25-Oct-2019 Granite Construction, Inc.

Corrected Transcript

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25-Oct-2019

Granite Construction, Inc. (GVA)

Q3 2019 Earnings Call

Granite Construction, Inc. (GVA) Q3 2019 Earnings Call

Corrected Transcript 25-Oct-2019


2 Copyright © 2001-2019 FactSet CallStreet, LLC

CORPORATE PARTICIPANTS

Lisa Curtis Head-Investor Relations, Granite Construction, Inc.

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc.

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Michael S. Dudas Analyst, Vertical Research Partners LLC

Alex Rygiel Analyst, B. Riley FBR, Inc.

Brent Thielman Analyst, D. A. Davidson & Co.

Francisco Amador Analyst, Cowen & Co. LLC

Jerry Revich Analyst, Goldman Sachs & Co. LLC

James David Brilliant Analyst, Century Management

......................................................................................................................................................................................................................................................

MANAGEMENT DISCUSSION SECTION

Operator: Good morning. My name is Emma, and I will be your conference facilitator today. At this time, I would

like to welcome everyone to the Granite Construction Investor Relations Third Quarter 2019 Conference Call. This

call is being recorded. All lines have been placed on mute to prevent any background noise. And after the

speakers' remarks, there will be a question-and-answer period. [Operator Instructions]

It is now my pleasure to turn the conference over to your host, Head of Investor Relations, Lisa Curtis. Ma'am, the

floor is yours. ......................................................................................................................................................................................................................................................

Lisa Curtis Head-Investor Relations, Granite Construction, Inc.

Thank you, Emma, and good morning, everybody. I want to welcome you to the Granite Construction

Incorporated third quarter 2019 earnings conference call. I am pleased to be here today with President and Chief

Executive Officer, Jim Roberts; and Senior Vice President and Chief Financial Officer, Jigisha Desai. Please note

that today's earnings presentation references slides available on the Events & Presentations page of Granite's

Investor Relations website, investor.graniteconstruction.com.

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 current

expectations and best judgment of senior management regarding future events, occurrences, growth, demand,

strategic plans, circumstances, activities, performance, outcomes, guidance, backlog, committed and awarded

projects, and results. Actual results could differ materially from statements made today. Please refer to Granite's

most recent 10-K and 10-Q filings for more complete description of risk factors that could affect projections and





assumptions. The company assumes no obligation to update forward-looking statements, whether they're results

of new information, future events, or otherwise.

Certain non-GAAP measures may be discussed during today's call and from time to time by the company's

executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net

income or loss, adjusted earnings or loss per share, committed and awarded projects, backlog or results. Please

note that some metrics may reference or exclude non-recurring acquisition-related expenses and one-time

integration costs. Reconciliations of certain non-GAAP measures are included as part of our earnings press

releases and in company presentations, which are available on our Investor Relations website.

Now, I would like to turn the call over to Granite Construction Incorporated President and Chief Executive Officer,

Jim Roberts. ......................................................................................................................................................................................................................................................


Well, thank you, Lisa, and good morning, everyone. I want to thank you all for joining us today. Before I hand the

call to Jigisha to review our results in detail, I want to first touch on progress made and challenges remaining in

our Heavy Civil operating group. I will also discuss how our core businesses are capitalizing on well-funded

infrastructure markets to grow our end market focused businesses.

As we get started, I also want to acknowledge some positive accomplishments that reflect both the strength and

the value of Granite's strong core values and of Granite's evolving culture. For the second consecutive year,

Granite has been recognized and certified as a Great Place to Work. This certification is a rigorous data-driven

methodology developed by Great Place to Work that is based on validated employee feedback. We are very

proud to, once again, be certified as a Great Place to Work as our most powerful partnership is the one we have

with our employees. Everything at Granite begins with our people.

We also recognize and deeply appreciate Granite employees for our continuously improving safety performance.

2019 is, once again, showing that our employees can reach new heights when taking care of one another, and we

are rapidly approaching another record year with our year-to-date safety incident tracking at the lowest rate in the

history of the company. Even more impressive, these results include the businesses we acquired last year where

safety performance has improved dramatically, helping this portion of our company reach industry best standards

in just over a year's time.

We're also very proud to announce that we won first place in the heavy civil/highway category for over 3 million

worker hours at the Associated General Contractor (sic) [Associated General Contractors] of California's

Construction Safety Excellence Awards. This is the second consecutive year that Granite has been recognized for

this prestigious award. I want to congratulate our teams for their safe work. These positive outcomes reflect who

we are as a company.

And I also want to welcome Jorge Quezada to Granite. Jorge joined us recently as Vice President of Diversity and

Inclusion. This newly created position reflects our commitment to support Granite's guiding belief that diverse

backgrounds, perspectives and experiences enhance creativity and innovation. We are confident that Jorge's

work will be an important contributor to the evolution of Granite's culture and future success.

Moving now to our operational performance where Granite's third quarter results reflect divergent trends, one is

very positive trend with strong core operational performance in healthy markets. We anticipate this trend will fuel

improved profitability and cash flow for the foreseeable future, in our view, up to 2023 and beyond.





In contrast, our Heavy Civil operating group continues to be challenged, particularly coming off the heels of our

strategic review. While we are not alone in the industry and wrestling with the risk imbalance that is pervasive on

large fixed-price design build projects, we are laser-focused on turning around the performance of this business.

