Good morning. My name is Ellison [ph], 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 2016 earnings conference call. 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 Director of Investor Relations, Ron Botoff. Sir, the floor is yours.

Welcome to the Granite Construction, Incorporated first quarter 2016 earnings conference call. I'm here today with our President and Chief Executive Officer, Jim Roberts; and our 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. 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.

Thank you, Ron. And good morning, everyone. Next week marks the Third Annual Construction Industry Safety Week. Granite along with a dozens of other constructions companies from coast to coast will gather on jobsites to share stories and probe for safer ways to build work and to reach out to our communities to raise awareness all in an effort to reduce jobsite incidence and to ensure our boys go home safely each and every day. We are proud to be a leader in this effort and proud to be part of this great construction community. While our team flew out to a solid start in 2016, we continue to challenge our people to work more safely every single day. Before I discuss our operating results in the quarter, I must congratulate Granite employees for their everyday commitment to do business the right way. A crucial component of being named one of Ethisphere Institute, world’s most ethical companies for the seventh consecutive year. Our employees commitment also reflected in our recent recognition on Forbes List of America’s best mid-sized employers. Such recognition enables us to continue to focus on setting a high ball in all that we do. Now moving to our performance in the first quarter of 2016. Results reflect steady market conditions and strong execution which produced a solid overall performance. Our geographic and end-market diversification continues to help balance the risks and returns in our portfolio of businesses. This quarter key parts of our vertically integrated business and Kenny, especially California and Kenny Power [ph] delivered consistent strong results that largely offsets seasonal challenges in the construction materials segment and some ongoing challenges in large projects. Beginning today with the Construction Materials segment, steady performance and efficiencies are the order of the day in the Construction Materials segment,…

Thank you, Jim, and good morning, everyone. First quarter 2016 revenue was $439.5 million, up 4.6% from last year. Loss per share in the quarter was $0.28, compared to $0.22 in 2015. Despite gross profit increasing to $39.2 million, total company gross profit margin decreased 33 basis points year-over-year in the first quarter to 8.9%. Particular strength in the Construction segment, which included double-digit revenue growth was offset by seasonal impact to our Construction Materials segment and weaker Large Project segment results. Notably first quarter 2016 results show that our core business segments are operating at a higher level as reflected in the reduction of recognized claims revenue from last year. This year total claim recognition was $2.8 million in the first quarter and nearly $7 million year-over-year decline from last year when we implemented an accounting policy change for contract claim recognition. Last year’s total first quarter claims recognition of $9.7 million, largely was a one-time catch-up from the accounting change from prior periods which stood about 70-30 between the Construction and Large Project segments. First quarter SG&A expenses increased 10% year-over-year to $56.1 million, driven primarily by increased compensation expenses. While we use cash as we normally do in the first quarter, the balance sheet remains strong with $314 million in cash and marketable securities at the end of the quarter. We continue to invest across our business in opportunities for growth and efficiencies as suggested by the first quarter spending ramp up of CapEx, plant maintenance and upgrades, invested to support a strong second quarter start and execution on our growing backlog. Total contract backlog at the end of the first quarter finished at an all-time record of $3.4 billion, up 15.3% from last year and 16.4% sequentially. Large Project Construction backlog increased 9.1% year-over-year and 16.5%…

Okay, well, thank you, Laurel. And before your questions, just a quick recap of where we stand today. As you can see our business remains on solid ground. For the leading indicator of our business, the Construction Materials segment, the stable economic environment continues to support growth with solid committed volumes pointing to expansion in 2016 and in 2017. Strong backlog trend, especially the $1 billion all-time record total in the Construction segment reflect the impact and balance provided by the strength of the market for smaller term book as well as diversification delivering results. Both the west and Kenny will see improvements in 2016 and in 2017, and we expect this will be the main driver of our overall growth. We continue to focus on opportunities and large projects to improve execution, achieve expectations and deliver improved results. We are working to ensure increased public funding in states across the country with a strong California focus. And lastly, continuous improvement is driving efficiencies in all areas of our business. It is beginning to become ingrained in our culture to simply make us a better company. Okay, and with that, we'll be happy to take your questions.

