Base, Camp Blas in Guam.

Speaker 2

Granite has been working on various projects in the construction of Camp Blas for and Company. Given the high level of government funding available, our federal division has numerous significant opportunities to build its portfolio with

Speaker 1

and Company. As I take

Speaker 2

a step back and look across the Center Group, the transformation over the last 3 years has been impressive. And Co. The vertically integrated Arizona region is capitalizing on a booby market. Texas region has been very successful in winning projects in its home markets. The Illinois region has built an impressive cap portfolio in the Chicago area and the federal division continues to expand relationships across multiple agencies.

Speaker 2

And Company. Overall, despite the slow start of the year, the near and longer term prospects for all of our groups are bright. We have successfully grown our CAF during the quarter and I believe we will continue to grow quality CAF in 2023 as further projects funded by the IIJA are released for bid. Now on to the Materials segment. While the Q1 of the year is generally a slower time for our Materials business, This quarter was particularly difficult.

Speaker 2

In too many of our markets in the Western U. S, wet and cold weather prevented us from delivering the results and Construction. We entered 2023 with healthy order volumes that many projects were disrupted. Overall, weather has improved significantly across our footprint in April. Our teams are often running following the wet Q1 and I expect them to make a lot of progress towards our Projections during the Q2.

Speaker 2

Last year, I spoke about several investments in the materials business. These included new reserves, and Liquid Asphalt Terminal and Automation Projects at Multiple Aggregate Plants. In 2023, we have continued investing in our materials business and Company. The Brunswick Canyon Quarry and Asphalt Plant and Carson City, Nevada purchased in Q1 supports Granite's vertically integrated home market in Northern Nevada. We also recently announced the purchase of Coast Mountain Resources in April, an aggregate vendor for our Pacific Northwest region.

Speaker 2

Company. These bolt on transactions and materials assets are representative of the acquisitions that I expect us to continue to pursue to grow our materials business and work to further develop and vertically integrate our home markets. Now, I'll turn it over to Mike to review our financial performance.

Speaker 1

Thanks, Kyle. As we discussed, the weather interrupted operations and material sales. Despite this start to the year, We remain optimistic for 2023. Our record cap at the end of the quarter, the strong public market environment and outstanding orders in our materials business support our 2023 guidance that we provided last quarter. After the Q1, we have ground to make up, but that work is in full swing and Company with the relatively dry April we have experienced.

Speaker 1

We believe we have the capacity and resources to meet our revenue guidance of 3 point to $3,600,000,000 and our adjusted EBITDA margin guidance of 7.5% to 9%. In the Q1, comparable revenue, which excludes revenue from Granite Inliner in the Q1 of 2022, decreased $58,000,000 while gross profit decreased $28,000,000 In the construction segment, comparable revenue declined $42,000,000 year over year to 503,000,000 and Company. This decrease was primarily due to lower revenue in the Central Group of $49,000,000 with multiple projects being completed over the last year as newer Company. The Central Group has done a great job of transforming and building cap within its home markets over the last year, and Construction

Speaker 3

and Construction.

Speaker 1

Comparable construction revenue in the Mountain and California Groups increased slightly year over year during the quarter. Inc. And through the second half of the year. Construction segment gross profit and gross profit margin decreased $22,000,000 year over year to $37,000,000 7.3 percent respectively. Construction gross profit was impacted by the weather as well as a write down on the I-sixty four high rise bridge project in Virginia.

Speaker 1

The I-sixty four project is winding down, but we experienced additional cost to maintain the project schedule. This caused a negative impact to gross profit in the quarter of $11,000,000 an impact after non controlling interest of $6,000,000 Company. In the Materials segment, comparable revenue decreased $16,000,000 year over year to $57,000,000 with gross profit decreasing $6,000,000 to a loss of $4,000,000 Inc. The decreases in revenue and gross profit were similarly driven by weather related volume decreases in both aggregates and asphalt sales of 21% and 39%, respectively. With better weather, we expect these volume challenges to reverse course in the second quarter with strong order volumes.

Speaker 1

At the end of the quarter, our cash and marketable securities totaled 256,000,000 During Q1, we typically used cash as many regions across the company are largely shut down due to cold and wet weather. And Construction. Historically, our cash decreases in the first half of the year and we generate cash in the second half of the year. We expect a similar pattern this year as operations get back to work. As I mentioned, despite a challenging Q1, We are not changing our guidance for 2023 nor our targets for 2024.

