Ron Botoff - Vice President of Investor Relations and Government Affairs Jim Roberts - President and Chief Executive Officer Laurel Krzeminski - Executive Vice President and Chief Financial Officer.

Steven Ramsey - Thompson Research Group Michael Dudas - Vertical Research Partners Jerry Revich - Goldman Sachs Daniel Scott - MKM Partners Jon DeCourcey - Canaccord Brent Thielman - D. A. Davidson Alex Rygiel - B. Riley FBR Tristan Margot - Cowen.

Good morning. My name is Rocco and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Investor Relations First Quarter 2018 Earnings Conference Call. Please note, today’s conference 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. [Operator Instructions]. Please note we will take one question and one follow-up question from each participant.

It is now my pleasure to turn the floor over to your host, Granite Construction Vice President of Investor Relations and Government Affairs, Ron Botoff. Sir, the floor is yours..

Thank you. Welcome to the Granite Construction Incorporated first quarter 2018 earnings conference call. I’m pleased to be here today with President and Chief Executive Officer, Jim Roberts; and Executive Vice President and Chief Financial Officer, Laurel Krzeminski. We begin today with an overview of the company’s Safe Harbor language.

Some of the discussion today may include forward-looking statements. 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, outcomes, 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 projections and assumptions.

The company assumes no obligation to update forward-looking statements whether as a result of new information, future events, or otherwise. Certain non-GAAP measures may be discussed during the call and from time-to-time by the company’s executives.

And please note that a reconciliation of certain non-GAAP measures is included as part of our earnings press release. For more information, visit our Investor Relations website at investor.graniteconstruction.com. Thank you. Now, I would like to turn the call over to Granite Construction Incorporated Chief Executive Officer, Jim Roberts..

Well, good morning, everyone and thank you for joining us to discuss our first quarter results. We certainly were pleased to carry solid momentum followed from last year as our teams produced a record revenue first quarter 2018 with significantly improved bottom line results.

Before we tackle our results and update you on the progress of our announced acquisition of Layne Christensen Company, let’s start today with a key contributor to our first quarter and recent success, improved safety.

With Construction Industry Safety Week taking place across the country next week, Laurel and I will be visiting operations and projects around the country to encourage and support our teams in working toward our goal of zero injuries.

Our teams are off to both a busier and a safer start in 2018 and this positions us well to achieve our goals for this year. While we have not yet reached our ultimate goal of zero injuries, I want to thank Granite employees for continuing to focus and emphasize safety in everything you do as we target getting everyone home safely every single day.

Safety is one of Granite’s core values, which are a corner stone for our employees and for how we serve our clients and local communities. That said, working safely also contributes to significant financial value for our company and for our clients.

The safer we operate the more productive our crews are and the sooner we complete our projects for our clients. Now turning to our results with our mild fourth quarter transition to a welcomed normal winter season in the first quarter.

This return to normality allowed our teams to continue to build and execute on healthy backlog, while still performing scheduled maintenance at many of our facilities during our seasonally weakest quarter.

As a result, our first quarter performance reflects a solid improvement from last years’ results building upon the progress we made in the back half of last year and fueling another quarter of exceptional topline growth coupled with strong cost controls that contributed to improve financial performance.

Before Laurel discusses the details of our results and guidance, I want to spend just a few minutes today talking about consistent improving demand, our execution in the first quarter, as well as an update on our growth plan via organic expansion and through acquisitions.

As we have discussed for sometime now, demand trends continue to contribute to long terms visibility and a strong outlook positioning Granite for growth through 2018 and well beyond. Consistent private sector demand to date finally is being met by real positive changes in public sector funding and demand.

We expected and we received a solid uptick in lettings and related spending at the beginning of this year after a slow quarter of lettings last year, especially in California. Company backlog finished the first quarter slightly ahead of this time last year at a very healthy $3.6 billion. Bidding opportunities remain diverse and abundant.

We expect demand, especially public demand to continue to push higher for some time. So, with today's healthy improving demand backdrop it is extremely encouraging that Granite teams continue to execute at a high level. In the first quarter, these trends coalesced in a more than 20% top line growth and gross profit improvement across our business.

Now diving into our operational performance, we begin today where we left the construction segment last year.

In the first quarter, Granite teams once again executed on solid backlog delivering excellent top line growth and solid cost control, and a much more normal winter helped our teams work more efficiently, more safely, and more profitably across much of the west producing a strong first quarter mid-teens margin performance.

