Good morning. My name is Ramon, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Investor Relation Third Quarter 2022 Conference Call. This call is being recorded. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer period. It is now my pleasure to turn the floor over to your host, Granite Construction Incorporated's Vice President of Investor Relations, Mike Barker. Please go ahead, sir.

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 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 future events, occurrences, opportunities, targets, growth, demand, strategic plans, circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, committed and awarded projects or CAP, and results. Actual results could differ materially from the 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 forward-looking statements, except as required by law. Certain non-GAAP measures may be discussed during today’s call and from time to time by the company’s executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net income or loss, and adjusted earnings or loss per share. 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 Investor Relations website. Now, I’d like to turn the call over to Kyle Larkin.

Good morning and welcome to our third quarter call. We’ll start this call with an update on our efforts to drive improved gross profit margin across our portfolio of projects. I’m pleased to report that excluding the ORP, our construction gross margin improved to 14.8% in the quarter. I want to congratulate our teams on this accomplishment. This margin improvement validates all the hard work we’ve been performing across the company to improve profitability. I will talk more about this improved performance later in the call. Before we dive into performance, I also want to mention an update to our divestiture plan that occurred this quarter. As we announced in September, we are retaining the water resources and mineral services businesses. These businesses will report into the Mountain Group and the construction segment. Both have performed very well this year with a market outlook to support future growth. We are confident that our decision to retain these businesses is in the best interest of our shareholders, and we intend to invest in and grow these businesses to their full potential. As a reminder, water resources provide full lifecycle water management, from supply to treatment to delivery and maintenance for government agencies, commercial and municipal water suppliers, industrial facilities, and agricultural and energy companies. Through water well drilling, installation, and rehabilitation of wells, pumps, and water treatment technology, our teams identify and develop water sources, recharge aquifers, and deliver potable water. Mineral services provide mineral exploration services for the largest mine operators in North America, particularly copper and gold operations. While the business is cyclical and there has been recent weakness in copper and gold prices, we believe the push from fossil fuels to electrification will support a strong cycle of growth in the mining industry. We are well-positioned to support mining partners in this growth, not only in mineral exploration, but also through civil construction services on their mine sites. Now, turning to the broader view of our three operating groups. We remain laser-focused on achieving our 2024 strategic plan targets of construction segment gross profit margin of 14% to 16% and consolidated EBITDA margin of 9% to 11%. As I mentioned at the start of this call, we are seeing progress in this area; the third-quarter gross profit margin, excluding the ORP, was 14.8%, which is an improvement quarter-over-quarter from 14.1%. The improvements we are experiencing are credited to the steps we have been taking to implement our strategic plan throughout the project lifecycle. We have been focusing on two primary areas of the project lifecycle across our groups. Project selection is one area of emphasis. We are pursuing projects suited to our strengths, and we’re being selective with the clients that we choose to work with. Discipline in project pursuit focuses on jobs where we have a competitive advantage based on our knowledge of the project and home market. On Bid Day, we are disciplined about margin expectations, and our project portfolio consists of higher quality work that Granite has had in years. The second area for project lifecycle focus has been project execution. We are raising the bar by driving consistency and performance through further standardization of processes and communication and best practices across the company. During the third quarter, we saw our focus on Bid Day margin and project execution gain momentum as demonstrated by our non-ORP construction gross margin. We are pleased with this progress, and we are positioned to build upon these results as we work to achieve 2024 plan gross profit margins of 14% to 16%. Turning to the ORP, we continue to work through the remaining tasks on these projects. There is $150 million cap remaining on the ORP projects at the end of Q3, and we expect approximately $90 million to carry into 2023. As a reminder, $35 million of the ORP cap expected to carry into 2023 relates to one small profitable project that is included in the ORP because it is a non-sponsor joint venture. Excluding this profitable project, there’s $55 million of ORP cap expected to carry into 2023 related to challenging projects. Of the four current active challenging ORP projects, two are in the closeout or punch list phase and two are completing construction. During the third quarter, losses in the ORP, primarily from one project on the East Coast, negatively impacted our results. The losses arose out of schedule delays which increased costs due to remaining work. We expected the project to be completed this year, but it is now