Good morning. My name is Dan 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 2015 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Granite Construction Director of Investor Relations Ron Botoff. Sir, the floor is yours.

Good morning. Welcome to the Granite Construction Incorporated first quarter 2015 earnings conference call. I'm here today with our President and CEO, Jim Roberts and our Senior Vice President and CFO, Laurel Krzeminski. We'll begin today with an overview of the company's Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from the statements made today, so 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. A reconciliation of non-GAAP results is included as part of our first quarter earnings press release. Certain non-GAAP measures may be discussed during the call and from time to time by the company's executives. For more information, please 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.

Thank you, Ron and good morning, everyone. Coming out of 2014, the safest year in our company's history, Granite teams have raised the bar for safety even further in the first quarter of 2015. This week, Granite, along with the entire construction industry, is participating in the second annual Safety Week. All across the country, personnel from all parts of our business are involved in safety meetings, Take 5 discussions, job hazard analyses and other focused activities to remind our employees that their health and well-being is our number one value. Safety is a core value at Granite. Ladies and gentlemen, our goal is very simple, zero injuries. We're off to a great start in 2015 and with our employees' continued focus on safe activities each and every day, I'm optimistic that 2015 will be the safest year in the company's history. I also would like to take just a moment to congratulate employees coast to coast for living our code of conduct every day which was critical to our being named one of Ethisphere Institute's World's Most Ethical Companies for the sixth consecutive year. Our focus is not only on operating in compliance with our code of conduct, but to lead the industry to improve ethical standards every day, earning the right to be part of this prestigious group of global companies. Before Laurel discusses our results and guidance, I want to spend just a few minutes with you on the trends, opportunities and challenges ahead of us in the coming quarters. None of these factors really has changed for quite some time. While working safely and ethically comes first at Granite, our continued focus on project execution translated into our best first quarter financial performance since 2009. This quarter, I'm particularly encouraged that we grew revenue and margins…

Thank you, Jim and good morning, everyone. First quarter 2015 revenues were $420.2 million, up 10.6% from last year. Loss per share in the quarter was $0.22, compared to a loss of $0.53 in 2014. Total company gross profit increased nearly 400 basis points year over year in the first quarter to 9.5%. Driven primarily by improved quarterly performance in the construction and construction materials segments, this marked the fourth consecutive quarter of gross profit improvement across all three segments. First quarter SG&A expenses increased 6% year over year to $52.2 million, driven by increased selling expenses and salaries. And the balance sheet remains strong, with $339 million in cash and marketable securities at quarter-end. Total contract backlog at the end of the first quarter was $2.9 billion, up more than 14% from last year and up 8% sequentially. Large project construction backlog increased 22.7% year over year and 9.1% sequentially to $2.2 billion. And construction backlog declined 4.7% from 2014, but increased 5.1% sequentially to $749 million. As Jim mentioned, backlog now includes our nearly $360 million portion of the Pennsylvania Rapid Bridge Replacement project, but does not include either of two alternative procurement projects that we discussed in February. We expect to book both of those projects which total more than $300 million, into backlog later this year. Looking at segment detail, first quarter construction segment revenues increased 20% to $188.5 million, with gross profit margin of 11.5%, up from 5.8% last year. Segment revenue and profit improvement was driven both by increased demand, improved execution and by recognition of certain contract claims. Large project segment revenues increased 1.6% in the quarter to $190.3 million. First quarter segment margin of 9.3%, up from 8.4% last year, reflects project progression which was offset partially by a decrease in year-over-year…

Thank you, Laurel. With the help of mild conditions in the West, we solidly regained momentum in our vertically integrated business in the first quarter. This performance, in alignment with solid backlog trends across segments, coupled with steady market projections, gives us confidence that we will continue to grow and improve our business with or without a new highway bill. That said, with the existing political climate in mind, we remain optimistic that Congressional action to stabilize and grow federal infrastructure funding remains a significant potential catalyst for Granite and for the industry late in 2015 and beyond. And with that, we will take your questions.

[Operator Instructions]. Our first question comes from Jerry Revich of Goldman Sachs. Please go ahead.

This is actually Marta Larsen calling on behalf of Jerry. I had a question. Can you talk about the bid pipeline and maybe give us an update on your large project pipeline?

Sure, good morning. Bid, large project pipeline, full and I will just lay robust, steady. We have seen really over the last two years just a steady influx of about $50 billion to $60 billion of work that we track over a longer period of time, targeting somewhere between $15 million to $20 million for every 18- to 24-month period directly in front of us. We do not see it changing. We're focusing on teaming with the right partners and really focusing just on the projects that we believe will optimize our return, relative to the risk associated with it. So, very steady, very healthy and I don't see it changing.