Construction segment backlog though down year-over-year moved higher sequentially towards the $1 billion mark. Strong and improving demand trends continue to combine with consistent discipline on bid day, especially early this season.

Abundant growth opportunities certainly are exciting, but Granite teams are vigilantly focused on balanced growth emphasizing the value of biding discipline to drive improved profitability. The results are just now beginning to show. Moving now to large project construction segment, which produced significantly improved first quarter 2018 results.

Margins remain well below our mid-teen's expectations still negatively impacted by work on a number of challenging mature projects.

Though we anticipate significant segment operational and financial performance and profit improvement in this segment from 2017, our work towards substantial completion of underperforming projects is expected to continue to create a drag on our results throughout much of 2018.

A strong ramp up of activity at newer projects increased our impact on both revenue and profit in the quarter mitigating some of the continued negative impact from challenging projects. The healthy impact of the performance in the newer portion of our large project segment portfolio highlights the significant opportunities we have in front of us.

The large project segment has a robust diverse bid list and our communicative strategy has not wavered. Our teams today are applying discipline project duration and size considerations, as well as new owner project and partner selection strategies.

Most importantly, our plan includes significantly higher return expectations that we believe at the very least appropriately balanced the risk in this area of our business. Next, I will turn to our construction materials segment. This obviously is the most seasonal part of our business.

We were particularly pleased to carry some of the demand and execution momentum we experienced in late 2017 into the first quarter. As a result, improved external demand along with a more normal winter helped Granite teams work more efficiently and significantly more profitably than in early 2017.

Though less significant in the first quarter, we continue to focus on both price and volume improvement, which contributed to more than 30% top line growth and more than 800 basis points of year-over-year segment margin improvement.

Improved pricing and utilization is being driven by our sales efforts by demand from the private sector and by increased public sector spending. This trend is expected to continue to feel steady improvement in this part of our business throughout 2018 and well beyond.

In recent quarters, and over the past couple of years, we have updated you on key drivers of our improving visibility and of our long-term growth outlook. Steady economic trends and improving public funding trends remain the order of the day.

Consistent improving demand aligned strong execution across our businesses, positions Granite for growth investment and improved profitability. As we noted in February, California’s 10-year $52 billion SB1 transportation bill is just now kicking into gear.

California’s transportation capital funding is increasing from less than $2 billion in fiscal 2016-2017 to more than $6 billion in the proposed July 2018 to June 2019 budget.

Today lettings and bidding activity are accelerating fueled by SB1 by nearly $190 billion of long-term local voter measures passed in 2016 and from long-term transportation funding legislation in other states.

Combined with the recently passed two-year federal budget that fully funds the fast act and adds $10 billion a year to infrastructure investment, our market opportunities are robust and are improving.

Yet, even with this progress we continue to focus elected officials in Congress on delivering a permanent funding fix to the deficit in our nation's Highway Trust Fund. Set in 1993 and never indexed, this gaping hole in funding remains both a notable disappointment and an opportunity.

We strongly believe that following a lead of nearly 30 states that acted to improve infrastructure investment locally over the past 5 years to 6 years, Congress has a unique opportunity to leverage this state and local investment commitment with a fixed highway trust fund and ultimately with the passage of a well-funded long term federal infrastructure investment bill.

Finally, today, I want to offer a short update on our pending acquisition of Layne Christensen. We remain extremely encouraged by the response, enthusiasm, and commitment from Granite and Layne employees and from nearly all of the key stakeholders with whom we have spoken since we announced the acquisition.

This deal and alignment with our recently completed purchase of LiquiForce at the beginning of April highlights the broad benefits we expect to capture from expanded capabilities and geographic reach.

It also highlights the diversification strategy we have discussed over the past few years emphasizing opportunities to benefit from synergies and growth through strategic investments. These actions put us well on our way to building and becoming a national leader in the water and wastewater markets.

We are extremely encouraged by the considerable progress that Granite and Layne integration teams already have made on operational and strategic planning. The complementary inclusion of Layne's businesses further sets our path for an expanded consolidated and growing presence in attractive water and wastewater markets.

We believe that our improving financial performance and strong balance sheet our key elements needed to invest to capture significant opportunities for synergies and growth across Layne’s mining, water pulling and water midstream businesses.

As we look ahead, we are increasingly confident that this transaction represents the ideal combination of value creation for Granite and for Layne’s stakeholders. We continue to target a successful close in the second quarter of 2018.