pushing into 2023. This single project represents more than half of the $55 million in challenging ORP project cap, which is expected to be completed in early 2023. We believe our forecasts have captured the costs that will arise from the delays, and our teams are diligently working to complete the project as quickly and efficiently as possible. As we move from 2022 to 2023, we believe the risks associated with the ORP have greatly decreased, and our focus will be on the construction segment performance as a whole. As I’ve said before, we cannot finish this work soon enough. I’m excited to see that the end is in sight for the challenging ORP. Now, I’d like to discuss the transformation of our center group, another area of our strategic plan where we are making significant progress. As previously discussed, having well-developed home markets is key to our strategy. Our vertically integrated California and Mountain Groups model is the structure and portfolio that we’re working toward across the company. In our home markets, we have trusted relationships with stakeholders and employees, market intelligence, and access to resources. These attributes result in us winning more projects, higher margins, and higher levels of customer satisfaction. The region of our center group has historically pursued and constructed large projects across southeastern and Midwestern states. Last year, the region was asked to do two things. First, de-risk the portfolio by changing the types of projects and proceeding from complex design-build projects to smaller Bid Day best-value projects. Second, build a home market within Texas. One focus of this effort has been to solidify our presence in the rapidly growing Houston metro area. Although Granite has been in the Houston market for over 15 years and has good relationships with the Texas DOT, the local contractors, and vendors, we have missed opportunities to strengthen those relationships while chasing work across the country. The Houston area is a growth market with healthy funding levels and a resilient pipeline of job opportunities across markets from transportation to water to private site development. We’ve applied a targeted and selected bid strategy. We believe we have a competitive advantage and can leverage our strengths through our expertise in roads and highways, as well as our experience in solar, water, airports, site work, and structures. In the third quarter, we had three highway project wins in southwest Houston, totaling $145 million. The projects are in close proximity to each other and should allow us to leverage the existing teams and resources we have built in the market. Our center group has done a great job building the foundation for future profitable growth. It will be a key component of Granite reaching the targets set out in our strategic plan. Now, turning to cap, we enter Q4 with $4.1 billion in cap, a sequential decrease of $135 million, as typically is our busiest quarter of the year. Year-over-year, excluding Granite Inliner’s cap of $205 million in the prior year, cap decreased by $45 million. This again results from our efforts to de-risk our project portfolio as we move away from large complex projects to smaller projects that fit within our defined risk criteria. We have seen resilience in our private market work and continue to strengthen public market opportunities. It appears that the additional funding for the IIJA is taking longer to turn into lettings than originally expected. The DOTs are still working through the process of prioritizing and advertising the projects. We expect a ramp-up of opportunities over several years similar to what we experienced in California when SB-1 was first passed. We hope to see a more meaningful impact on project opportunities over the next six to nine months. The good news is that the IIJA will build upon the current positive market. We believe we are well-positioned to capitalize on the increased funding through our home markets and large, high-growth states that received most of the funding as the projects are released. I’m excited to look at the quality of cap across our groups and the opportunities ahead of us in the fourth quarter. We believe the quality of our cap has never been better and will support our strategic plan and profitable growth. Our successful strategy to target best-value opportunities has changed the risk profile of our cap, which should lead to more consistent profitability and cash generation for years to come. Shifting to the materials segment, aggregate volumes remained strong during the quarter, increasing year-over-year across our operating costs. Activity in the markets during the quarter and aggregate orders as of the end of the quarter continues to suggest that the general economy remains healthy despite inflationary pressures and interest rate increases. The strength is demonstrated by a 60% year-over-year improvement in the volume of aggregate orders as of the end of the third quarter. Volumes during the quarter increased year-over-year in the Mountain Center groups but were more than offset by a decline in the California group. The decline in California is primarily due to a decrease in asphalt paving projects compared to the prior year. Despite this decline in volumes during the quarter, we are encouraged that pending orders are now ahead of the prior year as we move into the fourth quarter. During the quarter, we saw revenue and gross profit increase over the same period in the prior year and observed a decrease in gross profit margin as lower asphalt volumes and inflationary costs continued to impact profitability. We expect that the energy surcharges introduced during the second quarter will continue to offset inflationary pressures and boost revenue and gross profit in the materials segment. Now, I’ll turn it over to Lisa to discuss our financial results.

