GRANITE CONSTRUCTION

GVA
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Granite Construction Incorporated : 3rd Quarter 2020 Earnings Conference Call

03/09/2021 | 05:11am

Granite Construction

Q3 | FY 2020 Earnings Conference Call

Highway 101 Santa Barbara to Carpinteria CMGC, CA

Safe Harbor

Any statements contained in this presentation that are not based on historical facts, including statements regarding future events, occurrences, circumstances, activities, performance, growth, demand, strategic plans, outcomes, outlook, guidance, backlog, Committed and Awarded Projects (CAP), and results, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as "future," "outlook," "assumes," "believes," "expects," "estimates," "anticipates," "intends," "plans," "appears," "may," "will," "should," "could," "would," "continue," and the negatives thereof or other comparable terminology or by the context in which they aremade. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, activities, performance, growth, demand, strategic plans, outcomes, outlook, guidance, backlog, CAP, and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity.

Such risks and uncertainties include, but are not limited to, those described in greater detail in our filings with the Securities and Exchange Commission, particularly those specifically described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this presentation and, except as required by law; we undertake no obligation to revise or update any forward-looking statements for any reason.

Claes G. Bjork

Chairman, Board of Directors

Kyle Larkin

President

Lisa Curtis

EVP, Chief Financial Officer

Company Update

Kyle Larkin, President

Investigation & Remediation

Investigation Complete

  • • Investigation of prior-period reporting for the Heavy Civil Operating Group and internal controls over financial reporting has concluded

  • • Year-long, thorough process

  • • Restatements following failure to adhere to policies for forecasting and risk management

Remediation

  • • Improving processes, controls, and accountability for compliance with policies

  • • Driving cultural reinvigoration with refreshed core values: safety, integrity, excellence, inclusion and sustainability

  • • Leadership changes across the business, including new leaders in Heavy Civil operating group

2020 in Review

Strengths

  • • Vertically-integrated businesses drove strong performance in key markets

  • • Materials segment performed well both on a top-line and gross profit basis

  • • Successful claim resolutions

  • • Significant progress in de-risking CAP

  • • Focused on delivering against ESG commitments

Challenges

  • • Impact of the investigation

  • • Working through the existing Heavy Civil Operating Group backlog

  • • COVID-19 impacted Water and Mineral Services Operating Group

Key Near-Term Priorities

Current Phase Stabilization

Future Phase

Future Phase

Strategic Direction

Growth

  • • Achieve full compliance with all reporting requirements

  • • Reinvigorate our culture by leveraging our core values

  • • Implement remediation plan to strengthen people, processes and projects

  • • Deliver on remaining Heavy Civil backlog, minimizing risk and margin erosion

  • • Continue to reshape Granite's portfolio

  • • Revisit strategic plan to maximize shareholder value

Reshaping the Project Portfolio, Q4 CAP Detail

Exposure to Key End Markets

TransportationSpecialty

Allocating Risk

Diversified Operating Groups

Water

CA

Heavy Civil

Northwest

Bid BuildDesign BuildBest-value*Other

Midwest

Water & Mineral

Federal

Note: Percentages may not total 100 due to rounding.

*Best value procurement work includes construction management/general contractor, construction management at-risk, and progressive design build projects.

Funding

Public work projects dependent on federal, state, regional and local revenues make up ~75% of Granite's portfolio

Federal

State

Local

  • • $10B of relief spending for state DOTs (FHA estimates ~$1.5B for GVA's vertically-integrated states)

  • • $9.9B of funding per Water Development Act

    • • California to benefit from SB-1 being on track to increase over next 5 years

    • • Overall COVID impact on state budgets less than anticipated; funding in top revenue-generating states still strong

      • • Voter-approved transportation measures continue to support infrastructure spending

      • • Strong market demand and local funding opportunities in water-related construction