[Operator Instructions] Please limit yourselves to one question and one follow-up and jump back in the queue if you have additional questions. Our first question will come from Jerry Revich of Goldman Sachs. Please go ahead.

Hi, good morning. This is actually Brandon Jaffe on behalf of Jerry. Can you talk about the pace of revenue burn that you’d expect for the current list of projects in your large construction backlog as we progress throughout 2016?

Well, I think that as you can tell, even in the first quarter, the revenue burn was higher the last year. I think you’re going to see a very consistent burn on that revenue as well, especially on the jobs that are in maturity today. And we do expect large projects to be a larger revenue producer this year than last year.

Okay. Thanks. That’s helpful. And the book-to-bill in Large Construction was really high in the quarter, were any orders pooled forward into 1Q that you would expect it to be booked later in the year?

No, not at all. Actually, it’s interesting because those jobs, the Arizona 202 job actually was awarded quite quickly, relative a project of that size, that’s 900 and something million dollar job, that was awarded in the same quarter it was announced. So nothing was pulled up. In fact, the one project that we mentioned, the Hartford tunnel job was actually opened in the first quarter and actually that will be delayed relative to an award to the second quarter. So I think everything’s pretty much in line with the typical 30- to 60-day after the notification that you know the successful bidder is typically when you’re going to get an award.

Okay. Thanks a lot.

You bet.

Our next question will come from Michael Dudas of Sterne, Agee. Please go ahead.

Good morning, Jim, Laurel and Ron.

Hey, Good morning Mike.

Good morning.

Hey Mike.

First, Jim, wanted to have you elaborate a little bit on, in your prepared remarks you talk about in your Large Project segment, prioritizing future business going forward, which seems like a positive thing, but also about in design and construction, some of the risk in balances that you’re seeing in the market. Can you maybe talk a little bit more about that, well that’s a Granite you’re trying to handle the risk and reward issue or is the competitive nature still to the point where it’s still better for you to wait to kind of bid on projects with people chasing?

Okay, so Mike, those are two important parts of our large projects business and let me just kind of tackle them together, future bids and the design construction issues. I think what we’re seeing today is we have a very nice, robust backlog, that’s good backlog, that’s the kind of work we want. It’s very diverse in nature. Some is in the total business, some is in the transportation business, and those are different kinds of work, but again two also very large work. But what we’re trying to do now is analyze the projects that we think will create the most value for Granite relative to the risk associated with the world. Let me give you some examples. First, if you think about it, and you look at a $1 billion job and you have a five-year ability to build it, that’s a different job than $1 billion job that you can go build in two years and you can turn it faster. We are diving into the contractual details to make sure to weigh that. Our obligations to the owner are set up so that we don’t feel we’re being held liable for things that we should not be held liable when we get down into the details of the contract. It could be liquidated damages, it could be different O&M issues. We think that we’re in a position today Mike where it’s important to just go work on backlog that is really going to allow a larger return relative to risk than other projects. And it’s great to have, I think right now we’ve got $17 billion now that we’re looking at over the next 18 months. And we don’t need to go overly aggressive on that work but we will look and we will be aggressive on the type of work in the geographies that we want to be working in and also tying it in with the people that we have on our bench so to speak to deliver the work. And we are also being very focused on having the like partner on our work. And that is very important because we love those partners that have the same kind of interest that we do, the same kind of margin expectations, and the same kind of risk expectations. So it’s really nice to be in this position today and we’re going to pick and choose the large projects that can create really the value outweighs the risks. But again, we haven’t probably been in that position in the long time.

That sounds encouraging. My follow-up, Jim, is back to California and special session and legislative issues, you mentioned, is there an opportunity for solution by fiscal year June or are you talking about throughout 2016? And are there more increased concerns about funding versus gas tax reductions and some of the factionist [ph] between what the governor, what Republicans want to, how to fund such projects.

Okay. So the answer is yes, yes, yes, and yes.

Oh, thanks [indiscernible].