Thank you, Kyle. In the third quarter, revenue decreased by 5% from the prior year comparable revenue, which excludes Granite Inliner. Revenue increased by 1%. Third-quarter gross profit increased slightly, resulting in a gross profit margin of 12%. In the construction segment, quarterly comparable revenue declined $16 million year-over-year to $848 million. This decline was primarily due to a $73 million decrease in the Central Group as ORP projects approach completion and as our teams mobilize to recently awarded projects. Revenue in the California group increased by 8% year-over-year as the group executed on record cap that it carried into the third quarter. The Mountain Group, which is now home to water resources and mineral services, saw its comparable construction revenue increase by 12% to $362 million. This increase was primarily driven by strong performance in our solar power business in the Washington region and was supported by the continued strength of the Utah region. The construction segment's gross profit for the quarter was slightly down from the prior year. Comparable gross profit, which excludes Granite Inliner's gross profit of $5.4 million, increased by 5% with an overall improved gross profit margin of 12% for the quarter. The ORP ended the quarter with a remaining cap of $150 million, a decrease of $45 million from the prior quarter. The challenging ORP cap, which excludes a profitable California Group ORP project, totaled $115 million at the end of the quarter. The amount of challenged ORP cap expected to carry into 2023 is approximately $55 million, with the majority remaining on a single project that our teams are working to complete. Third-quarter net ORP losses to Granite, which excludes non-controlling interest, totaled $13 million on revenue of $44 million, compared to a loss of $5 million on revenue of $99 million in the same prior-year period. The losses during the quarter were primarily from one project on the East Coast. The construction segment margin excluding the ORP was 14.8%, a sequential improvement from the gross margin of 14.1% in the second quarter. The materials segment revenue increased by $24 million or 17% compared to the same period in the prior year. Comparable materials revenue, which excludes Granite Inliner's $5 million of materials revenue, increased by 22%. This increase was driven by strong aggregate sales volumes from each group and price increases implemented in April that more than offset the volume decreases in asphalt sales compared to the same prior-year period. Materials gross profit increased by $1 million compared to the same period in the prior year, with a gross profit margin of 13.6%. This is up sequentially from 12.7% but down from 15% in the same prior-year period. While we are seeing gross profit margin improvement, margins are down compared to the prior year due to lower asphalt volumes and inflationary costs. Turning now to our non-GAAP financial metrics. Adjusted EBITDA and adjusted EBITDA margin for the third quarter were $97 million, or 9.6%, compared to $81 million and 8% in the same period in the prior year. Adjusted net income for the quarter increased by $20 million year-over-year to $63 million, with adjusted diluted income per share of $1.41. This compares to adjusted net income of $43 million and adjusted diluted income per share of $0.93 in the same period in the prior year. The increases in adjusted EBITDA and adjusted net income were driven by strong performances from our California and Mountain Groups, as well as lower SG&A resulting from the sale of Granite Inliner and decreased incentive compensation expense. Our third-quarter results reflect the progress we’re making toward consistent profitability across our portfolio projects as we work to meet our targets within our 2024 strategic plan. Now on to our cash and financial position. For the nine months ended September 2022, our operating cash outflow was $15 million compared to a cash inflow of $60 million in the prior year. During the third quarter, operating cash inflow was $89 million as projects that we started in the first half of the year generated cash. We expect strong cash flows to continue in the fourth quarter. Our cash and marketable securities balance rose sequentially to $317 million as of the end of the third quarter. On a year-over-year basis, cash and marketable securities are lower, reflecting year-to-date share buybacks of approximately $71 million, net debt repayments of $75 million, investment in our materials business, and a decrease in operating cash flow. Revolver availability stands at $267 million, and our debt at the end of the quarter is $288 million, down from $340 million in the prior year. Now I’d like to discuss our 2022 guidance. This guidance update reflects the addition of the water resources and mineral services businesses which were not included in the continuing operations guidance provided earlier this year. We expect our full-year revenue to be in the range of $3.2 billion to $3.3 billion. Both California and Mountain have strong cap heading into the fourth quarter, and weather permitting, we expect both groups to have a busy quarter to close the year. Our guidance for SG&A as a percent of revenue is unchanged, at a range of 8% to 8.5% for the year. Regarding the annual effective tax rate, during the year, we recognized two significant discrete items with the SEC investigation settlement charge and the deferred tax effect of no longer classifying water resources and mineral services as held for sale. Excluding these two discrete items, our adjusted effective tax rate range remains in the low to mid-20s. With the inclusion of water resources and mineral services, we are increasing our guidance for adjusted EBITDA margin to a range of 6% to 7%. With ORP projects nearing completion, we believe they will not pose a significant drag on our profitability in 2023. While we have not yet completed our budgeting process for 2023, we expect that the midpoint of our 2023 adjusted EBITDA range will be at least 8% as we continue to work to improve our profitability and align with our 2024 targets. Finally, we continue to invest in our vertically integrated business with a current focus on investing in our materials operations. We expect that full-year capital expenditures for 2022 will be between $120 million and $130 million, which is $10 million from our previous guidance. We will continue to be opportunistic and invest in automation, materials, reserves, and strategic assets that will further strengthen our business. Now, I’ll turn it back to Kyle for closing remarks.