With the strategic review of our Heavy Civil Group now complete, we are taking immediate action to reverse this

trend. This business is not operating at an acceptable level, and our decisive actions will right-size this business

with the overall organization.

Management of our Heavy Civil Group operations now is led by 28-year Granite veteran, Dave Richards, who has

headed our highly successful Northwest operating group since 2013. Dave's immediate effort will be focused on

assessing risk and opportunities in our Heavy Civil operating portfolio. He and his team will lead the charge in

operational assessment, extensive bid scrutiny, additional forecast review, and incremental assessments of

strategic fundamentals and considerations of potential projects of scale in our opportunity set.

Kyle Larkin, who took over the California group in 2017 today leads our construction and materials operations.

Kyle's more than two decade career at Granite has resulted in a proven record of consistent strong performance

and leadership in all areas of the vertically integrated businesses. His responsibilities include oversight of the

California group, Northwest group and power, tunnel and federal divisions. Though it will take some time, the

alignment of operational capabilities with strategic opportunities of scale will be integrated into how we approach

our entire portfolio with all our businesses using and operating from the same playbook.

Dave and Kyle will lead the effort to align Granite's operational team's proven Granite processes and tools to drive

consistent profitable results. We believe their leadership and experience is key to align our operations and drive

improved results using proven practices followed in our successful vertically integrated construction and materials

model.

Our strategic review of the Heavy Civil business highlighted that changes we introduced into this part of our

business more than two years ago have not fully mitigated the challenges that have plagued us for some time.

While we believe that projects at scale have significant strategic value in Granite's portfolio, we must be mindful to

balance these opportunities and alignment with our existing capabilities and resources.

Our strategic review has resulted in a narrowing of our market focus including some very real, practical,

geographic and owner-related considerations. We have ceased bidding large design build jobs in markets that

lack competitive strategic Granite advantages such as New York where clients and contracting methods do not

currently allow for builders and clients to share risk appropriately.

And while dispute avoidance is a primary focus in current and future opportunities, we are taking action to

enhance our existing dispute resolution processes to capture value and mitigate risk. We also have overlaid risk

and scope reduction parameters for the Heavy Civil Group which include project scope limitation below $1 billion

and targeting below $500 million.

Reduction of pure design build and elimination of 3P fixed-price projects reduced project duration primarily

targeting projects of four years or less, intentional regional or geographic project alignment to footprints where

Granite has an established presence. We've implemented refined estimating a risk mitigation approach to project

pricing, and finally, limiting work to no more than 15% of our overall company revenue.





Granite has written its nearly century-long history by consistently balancing resources, opportunities and risk and

we believe a key component of our future success again will be consistent, profitable performance on projects at

scale. Simply put, the existing framework for the resolution of changes and disputes on projects of scale does not

work.

We believe owners are not acting in good faith on this and they are not timely. And unfortunately, we and our

industry partners could not have anticipated having to price this incremental risk into projects. In the third quarter

and for most of the past couple of years, many of the Heavy Civil project issues were due to unanticipated costs

to respond to owner demands on the job. The increased disputed contract costs have grown well beyond any

reasonable expectation at the time we entered into these contracts. In many cases, this has translated into

withheld compensation despite successful completion of projects and project milestones.

The gap between revenue associated with disputed work and recognition of costs is ever widening. We are

vigorously pursuing claims with the owners, but the process to cover reclaim – to recover claim revenue

significantly lags the cost recognition process.

One of the most unfortunate things for this business is how the claim process amplifies the project losses due to

timing misalignment between revenues and costs. This also carries over to our outlook, which Jigisha will share

with you shortly and which we hope proves to be conservative with opportunities in the area of dispute resolution.

Now, before I hand the call off to Jigisha with our results, let me spend a couple more minutes talking about the

trends that allowed us to generate positive earnings in the quarter. Strong backlog in Sunshine combined in a

successful recipe in the third quarter, yielding the strongest performance by our vertically integrated business in

well over a decade. The positive environment continues to fuel our long-term outlook for growth and profitability.

Most importantly, broad-based demand remains strong across geographies and end markets, as solid private

market activity and public funding trends are supporting incremental investment across the key Granite

geographies in California, the West and the Midwest. We continue to target a range of at least $1 billion to project

bidding activity per month with about three quarters of project sizes below $150 million. Through the third quarter,

we finished with $4.7 billion in Committed and Awarded Projects or CAP, up more than 44% or well over $1 billion

from last year.

Today, our backlog composition is shifting to shorter duration, lower value contracts, a result of our stepped-up

diversification and risk reduction strategy. With a steady flow of billions of dollars of value creating opportunities

expected over the next few years, we understand we must improve performance and reduce the operational

distraction that recurring Heavy Civil Group underperformance has created on the entire organization.

And with that, I will now turn the call over to Jigisha to discuss our financial results and our outlook. Jigisha? ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc.

Thank you, Jim, and good morning, everyone. Results in the third quarter and throughout 2019 have been

hampered by Heavy Civil operating group performance, which mask strong profitable market conditions and

business performance in our construction and materials business.

Favorable weather provided our teams with the runway needed to work efficiently this quarter, and we made up a

lot of ground lost to wet weather through May. As a result, Granite's consolidated third quarter 2019 revenues

were $1.1 billion, up more than 3% year-over-year, and year-to-date revenues were $2.5 billion, also up modestly





compared to last year. With the progression of these large complex Heavy Civil projects this year, we

encountered significant unanticipated issues requiring additional costs to perform owner required demand.