We believe these early stages of demand improvement across the country are creating more opportunities for Granite and for our employees. Granite continues to target disciplined profitable growth in 2018 and beyond. We congratulate our employees and teams for a good safe start to the year and for exhibiting Granite's core values every single day.

We also challenge and support them to stay focused and safe to what is setting up to be an extremely busy year of growth and opportunity. And now, I’d hand it over to Laurel for some more detail on our results and our 2018 outlook.

Laurel?.

Thank you, Jim, and good morning everyone. First quarter 2018 revenue totaled $563.4 million, up more than 20% from last year and a record first quarter level for Granite. Diluted earnings per share improved significantly year-over-year to a loss of $0.29 per share, up from a loss of $0.60 per share in the first quarter of 2017.

First quarter 2018 results include the impact of acquisition expenses related to our pending acquisition of Layne and our announced purchase of LiquiForce. Excluding the impact of these expenses first quarter 2018 adjusted net income was a loss of $5 million or $0.13 per diluted share.

Reconciliations of non-GAAP and adjusted measures are included in our earnings press release. Consolidated gross profit more than doubled year-over-year to $56.3 million in the first quarter of 2018 as all three segments contributed to the year-over-year improvement.

As a result, gross profit margin increased more than 460 basis points year-over-year to 10%. Our focus on cost control to streamlining scale our overhead continues to produce results. So, even with another quarter of stellar 20% revenue growth first quarter 2018 SG&A actually decrease slightly year-over-year 0.9% to $61.3 million.

SG&A spending as a percentage of revenue was 10.9%, down more than 200 basis points from the first quarter of 2017. Granite's balance sheet remains strong with $300.8 million in cash and marketable securities at the end of Q1, up modestly from last year.

Total contract backlog increased 4.4% year-over-year to finish this first quarter of 2018 at $3.59 billion. Large project construction segment backlog finished at $2.61 billion, up more than 15% year-over-year.

Construction segment backlog totaled $978.3 million in the first quarter, down year-over-year, but up about 9% sequentially from Q4, reflecting continually improving public lettings in the West. Looking at the segment detail, in the first quarter, construction segment revenues increased 18.7% year-over-year to $269.2 million.

Gross profit increased 40.5% in the first quarter to $38.4 million with resulting gross profit margin in line with our mid-teen's expectations at 14.3%, up more than 220 basis points from last year. Large project segment revenues increased 20% year-over-year in the first quarter to $248.4 million.

First quarter gross profit margin of 8.2% reflects nearly 700 basis points of year-over-year improvement. As Jim noted, the majority of the improvement was the result of increased influence of newer projects and a reduced pace of mature underperforming projects, which lessened their drag on quarterly results.

As we work towards substantial completion on these mature projects, we still expect these low or no margin projects to remain a drag on segment results for the remainder of 2018. Finally, today, let’s move to our construction materials segment.

Here, revenues increased 32.5% year-over-year to $45.7 million in the first quarter, while we still posted a gross loss in the quarter, profit improved nearly 50% year-over-year, which translated into margin improvement of more than 800 basis points from the first quarter of 2017.

As a reminder, we typically shut down most of our facilities in Q1 not only due to weather, but also to perform planned maintenance for the upcoming production season. Therefore, a loss in this segment is typical and expected during the first part of the year.

As we observed and experienced last quarter and last year, strong demand trends, betting and pricing discipline, and consistent cost control continue to feel operational and financial improvement across our business. Ahead of our 2018 outlook details, I wanted to offer a few reminders that we shared last quarter on our view for the year.

We continue to expect our SG&A as a percentage of revenue to be in-line with last year's 7.5% level, hopefully even slightly better. We will continue to invest in selling expenses as we grow our business, but we are confident that G&A portion remains scalable.

Our capital expenditures investment is expected to total $85 million to $105 million in 2018, and we expect depreciation should increase year-over-year to $75 million to $80 million. And finally, a reminder on taxes and the impact from the recent tax legislation.

We continue to expect our tax rate to settle around the mid-20s percentage level, reflecting the impact of the 21% federal rate offset by the loss of certain tax deductions. With that, I’m finished with our outlook, which does not include any financial impact from our announced acquisition of Layne.

Our expectations for 2018 are low double-digit consolidated revenue growth and consolidated adjusted EBITDA margin of 7% to 8%. Thank you. Before I hand the call back to Jim, I want to share just a few thoughts on my time here at Granite. First, it has been a blast.