And then, can you maybe talk about the bid environment and are margins on the projects you are bidding on better than what is in your backlog?

Okay, so just relative - and I think if you are talking about large projects, we continue to focus large projects with margin expectations in the mid-teens. And I say that when we look at the broader perspective, we absolutely try to balance profit margins with risk. So a high-risk job would have a higher than mid-teen margin expectation. A low risk job would most likely have a lower than mid-teen profit margin expectation. So the overall, no changes, with the same expectation of mid-teens.

Our next question comes from John Rogers of D.A. Davidson. Please go ahead.

A couple of things. First of all, in terms of the claims recoveries that you mentioned, the $9.7 million, how is that divided between the large project and the construction segment?

More than half of it is in the construction segment.

And I guess on a go-forward basis, how does the - especially in the construction segment, I mean, you had a great quarter, margins were better and everything, but backlog dipped a little. Did you eat into the at-backlog and I guess, specifically, what are the state DOTs telling you about bid activity pre-highway bill?

Okay, John, so the backlog is actually fairly steady and I will talk about construction, a slight dip, but overall what we're seeing is a more diversified approach from our teams, bidding a lot of construction work that is outside of the standard DOT work. Where we have our businesses located, the DOT work is actually fairly steady. Out of the majority of the states in the West, it is a fairly healthy bidding environment. I haven't seen a lot of work being canceled. There is actually no work being canceled. I have seen some work being delayed. But what we have seen in our construction segment is an uptick in the work that we're bidding on the transmission and distribution side, on the solar side, on the federal side, back to oil and gas and in the private-sector commercial work; today, it's more than making up for, I would call it, a static DOT environment.

Okay, so it sounds like you could see that accelerate through this year.

I would see the acceleration if we got a new highway bill, but I go back - John, we have been saying really for the last six months that we do not expect a new highway bill to affect Granite in 2015 and we have built our budget and our guidance around no new highway bill. Now if we got one at the end of the year which is what I anticipate will happen, I don't think it's going to have a significant effect on 2015. I think it will be a nice catalyst for 2016.

[Operator Instructions]. Our next question comes from John D'Angelo of Macquarie. Please go ahead.

I was wondering if you could walk us through the cadence for that $18 billion in the project pipeline that you guys talked about. I know you mentioned that it would be over the next couple years. What I'm really just trying to figure out is, what percent of that could we expect you to bid on over the next 12 months or so? Thank you.

Okay, so I would, John, focus on our large projects. I would say it is fairly rateable and if you are talking $18 billion over two years, you can talk about $10 billion in the next 12 months and it's a variety of work and I actually have a sheet in front of me that shows all the different work in all parts of the country, ranging from big rail projects to a couple of large tunnel projects to big federal projects. So it's a nice combination, a cross-section of work all across the country and it's fairly rateable to about $1 billion a month would be on an average basis. And again, I think that will continue to change as we pull more product into that backlog and pipeline. It could change a little bit, but that's what I see today.

Our next question comes from Brian Rafn of Morgan Dempsey Capital Management. Please go ahead.

Let me ask if we get a highway bill toward the end of the year, what does that ramp up layered in demand over the top of what we have now in state DOT, public/private partnerships, toll roads, sale-leasebacks and that? And what demand does that place on you guys for bench strength, for equipment, for aggregate? And then, how would that also affect maybe an escalation in price on bid day?

Okay, lots of questions there, but really good ones. Let me focus on if we get a highway bill. Let me go back and restate that - when we get a highway bill, it will be a - I consider it to be a fairly quick ramp up in the smaller work, I'm going to say the $100 million and less work, because that's the stuff that has been shelved and delayed. And those are the typical DOT jobs that we bid a lot of in the western part of the U.S.. So I think you could see that ramp up within one to three quarters quite quickly and affect more of our construction business faster than our large project business. The large project business is robust because of a lot of different alternatives that are available in the market today with 3Ps. TIFIA has certainly been a part of that. And those projects take longer to develop and put into play. So I don't think that a highway bill is going to make a huge play in our large projects business. I think it will be a significant play in both our construction and our materials business in as quickly as one to three quarters. And therefore, when you look at the people on the resource side, the bigger draw today on people and resources is in the large project segment. You go get a $2 billion to $3 billion job in, let's call it, the Southeast or even in the Northeast and you are drawing in, let's say, a couple hundred management people and, let's say, 1,000 people in the field, those are the huge draws on resources. I think the local businesses that we have are pretty much set for a significant increase in their capability to build more work, so I don't think a highway bill stretching Granite's capability at the construction and materials level, but I see it more creating opportunities for our businesses which have been shrunk over the last several years. So, I think it's actually a real plus for us and I think we will see some immediate benefit in 2016.