Third quarter 2019 earnings per share were $0.43 compared to earnings per share of $1.17 last year. The year-

to-date loss was $2.39 per share compared to earnings of $0.84 per share in the prior year. Quarterly and year-

to-date 2019 results also include acquisition-related expenses of $7.1 million and $27.2 million, respectively.

Third quarter 2019 gross profit was $91.4 million compared to $144.5 million last year. On a year-to-date basis,

gross profit was $79.5 million, down from $281.1 million in 2018. With last year's acquisitions now more than a

year behind us, we continue to align cost structures. Selling, general and administrative expenses increased 3.8%

year-over-year to $73.4 million in the third quarter of 2019 with SG&A as a percentage of revenue steady at 6.7%.

Granite's CAP increased 44.5% to $4.7 billion, which includes approximately $1 billion of negotiated work related

to project procurements in the past 12 to 18 months. Today, the trend in composition and quality of our CAP is

evolving with a greater mix of smaller, best value Granite-led negotiated work combined with a geographical and

end market diversity. Remember, we now perform over 4,000 jobs annually and the average size of a project in

our backlog is about $2 million.

Now let's dive into segment results this quarter. In the third quarter, the Transportation segment revenue was

$598.6 million, down about 2% from $610.8 million in 2018. On a year-to-date basis, revenue was $1.34 billion,

down about 9% from last year due to a reduction of Heavy Civil revenue and wet weather through May.

Quarterly gross profit was $13.6 million compared to third quarter 2018 gross profit of $71 million, which included

$69.3 million and $8.2 million of Heavy Civil operating group losses, respectively. On a year-to-date basis, gross

loss was $65 million compared to last year's gross profit of $138.4 million which included $214 million and $14

million of Heavy Civil operating group losses, respectively. Transportation CAP ended the September 2019

quarter at a $3.7 billion, which notably includes our $1 billion portfolio of negotiated work.

In the Water segment, third quarter revenues increased to $135.9 million compared to $124.3 million in 2018. On

a year-to-date basis, revenues were $348 million, up more than 50% from last year, primarily driven by 2018

acquisitions. Water segment gross profit was $15 million, down from $24.1 million in prior year. The year-to-date

gross profit was $34.4 million, down from $41.1 million in 2018. During the quarter and in 2019, segment gross

profit was negatively impacted in the business we recently divested. Water segment CAP totaled $245.3 million

as of September 30, 2019.

Specialty segment revenue grew nearly 18% year-over-year to $224.5 million in the third quarter with a year-to-

date revenue of $540.2 million, up more than 17% from 2018. Revenue performance reflects the robust private

market activity in site preparation, power and mining markets and the impact of acquisitions last year.

Third quarter 2019 gross profit was $38.3 million, up from $28.1 million last year with gross profit margin

performance expanding about 240 basis points. Year-to-date gross profit was $75.4 million compared to $65.3

million last year with gross profit margin in line with last year's at 14%. Specialty CAP totaled $746.6 million at end

of September 2019.

In the third quarter of 2019, Materials segment revenue was $129.1 million, down slightly from last year. On a

year-to-date basis, revenues were $268.4 million, down about 3%. The modest year-to-date decline is attributable

to wet weather experience through May of this year across the Western United States that delayed what was

already pent-up demand in the market.





Third quarter 2019 gross profit was $24.5 million compared to $21.3 million last year with gross profit margin of

19% up from 16.4% in 2018. Year-to-date gross profit was $34.7 million compared to $36.3 million last year with

gross profit margin of 12.9%, down slightly from last year. Mild weather finally gave our vertically integrated

business, the opportunity and our teams knocked it out of the park this quarter. With volumes key in the Materials

business and with positive operating momentum carrying into October, mild weather is allowing our teams to drive

efficiency gains to the business and to the bottom line.

Good weather and positive business momentum are important ingredients to drive us through Q4 and to support

our 2020 growth expectations. While we do not yet have a clear line of sight on all of 2020's opportunities and

challenges, we're confident that overall results will return to more normal levels representative of the long-term

earnings power of our business.

Granite's long-term strategic dynamics remain intact. While we're not providing guidance for the remainder of the

year, our preliminary expectations for 2020 are mid-single-digit consolidated revenue growth and adjusted

EBITDA margin of 6.5% to 8.5%. We will provide an update for our 2020 earnings during our fourth quarter

earnings call next February.

And with that, I will turn the call back over to Jim. ......................................................................................................................................................................................................................................................


Thank you, Jigisha. It has become clear that the heavy civil industry we help lead has structural issues. The ability

for the industry to effectively and profitably deliver projects of significant scale remains impacted by flawed

assumptions and broken practices at scale, both by construction participants and by project owners. It is up to us,

as builders and as America's infrastructure company, to break this chain.

We are committed to and we are taking immediate action to fix our Heavy Civil business from within. We will avoid

risk for which we are not compensated. And while it will take some time, our teams already have begun working to

get the risk/reward balance back in equilibrium. We are grounded in Granite's core values as we execute our

strategy, assess markets, redirect resources and focus our teams on activity that creates value for all

stakeholders.

Granite has immensely talented teams across the country, and we are committed to making the necessary

business changes that will enable our teams to deliver consistent, profitable performance.