I came to Granite as an accounting and finance professional, now nearly 10 years later, after dozens of amazing project and safety tours, and events from the North Slope of Alaska to Florida to New York to California, I'm proud to be leaving Granite as a construction industry professional.

And I’m even more proud to be leaving Granite a stronger company poised for continued growth and long-term success. Thank you to the incredible, dedicated Granite teams who introduced me to the work we do and who are committed to our long-term success.

I also would like to thank all of our external stakeholders who have been both inquisitive and supportive of me and my role, and in supporting Granite's growth goals. I look forward to catching up with many of you before I depart later this year. Now before we take your questions, let me turn the call back to Jim..

Thank you so much Laurel. A solid start to 2018 is good, but it is just a start. Our focus remains on delivering improved results for Granite, our shareholders, and our employees in 2018 and well beyond. We have one more item of note. Laurel is not leaving us tomorrow, but she has announced her retirement.

I would like to take a moment to thank my business partner for the last eight years for her unbelievable dedication to Granite and for her unwavering focus on making us a better company.

Laurel's determination has been critical to our building a better company, manifest it through more efficient business systems by surrounding the company with great people and by helping focus our operations execution, on cost improvement, all of these factors that have led us to where we are today.

We are stronger than ever and we are uniquely positioned to take advantage of the improved economic condition for generations to come. Laurel will stay and continue to lead our team through a small transition until we announce our next CFO, which we anticipate later this year. Thank you so much Laurel.

And with that, we will be happy to take your questions..

[Operator Instructions] Our first question comes from Kathryn Thompson of Thompson Research Group. Please go ahead. .

Hi good morning guys. This is Steven Ramsey on for Kathryn.

My first question is SB1 factored into your guidance for 2018 or can you help us think about the SB1 impact?.

Sure Steven. SB1 is alive and well.

And as you may or may not know, the fiscal year will end on June 30 and the new fiscal year that has been – the budget has been announced by the Governor to take another 4.5 billion added to the previous about 1.7 billion will create about $6 billion program for the state of California for the fiscal year from June to June of next year.

So that is factored in through the California business. It is still early to tell how much of a factor that will be. I think I mentioned in the script Steven that we saw lettings start to come alive a little bit at the end of last year, not as much as we had hoped so or got delayed somewhat into the first and second quarter of 2018.

The lettings are hot now. It is actively being ramped up and so although it’s very early in the game we are anticipating an uptick in the California business due to SB1, it could get better, but we're going to hold tight on that for now and see exactly how quickly the work gets on the street and how quickly we can put it into our backlog..

Great.

And then just thinking about raising sales guidance for the year, how much of that was Tier 1 outperforming expectations and how much of that is due to an improved outlook for the year?.

Steven it is more of a general environment. The Q1, certainly we got back to a more normal winter, which allowed us to have additional work in the first quarter. We also added another company to our portfolio, LiquiForce, which we’re happy to welcome all of the employees of LiquiForce on to our team.

There is additional revenue coming from that business as well, which is based out of the Midwest and out of the Canadian market. And then in general, the overall state and federal environment is strong and also the private sector remains very healthy.

And so, the combination of all those, we decided to move up our revenue forecast slightly at this time and we’ll look at it again for next quarter's call, but it is a very healthy environment right now..

Excellent, thank you..

Thank you, Steven..

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

Good morning gentlemen, Laurel..

Good morning..

Good morning, Mike..

I think your retirement suspiciously coincides with Wisconsin and Green Bay Packer football this fall..

Did you know that she is a big-time fan Mike? You know that?.

I know that exactly. That’s why, I was, you know sometime this fall might be better to check some of those games, she has missed so many over the years..

I got a slight feeling Mike, she’s going to be going to more games now..

That's right. I agree. Jim, my two questions.

First, looking at your construction business and looking at revenues and outlook going for this year, are you planning more activity in book and burn intra quarter type business, is that something we should continue to see that trend improve going forward or is there any regionalization or public versus private in that realm?.

Yes, I think you’re right on Mike. I do think, what you will see is a lot of the work that the agencies are putting out are called maintenance work, which means that it may only be $2 million, $3 million, $4 million, $5 million job, but it will be a quick term job.

So, it could very well become little better, put it into play build it revenue and really burn the backlog in the same quarter. And I think a lot of that will occur in the second and third quarter especially, during the biggest construction portions of the year. So, I think you’re right on.

In general, I do think that even with that, we will probably should be able to build our backlog in the construction segment as well. I think it’s a combination of both because I think it’s going to be a pretty healthy market for the rest of this year for sure..