Jim, as a follow-on because there are a lot of questions embedded in there, do you think given that statement that there is going to be any better margins or escalation in pricing capture if that highway bill comes out, given all the things you said about Granite?

I do and I will tell you why. I think that what's happened in the local regional businesses that we compete with which is a very big part of our company, is that that Group has consolidated and the capabilities and the capacity of that Group has consolidated for the last five years, let's say. And therefore, it's going to be harder for our competitors to expand those businesses as quickly as Granite can expand those businesses. So I think that once there will be a very quick absorption of work, I think that people will reach capacity faster than they used to and that will immediately change the pricing.

[Operator Instructions]. Our next question is a follow-up from John Rogers of D.A. Davidson.

Could you talk a little bit about your project expectations for hitting thresholds this year, just as we think about hitting those marks at different points in the year, the big swings? And then, Laurel, I don't know if you've got it, but what you are expecting in terms of noncontrolling interest, just because I assume that ties to it as well.

Okay. So over the past year or so, we have been enhancing our forecasting process and we recognize gross profit using our job forecast with a reasonable level of certainty, rather than the bright line which we have been moving away from. So we have added some more due diligence to certain areas and things like that. S, for instance, in the first quarter, we recognized profit on PA 500. We also recognized profit on I-4--

How far into those projects were you at that point?

The I-4 is close to 30%.

Okay.

Sorry. No, I don't have those. We will have to get back to you on that.

John, this is Ron. Both I-4 and Pennsylvania 500, we just booked those. We just got the news to proceed, so it's a good example of the refinement of our forecasting process that we were well below the previous 25% threshold.

And John, maybe a little tighter on that. Both of them are less than 10% complete to date, in fact, I think both of them are right around the 5% complete. So they are just minor - they just got started and what's happened is that we've got a pretty solid focus on those jobs right now. That's why we recognized the margin, but the margin was fairly minimal compared to the overall size of the job.

Yes and the 10-Q is going to be filed shortly and so what you'll see in there is that the amount of profit that reached threshold and it's only a few million dollars more in the first quarter of this year versus last year and it's really less than $1 million in large projects.

And let me just add to that before Laurel talks about NCI. I think what you're going to see, John, is a more steady rate of recognition versus the lumpiness. I don't think it's going to make a significant difference at the end of the year, but the intention here is to try to take out the big ups and the big downs on a quarter-to-quarter basis.

Yes and then I think that will be helpful, as well.

Right. And we believe it will be, give us a better visibility for our investors to be able to understand our business better as well.

Yes, so it's going to reduce the magnitude, but there still will be some volatility in large projects because of where the project is in the stage of progression. So, as I mentioned in the script, when you are earlier in progression, you're going to have less profit on the job than later. And it just so happens that our portfolio of large projects right now is in the earlier stages. So, it's going to be different than if we had a portfolio that was full of projects in the later stages when you release contingencies.

So maybe to talk a little bit about the contingency, how that works a little bit, Laurel, because I think that a lot of our investors don't know - you made a great statement there that early in the jobs, we have contingencies that we don't release until we pass certain milestones.

So there are certain risks that we identify as we enter into our jobs and we establish contingency associated with that, but our expectation is that we can manage those risks and be able to harvest that margin into our gross profit at later points in the job. So once that risk is no longer an issue, then we're able to harvest that contingency.

So the non-control--

And then you asked about NCI.

Yes.

I will have to get back to you on that, but it's really not a significant number for us. We only have a couple of consolidated joint ventures right now.

Okay and then that should be presumably a lot smoother as well?

Yes, although it [indiscernible] depends on if we begin to sponsor more jobs and then we'll have more NCI, but we will keep you up to date on the progress there.

Okay and then in terms of claims that you are hoping to collect on this year, any sense of what you are either anticipating or what's potentially out there?

Historically, it's like 3% to 5% of revenue and we don't talk about the individual claims, but the estimates that we have for 2015 are included in the guidance that we provided.