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





QUESTION AND ANSWER SECTION

Operator: [Operator Instructions] Our first question is from Michael Dudas with Vertical Research. ......................................................................................................................................................................................................................................................

Michael S. Dudas Analyst, Vertical Research Partners LLC Q ...Jim, Lisa, Jigisha. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Good morning. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Hi, Mike. ......................................................................................................................................................................................................................................................

Michael S. Dudas Analyst, Vertical Research Partners LLC Q Jim, could you elaborate further on the third quarter charges taken in Heavy Civil? Are there any – is it a

combination of the legacy projects you touched upon in the second quarter? How many more that in this review

that you found in the third quarter? And is that also limiting your ability to provide this near-term guidance because

of the review that still needs to run through the books? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. So the work we did in over the last 90 days focused on a strategic review of the entire Heavy Civil

business. And as we looked at it and made a bunch of determinations that you see in the press release and as

discussed here, they are a product of the overall business what we reported in Q2 and what we reported in Q3. Of

course, there's a combination of projects in there, and all of them have made up that segment of losses.

As we go forward and think about our performance going forward, the key ingredient for Q4, Mike, is really

weather. And as we look at it today, huge fluctuations in our business occur every Q4 and when we felt it was far

more important to focus on expectations for 2020 than just one quarter out. So, no, I would not suggest that the

biggest issue that we have for not talking about Q4 is Heavy Civil, it's more relative to weather. And as we look

forward to 2020, our guidance into 2020 is focused on getting our Heavy Civil business back to what I would call a

conservative approach towards not contributing to the bottom line for 2020, but focusing to stabilize it, and that is

embedded into the guidance for 2020. ......................................................................................................................................................................................................................................................

Michael S. Dudas Analyst, Vertical Research Partners LLC Q So my follow-up is relative to that preliminary guidance. So given what your guidance was for 2019 on a revenue

and margin basis and all the difficulties you've had the last six months on the large projects, that guidance [ph] as

you can say (00:23:35) conservative, but it's also reflective of the major changes in the large project issue that

whatever anticipation of contribution that you would have anticipated, otherwise you're likely not going to see.





James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Correct from the perspective of both revenue and earnings. So one of the things we've mentioned is that our

anticipation is to bid smaller work and that will automatically reduce the revenue relative to that side of the

business. And we are not suggesting that the Heavy Civil Group will provide any contribution to the company in

2020 as we work through all of the tactical steps of our strategic review to get that business back into alignment in

2020.

But what I will say is that the growth that you will see in our earnings projections for next year and our guidance is

coming from the core strong operating performance part of our business, which obviously as you can tell in the

third quarter is operating at a very high level. ......................................................................................................................................................................................................................................................

Michael S. Dudas Analyst, Vertical Research Partners LLC Q Thanks, Jim. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Thanks, Mike. ......................................................................................................................................................................................................................................................

Operator: Our next question comes from Alex Rygiel with B. Riley FBR. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q Thanks. Good morning, Jim and Jigisha. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Good morning. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Good morning, Alex. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q Jim, frankly, I'm having a little bit of a difficult time here bridging the strength in the vertical business versus the

reported results in the Transportation segment, and your commentary about the Heavy Civil Group and the losses

in that segment. So I don't know if you can walk me from one end to the other, but I would love to kind of narrow

in and dig down into appreciating, understanding how strong that vertical business was. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. And I think that really is the core of the subject matter, Alex, of our entire portfolio today. So when we look

at trying to bridge the gap, and I think that's a great way of looking at it for the results in Q3, certainly, the losses





that we reported in the Heavy Civil business are the operating income of the Heavy Civil business, and I think we

reported there that there was a $69 million loss in that business. That is all in the Transportation segment.

And therefore, what you can do is offset that with the strong operating performance of the vertically integrated

business, and it shows then that the offset, with still at a positive gross profit, was significant margin improvement

in the overall vertically integrated business. So, you do, the entire performance issues of the Heavy Civil reside in

the transportation sector alone. Does that help? ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q It does. And what was the revenue contribution in the Transportation segment associated with the Heavy Civil

Group? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Boy, I don't have that in front of me. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A I do. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A I think we actually – I can find that for you though. If you give us a few minutes while we're chatting, Alex, I can

certainly come back with that. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q Perfect. And then your lack of guidance for 2019 would suggest you have a little bit of – you have less visibility on

maybe additional cost to perform in the fourth quarter associated with some of these large projects. Can you

discuss that in a little bit greater detail? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Yeah. Well, certainly, I think that one of the things that we thought was important was to guide our investors to a

more, I'll call it, prudent one-year outlook versus a one-quarter outlook, and certainly there can always be

adjustments in our business. But the key ingredient here was to try to get the – bridge the gap through the end of

2020, and then there's two ingredients in the third – in the fourth quarter, obviously there could be more

adjustments in the Heavy Civil business that we are not aware of today. But the key ingredient also is that we've

got a brand-new team leading Heavy Civil, and we're excited about Dave and his oversight, and we're asking him

to dive deep over the next couple of months to make sure that that business is set for long-term value.

So we didn't want to provide too much detail on that business while Dave is doing his detailed review. But the

other thing, Alex, it's really important here is that that as we produce through Q4 weather will play a major role in

our core business. We had good weather in Q3 and our core operating performance was very, very strong. Like





we said, the strongest it's been in almost 10 years. And if we can continue with the good weather, we could have

excellent results in that part of our business in Q4 as well.