But this visible backlog is not required because you have this type of business that you see flowing through the [indiscernible]..

Yes, I think that’s kind of what you saw on the first quarter a little bit because we had a very healthy revenue quarter, a healthy bottom line quarter, you didn't see a big uptick and the backlog, although some uptick and I think you're going to continue to see that, maintain the backlog, create a little more backlog in a lot of respects, but burn a big portion of it to create the revenue uplift..

A follow-up Jim, better chances during calendar year 2018, a fix to the highway trust fund or an infrastructure comprehensive bill?.

Yes, that’s a good question Mike. I ask myself the same question all the time. You know the one thing I constantly mention and every time we have an earnings call is Congress' responsibility to fix and have a trust fund. And I think that is job number one.

It is actually a disgrace that we have to borrow from the general fund every single year to balance the highway trust fund.

So, I would say that’s almost more important than a detailed infrastructure bill although I think that fixing the trust fund is eminent in a significant transportation or infrastructure bill but have a trust fund number one on the list..

But do you think they will have to be done at the same time as you can't get one without the other?.

Well, I think it would be ideally done at the same time. I don't see them moving on the highway trust fund just by itself.

Unfortunately, I do see the possibility that they would move on an infrastructure bill and not fix the highway trust fund, which I believe would be severely disappointing if they did that, but they’ve already talked about doing that and in some cases. they include the highway trust fund fixed and in some cases they don't.

I think you will see an infrastructure bill and hopefully a highway trust fund fixed..

I appreciate your color. Thanks Laurel and Jim..

Thanks Mike..

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

Hi good morning everyone and Laurel congratulations..

Thanks Jerry..

I'm wondering….

[Indiscernible]..

Same here, same year.

I’m wondering if we could talk about the large construction order cadence that you folks expect over the next couple of quarters and if you could just touch on the size of the broader pipeline that you folks track I believe typically on a two-year rolling basis, can you just give us an update?.

You bet Jerry. One of the things that we have consistently said over the last 18 months is that we’re tracking jobs that are most mostly less than $1 billion. Put together a couple of slides for a webcast will do for our employees here in a while and I was just delighted when I looked at the entire list of projects that we’re bidding.

This year where there is not a job over billion dollars. And in most cases, the jobs we're bidding we are the lead on it. I think there is one or two, I see on our entire portfolio that we would take a non-sponsored view on.

So, you are seeing us in a very robust environment, more jobs bidding, smaller overall size will say somewhere between 200 million to 900 million. Granite’s taking the lead on all of them except for one or two and in some cases, a lot of cases, if the jobs are less than 500 million, we are seriously considering bidding them on our own as well.

So, the robustness of the bid list is strong. We have a lot of work bidding this year, more projects, similar value, I think it was about $5 billion that I see on the list for this year, but higher percentage of that work is ours and, in some cases, a 100% of its ours..

And so, planning the historical win rate, you folks would expect backlog growth this year in large projects?.

Well I don't know. I think it ends up being a little lumpy Jerry. So, we have a very good burn off our backlog going in place today as you saw in the first quarter. The newer jobs that we’re building today are ramping up rapidly.

We will like it when jobs burn fast whether they are construction or large projects and a lot of the newer large projects are burning fast. One of the things that we always look at though, especially now, we will be conservative and we will expect high margins in every job we bid.

So, we may or may not get a job every single quarter or we may have a reduction in backlog, but ultimately what we’re focusing on are higher margins in that business and that is imperative. And if you look at our overall revenue guidance, in 2018, we don't have a lot of wins in there if any in large projects that we would need to burn in 2018.

We are really looking to build on what we have focusing on the margins and then only are working on getting worked back on to our backlog that has a kind of margin expectations that we need. I think it’s going to take a little bit of time, but every time I say that Jerry, I get surprised.

Every time I say, just stay disciplined, put higher margin on it, and bingo we end up getting work. So, I really believe, the market is strong enough to absorb those kind of margins and we don't need revenues through large projects. What we need is margins through large projects and we’re working hard to get there..

And you have spoken about three large projects that were accepted complete in 2018 with low margins, can you just give us an update on timing I believe two of them where at- expected to be completed by mid-year, is that still the expectation, can you flush that out for us?.

Well I would suggest that, I’m not going to say mid-year, I do think that by the end of the year we’ll have one job carrying forward for a few more years and the others will be on the say 90% plus complete.