Speaker 1

We expect revenue to grow in 2023 2024. Our cap balance at the end of the quarter and bidding opportunities over the remainder of 2023 strengthen our expectations for growth. Our guidance of 7.5% to 9% adjusted EBITDA margin in 2023 and 9% to 11% in 2024 Our cap is growing and is of higher quality with higher margins that we believe support our expectations. Now I'll turn it back over to Kyle.

Speaker 2

Thanks, Mike. I'll close with the following points. The weather was extreme and it was a tough Q1. While unfortunate, the Q1 does not change any of our expectations for 2023 or 2024. If anything, the continued growth of high quality cap strengthens our belief and our confidence that we are executing on our strategic plan.

Speaker 2

The growth of our cap and the opportunities that we see in front of us bolster our confidence in the overall market. I believe we will see bidding opportunities and Company. The impact of the IIJA is still in the early stages as agencies work through the process of bringing more projects to bid. This is a really good sign for Granite and the entire industry. I'm really pleased that we have closed on 2 materials bolt on transactions.

Speaker 2

These transactions provide additional materials resources to support growth in these home markets and are aligned with our strategic plan. Lastly, I want to reiterate how thankful I am to work alongside our employees at Granite, knowing that we are part of an organization Incorporated that is instrumental in helping our home market communities overcome challenges that arise during severe weather events like those we encountered in the Q1. Operator, I will now turn it back to you for questions.

Operator

And 2. And the first question comes from Steven Ramsey of Thompson Research Group. Please go ahead.

Speaker 4

Hi, good morning. Maybe to start with on the cap growth in the quarter both year over year and Quenchal. How much of that was a delay of burning off work in the Q1? And how much of that was fundamental market Strength and Adding New Jobs at Good Margins.

Speaker 2

Hey, Stephen, it's Kyle. So thanks for the question. The big kind of change is that our teams have done a really nice job of picking up more work and it's not the fundamental shift just associated with the weather in Q1. So we feel really good about what our teams have been accomplishing Inc. Over the last couple of quarters, we've done a really nice job, really improving on the cap and we saw that in Q1 really start to build and we're continuing to see it and Construction Build in April.

Speaker 2

So as we mentioned in our remarks, we're picking up more work with higher margins. If I had to estimate, I'd say there's about 100,000,000 and Company. Dollars worth of work that shifts from Q1 into the following quarters in the year for us to hit our guidance this year. So if If you kind of do the math, suggests we have grown our cap quite a bit. So that would indicate that we're really well positioned moving forward.

Speaker 2

Also on the cap that I'll mention We did pick up about $100,000,000 of emergency work and we burned $18,000,000 of that in the Q1. The balance of that $82,000,000 is not in our cap, because those are contracts where they're put out, they're not to exceed contracts. They're not included in our cap Inc. So if you put the 2 together, our cap is actually closer to about $5,200,000,000 We expect those projects, those emergency projects to burn quicker than our typical projects.

Speaker 4

That's great color. Thank you. And then on the materials acquisitions, Clearly seems to fit the strengths and targets. Are you tracking other opportunities that Are these margin accretive or neutral? And will the operations of these acquired Plants Work Better as a Part of a VI Model.

Speaker 2

Yes. I mean, I think the answer on these two recent acquisitions being Brunswick and Carson City, Nevada. That's a really nice kind of bolt on acquisition, low execution risk for us. It's going to allow us to really engage in the 395 corridor and the U. S.

Speaker 2

50 corridor down in Minden, Gardnerville, Carson City, Dayton, and Construction. Even supply aggregates and asphalt up into the Tahoe Basin and that's just a really nice fit into a very strong business we have in Northern Nevada. So that's just a perfect kind of bolt on for a vertically integrated business. We also have our other one we just announced, which is Coast Mountain Resources. And that's just another really nice fit into our existing DI business up in the Pacific Northwest where we were purchasing aggregates from Coast Mountain Resources and Industry.

Speaker 2

So we think that they're good BI model fits, but also it's going to allow us to grow our business and Industry. And I guess I'll just add on, this is certainly the type of acquisitions that we're looking at as a company. They fit our business very nicely. So You start to put together reserve expansions we did last year in Utah, a liquid asphalt terminal in Bakersfield, these 2 recent materials acquisitions. We're making reinvestments in our materials business that we haven't made in quite some time that it's certainly going to pay off for us.

Speaker 2

Longer term, nothing's changed from our investment framework. We're still looking at some geographic expansions and transformation, but we want to make sure we're really staying focused on Strengthening growing our existing home markets today.

Speaker 4

That's great, Kyle. Thank you.

Speaker 1

And Company. Thank you.

Operator

The next question comes from Brent Thielman of D. A. Davidson. Please go ahead.

Speaker 3

And Company.