So let me tell you a little bit about what’s going on in California and this is a big issue for Granite, knowing that that is still a third of our business, a little less than a third. Although, this is still in the California market and we’re the biggest player in the DoT market with the most projects of any other company here. And we are heavily involved right now in a very strong industry-wide, we’ve teamed up with labor to focus on legislatively trying to get something done prior to end of this fiscal year, which is June 30th. And we’re still in a special session Mike, which means that there is transportation that’s been allowed to be followed outside of the normal session, which allows it to move faster. So we’re working hard with that one bill that we’re trying to work with, to get on the floor here as quickly as possible, so that it can be heard in the special session before we get into the budget cycle and the end of the fiscal year. If that does not occur, then we’re looking at the governor to help us in his budget to try to put into play a nice size bill in his budget himself and if that doesn’t take place, then we’re looking at even trying to get something completed by the end of the year. We have kind of reinvigorated the entire industry, labor and we have a very strong coalition today and I would say over the last two months, Mike, wheels are turning heavily and I think over the next six weeks or I’ll say two months probably, the efforts are going to be every single day working with the legislature on California and the Governor how to get something done. And let me mention one more thing, it is the low end of the bill in California. It’s about $3.6 billion which is the Governor’s proposal and that is additional work compared to what we call which is a $2.3 billion program today. And the latest bill that just came out for overall reading is about a $5.5 billion year bill. So you start even putting somewhere in between there, you get a $4.5 billion to $5 billion bill and these are all 10-year bills. So these are $5 billion for 10 years or $50 billion overall. And if you went down to the lower level, you’d be having a huge increase in the overall spending in the state of California. So we’re not comfortable it’s going to happen yet, but confident we’re going to make tremendous progress in the next two months. And we have ramped up our efforts to try to really put a lot of pressure on those people that make those decisions. Because we think this is imperative for the future of the California and I think we’re getting a lot of traction.

Jim, I really appreciate your thoughts on that. Thank you very much.

Okay, Mike.

Our next question will come from Nick Coppola of Thompson Research Group. Please go ahead.

Good morning. This is Steven Ramsey on for Nick. Can you talk a little bit about project progression, large projects, and really you said it was still tilted towards the early stage. Can you maybe help us think about margins this year compared to last year?

Okay. So it’s interesting because when you look at the large project portfolio, there’s a couple of things that we should, I think we’ve been trying to share this information with everybody and I think it changes obviously every quarter when you pick up new work and you progress on the older work. But one of the things we noticed, we actually went back and did some historical analytics here relative to all of our large project work and this is the most early stage maturity of our overall portfolio that we can never find. And that in the early parts of our projects; we actually have a contingency that we put aside for potential problems on jobs or potential issues of milestones that occur. We don’t typically release those contingencies until later in the project. So as we’ve said before, the first half of every project will probably show up at a lower margin than the back half. The other thing that’s happening in our Large Project business is that we’re finding that these owner related issues with these complex projects tend to be pushed, resolutions tends to be pushed to the tail end of the project. So what we’re finding is global settlement as we get to the last 10% to 15% of the project, well that also changes the margin on those projects, that it’s pushed towards the end of the projects. And we have several of those going on in our large projects today. So I think in general what we’re seeing is that that complete margin expectation isn’t really occurring until we get back to maybe the last 25% of the job. So as we continue this early maturity, we’re probably going to see results, and I’m going to say similar to last year, as we go forward to 2016 with a continuing to ramp up in 2017 and beyond.

Our next question will come from Adam Thalhimer of BB&T Capital Markets. Please go ahead.

Hey, good morning, guys.

Good morning, Adam.

And can you just iterate what the long-term targets are for gross margins in both segments.

Well, okay, maybe I’ll look at all three segments here. Large projects, we’ve been saying mid-teens. We believe that is where that needs to be. I think our large projects does depend on the type of work however our portfolio is. Some projects actually are higher, some projects are lower and depending on our mix, we do believe that mid-teens is the appropriate returns. In the Construction segment, we have been saying the low teens, although we’re doing a little better than that right now and historically the low teens have been a really nice margin in the construction business. But if the markets continue to change, that could improve. But right now I’d say still the low teens for that business. In the Construction Materials segment, I would say the mid-teens is a very reasonable return, that’s consistent with what we’ve been saying over time. It’s been as high as 20% and it’s been as low as 3%. And the Construction Materials segment is a segment that is probably more indicative about the overall economy. So, as these state revenues and budgets start balancing and getting better and better, that again is the bellwether of how we see our overall business performing. And as you can see, last year our Materials business was doing quite nicely and we expect it to do quite nicely this year. So mid-teens, low-teens, and mid-teens are probably the most reasonable expectations for those segments.