And at that point in time obviously you have clean-up and selling the jobs still to do, but I think we’re on target for exactly what we’ve been saying. We have one long term job that we will take longer and move into 2019 and 2020, but the majority of the rest of them will be substantially complete by the end of the year..

Okay, thank you..

Thank you, Jerry..

Our next question comes from Daniel Scott of MKM Partners. Please go ahead..

Thanks very much. Hi Jim and obviously congratulations Laurel..

Thanks..

The question is a follow-up on Jerry’s ….

I want to make sure you’re congratulating her for retirement and not because she doesn't have to put up her [indiscernible]..

She is going to be a neighbor now, so I look forward to that..

There you go on Dan..

Just on Jerry's question there, could you comment may be on the cadence of the improvements in margins in the large projects, I think you’ve been saying that for a while, it would take most of this year to the end of this year to even approach maybe 10%, but already off to a pretty good start here, does that maybe accelerate the cadence with that improvement?.

Well Dan I don't think so, and I want to make it clear that there are host of new jobs that we’re building that are going along very well as planned and the mature jobs that we're struggling on.

And I believe what’s going to happen is the amount of the percentage of the portfolio well those older jobs still has to be finished up this year, so they could ramp up later in the year and have a higher percentage of the portfolio mix.

So, I don't want to change from our original discussion point that we should get up close to double-digit by the fourth quarter because I do think we have to accelerate some of those older mature products during the second and third quarter..

Okay, very helpful there.

And then just, I know you’ve been busy on the M&A front obviously, but one of the older views you’ve had has been to continue the vertical integration approach and carry that into the East, is that still on the table right now or has the environment looking for that or as it’s too expensive, can you help us on that?.

Well Dan you’re right on.

I think that we’ve always said, about our M&A, our acquisition growth is on two fronts and we are working hard to satisfy the beginning of one, which is diversification through end markets, which we’re working with the Layne acquisition and certainly we just concluded it with LiquiForce acquisition becoming a much stronger player in the water and wastewater markets.

And then the other area of acquisition-related growth has been in taking the vertically integrated business East, our stronghold, which today is in the West, we are actively searching. And you’re right Dan, it is a little expensive today, but not really because what you’re looking at is multiples of the actual earnings.

And as the earnings creep up in a better market those companies are worth more. I don't think the multiples are changing, I do think the values are changing.

But there are a host of them that we are pursuing and we will take this vertical integrated business to the East, it is more a matter of when and finding that right opportunity, and there are several out there, but those take a little more time typically, they are privately owned businesses, it’s developing relationships, it’s making sure that the family has a trust in who we are, so that when we develop a negotiated environment everybody is going down the road together.

And it typically takes much longer than looking at an acquisition or a merger of two public companies, which can move a lot faster. So, we’re actively searching and that is a strong part of our expansion strategy..

All right, great, thanks very much Jim..

Thanks Dan..

And our next question comes from Bobby Burleson of Canaccord. Please go ahead..

Hi guys, this is Jon DeCourcey on for Bobby. Congratulations on the quarter and Laurel your retirement as well. With a lot of questions having kind of been asked, just wanted to follow up a little bit more on the acquisitions.

First off, can you give a little color on how much of LiquiForce in the first quarter, both in terms of revenue and the integration expense?.

Well first of all we did not acquire LiquiForce until April 3, so there is no revenue in the first quarter, and you're going to see – and you can see in the actual tables with the press release that we lumped all the acquisition cost together relative to LiquiForce and the Layne acquisition, which was about $8.4 million.

So, you’ll see that all put together in there. Some of it was LiquiForce, some of it was Layne, and it was probably less than 1 million for LiquiForce..

Great. Thank you.

And then on Layne, does the outlook for the Layne remain intact, you know just any changes to kind of your expectation there for how that can ramp up both from integration standpoint in terms of time to be accretive and revenues based on just one quarter since you really talked about it?.

Yes, sure Jon. Well I will say this the integration transition teams are working diligently and we’re excited about what we’ve seen. The people of Layne it’s a tremendous company and the opportunity of the two groups coming together from a personal standpoint of the merging is just so nice to see because they’ve got a great culture.

We don't see anything changing in our expectations, if anything, it’s actually becoming stronger than what we originally thought, but we’re actually more optimistic than we’ve been from the very beginning and we have visited every single one of their businesses. We’ve visited their South American operations, their Mexican operations.

We’ve visited their production fields and the teams that are working diligently in Houston on the overall integration and the timing we expect to call sometime in the second quarter. And right now, the overall synergies are in place and I think it’s really business as usual as we discussed about a month, month and a half ago.