So with the new team leading, the Heavy Civil Group is starting today and the opportunity for the core operating

performance to vary depending on weather made it feel like why provide a short-term guidance when the real key

to the company we believe is to try to portray where the company is going over the next year and longer. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Alex, going back to your – sorry, I got the revenue number. Let me just give it that, the $162 million for the quarter

for the Heavy Civil Group compared to $224 million last year. Sorry. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q Perfect. And then one last question, last quarter, Jim, you updated us on those four legacy projects and you

talked about expectations for when they would be completed. And you talked about the revenue value in backlog.

Could you update us on those two items? And then in this current quarter, were there any other projects in the

Heavy Civil Group that created some of the drag or did any other projects come in materially below expectations

that caused the Heavy Civil segment to be weak? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. So two things then. So let's talk about the completion of legacy projects. They're on track to be completed

as planned, Alex, and I would suggest that three of the four will still be done by early to middle of next year. And

as we mentioned, one will move through the end of 2021, and that is on track. And there was some adjustments

in Q3 from the legacy projects certainly mitigated tremendously from what you saw in Q2. There's potential for

adjustments going forward, but they were much more, much minor compared to what you saw previously.

And there are other – yes, there are other projects inside of the portfolio that did add to the overall performance of

the Heavy Civil Group, and there was one project, literally one project that added to it that will be complete at the

end of the year. So movement going forward, we're getting it behind us as quickly as possible. The new

management team has been told to work through these, expedite the delivery of them, and get them behind us as

much as we can in 2019 to look forward to 2020 as a positive year for the company. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q Thank you. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Thank you, Alex. ......................................................................................................................................................................................................................................................

Operator: Our next question comes from Brent Thielman with D. A. Davidson. ......................................................................................................................................................................................................................................................

Brent Thielman Analyst, D. A. Davidson & Co. Q





Hi. Thanks. Good morning. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Good morning, Brent. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Brent, good morning. ......................................................................................................................................................................................................................................................

Brent Thielman Analyst, D. A. Davidson & Co. Q Hey, Jim, a follow-up to Alex's question, how many of those new jobs identified, do you still need to work through

in 2020? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Try it again, Brent. Can you ask that again? ......................................................................................................................................................................................................................................................

Brent Thielman Analyst, D. A. Davidson & Co. Q The new job identified where you took some losses this quarter beyond the legacy project, how many of those will

you continue to work through in 2020? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A We have, so if you look at it and certainly the Q will define it in more detail. There will be a couple of jobs that will

be going full-bore in 2020 that took some charges in Q3. But again, I don't think they're a major portion of the

overall performance issues, the performance issues resided and really the one job was the biggest single issue

and there are a host of smaller jobs combined.

So the one job that was the biggest issue is completed – being completed as we speak and the legacy jobs will be

completed by midyear and the latest next year with one legacy job carrying into the end of 2021. ......................................................................................................................................................................................................................................................

Brent Thielman Analyst, D. A. Davidson & Co. Q Okay. And then on the Water business, it wasn't clear to me. How large was the hit that business took from the

now divested business? Can you talk to us about what that business was and kind of how much – now that you've

divested it, how much does that take out of revenue on an annual basis going forward? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Yes. I thought it wasn't a big business, Brent, but it was a business that had plagued our predecessor for quite

some time. And although it was a – I'll call it a sizable loss for that business, it was – we'll just quantify it, it was

less than $10 million. So it was something that added to the poor performance. We did have a plan to divest it.

We did divest it, but we did take the charge.





Brent Thielman Analyst, D. A. Davidson & Co. Q Okay. Thank you. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A You bet. ......................................................................................................................................................................................................................................................

Operator: [Operator Instructions] Our next question comes from Joe Giordano with Cowen. ......................................................................................................................................................................................................................................................

Francisco Amador Analyst, Cowen & Co. LLC Q Hey, guys. Good morning. This is Francisco in for Joe. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Good morning. ......................................................................................................................................................................................................................................................

Francisco Amador Analyst, Cowen & Co. LLC Q So I wanted to follow up on the Heavy Civil loss. Is there any reason why it was not taken last quarter when

everything else was announced? Was this something that was known back then and how likely is it to persist in

the future? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. So certainly, we would have taken it if it was known in Q2. What we found was that on a couple of these

projects they were new. And I mentioned it in the discussion earlier, these were issues that we are continuing to

dispute with owners and we believe that there's a lag in the revenue and the cost portion of this. We booked the

costs in the quarter with the anticipation that we're going to continue to pursue additional revenue as we go

forward. And that's a big part of our strategic plan. Tactical steps is that we believe we need to do a stronger,

better job of pursuing these dispute resolutions as we go forward.

So certainly, they weren't known. And as we go forward, it is important to remember that we can always have

more issues, although I think we're getting our arms around them in a much stronger fashion, and we believe that

we're down to a very small group of items. But every single quarter, we have to assess issues that occur in the

quarter and they can get better or worse. Example, you could have another owner dispute that could cause you,

I'll call, a negative consequence to your earnings or you can settle a dispute above what your expectations were

and you can actually have a positive net from it. So we look at that every single quarter and report the new events

in the quarter that they were taken and the act occurred. ......................................................................................................................................................................................................................................................

