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Text: I'm pleased to be here today with Granite President, Kyle Larkin; and Executive Vice President and Chief Financial Officer, Lisa Curtis.
We begin today with an overview of the company's Safe Harbor language.
Actual results could differ materially from statements made today.
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.
Although it was a difficult decision, we concluded that it was in the best interest of the company, as well as our shareholders to move forward.
Following court approval, we will be able to put this litigation behind us and focus on our business and people.
Granite portion of the settlement is insurance is $66 million and we expect it to be paid from existing cash on hand.
As Lisa will explain in further detail later in the call, despite this event, our liquidity and cash position remains strong.
As I've discussed in previous calls, our core values guide us in our day-to-day operations and are serving as the foundation of our cultural reinvigoration.
On the last call, I provided an overview of our sustainability core value and the efforts that are under way to drive sustainability forward at Granite.
Today, I will touch on two more of our core values; safety and inclusion, and how we are integrating them into our day-to-day operations to drive desired behaviors.
Granite's choice to continue to include safety as a core value is embedded in our culture and reflects our belief that the safety and well-being of our people, our partners and the public is our greatest responsibility.
Every level of our organization supports our safety culture with training, planning and engagement.
We approach every task with safety built into the process, and we do not sacrifice anyone safety to get the job done.
While safety is front of mind every day at Granite, it is particularly timely to talk about our safety commitment on the heels of safety week, which is just concluding today.
Safety week is an industry wide national event, and Granite was one of the founding members almost a decade ago.
Across the country on Granite projects and in our offices, we conduct daily activities to reinforce and strengthen our commitment to safety.
This week, I had the opportunity to visit Granite project teams and take part in safety meetings across the country.
The planning and attention to detail that our teams presented in these safety meetings are impressive and demonstrate our focus on safety.
Inclusion is a core value that was added this year, but it's been an important focus since 2019.
Since it's a new core value, we want to provide additional details as to why we chose to recognize the importance of inclusion.
Inclusion is how we build value in our company by welcoming contributions from all of our employees.
Our differences enhance creativity and innovation to create a high performance culture and have a positive impact on how we achieve our business goals and objectives.
At Granite, when we know the value of inclusion, we value and respect the workforce diverse and perspective, experience, knowledge and culture, and we are committed to an inclusive environment in which everyone feels a sense of belonging and can grow.
To live this value, we must understand a couple of things.
First, we know that diversity is the mix of our employees, our clients and our community and inclusion is how we make that makes work.
We have made significant progress in our inclusive diversity journey, starting with our employee resource groups, Granite Resources and Opportunities for Women or GROW, and supporting and recognizing the veteran community for service.
GROW advocates for and supports women who're mentoring, networking in career development, service supports and recognize employees that have served, and friends and family members employees that have served, and all branches of the military.
We have also established executive inclusive diversity and multicultural councils, conducting leadership training and establishing relationships with historically black colleges and universities.
In 2020, we had over 200 interns, and more than half were diverse.
In addition, 1/3 of our executive team and nearly half of our Board of Directors are diverse.
Looking forward, we will continue to create clarity around inclusive diversity by having dialogue concerning how we can be more inclusive.
We will continue to develop talent and strengthen our talent pipeline at all levels, with a focus on women and people of color.
And we will continue to build capability to training leaders and employees to challenge ourselves to be more inclusive.
We know that having an inclusive environment doesn't happen overnight, it happens over time.
I'm proud of our inclusion efforts and I'm excited about the culture we are creating here at Granite.
Let's switch gears and talk about our business segments starting with transportation.
The first quarter is typically our slowest quarter with cold and wet weather regularly hampering work in many of our markets.
Even with the challenges of weather, I am pleased with the performance of the segment, not only on the top line, but also at the gross profit level due to good execution across our operating groups.
Some good news to share.
We continue to burn through the backlog of Heavy Civil Operating Group Old Risk portfolio with a minimal impact to gross profit during the quarter.
This was a marked improvement over the last two years.
The remainder of the segment, which is primarily comprised of vertically integrated projects also completed a solid first quarter, setting the stage for a busy remainder of the year.
The bidding environment is strong with robust opportunities in our markets, resulting in an increase in our bid volume year-over-year.
While we routinely share information about our larger project wins, we also continue to have success in winning the smaller to medium sized projects that are the foundation of our portfolio.