  • • Federal Infrastructure bill could be passed in 2021 with impact in 2022

  • • Aging water infrastructure indicates volume recovery to come

10

2020 Financial Results

Lisa Curtis, EVP, Chief Financial Officer

2020 Financial Performance

Revenue

$2,560

$2,616

YTD Q3 2019

YTD Q3 2020

Gross Profit

YTD Q3 2019

YTD Q3 2020

Transportation

Strength in vertically-integrated businesses; profitability continues to be negatively impacted by Heavy Civil Operating Group

Water

Volume impacted by project and bid delays related to COVID; gross profit up due to write downs in 2019

Materials

Positive top- and bottom-line impact of increased volume and operating efficiencies

Specialty

Revenue and gross profit impacted by COVID and a dispute on a tunneling project

$ in millions

2020 Financial Performance

Key Non-GAAP 1 Metrics

YTD Q3 2020

YTD Q3 2019

% Change

Adjusted EBITDA

$126.7

$63.3

101%

Adjusted EBITDA Margin

4.8%

2.5%

2.3%

Adjusted Net Income (Loss)

$41.3

($14.7)

381%

Adjusted EPS

$0.89

($0.31)

387%

$ in millions except per share

1See appendix for reconciliation of these Non-GAAP figures

  • • Strongest operating cash flow since 2006

  • • Strong adjusted EBITDA and NI despite COVID headwinds and continued HCG losses

  • • Impairment charges of $157 million

Strong Financial Position

Strong balance sheet and ample liquidity

Liquidity

$671

Total Debt

Q4 19

$364

  • • Dividend remained consistent with our capital allocation framework

Q4 19

  • • No upcoming debt maturities until 2023

  • • Continuity of strong relationships with banks

  • • Continuity of $5B surety program

Q4 20*

Q4 20*

$ in millions

* Preliminary results

Total Debt

Company-Wide Process Improvements

Granite has begun implementing a comprehensive plan to strengthen people, processes and controls. Remediation expected to be complete by end of year.

  • • Enhance communication

Concluding Remarks

Kyle Larkin, President

Concluding Remarks

  • • Core business is healthy and generating consistent financial returns

  • • Expect to achieve full compliance with all reporting requirements

  • • Reinvigorate our culture by leveraging our core values

  • • Implementation of remediation plan underway

  • • Positive trends in our industry, markets and geographies

  • • Reshaping our portfolio to maximize value to shareholders

Q&A

Appendix

Non-GAAP Financial Information The tables below contain financial information calculated other than in accordance with U.S. generally accepted accounting principles ("GAAP"). Specifically, management believes that non-GAAP financial measures such as EBITDA and EBITDA margin are useful in evaluating operating performance and are regularly used by securities analysts, institutional investors and other interested parties, and that such supplemental measures facilitate comparisons between companies that have different capital and financing structures and/or tax rates. We are also providing additional non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted (loss) income before (benefit from) provision for income taxes, adjusted (benefit from) provision for income taxes, adjusted net (loss) income attributable to Granite Construction Incorporated and adjusted diluted net (loss) income pershare to indicate the impact of amortization of debt discount related to our convertible notes and non-recurring acquisition, integration, acquired intangible amortization expenses, acquisition related depreciation and synergy costs (collectively referred to as "transaction costs") related to the acquisition of the Layne Christensen Company and LiquiForce and other significant non-recurring items as required. Acquisition and integration costs include external transaction costs, professional fees and internal travel. Synergy costs include expenses incurred which will be eliminated as the integration of Layne and LiquiForce is completed.

Management believes that these additional non-GAAP financial measures facilitate comparisons between industry peer companies. However, the reader is cautioned that any non-GAAP financial measures provided by the Company are provided in addition to, and not asalternatives for, the Company's reported results prepared in accordance with GAAP. Items that may have a significant impact on the Company's financial position, results of operations and cash flows must be considered when assessing the Company's actual financial condition and performance regardless of whether these items are included in non-GAAP financial measures. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures provided by the Company may not be comparable to similar measures provided by other companies.

Adjusted EBITDA and NI Reconciliations

Disclaimer

Granite Construction Inc. published this content on 25 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 March 2021 10:10:01 UTC.

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