Francisco Amador Analyst, Cowen & Co. LLC Q Okay. Thank you, Jim. That's helpful. And just for the follow-up on the revenue growth outlook. You guys started

the year with a low-teens growth outlook, which was then brought down to high-single digits and now we just got





the 2020 outlook of mid-single digits. Could you just give us some color as to why this outlook has been coming

down, especially with a supportive funding environment that you guys are seeing? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Certainly, certainly. So one of the key ingredients is that we expect nice growth inside of our core operating

business of our vertically integrated construction and materials business which also, by the way, is driving some

of those really good Specialty numbers that you saw in the quarter, 17% margin. So that business will grow nicely

in 2020 because, as we look forward, the markets are strong, very healthy, and you'll see that on the higher end

of any growth expectations.

What you're going to see as part of our strategic plan is a reduction in the Heavy Civil business. And so therefore,

when you offset the nice growth on the core part of the business with a reduction in the size of the Heavy Civil

business, that's why we came up with the newer lower overall number. But it is really a combination of high

growth in the core part of the business and lower growth in the Heavy Civil business... ......................................................................................................................................................................................................................................................

Francisco Amador Analyst, Cowen & Co. LLC Q Okay. That makes sense. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A ...which will believe will help – we believe it will help obviously optimize our value by minimizing the size of the

Heavy Civil business. And one of the key steps in our strategic review was to lay a guideline out there as to how

large that Heavy Civil business would be relative to the overall size of the company. And as you noted and heard

us, we expect it to be no more than 15% of our overall company revenue. So, you'll see that come down over time

as we try to risk adjust our overall portfolio. And I think that's a key ingredient as you look at the company going

forward. We're growing the core vertically integrated business and reducing the size of the Heavy Civil business. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Yeah. I would say that our Heavy Civil, the charges that we took through – quarter today – on a year-to-date basis

is about 5% drag on our revenue for the year, while our vertically integrations have grown almost above double-

digits in Q3. So the macro environment in our Western operations is very strong, and we are seeing that double-

digit growth in that environment, where you're seeing the drag is on our Heavy Civil. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Right. And that's planned drag for 2020... ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Exactly. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A





...based on our strategic review and focusing on getting that business to de-risk that overall business within the

company. ......................................................................................................................................................................................................................................................

Francisco Amador Analyst, Cowen & Co. LLC Q That makes sense. Thank you. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Thank you, Jigisha. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Yeah. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. You bet. ......................................................................................................................................................................................................................................................

Operator: Our next question comes from Jerry Revich with Goldman Sachs. ......................................................................................................................................................................................................................................................

Jerry Revich Analyst, Goldman Sachs & Co. LLC Q Yes. Hi. Good morning, everyone. Jim, can you talk about the overall bid environment? Obviously, Department of

Transportation budgets look pretty robust, but we've seen slowing bid awards in California and in Texas. And I'm

wondering if you can just comment on what you're seeing. Is that a slowdown in the awards impacting your

bookings rate and what's your take on the seeming disconnect at least over the past couple of months between

really strong budgets and the pace of bid awards and lettings? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Yeah. Jerry, I think that's a good question relative to – this is very lumpy. What we've seen in the DOT is as they

build their annual budgets for the upcoming fiscal year, we know that the budgets have increased nicely from the

2018-2019 fiscal year to the 2019-2020 fiscal year. But what we have seen is that they tend to lump them into

quarters based on when the projects have been designed and are ready for procurement.

So, we did see as noted that they were a little slow in Q3 in the state of California. But that means that the

additional bidding environment is going to be really strong as we go forward because they have already budgeted

the full increase for 2020 to 2021. So I think you're just going to see a little lumpiness from quarter to quarter.

Texas is the same way. The State of Washington is the same way, which is a huge state for Granite. And the

overall year is not on a – I'll call it, a very even keel. It's very lumpy quarter to quarter. ......................................................................................................................................................................................................................................................

Jerry Revich Analyst, Goldman Sachs & Co. LLC Q Yeah. And is that a... ......................................................................................................................................................................................................................................................





James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Yeah. The other thing that I think is important – Jerry, just let me, if I could, a key ingredient to Granite and when

we look the amount of work that we bid on a monthly basis, we're still bidding today about $1 billion a month. And

we haven't seen that ever historically in the company. And the key there is that we have slowed down the Heavy

Civil business. We've got about, I think, $1.3 billion we're bidding for the remainder of 2019 in that part of our

business.

But the day-to-day part of our business, the jobs less than $100 million, has really just rocketed up to the new

levels. And so, our hit rate is going up. You see our CAP going up. Even with the DOTs in the last quarter slowing

down a little bit, it's the specialty work, it's the mining work, it's the commercial and residential, mostly commercial,

industrial business has really boomed, and that's why you're seeing the specialty business do so well at the same

time.

So the combination of our day-to-day smaller work is very, very healthy. I don't see that changing going forward. I

see it being very strong in 2020. And I think the key ingredient to our guidance is that, although I think there could

be a disappointment relative to the overall growth of the company, it is focused on growing the right part of our

business, the high-performing part of our business, and slowing down, getting our arms around the Heavy Civil

business, going step by step with new management and getting our arm around it so that we can perform at a

consistent higher level in that business as we go forward. ......................................................................................................................................................................................................................................................