Okay, that’s helpful Jim. And then on the weather, within California where were you most impacted?

Well, we were mostly in the north, but we’re actually hit the whole state. In the overall scheme of things, Adam it was a good thing. State had been in a long term drought and this water is now filling up the reservoirs which is going to be long term, a really good thing for our business in California. It actually did a couple of things. The weather was very wet in January and very wet in March. It actually subsided a little bit in February. But the large rains, they really didn’t give you chance to work in February because everything was so wet from January but it did allow us some time to get our plant maintenance and upgrades done in the first quarter which we really hadn’t done in the while. And so that’s certainly affected the segment margins but it also put us in a stronger position for the reminder of the year. So the weather, although I would say from the middle of the state north was a big hit, it still hit the southern part of the state and it moves over into Nevada market and Utah market as well. It’s the same basic storm channel that are so just a delay in the materials business was really the bigger issue from the California side.

Okay, very helpful. Thanks Jim

Okay, Adam, thanks.

Our next question will come from Joe Giordano of Cowen. Please go ahead.

Hey guys, thanks for taking my questions here.

Sure, Joe.

I just wanted to talk about capital deployment a little bit. You’ve been talking about almost in your recent calls. Have you seen private company evaluations, maybe in particular on the material side as you look to expand that further east? As commodity prices have moved up here, have you seen valuations start to move away?

Well, we haven’t done a whole lot of individual evaluations but the answer is probably no. And I’m going to tell you why. Every one of these vertically integrated business typically comes from a family oriented environment. And what happens is that when they decide to pass the company on outside of the family, it’s a timeframe works fairly emotional, and I actually think those multiples have been healthy for even during the downturn. The bigger issue here is more, they start seeing significantly increased earnings with the same multiples then they’re going to see some pricing differential. But I don’t think the marketplace has changed much when one of those businesses becomes available, it’s strictly the right fit more than anything. It comes down to the right fit and a negotiated number for a whole host of reasons. And one of the things that I’ve also seen in those businesses is that the quality of the reserves, the physical assets, certainly the management will drive significant different results in terms of the multiples. So I don’t think there is a change in the multiples, it’s going to be the individual business.

Okay, great. And then, maybe on the Large Project side, is there any way you can get into some of the detail on the execution and owner related issues that you’ve been seeing to give us a better sense that this is normal course of business stuff or is it hard to judge a trend on any one quarter on your projects? But just so we have understanding there.

Yes, I don’t like to dive into the individual projects themselves but let me just give you kind of a higher level typical situation that will occur. These big mega complex jobs, they’ll have a combination of I would say design issues, schedule issues, then owner scope revisions and those were the biggest drivers of changes on these jobs. Typically what happens is that we plough through all of those issues during the first half of the job and we just keep moving forward. We work with our designers to try to resolve issues with them as the project progresses. We work with the owner to try to resolve scheduling complex of something that they wanted or what’s called latter or design change that’s going to impact the schedule. We tend to work with them to try to set out an okay, reasonable schedule. A lot of times force majeure, which would be an act of God or some nature, comes into play where we would be compensated for both potentially time and money. Those issues are negotiated over time. And then the owner a lot of times changes what they want, and that’s kind of the one where when those things occur, contractually they tell us to keep ploughing forward, going about the building, the job, and then what we look at is the plus and minuses at the end of the job and I call those global settlements. And those tend to take place in the last, I call it, 25% of the job. You put all these things and I’ll call it a score sheet. You put over on the right hand side of the table and say, okay, well, you can meet you goals, your schedules, the upgraded designs and everything and then we’ll look at global settlement terms at the end of the job. So that’s why a lot of these things are plough ahead during the first half of the job, keep things in order, financially and schedule wise and then work towards resolution on the tail end of the jobs.