The first quarter of the year is historically a very competitive bid environment with contractors more aggressively bidding to build backlog early in the year.
We have seen this dynamic in the first quarter of 2021.
We've increased bid volume and strong competition.
As anticipated, transportation committed and awarded projects or CAP, decreased year-over-year with the shift in the portfolio as Heavy Civil Operating Group cap is burned and replaced with cap from our vertically integrated businesses, including best value procurement work.
The extension of the FAST Act, the $13.6 billion infusion to the Highway Trust Fund for 2021 and the enactment of Coronavirus relief bills have combined to provide direct and indirect support for transportation funding.
Funding is positive across our markets and we are hopeful that a federal infrastructure bill will be signed into law this year.
Turning to the water segment.
In the first quarter, we continue to see a recovery from the pandemic, but the deep freeze in Texas during the quarter interrupted the supply chain, resulting in a spike in resin costs.
Resin is a product used in our torrentuous, secured [Phonetic] in place pipe rehabilitation business Granite Inliner.
Although this segment was hardest hit by the pandemic, we are seeing an increase in bid opportunities, positive indication for the remainder of the year.
As a result, water segment cap remains strong as of the end of the first quarter at $339 million.
This figure does not include the recently awarded Leon Hurse Dam project in Texas for approximately $160 million, which will be included in our second quarter cap.
This award is a component of the overall Lake Ralph Hall project, which will be one to Texas newest lakes and one of the state's biggest water projects in the last 30 years.
Granite has a long history of working on complex dam projects and we are proud to continue this work on the Leon Hurse Dam.
All levels of the government recognize the critical need to repair and support water infrastructure across the country, as seen in the ongoing discussion with the federal infrastructure bill and the Senate recently passed $35 billion water infrastructure bill.
We have been successful in winning water infrastructure projects and there are multiple opportunities in the water market that Granite is currently pursuing.
We believe we are well positioned to continue to procure work in this area.
Moving on to the specialty segment.
Our team has turned in a solid quarter and ended with a record cap of over $1 billion.
In the first quarter, we added to cap a significant new $267 million tunnel project in Columbus, Ohio.
We are excited to continue our relationship with the City of Columbus, where we successfully completed a large tunnel project just a couple of years ago.
Additionally, operating groups continue to foster new relationships, as well as build upon existing relationships to expand our footprint with both public and private clients.
Recent project wins include several projects with a variety of mining clients in different geographies across our business; a project to establish a new rail yard in the Port of Stockton, California; and a federal project to expand a military facility in Guam.
Both the private and public markets within the diverse specialty segment continue to be strong, with investment driven by the overall positive economic outlook.
The segment is a growing area of our business and we look for that to continue in 2021 and beyond.
Moving on to the material segment.
The first quarter results were terrific in our seasonally slowest quarter.
We ended the quarter with significantly higher material orders compared to the prior year, which resulted in higher sales volumes in 2021 led by the California operating group.
As of the end of the quarter, materials orders continue to outpace the prior year with strong demand in both California and Northwest operating groups.
This demand is a positive indicator for the remainder of 2021; not only in the material segment, but also for our vertically integrated construction businesses.
As of the end of the first quarter, our consolidated cap is $4.5 billion, an increase during the quarter of over $170 million compared to year-end levels.
Cap in our Specialty and Water segments continues to grow as we pursue end market diversification.
The old risk portfolio, design build cap, continues to decline as our risk profile has transformed following our new project selection criteria.
And finally, our cap portfolio is more evenly distributed across operating group geographies.
As I mentioned on previous calls, we have been transforming our cap portfolio focused on reducing risk.
Our teams have made significant progress and continue to execute on our plan.
Starting with revenue and gross profit.
The first quarter delivered strong results on both measures.
First quarter consolidated revenue grew 5% year-over-year to $670 million with gross profit increasing 166% year-over-year to $63 million with a gross profit margin of just under 10%.
Within our transportation segment, revenue was up slightly year-over-year to $351 million, led by an increase from the California Operating Group, which offset a revenue decrease from the Heavy Civil Operating Group.
Transportation gross profit for the quarter increased 41% to $36 million, resulting in a gross profit margin of 10%.
The increase in gross profit was primarily due to a decrease in project losses from the Heavy Civil Operating Group Old Risk portfolio.
Losses from the Old Risk portfolio in the first quarter of 2021 under $1 million, compared to losses of $13 million in the first quarter of 2020.