Speaker 5

Yes. Thanks. Good morning. Hey, Kyle, any anecdotal detail you can give us about the cap, I guess added in the last quarter or even the last few quarters in terms of the quality of work that and as we think about Granite Kind of burning through some of this the rest of the year into next year. Are these less competitive jobs?

Speaker 5

Are the bid margins That much more attractive than what you've seen historically. How does it all sort of align with your 2024 ambitions for profitability to the business?

Speaker 2

Yes, it aligns really nicely. I mean, if you kind of go back a few years, our cap was made up of a lot of risky work and We went out and very methodically and strategically said we're going to go get the right kind of cap in our business. We're going to move away from and High risk design build type projects really focus on 100% design bid build and then also if we want to do the best value, we will focus on CMGC and and and that's that has really been a shift. And if you go back, the big test for us was can we replace These big risky mega projects with work that we can deliver and be successful at that we've proven we've been able to do in our business across the West. And And the cap that you see today, it really reflects that.

Speaker 2

We've demonstrated that we can do it. And so now we have record cap in terms of quantity, and we believe it's the best quality cap we've had in a long, long time. And so our margins are up. The cap that we have has less risk than we've seen. So we feel really good and that's really what's driving the confidence in our numbers as we move forward.

Speaker 2

Obviously, We had wet weather in Q1 and we can't control that. But our story and what we're focused on as a company hasn't changed. And it's really just more of a timing We feel even better after our GAAP numbers came in.

Speaker 5

Yes. And Kyle, obviously moving past and ORP is a big part of the story change to you mentioned some of the I-sixty four related headwinds this quarter as that and Company. Just maybe a status update on the performance of the other ongoing projects in the portfolio and I guess where that whole portfolio stands now.

Speaker 2

Yes. And so we don't have a portfolio, which is the good news. But we still have a project Significance with I-sixty four and obviously we're disappointed that the forecast couldn't hold, but our team Is working really hard to get that project wrapped up for the plant and we're expecting to be done in the middle of Q3. That's kind of been where we and that project to finish, but a lot of our costs are really associated with us ensuring that we get that job done The timeframe that we expected in Q3. So, it's unfortunate.

Speaker 2

Obviously, it's impacting our gross profit at the full $11,000,000 but if you back out non controlling interest, the impact is around $6,000,000 So, it's unfortunate, but again, you You go back to our guidance, we're not changing it. It's not going to keep us from achieving

Speaker 3

what we believe we can do

Speaker 5

this year. Okay. Thank you.

Speaker 1

Thank you.

Operator

The next question comes from Brian Russo of Sidoti. Please go ahead.

Speaker 6

Hi, good morning.

Speaker 7

Just

Speaker 6

to reiterate, how much Revenue was delayed in the Q1 due to weather that you expect to recapture In the Q2, did you say it was $100,000,000

Speaker 2

Yes, I'd estimated around $100,000,000 and that will shift to subsequent quarters.

Speaker 6

Okay. So not all will be done in the Q2. We should disperse it over, Say 2nd and Q3 during the high construction season?

Speaker 2

Yes, I think that's fair. I'd go into Q2, Q3. I mean, Obviously, some of this emergency work that we still are going to deliver on. That $80,000,000 will happen relatively quickly. We already saw that $18,000,000 burn fairly fast at at the tail end of Q1.

Speaker 2

So I'd expect that to go into Q2, Q3, early Q3 and then but the rest of it, I just kind of disperse it across.

Speaker 6

Okay, great. And then just on this storm work. So it doesn't cannibalize any of those projects that you had planned to do in the first

Speaker 2

That's right. It's incremental work. Our crews have been doing some of the emergency work already. They've been doing it over the last quarter and this month And that will continue on, but it's not replacing work for us. It's additive in our minds.

Speaker 2

And that's why some of the projects we're looking to start We're shifted to the right a little bit with the weather. So the emergency works providing kind of a nice fill in in the void, but it will be added in.

Speaker 6

And is the storm restoration work similar margins in the improved backlog that you guys have been kind of conveying

Speaker 2

Inc. It's similar. Yes, I would say there's no real deviation in the grand scheme of things. The work consists of mostly slope repairs, roadway reconstructs, drainage, clean out, so those types of things, things that have to happen relatively quickly. There can be a little bit of a delay in terms of getting paid.

Speaker 2

In some cases, you have to reconcile time cards and equipment and those types of things. So that's the only slight change in emergency work and in the contracting with them not to exceed contracts, just adds in a little bit of A difference versus our typical contracting with local agencies and DOTs.