Okay, that’s very helpful. And then maybe one last quick one, did the mild winter in the northeast bring forward any work on Tappan Zee? Where do you say that project is in terms of percentage completion at this point?

Yes, that job actually did progress very nicely over the winter and it was fairly mild weather. It’s in the course. That’s an offset to what we saw the previous two winters which were really, really cold. But it was a very good winter on that job, it’s about 65% complete right now and it is progressing along very nicely with anticipated traffic switch next year. So things on Tappan Zee, you’re exactly right and that was one case where we actually had some nice advancement during the winter which we hadn’t had for several years.

Good, thanks guys.

Okay, Joe, thank you.

Our next question will come from Sameer Rathod of Macquarie. Please go ahead.

Hi, good morning.

Hi, Sameer.

Good morning.

How do you think about capacity and capacity constraints now that the backlog is at all time high? I saw CapEx picked up year-on-year, maybe just some thoughts on how you guys are thinking about the pace and capacity at best.

I would put it into the buckets of the segments, so if we’re going to talk about capacity, and let’s go at large projects first. Large projects is again, I wouldn’t look at volume as a capacity issue, because we certainly have the financial capacity to bond a lot of work and that is not the issue but we have the financial capacity to fund the job from an equity position. What we’re going to find on large projects, it comes down more to people and the type of work that we go out and didn’t billed will depend on, and I said it earlier, on the people we have inside the organization to physically build that world. So I think it’s going to depend in large projects, the type of work that we’re out pursuing relative to the people that we have. We have a lot of capacity in that business. Certain projects as they close out, we want to overlap new projects with old projects and we’ve expanded our capacity over the last several years as well as on these large projects. And I mentioned it several calls ago, Sameer, we’ve been putting deputy project managers, second and third tier level project managers on these larger projects to develop them, so that they can be project managers on the top slots on big jobs going forward. So I think it’s just going to depend on large projects and the type of work. In the construction segment, we had a tremendous amount of elasticity. I don’t see capacity being an issue in that business. We have a much stronger ability to ramp up that business and those of who have followed Granite historically know that that business was bigger seven, eight years ago. And when we had the recessionary environment that certainly contracted that business. I think there’s tremendous growth and I mentioned it in the split part of this discussion that that’s the biggest overall growth component of our business is the construction segment and we have capacity to grow that significantly. On the Materials segment, similar to the Construction segment, I mentioned that we’ve been upgrading our plants, doing maintenance and upgrading them, we’re nowhere near capacity at all in our Materials business. And I’d say that overall, certainly there are certain plants that are at a higher level of utilization than others. But again, we have come way off of our all-time highs in the Materials business and are now starting to see it ramp back up. And I don’t think you’re going to see any capacity issues on that part of the business for quite some time.

Okay, thank you.

You bet.

Our next question will come from William Bremer of Maxim. Please go ahead.

Good morning, Jim, Laurel, Ron.

Good morning.

Good morning.

So my first question is based on, hey, I just want to say, hey, great color on the potential leverage of your personnel. I think that’s been the key and it’s a key driver going into fiscal ’17. Can you give me a little sense of the visibility of your pricing there on the potential projects that worthy going to your mix?

Okay. If I heard that right, it’s relative to the pricing going forward?

That’s correct.

Okay, so, again I think let’s go back to the segments again and look at it. On the large projects segment, I think this is where I mentioned earlier that there has been an imbalance in the pricing versus the risk and certainly our expectations are that as we go into individual contractual risk and we look at the documents themselves, that we’re going to be making sure that large projects is priced to offset any potential risk on the jobs. So you’re going to see large project expectations inside the day-to-day bidding go up on the projects that have higher risks. And I’m not sure that that has happened over the last, I’d say, five years, but that market is starting to get to a point now where I think all of the players in that market understand that there is more risk in these complex jobs. And I know from a Granite perspective, we believe that the returns on those projects need to go higher, so we’re going to see an increase there. On the Construction segment, this is going to depend on how fast work gets into the marketplace. If we are correct with the FAST Act, and we see these state budgets continuing to stay healthy, what we’re going to see is competitive reaching a saturation point. And this is what I mentioned that we’ll start seeing the benefit of it in the back half of 2016, probably the financial benefit of it in 2017 is that you’re going to start seeing smaller companies reach that capacity issue. They’re going to literally not be bidding well. It will take time for us to know and lead this market change and then you see pricing change towards the end of the year and the beginning of next…

Great color Tim. Thank you. My follow-up is based on, any physical surprises of one particular state of region that you’re seeing the speed and the commitment of these projects coming faster than what you anticipated.