Thanks, Lisa. I’ll close with the following points. As we complete the fourth quarter and move into 2023, we believe that we will no longer need to talk about the challenges of the ORP and will instead be focused on what we expect to be improved consistent performance in our construction segment. Outside of the ORP, I’m pleased with our performance across the company. We are making incremental improvements that we believe are necessary to reach our 2024 target of 9% to 11% EBITDA, and our third-quarter non-ORP gross margin of 14.8% demonstrates the progress we have made. In the materials segment, we continue to see strong volumes in aggregate sales and are encouraged by asphalt orders ahead of last year at the end of the quarter. The market environment remains strong across our home markets, as demonstrated by the strength of our cap and the opportunities that we see ahead of us in the fourth quarter and into 2023. The impact of the infrastructure bill has been slower than anticipated by the industry; we know that funding is there. It’s only a matter of time until we receive the benefits from this generational investment in the country’s infrastructure. Finally, we are executing on our strategic plan. I believe Granite is better positioned to take advantage of the opportunities ahead of us than the company has been in many years. We are positioned to drive consistent profitability and sustainable growth for years into the future. Operator, I’ll now turn it back to you for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from Michael Dudas with Vertical Research Partners. Please go ahead, sir.

First question for Kyle. Yes, we can’t wait not to hear ORP ever mentioned again. So that’s certainly great progress there. How do you see the progress? So you’re encouraged about Bid Day and what you’re putting into the backlog. Can you maybe reflect on the risk and margin profile of what’s going into the backlog amongst your divisions? Relative to what you’re executing off that backlog? And how that gap has narrowed? Are the types of opportunities you’re putting in the backlog from the margin today fit with what you anticipate could be generated in 2024? Or is there still a market or execution issues that need to be addressed to achieve those targets?