Jerry Revich Analyst, Goldman Sachs & Co. LLC Q And on that note, as you look at the Heavy Civil backlog of, call it, $1.8 billion or wherever it exited the quarter,

what proportion of that backlog is projects booked after your strategic review? Can you just give us a sense

because you're very clear about identifying the vintage of projects that you were concerned with? And I wonder if

you can just help us get a sense for what proportion of that backlog we should be thinking about as booked after

the strategic change is being made, i.e., at lower risk. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. Maybe just one more time, the amount of the overall backlog in our Heavy Civil Group is about $1.6 billion

to $1.7 billion. And you're asking to break that down to further – Jerry, what is it exactly would you like to hear? ......................................................................................................................................................................................................................................................

Jerry Revich Analyst, Goldman Sachs & Co. LLC Q Sure. So you were clear that the contracts that you were concerned with were projects that were booked between

2014 and 2017, if I remember the exact vintage that you're concerned with. So I'm wondering out of the remaining

backlog that we have now, considering we burn through some of these projects $1.6 billion to $1.7 billion, what

proportion of that has been booked under the new parameters that have lower risk [ph] proceeds (00:43:17)? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. ......................................................................................................................................................................................................................................................





Jerry Revich Analyst, Goldman Sachs & Co. LLC Q That parameter is that got us in trouble last time. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. So we've got – I mean, one way to look at it is that out of the overall portfolio, I would suggest about $700

million of it has been booked in the last couple years. So with a portion of it being the legacy projects and the

remainder of it being the interim from 2014 to 2017. So if you want to look at it from the perspective of – I think

we've got couple hundred million still to burn on the legacy projects, you've got about $700 million in the new work

since 2017 and you've got the remainder of it would be built between 2014 and 2017.

So the key ingredient is of the $1.7 billion, $700 million, it is of the new – is brand new that we believe is under the

new oversight, the new expectations. And what we did is when we projected out our earnings, we took the entire

portfolio into 2020 and said it will not create value for the overall Granite portfolio. And that would be because we

would be finishing up the older jobs, the 2012 to 2014 jobs. We have a job or two in the 2015 to 2017 category.

And then the new $700-plus million from 2017 on will begin in 2020. So, that's kind of the break out. $300 million

and then maybe use the $700 million would be 2014 to 2017 and then $700 million beyond it. ......................................................................................................................................................................................................................................................

Jerry Revich Analyst, Goldman Sachs & Co. LLC Q Okay. I appreciate the color. And then as part of the strategic review, I'm wondering if you could just talk about

whether you've evaluated other parts of the portfolio. Clearly, the Water divestiture is one piece maybe as

contemplated previously. But any other piece that you thought about and specifically, we've seen pretty healthy

valuations for some heavy materials businesses in the market given the low interest rates. And I'm wondering if

you can talk about other parts of the portfolio review as it stands now. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Sure. So the focus, Jerry, over the last 90 days, what was the Heavy Civil business, trying to get it back in

alignment with a risk/reward into equilibrium. But relative to the Water business that we had – when we did our

initial review and our work over the last year during the integration, we did further perfect our expectation that

there were certain parts of the business that we're going to divest. And what we did in the third quarter obviously

was divest on one portion of those.

The overall Granite strategy is absolutely focused on growing our vertically integrated business and that hasn't

changed. Now, we've been distracted and rightfully so with the Heavy Civil business to work hard to get that back

into alignment. But our key growth strategy is to expand our investment in our construction and materials

business going forward.

And as we've said, strategically, when we get this Heavy Civil – this business back on track, which we are working

to do immediately, you'll continue to see us invest and geographically diversify our vertically integrated business

consisting of a large portion of that, obviously, is our materials business. So we agree with you that that part of the

business is very healthy. You saw 19% margins in Q3. That business relative to the Granite portfolio strictly needs

good weather to keep that business chugging along at a nice pace. It is very healthy, and we don't see that

changing for quite some time because most of the markets that we reside in today have a very nice long-term

focused investment approach. And we think the funding is there for quite some time.





Jerry Revich Analyst, Goldman Sachs & Co. LLC Q Okay. I appreciate the discussion. Thank you. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay, Jerry. Thank you. ......................................................................................................................................................................................................................................................

Operator: [Operator Instructions] Our next question comes from Alex Rygiel with B. Riley FBR. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q Yes. Thanks, Jim. Can you remind us what you have remaining under your share buyback authorization and if

there's any limitations in the near term on that? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Jigisha, why don't you go ahead? ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Yeah. I mean, we have a $200 million worth of authorizations in place as of the second quarter. We had about

$190 million available. We did buy some shares during the third quarter, and we will continue to be opportunistic

and monitor what happens with the market. So we certainly have an opportunity to be in the marketplace. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q How many shares did you buy in the third quarter? ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A I want to say 100,000 shares. ......................................................................................................................................................................................................................................................

Alex Rygiel Analyst, B. Riley FBR, Inc. Q Okay. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A In addition... ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Yeah.





James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A In addition, management also... ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Yeah, yeah. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A ...did go into the market in Q3 as well. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Management and the directors. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Right. ......................................................................................................................................................................................................................................................


Alex Rygiel Analyst, B. Riley FBR, Inc. Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Our next question comes from Jim Brilliant with Century Management. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Yeah. Hi, guys. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Hi, Jim. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Yeah. Just a couple of clarification. So, on the Heavy Civil side, you've obviously run some additional costs

without receiving the offsetting revenue, just from an accounting standpoint until you have this dispute resolved.