Well, I don’t typically like to dive into individual states. The reason I dived into California in general is because it’s a big part of our business and I would say in general, and I mentioned it, is that that part of the business is getting stronger. So I would say outside of California I think things are pretty much as expected. In California, especially, if we can get transportation bill passed, that’s probably where the biggest swiftest change will take place. And right now I’m very happy with what’s going on in California compared to where we were two or three years ago, that’s probably the biggest state change overall in the entire brand of portfolio.

Thank you for the color.

Okay.

[Operator Instructions] Our next question will come from Brian Rafn of Morgan Dempsey. Please go ahead.

Good morning Tim.

Hi, Brian, how are you?

Good. So you talked about finally we have the FAST Act replacing safety rule. I think it was like 29 extensions and a World War ago. If it begins bills out in third or fourth quarter, does that add some margin accretion for you guys, say two or three years out? Do you see that? And maybe that’s the expectation for the margin increase in the core material side and maybe in the construction side?

Okay. So, that’s part of it and I do, Brian, I think it was actually 35 extensions, not 29, but it was a lot. It was heck of a lot. Yes, I think that, as I mentioned, the two things that are driving the value creation in the Construction segment. There is the higher margin expectation due to the transportation, due to FAST Act, and I’ll talk about that a little more in a second, but the other thing that I don’t want to miss out on is the diversification efforts that we’ve made in that business. By moving into the power segment, the T&D work is strong, the renewable energy work is strong. We’ve beefed up our commercial developments. We beefed up our business development and work with more private owners, that has increased. The private side, typically the work we do for the private entities is higher margin work than the work we do for the DoTs. So, as the FAST Act kicks in the back half of 2016, we are looking forward for DoT work to get better margins out of it and that is really, really important. The other thing that we’ve done on the Construction side is, we’ve been on the sidelines in the mining business for a while. That has not been strong. It’s starting to come back a little bit. We’ve got some rail projects that we’re working on and we’ve expanded quite a bit with some new personnel adds recently in the water side of our business. So I think there is a combination of the FAST Act with increase in the DoT margins, but it’s really important that we stay focused on diversification even when the transportation market gets stronger.

Yes. Let me ask you guys. You’ve talked over really the last decade about having certainly discipline on bid day and you had some comments. You talked about mitigating risks and kind of going back and looking at that. Would you see across Granite’s diversity of portfolio, obviously you guys have had a long legacy history on the transit site, whether it’s canals or bridges or roads or highways or turnpikes, as you start looking at solar and military bases and mining and railroad and water and tunnels, is there a bit of a gap in your experience of risk mitigation in some of those new areas or is it just kind of a secular emphasis to as business builds up that we got to maintain this quality?

Well, I think that actually it’s interesting. I would suggest that we’re probably, when we move into newer markets and let’s talk about the water market, I wouldn’t call it new, but I would say the emphasis might be new. The solar market which we are very strong in today, we’ve been doing that now for probably three to five years. You get into the tunnel market, remember when we bought Kenny, they had some of the most experienced, highly talented people in the entire country in the tunnel business. But I actually think that we are experiencing in those areas some of the higher margins and some significant discipline in the bidding environments. I think where sometimes you get more aggressive is in the day-to-day work that you do so much of it that you get over comfortable in it. And that’s where actually I see the transportation sector is where I see the highest increases from where we are today and where we are going to go. I think that’s where the higher margins we are going to see the more and more. The new step that you talked about is the higher marginal work already.

Okay, all right. That’s good. In the construction, the old branch term business, you talked certainly about complexity and diversity. I kind of think of that as the heavy similar large project site. When you look just at the turn business, how the residential construction, private housing everything, how would you describe certainly the diversity in that faster term business?