We feel really good about the cap that we haven’t placed today. We’ve been working on our capital for the last couple of years, transforming our cap, de-risking our company, and shifting away from those really large design-build projects that we had in the past. That’s really across the board. The donut chart that we share highlights the fact that we reduced the design-build portion, going from 20% of our cap two years ago down to 5% now. That’s a big evolution for us, and really speaks to the de-risking of our portfolio. That also shows that about 43% of our cap today is best value. These projects that are negotiated, where we are hired for the value we bring to the client, do fairly well relative to certainly the design-build projects as they get larger. Our teams have been working really hard. We’ve been getting more money on Bid Day, as we’ve indicated, and that’s reflected in our cap today. We’re going to burn through some of the work that’s been on the cap for a while, and we’ve been adding new work that has a higher margin profile than what we’ve seen a year ago. Over the last three quarters, including Q3, we’ve picked up more work with higher margins. We’re right where we want to be, and I think that’s pointed in the right direction. That’s how we’re bridging to the 2024 gross profit targets.

And the execution from the margin bid to executed is narrowing, but there's still room for improvement?

It’s better. Yes, our execution, even outside of the ORP, has opportunities for us to continue improving. We think there are still opportunities for us to focus on our execution and get even stronger outside of ORP. But yes, our execution is getting stronger across the board.

And my follow-up is just can you remind us what the weather impacts were in Q4 2021 and how we started in 2022 and discuss whether that was dry, wet, or in between among important regions?

It was wet in the West. We didn’t have the strongest Q4. As a company, we didn’t have a strong Q4 necessarily in California. I can tell you the numbers that I’ve seen in October indicate that we’re already way ahead of where we were last year, especially in the West.

Thank you. Our next question comes from Steven Ramsey with Thompson Research Group.

Can you talk about how much of the EBITDA margin raise was due to keeping WMS versus the other previous core segments? And does the FY '23 and '24 margin commentary include WMS in it?

I’ll take that, and if Kyle has any comments he can add to it. So for the increase, yes, the majority of that is the benefit from adding water resources and mineral services into our continuing operations. We did have some ORP fades in the quarter; however, they were more than offset by the increases from adding in water and minerals. For our guidance looking out, what we provided for 2023 is inclusive of the water resources and mineral services businesses. So it is all in.

If you think about the vertical integration of California being kind of the goal for the rest of the country, do you plan to acquire quarries around the country to make the Central Group more like the Western group? Any color you can share? And to add to that, does the 2024 margin target count on this happening to any degree?

The short answer is no; it’s not counting on that vertical integration expansion to achieve those targets. Our strategy is to use the business that we have in place today. We do anticipate continuing to grow our company and want to pursue deals that are less risky to start, and those are more build-on-type acquisitions within our home markets today. That’s easier in the West, and we want to replicate our successes in California and our Mountain Groups in other areas of the country, particularly in Texas and Florida, where we already have business operations. That’s certainly on the list of things we want to accomplish over the next two to three years.

How much can you take on in the central region regarding IIJA projects? Do you expect projects from government funds like this? How much will they align with your operating plan to have a quicker burn on smaller project focus in that region?

I think they align really well. We haven’t seen the IIJA impact yet; we’re looking forward to seeing that. I think it’s a little behind what we originally anticipated in terms of project letting and hope to see the impact in early 2023. Our teams across the country are very well-positioned. The formulaic portion of that is based on population, and we’re in those locations. Even in our Central Group, the work we’re picking up indicates our competitiveness, and the margin profiles align with our long-term targets as a company. The amount of work we’re really bidding today is well above what we were pursuing at this time last year. So the markets are strong, and we feel really good about the opportunities available to all our teams.

Thank you. Our next question comes from Brian Russo with Sidoti.

Regarding the recent contract wins in Texas and California, can you help me understand the competitive bidding and behavior? What separates you from your competitors, maybe just the macro environment, or perhaps your balance sheet enables you to win these awards at the margin profile you’re targeting?

That’s really our strategy around these home markets. That’s where we excel. We have local knowledge, local resources, we have labor, and sometimes we have the materials. We understand the owners and regulators in those markets. That’s really the key for us. That’s why we changed our strategy to focus on these home markets. We’ve had a home market approach as a company, particularly out in the West. The real shift for us is on these teams that were historically chasing large projects throughout the United States. We’re now focusing on developing whole market strategies for those states and markets, allowing us to be successful in the long term.