And hopefully even more optimistic than what we have said previously..

Alright, great.

And then just one last question is, do either of these two businesses have a material driver as part of this business? Is there going to be an extra demand from the acquired businesses?.

Well the answer is yes, but it is different than a Granite materials business, and I say that because Layne owns a company called Liner Products, where they actually provide the liners for the trenchless rehabilitation work to external customers, including Granite, including LiquiForce and so yes, we do see opportunities to create more value to vertical integration in the materials business and Layne and namely due to their production facility for liners themselves in a company called liner products.

So, little different than the Granite model, but with the same concept of manufacturing supplying to yourself and supplying to third parties..

Great. Thank you very much..

Thank you..

And our next question today comes from Brent Thielman of D. A. Davidson. Please go ahead..

Thanks. Good morning Laurel and Jim, congrats..

Good morning..

Jim, on the construction segment and I think just particularly the public environment, is it starting to feel like a different market in California, pricing bid margins are you seeing any meaningful improvement?.

Okay. So, Brent, the answer to that is, yes. And I say that because we’re starting to see a number of bidder’s change. And I'm mentioned this many times before that the competitive environment will change relative to the number of bidders.

And as we have seen a lot of work just hitting the Street, February, March, and April now, we will continue to see a diminished bid list and as I’ve said before Granite is very disciplined in our approach towards bidding, we have high margins on our work and our hit rate will fluctuate depending on the number of bidders.

On the bid list and at the California market, I would say at the end of the first quarter we’re really starting to see some nice changes..

Got it. That’s great.

And then the materials business, should we look at this 33% growth as yet, I mean you had an easy comp versus last year and a decent whether this period, you know obviously private works have been relatively good or, does any of this significant improvement kind of a sign of SB1 in more public money hitting the ground?.

Well first of all, I think that it’s a combination of events. Certainly, a more mild weather in the first quarter help, but remember our plants basically shutdown in the first quarter in order to do maintenance. And then a lot of the product that we sell, we pull out of inventory that we build in advance for the winter months.

And we did the same as we’ve always done. We shut our plants down, we did our major maintenance, relocated some of the primary crushers, so we can get a more efficient product to the aggregate plants for the rest of the year, but I think the big issue is it isn't just the SB1, the propositions kicking in, it’s also the private sector.

And a lot of our external sales, ultimately ends up in the private sector. We sell to smaller contractors; smaller paving companies, and they end up doing work for a private customer.

So, I would suggest that at the end of the day, the majority of a big part of the public works will go into the granite construction segment and a big part of the private work will go into the external construction materials segment. And with that said, I think both are very healthy..

Got it. Okay. Thank you..

[Operator Instructions] Today's next question comes from Alex Rygiel of B. Riley FBR. Please go ahead..

Thank you. And Laurel thank you for all your assistance through the years and wish you the best in your next journey..

Alex, thank you. Appreciate it..

How should we think about margins within the Large Project segment over the coming quarters? Obviously, the first quarter was very strong.

But how should we think about it in 2Q and 3Q? And then also how should we think about it in 2019 given the strength that we saw in the first quarter?.

Okay. So, as we look ahead, you’re right we had a good, I would say good not great first quarter. Certainly, we saw a ramp up in the newer work.

I would suggest to you that as I would say consistent with our previous discussions that we should be getting close to double-digit by the fourth quarter, which means that the results could stay static, they could get even a little worse over the next two quarters, depending on the portfolio mix, and I say that as we continue to finish up these older projects we are accelerating them to get them done.

And as we do that, they’ll pick up a larger portion of the portfolio, which will reduce to gross profit margins.

So, although it was a good first quarter, I would go back to what we discussed last quarter and say probably lower level margins for the first two or three quarters and then close to double-digit in the fourth quarter and then low double digit in 2019. I think that we are able to move past the single digits for the entire 2019 year..

And then as it relates to bidding discipline, which is very important to Granite, how would you characterize the competitive environment, in particular, Large Projects in foreign competition?.

Well, that’s an interesting question. Alex, I would tell you what, one of the reasons that we are migrating towards these jobs less than 1 billion is we see in a lot of cases the competitive – the competitors themselves changing. The larger international companies don't seem to be as aggressive in the smaller work, which is good.