Well, I am going to tell you Brian, I think the diversity today is stronger than it’s been here through the company, and that’s I think what’s creating that value. If you look at this point in time in the year and we’re at the 12.9% margin that just hasn’t happen in that business, because we are not focused on one type of work. When we move, we have a very large renewable energy team now. When we look at the T&D business and the type of work we are doing there, a big chunk of staff augmentation, that’s totally different. When we get into the lining business and the water business, we can do that in the winter months where we can’t do a lot of the surface work in the winter months. So, I think the diversification play is the strongest part of our construction business today with the potential ramp up of transportation coming back where it belongs. This is why I continue to say that I think the construction segment is the main driver of our growth going forward.

Okay. On that construction side, I think you said low-teens type gross margins. If you go back to the healthy on-days with 17, 18, 19, is there a possibility of that returning or you think you really need a strong private economy?

Well, I think that there is a possibility of getting back. And I’m just going to go to mid-teens and not get too far over my scheme though, Brian, on high-teens. But I do think you nailed it. That at the back in the mid-2000s when we were really cranking, we had a strong public sector and a strong private sector, I’m going to suggest you today outside of housing the private sector is becoming fairly healthy. What we don’t have today is a real healthy public sector and that’s why I continue to say by the time the FAST Act kicks in, if we can continue to have a healthy private sector, that’s when we’re going to see the margin creep up and the volume creep up on the construction side. And that’s why we are targeting late 2016 and then 2017 for the benefit of it, but I do think we’ve going to get improved numbers. I don’t know if it’s going to get to where it was 10 years ago, but we are heading in a good direction.

That’s fair. When you talk, certainly a question about capacity, really you talk about bonding work capital equity in that. You really talked about the physical capacity. If you were to divide that physical capacity between human components, the bench strength of say, engineers, expediters, welders, machinery drivers versus the capital stock side of bulldozers, backhoes, graders, how is your capacity between the human component and what you might have to do on the CapEx side?

Well, I think there is no doubt in my mind about the driving force in this industry and in Granite will be the human capacity. We can get all the equipment we want. We’ve got a healthy balance sheet. That is not the issue, Brian. This is a people business. It’s going to continue to come down to people. That’s it. And you’ve got to have people on the bench, you got to be patient. You’ve got to train them. You have to develop them and you have to give them opportunities and that’s what’s going to allow Granite to grow.

Yes. Let’s say go back five, six years in front of the depth trough, you talked about having the aptitude to have more mobility in some of your manpower, shifting people across the country. As business ramps up and you start getting back to really decent gross margins, might there be a little more stationary where you not having to shift manpower around the country or around the region as business lifts for everyone?

Well, Brian I think actually there’s another reason why I think people are less mobile today and I don’t think they’re going to be as mobile as they were 10, 20 years ago. I just think it is a generational issue where people don’t want to be mobile. And I do think that as the economic environments gets more healthy in different geographic areas, the mobility range will be minimized and that’s good. I do say this though that in the Large Project business, that is going to continue to be where the mobile workforce is going to be needed. But on the Construction and Materials side, that’s much less mobile than people were 10, 20 years ago. And as the economies get healthier and healthier, I think you’re going to see people sticking at home.

Yes. That’s out in your California way, San Francisco that’s $15 minimum wage labor. Does that hit at all any of the lower rungs of your work routes?

No, in fact, I think it’s really good for Granite, because of the wage rates that we pay are typically well above that, way above that, especially in California. And it’s not going to have any negative impact on us at all. I don’t think it’s going to have a huge impact on the construction industry in general. People at those wages, there is very few people being paid at those wages or below.

Yes. When you talked about the material side Jim, you talked about kind of what the wet weather; you took some time for maintenance and upgrade. Was that rebuilding hot mix plants, were you adding capacity there, replacing stuff that was worn out or was it service parts repairs? What kind of granule, what were you actually doing?