Speaker 6

Okay, great. And then along with reiterating the 2024 targets on margins, Inc. It looks like you still got a $300,000,000 range on the revenue line. And I'm just curious, given what you've seen last year and going into this year, is there do you sense that you're trending towards the top end of that range, Just given the tailwinds we see in the public market spending and funding environment?

Speaker 2

Well, I mean, our cap is extremely encouraging. I mean, we're excited about the cap. I think The tough part with the cap and certainly when you have best value is a lot of these contracts have varying pre construction services

Speaker 3

portions of the projects and they can vary

Speaker 2

anywhere from a few months to And they can vary anywhere from a few months to a few years in some cases on these pre construction. So it's hard to just convert and Company. Our cap is some sort of necessarily revenue and also depends on how many different task orders and Company. Owners want to are willing to put out within each of those CMGC type contracts. But I think we feel like our confidence has only grown As our Cap has increased in order to get to that 2024 number in that range, so we feel really good about that.

Speaker 2

I think that on the EBITDA margin side of things, we're feeling encouraged as well. We are getting more work on bid day. We're seeing that quarter over quarter and year over year. And I've mentioned that, I think on the last 3 or 4 calls now, we've seen that really big shift since 2021. And so that cap is only getting stronger and stronger by quarter.

Speaker 2

So we continue focused on our focus on getting the right work that's less risky than what we've had in the past. Our execution focus has not changed. We're still extremely focused on operational excellence as an organization. We put our construction playbook in place mid last year and that's taking hold across our organization. So we expect that is only going to help us execute at a higher level as a company.

Speaker 2

And And then we're getting our automation projects and our materials business online, and we believe that's going to start paying off for us this year and into next year. So Our strategy, what we're trying to do, everything is really lining up nicely with where we're headed. It's just unfortunate. The weather in Q1 just kind of Put everything on a little bit of a pause for us, but we feel like it isn't changing anything that we've been working on.

Speaker 6

Okay, great. Thank you very much.

Speaker 2

Thank you.

Operator

The next question comes from Michael Dudas of Vertical Research Partners. Please go ahead.

Speaker 8

Thank you,

Speaker 7

Kyle, Mike and a shout out to Lisa. Hope she gets well soon.

Speaker 2

Yes. Thank you.

Speaker 7

And Company. Kyle, relative to your very strong cap, couple of questions. 1, Inc. You did mention Caltrans and there are some budget issues in California. What's your Sacramento insights Inc.

Speaker 7

Is some of the concern on funding alleviated by the SB-one or the IIJ funding? And regarding the business moving into 'twenty three, maybe you could comment a little bit on some of the activity in the private sector customer base and where that stands. We've been hearing some mixed results on heavy and light non res. So I want to see if you have any thoughts on that.

Speaker 2

Yes, I think we highlighted the Caltrans budget issue just because it's out there and we don't want Anybody believing that Caltrans doesn't have funding and there isn't robust market in California, we've actually seen lettings and California increase in terms of awards, not decrease. So we feel really good about what SB-one has done for the State of California and the opportunities that are out there as part of that and also the IIJA. So we're seeing a really nice market in California and and Our cap increase really, really kind of reflects that. The private sector has been strong for us too. I've mentioned before that We don't correlate really strongly with residential.

Speaker 2

We don't do a lot of residential on the construction side, and we do sell some materials into the residential market Like concrete aggregates, but it's not significant. Again, we correlate more towards transportation. On the private side, we still really We see really robust opportunities in mining, rail, industrial projects and solar. And so those parts of our private market and

Speaker 7

And Kyle, my follow-up on the materials business And the order book you had, you indicated it's quite strong even with the delays aside. How does the pricing look relative Inc. 2 year ago and some of the pricing that's been talked about in the California markets from January 1. How does that look into your book and you can Have you seen that hold and how is the liquid asphalt on the cost side and where you stand on that? Any tailwinds or headwinds that we would anticipate during 2023?

Speaker 2

Thank you. Yes. Well, it's a lot different. I mean, last year in Q1 and into Q2 and parts of the year, we saw a big Bump in Natural Gas and Diesel and that had impact on materials business last year. And certainly, we're in a different position today.

Speaker 2

We added an energy escalator last April to help us offset those costs moving forward. And so that there's no doubt that impacted our materials business in

Speaker 3

in 2022.

Speaker 2

But in 2023, we've already seen those costs, on the grid asphalt, Natural gas and diesel stabilized, so they're still elevated, but stabilized and our pricing has been able to hold. So We were expecting that we could keep our pricing up. And so far to date, we've been able to do that. And as I mentioned in the prepared remarks, we're seeing our Quarter volumes up. We're seeing our backlog in terms of sales very strong.