For these design, build, operate, finance, maintain jobs over $1 billion there is no doubt that the international competitors are extremely competitive, but we don't see that on – if we go a step down. Now with that said, what we are typically competing with is a very healthy regional player attached to another U.S.

national player and that’s a market that we like because the other U.S.

players have had a hard time in this part of the industry as well and I think in general they’re creating more disciplined and they are bidding as well and with the healthy market in the regional area, I don't see the regional players getting as aggressive as they were probably two years, three years, four years, five years ago.

So, we could afford to be disciplined today on those jobs less than a billion, not worry about the international players, and I am confident we’ll get our share of that work at the higher margin levels..

Very nice quarter. Thank you..

Thank you, Alex..

And our next question comes from Tristan Margot of Cowen. Please go ahead..

Hi guys, good morning. Thanks for taking the question here. I have a quick one on Layne and LiquiForce, is there any fixed price contracts in the backlog of both of these companies and what’s the backlog of LiquiForce? Thank you..

Okay. So, yes there is absolutely fixed price contracts in both. In fact, a host of these businesses have fixed price contracts just like Granite. There is no difference there. The actual backlog in LiquiForce, I don't have right of the top of my head, but I’ll be happy to get that for you.

Maybe after the call Tristan if you want to let Ron know, we’ll let you know what their backlog is? The type of work they bid, both LiquiForce and Layne is very similar in the marketplace as what Granite bids. There is unit prices, there is lump-sum fix, there is cost plus. There is all sorts of different types of work.

So, we're very familiar with all forms of the contracts..

Great, thanks Jim and I wonder if you can give us your latest use on the rebuild for SB1 and AC5, I know it looks like the signatures for the retail deal have been submitted last week. So, I don't know if you have any colors there it would be very helpful..

You bet Tris, in fact obviously we're watching it very closely. For those who are not aware, SB1 was passed last April. This was the $52 billion bill over five years, over 10 years, about 5 billion a year to build up the transportation infrastructure improvements in the state of California.

This year, this current year it’s adding about 2.8 billion of new money into the system and next year it’s adding about 4.5 billion of new money into the system. With that said there is a small group of people that have been collecting signatures to attempt to repeal SB1 on the premise that it would lower your gas taxes by $0.12 a gallon.

The group is based out of the San Diego market and they needed 585,000 signatures to get it on next – on this upcoming November ballot. Now, we understand that they have turned in signatures and it is up to the State now to determine if they are valid or not. And they need 585,000 signatures in order to be placed on the ballot in November.

But a couple of things are really important, we will find out probably in the next month whether or not they have enough signatures or not.

But the key ingredient for their argument, number one is that the State of California historically has not been steadfast in focusing gas tax transportation dollars on transportation and what they’re suggesting is that the state legislature will go into the transportation fund, rob the transportation fund, take that money and put it back into the general fund.

And it has happened before.

And this is the premise for their argument, but what you have placed today is ACA5, a constitutional amendment is now being put on the ballot as proposition 69 in June that will guarantee that all of these gas tax SB1 monies are absolutely set aside for transportation funding as depicted in the SB1 bill and that the legislator cannot rob those funds for any reason.

Now, that is pulling very well and that will be in the ballot box in June. Assuming that passes, which it should then the major argument for the proponents of the SB1 repeal goes away. And so, I think it is a step-by-step process as to how we focus our efforts to make sure the repeal effort does not work.

Number one, we have a very strong group that will be focusing on opposing any repeal. Number two, we want to make sure that this proposition 69 passes, which we’re fairly comfortable today it will pass and then certainly, we have to see if we can even get the signatures or not. And the balance signature.

So, there are a host of events that are occurring to date. We believe this entire effort is not in the best interest of the citizens of the State of California. It is a partisan political play in order to get more people to the ballot box to vote for a certain party during the upcoming elections.

And I believe that in the long run it will be defeated, I’m confident it will be, and we’ll be back to normal. In the meantime, we’re going to make every effort possible to ensure that that occurs..

That's great. Thank you..

Thank you, Tristan..

This is the end of the Q&A. And I would now like to turn the call back over to our host..

All right everybody. Well thank you so much for your questions. On a quick note, for our shareholders and investors, Laurel, Ron and I will be on the road in conferences visiting our operations and investors around the country throughout the second quarter, including tomorrow up in San Francisco.

So, please reach out to Ron, so we can prioritize as many requests as possible into our schedule. And thank you to all of our employees for keeping your fellow workers and the public safe and for exhibiting Granite's core values every single day. And as always, Laurel, Ron, and I are available for follow-up if you have any further questions.

So, thank you so much..

And thank you sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..