Well, all of the above. Yes, I will give you an example. You take a hot mix plant and you put a new drum on it, Brian and that’s the main component of how you drive the aggregates. And typically when you put a new drum on it, you tend to upgrade them and make them bigger, so they have more capacity to them. You look at a big rock plant and you change out crushers and liners and belts and typically you are doing it. It’s really number one to increase the utilization, so that you go from a 95% utilization of the facility to 98% utilization for the remainder of the year. That’s a big deal. So, it’s a combination of both. We did use the first quarter to build one big new facility and it is online, I think mid-April it came online and so that was nice to have that. Weather allowed us to get that done, but it’s a host of reasons; capacity and upgrading utilization.

Okay. I have just one more strategic question for you. There is still from a design build standpoint, is it still really kind of a half a dozen players where it’s kind of an oligopoly and you really, Granite really specialize in that. And then also as business lifts up, might there be some opportunity to kind of resurrect the east of the Mississippi River, the vertical integration with adding quarry materials with certainly the construction side?

Okay, two questions. First of all, I wouldn’t call it an oligopoly, but I would say that there is maybe 10 major players that did on everything all over the country in some respects and certainly we’re one of them. And that hasn’t changed, but it’s still an aggressive market. And that’s what I was saying earlier is that in the large projects market, I think what’s going to have to happen there is a lot of the competitors that have a lot of backlog, at least going to need to build out the backlog. And I think they’ll end up seeing some of their contractual risks like Granite knows this is already in these contracts, and I think that’s going to help the market a little bit, letting them build out some of their work. As far as the vertical integrated business east of Mississippi, we are looking and we want to move there and I have mentioned that before. And Brian if you know of anybody, please let me know.

All right. Thanks Jim. Good to talk.

Okay. All right, Brian, thank you.

And our next question is a follow-up from Sameer Rathod of Macquarie. Please go ahead.

Yes, just one quick housekeeping question. Did you guys mention the project pipeline that you have for the next four quarters? Is it still $15 billion or has that now changed?

Well, I mentioned just in the comments a little bit later here, that we have about $17 billion pipeline for the next, I will say, through 2017, which is typical. I’m calling a two-year or 18-month lookout. Some are between $10 billion to $20 billion being a common reasonable pipeline. And if you have individual jobs that you want to know about, Sameer, I am happy to chat with you. I’ve got a whole long list of them sitting in front of me here.

Okay. No, that’s it. Thank you.

Okay, Sameer, thank you.

And we have another follow-up from Brian Rafn of Morgan Dempsey. Please go ahead.

Hey, Jim, it’s Ryan Hamilton. How are you?

Fine, Ryan, how are you?

Good. I know you guys don’t spend a whole a lot of time talking about your business in Canada, but I was reading they recently passed $125 billion bill, they are using for infrastructure. Is that opening up any additional opportunities in Canada?

Well, it has from a discussion standpoint. We certainly have been approached by partners in the Canadian market to go north of the border and certainly there are Canadian partners that we have brought down south of the border. And I don’t think that it’s something that is going to happen overnight, but I do think that moving up in a marketplace is part of our geographic diversification plan for large projects. And again, we have relationships from the lot of very strong Canadian contractors, that’s how we would first go up there as a joint venture partner.

Sure. That’s great. And then, I’ve just got one more on the material side. Can you kind of breakdown what’s internal and external?

Well, again, such a slow quarter with the weather, it really wasn’t a big deal. It’s running about 60% external, 40% internal, but again with the minor amount of work that was done due to the weather. I think that when in the stronger environments Ryan, you’re going to continue to see a very strong external market which typically is healthier, so is the healthy external market, which is a healthy economic environment. And I think that last year we saw an uptick in the external portion of our business as well. So, it’s definitely in a pretty good stage today and we are looking at really beating up our customer focus and our third-party focus.

Great. Thanks again. Keep up the good work.

Okay, Ryan. Thank you.

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

Okay, everybody. Well, thank you for all those questions. They were excellent. Remember the safety of our employees is not just the priority, but it is a core value here at Granite. So as we look ahead to our industry safety week next week, I thank Granite teams from coast to coast for a solid start to the year as we target 2016 to be the safest year in our company’s history. So, for all our investors, Laurel, Ron and I are available for follow-up if you have any further questions. Laurel and Ron will be on the road next week in New York, Boston and Florida, so please reach out to see if they still have any availability in their schedule. And thank you everyone.

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