Speaker 2

And so we still feel really good about our materials business despite the Hello Q1 with the weather. We still feel like we're going to come out of the gate here in Q2 to Q3 very strong for

Speaker 1

the year. Thanks, Kyle. Thank

Speaker 3

you.

Operator

The next question comes from Jerry Revich of Goldman Sachs. Please go ahead.

Speaker 2

And Company.

Speaker 8

Yes. Hi. Good morning. Hi, Kyle. Good morning, everyone, and all the best to Lisa.

Speaker 8

I'm wondering if you could just talk about the economics on the aggregates acquisitions. If you don't mind, What's the synergy value add that you folks are able to add to the equation because you're vertically integrated in those markets versus the standalone results. And obviously, the standalone aggregates companies trade at The 13 to 17 times EBITDA. I'm wondering if you could just talk about including synergies, how do the multiples compare on the assets

Speaker 2

Well, first off, I'm not going to share necessarily the multiples that we paid. They're not huge transactions for us just to put you into some context around Coast Mountain Resources. That was about a $27,000,000 acquisition for us on the U. S. Dollar basis.

Speaker 2

Those are really nice vertically integrated deals for us, whether it's and CMO acquisition for Brunswick Canyon in Nevada. So the synergies are really that it's materials that's attached to a construction business. So that's really where we see the uplift. It allows us to do all the things we want to do, do vertical integration and that allows us to and Schedule our orders, ensure that we have quality aggregates in our business. We can take advantage of recycle opportunities.

Speaker 2

There's a whole host of those even some tax advantages. So without getting necessarily the economics of the deals, I can tell you that obviously we wouldn't do them if we didn't think there was value creation for the company. So we feel really good about them. I know the teams are excited to have them as part of their businesses. And again, the integration risk on these are very low.

Speaker 2

And so it's starting to give us confidence of how we can Really strengthen our home market positions, and we want to continue doing this in different parts of our business as an ongoing thing.

Speaker 8

Thank you. And Kyle, in terms of the margin progression year over year, as we think about full year and Margin guidance you folks are looking for, call it 200 basis points of margin expansion. Can we talk about how that looks By quarter, are you going to be on that pace in the second quarter? How quickly are things coming back off of the depressed Q1?

Speaker 2

Yes. I don't know if I can give you thoughts around by the quarter in terms of the margin progression. Certainly, if you go back over the last 3 years, in 'twenty one, we were at 12.5%, 22%, 13.7%, 23

Speaker 3

and Company. We expect to be a 14% or higher. These are all kind of

Speaker 2

non ORP numbers. But I think if you look at the full year, We see our margins continue to progress into where we want to be in 2024 quite nicely. I think as you know and I think most that follow our company know we're not things are a little focused more around kind of annual results Because we do anticipate that we do have weather here and there and other obstacles along the way. But so I think the margin progression is just going continue through the year and be strongest in Q3 and then kind of go through the normal cycle.

Speaker 8

Superann, in terms of areas where you were weather impacted in the Q1, does it

Speaker 3

and Shopify. Snap right back into the Q2 because people are trying

Speaker 8

to make up for lost days or does it take time to ramp up into the Q2 just from your activity level standpoint.

Speaker 2

I think it snaps back fairly quickly. I mean, our central group Wasn't as impacted surely as our business out in the West. Our Mountain Group is used to the seasonality. There and Businesses in Alaska, they're used to cold and wet and snow. And so I think our Mountain Group, this is not unusual.

Speaker 2

Maybe Nevada and Utah, those businesses were impacted with really high snow levels more than normal. But we certainly have the capability in the Mountain Group to deliver and what we've set out to do this year. California was the hardest hit. And if you go back and we look back in the last couple of years and you go back to 2020, and What our team needs to do is in line with what we've shown that we've been able to do in the past. So we aren't concerned.

Speaker 2

I mean, obviously, we need weather to cooperate and At the end of the year in order for us to continue to deliver. But, yes, I think we have the capacity, we have the teams, and Company. And we feel like we're yes, there's no real reason to change things. It's just a timing issue for us. Things just move from Q1 into the following quarters.

Operator

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

Speaker 2

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. Nothing is more important than the safety of our employees. This week is Construction Industry Safety Week, where annually we renew our commitment to safety.

Speaker 2

As a company, we have never been safer and Company. I look forward to visiting teams across the country to recognize our efforts as we work towards another record setting safety year in 2023. And thank you for your interest in Granite. We look forward to speaking with you all soon.

Operator

Inc. The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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Earnings Conference Call
Granite Construction Q1 2023
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