And I think that, John, another way to look at it is that we constantly seem to be keeping that 3% to 5% out in front of us and we will settle some claims and then we will develop new claims and I think that's a good run rate out in front of us is that 3% to 5% rate. And again, our level of confidence in those claim recoveries will determine whether or not we recognize them and that will just have to play out. I agree with Laurel that that is in our numbers, our guidance right now. It could go up or down, but I think we have got a pretty good handle on where our projections are for the year.

Okay and I know this will probably be in the Q, but in terms of the private-sector portion of your backlog right now, what is that? And Jim, you have talked about growing that side of the business. As you look out into 2016-2017, what do you expect that to be?

Well, you know, maybe instead of - I'm not so sure I have the backlog number differential--

Revenue is fine, yes.

Yes, on the revenue side, though, I will say in the first quarter, the private sector actually contributed in excess of 20% of our revenue and that is a really nice change for us, John and you know us well. It wasn't four or five years ago that it was at the 5% level, so it is starting to ramp up. And getting into some of these diversified marketplaces, oil and gas, we have got some nice commercial work going. Most of our power work is to the private customer. So, just the first quarter is a good indicator that it was in excess of 20%.

Okay. And Jim, where would you expect that to be over the next couple of years?

Well, I would like to see it maintain at that level or even get higher. I think it will as we ramp up some of these diversified areas, so I wouldn't say it's going to be over 25% of our portfolio, but I would say if it was in that range, I'd be happy.

Our next question comes from Min Cho of FBR Capital Markets. Please go ahead.

Actually, my questions have been answered. I just have one final one. Regarding the construction management, general contractor project and I think Laurel mentioned that was not awarded in the quarter, I believe expectations were for construction to start sometime in the first half of the year and I was wondering if there was any risk to that if we don't - if it's not awarded soon. And what's taking so long for the contract to be announced?

Okay, so actually there is two projects. We call them CM/GC projects and I'm very confident that one will produce work in the second quarter and I believe the second one may begin work in the second quarter, but will absolutely begin work in the third quarter. I'm comfortable and we just said, I think, in our discussions earlier later in the year, but I'm fairly comfortable that one of them will have a nice click of revenue in the second quarter.

Okay and those, given your new revenue recognition, should probably hit the recognition marks before the end of the year as well?

Yes. I believe both of them will. Yes.

Our next question is a follow-up from Brian Rafn of Morgan Dempsey Capital Management. Please go ahead.

Yes, Jim, give us a sense as we move into 2015 here on the aggregate quarry side, what's the internal/ external usage of aggregate? What's the mix, maybe?

So right now, it's about a 65% external, 35% internal which is nice to see that the external side is still a stronger portion of the business than the internal side, but I will tell you it's pretty interesting, Brian. We actually grew year over year faster on the internal side than we did on the external side and as you can see, we grew quite nicely on the external side. So both parts of the materials business, the external sales and the internal sales, are actually going very nicely in 2015.

Yes, Jim, on bid day or as you move through a project and just on the internal side, does the internal side of aggregate give you a cost advantage or is it in materials or is it more a sense of getting a flow through or a throughput of having those materials ready as the job progresses and not waiting on somebody else?

It is actually both. That's a good observation, Brian, because what happens is that there are some advantages by utilizing your own materials. First of all, we believe our materials are of a substantially higher quality which gives us a better ability for bonus opportunities in the field. Our crews know how to lay down our materials. Our crews know that the materials are available when they say they're going to be available, so it actually is a benefit to both the construction side and does create margin at the materials side as well.

Okay and then just on a rough basis, I know it's a 50,000-foot-view question, what might be your capacity utilization for the entire aggregate area? Obviously, there is going to be some geographic specificity to that, but where might you be running on a range basis?

Well, I'm not so sure, are you talking about volume differential from--

Yes, volume. Would the quarries be running at 50% capacity or yes, volume is probably a pretty good way of measuring it.

I think overall, Brian, we could easily double what we're doing. When we were building our aggregate business in the 2000s, up to 2009, we have increased our capacity, our reserves significantly and then the bottom dropped out of the market. We're still well prepared to go back exactly where we left off and at least double the capacity of our materials business.

This is the end of our Q&A session. I would like to turn the call back over to our hosts.

Okay, well, thank you very much for your questions. Fittingly during Safety Week, I congratulate the Granite teams from coast to coast for a solid start to the year in safety as we target 2015 to again be the safest year in the company's history. And as I stated earlier, the safety of our employees is a core value here at Granite. To all of our investors, please do not hesitate to reach out to see if we will be able to make it your way soon. And finally, Laurel, Ron and I are available for follow-up if you have any further questions. Thank you, everyone.

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