I was surprised to see the margins down in the materials despite the energy surcharges implemented in the second quarter. Is there some contract lag on that, or how should we look at year-over-year quarterly margins going forward?

Yes, there was still a little bit of lag on that. The energy surcharge won’t completely offset until the end of the year. We’ve been slowly decreasing our exposure, but there was still a lag in some of the pricing during the early part of the year. We missed the natural gas pricing issue that many faced by the end of Q1. We had some pricing out in advance but expect that looking at the materials backlog, particularly in California, is up compared to last year. As we move forward, we think we’re well on our way. The numbers we've seen in October are very encouraging. We’re ahead of where we were last year.

Our next question comes from John Ramirez with D.A. Davidson.

Can you recap the ORP remains and what the burn is expected for the remainder of 2022 and how much is left into 2023?

Yes. I can cover that. Just to recap further to show the progress we’ve made on cap. We entered the year with $314 million, and by the end of Q3, we’re down to a total ORP cap of $115 million. We burned $44 million of revenue related to ORP cap in the quarter. To clarify, of the $115 million, we’ve discussed before, we have one profitable project included in the ORP because it’s a non-sponsor joint venture. However, we’re not entering into those types of projects moving forward. As of now, our challenged ORP is $115 million at the end of Q3. By the end of the year, we anticipate our challenged ORP cap will be right around $55 million. So we’ve really made good progress throughout the year. Looking at the total portfolio, the $314 million represented about 8% of our total cap. By the end of the year, entering into 2023, the challenged ORP will only be about 1% to 2% of our overall cap. That’s why, as Kyle mentioned earlier, we don’t anticipate discussing the ORP as we move into 2023.

Given the funding and bidding environment, when do you expect to see more meaningful growth in cap? Can you give some color in terms of the projects and how it aligns with the smaller projects and faster burn?

We’ve had these big projects as part of our cap historically, which kept our cap high. As we start shifting towards smaller projects, we will start turning those projects quicker than our historical large projects. There will be a shift in cap, but in general, our team has done a great job picking up work and offsetting that decline we saw in the ORP. Again, our bid schedule is strong. I feel good about the opportunities we have, even ahead of the IIJA, and I expect Q4 to be a strong quarter for us.

Thank you. Our next question comes from Jerry Revich with Goldman Sachs.

I was wondering if you could elaborate on the decision to retain the water resources and mineral services business? Is this more a reflection of the current environment we’re in for M&A, or should we expect this business to remain as part of the portfolio on an ongoing basis?

The quick answer is you should expect it to be part of the portfolio for the long term. The decision was really based on valuation. We were in exclusivity with two buyers for those businesses; however, the credit market changed over the last month or two. They were looking to retrain, and it was to a level that we didn’t think was in the best interest of our shareholders or the company. That was the reason for the change. I can tell you that I believe these businesses have been performing well, the markets are strong, and we have excellent leadership and teams in place for those businesses. We’re excited to have them in our portfolio. Our balance sheet is strong, too, and we don’t see it as hindering our ability to grow the company.

Regarding the margin guidance earlier, can you clarify whether the entirety of the revenue guidance increase came from the inclusion of water resources and mineral services? Or is there any contribution from better performance in your core civil and materials business?

Adding in water resources and mineral services obviously does impact our revenue guidance. At this point for 2023, we were only providing insight into what we’re seeing next year for our adjusted EBITDA. Even with the update I provided this morning regarding the rest of the year, we increased revenue guidance to the range of $3.2 billion to $3.3 billion. So, yes, there’s definitely an improvement from adding in those businesses back into continuing operations.

Thank you. Ladies and gentlemen, this is the end of our question and answer session. I would now like to turn the call back over to Mr. Larkin for his final remarks.

Okay, thank you for joining the call today. As always, we want to thank all of our employees for the work they do every day. Thank you for your interest in Granite. We look forward to speaking with you all soon.

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