The Old Risk portfolio, backlog decreased by nearly $100 million during the quarter, which is on pace to meet our estimated project burn of $425 million to $475 million during 2021 that I mentioned in our last call.
Our team's execution in the first quarter, serve to mitigate exposure in the old risk portfolio, and we are optimistic this will continue in the future.
In our water segment, first quarter revenue was down 2% year-over-year as the segment continued its recovery from the COVID-19 pandemic.
Water gross profit for the first quarter decreased to 8% to $9 million, resulting in a gross profit margin of 9%.
This decrease in gross profit was primarily due to temporarily higher resin costs and Granite Inliner associated with supply chain disruptions due to winter weather events in Texas.
Moving on to the Specialty segment.
First quarter revenue increased 17% year-over-year to $156 million.
Specialty gross profit increased 262% to $17 million with a gross profit margin of 11%.
As a reminder, there was a significant write down during the first quarter of 2020 related to a dispute on a tunneling project, which reduced gross profit in the prior year.
Finally, the Materials segment completed an exceptional first quarter with a revenue increase of 26% year-over-year to $63 million in 2021.
This increase was largely due to strong sales volumes in the West.
Materials gross profit increased to $2 million, resulting in a gross profit margin of just under 3% as compared to breakeven in the prior year.
This increase in the gross profit was also primarily related to higher volumes across the business.
Turning now to our non-GAAP financial metrics.
Adjusted EBITDA for the first quarter increased $35 million year-over-year to $17 million, resulting in an adjusted EBITDA margin of over 2% for the quarter.
The increase in adjusted EBITDA was driven in part by improvement in project execution, as we continue to burn through the Heavy Civil Operating Group Old Risk gross portfolio during the first quarter of 2021.
In addition, we also benefited from improvements in gross profit in the Specialty and Materials segments year-over-year.
Our first quarter resulted in an adjusted net loss of $5 million, which was a $27 million improvement from an adjusted net loss of $32 million in the prior year.
As a reminder, these non-GAAP financial metrics are adjusted to exclude other costs, which includes the impact of the legal settlement and legal and accounting fees, non-cash impairments of goodwill, transaction costs and amortization of debt discount.
Now turning to cash and liquidity.
We had another strong cash quarter with cash from operations of $38 million and a net increase in cash during the quarter of $17 million compared to year-end.
This was an outstanding result for the first quarter of the year.
We ended the first quarter with cash and marketable securities of over $464 million and our teams remain focused on working capital management.
Upon court approval and finalization of the securities litigation settlement, we expect to pay our portion from existing cash on hand.
While we anticipate seasonal cash trends to be consistent with prior year patterns, our 2021 cash projections for the remainder of the year remains solid.
With the completion of the first quarter, we are reiterating our guidance for the full fiscal year 2021.
There are opportunities within each of our markets and very active bid schedules across the company.
We believe we can capitalize on these opportunities to achieve low to mid-single digit revenue growth.
SG&A increased $2.5 million year-over-year to $76 million, which was 11.3% of revenue for the first quarter.
This increase was primarily attributable to a change in the fair market value of our non-qualified deferred compensation plan liability of $5 million year-over-year.
This increase is offset by corresponding investment gains and other income and expense, net.
For the full year, our guidance is unchanged with an expected SG&A expense of 8.5% to 9% of revenue.
During the first quarter, we had solid execution across all groups and segments.
We expect this execution will allow us to achieve an adjusted EBITDA margin range of 5.5% to 7.5%.
Let me close with the following points.
In what is typically a seasonally tough quarter, we are pleased with our first quarter performance across the company.
Our teams have done a great job maintaining focus on execution, particularly in the oil risk portfolio.
We believe the Securities litigation settlement is in the best interest of the company-hander shareholders.
This will allow us to focus on execution in 2021 as we work to refresh our longer-term strategic plan.
Across our markets, we are seeing a healthy bidding environment, but we have opportunities to continue the transformation of our portfolio and build quality cap.
Finally, we are optimistic about the funding environment.
The economy appears to be strong with continued investment from the private market and public funding environment.
The public funding environment has been supported by direct and indirect infrastructure legislation from several different measures and we remain hopeful the enactment of a federal infrastructure bill will occur this year and will serve to further strengthen the environment in 2021 to 2022 and beyond.

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company reaffirms our guidance for 2021.

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