What's that – so which we can see you lost $69 million in the quarter, but it didn't have the respective cash

impact. But you mentioned that you're going to press harder on dispute resolution. So what will you be doing now





that you haven't been doing in the past to close the gap between additional cost and the recognition of revenue

when you get the dispute resolved? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A You know, Jim, I think that is absolutely a key question and a key portion of our plan going forward. So several

things because you're right, I mentioned in the discussion that it's widening, the amount of disputes versus what

we can actually book in terms of revenue.

So what we've done is on some of our big disputes that one of the biggest – I've been personally involved in it.

I've been on the East Coast working in the middle of it with the upper echelon of the one of our major owners.

We've actually had CEOs of our group all meet with the upper echelon of a major customer to expedite and we

have an agreed path forward now on one major dispute. We're also focusing with full-time dispute personnel

leadership from Granite and our partners on the joint ventures. We are catching full-time people to the jobs,

whereas before the management team and the external legal help would really drive the work with the owner.

We've changed that. We put full-time people on the projects to expedite the work out of these disputes.

Secondarily, on the new jobs that we have – on the new jobs we have today that we've gotten in the last year,

we're putting full-time contract administrators on these jobs to focus on dispute resolution up-front instead of

waiting for what we consider a bad practice in the industry. Whereas when disputes occur, you notify and you

resolve them at the tail end of the job because that's an option allowable in the contract. That's what's happening

today, Jim, on the projects that we're in. So as we get to the end here, certainly we expect resolution with a

potential opportunity to enhance our earnings and our cash flow. But on all new projects, we now have full-time

resources focused on contract administration to make sure that we don't get put in this position again. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q And what is the cash that has yet to be collected as you resolve these disputes? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A So obviously, it's quite large, Jim. And we don't talk about the actual numbers because of the significance of the

work we're doing with the individual owners. But, yeah, it's huge. I mean there's, I'll say, hundreds of millions

involved. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q And based on what you said earlier, some of that is year end, a large portion of that is at this time next year? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Well, I don't – I can't put a date on the resolution. In fact, there was that same discussion that I had. I remember in

Q2, the ask was, well, how much of this are you going to collect in Q3, Q4? And I would tell you that as we

progressed through Q3, we worked hard to get more of these claims well define, these disputes well define. We

worked hard on cash flow with the owners. And obviously, we didn't come to conclusion in Q3 with anything

significant at all.





So if things could happen in Q4, they could happen in Q1, Q2, Q3 next year, we can't put a timeframe on it with

the owners because we're still in negotiations as we speak. And remember, there's more than one job. We have

one that's very large, we have another one that's quite large as well, and we have a host of others. And I would

not want to mislead anybody to suggest that there's going to be a large collection in Q4, although we do expect

large collections over the next couple of years. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q And I'm sorry, are these going to be incremental collections as you resolve parts of the dispute or is it kind of you

resolve it all and then collect it at the end? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Well, I think there's two ways to look at it. What happened, Jim, in the jobs that we're building today is that the

settlements have been pushed till the end of the job. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Global settlements. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A And we call them global settlements. Thank you, Jigisha. ......................................................................................................................................................................................................................................................


James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Exactly, we call them global settlements. We don't think [ph] that's not even in the contracts (00:53:50)... ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q And this isn't just with you. This isn't just you. This is just everybody else that's been involved in these jobs. It's

been pushed out and change orders, et cetera, et cetera. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Sure. Correct, Jim. But remember, the biggest portion of these outstanding disputes is in our larger non-spots or

joint venture projects that we mentioned in Q2. So the overall value of the disputes is well over $1 billion. Our

portion is hundreds of millions. And there's two ways to look at it. We certainly would be willing to negotiate short-

term settlements where as long as we did not forego our rights for the larger settlement in the long run.

And if we could settle portions of these disputes in advance, certainly that would be a nice cash infusion, because

we have funded these jobs out of our balance sheet, which by the way had a really nice increase in Q3 from Q2.





So we're well-funded and are creating earnings power from a cash flow perspective today, but I'd be happy to

negotiate these things piece by piece. But typically, what's come to play in the industry is that you do one global

settlement at the end of the job. That is not what we want to do going forward because we don't believe it's good

for earnings because of the way you have to actually account for the losses in advance of the additional revenue,

and it's not good for cash flow. So, we're changing our approach towards how we handle disputes as we go

forward. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Yeah. They're definitely distorted. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Okay. So that just – yeah just to clarify my mind. So this largest dispute, the East Coast dispute is well over $1

billion which you've got hundreds of millions locked up in. This is all of the other suppliers in the dispute. You're

now globally trying to resolve this in a combined effort. Is that – is the effort to this... ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Okay. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Is that changed? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Yeah, Jim. No, Jim. Let me read kind of, say, global settlement, I want to make sure that I define that properly

then, I'm sorry. It means that we have foregone the settlement of a host of previous disputes into one final

settlement at the end of the job. Now, our partners in Granite are involved in it. And there could be some flow

down to some vendors and subcontractors. But what I mean by a global settlement is that we have waited till the

end of the job for one final settlement. And it is not that we brought more people into it, it is the joint venture that is

building the project or in some cases Granite by ourselves building the project. And the global means strictly we

waited till the end of the job to do a lump sum settlement.

Does that help you on the definition, Jim? ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Yes, yeah. Okay. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A Yeah. It doesn't change the people that are involved in the settlement because it is already the entire joint

venture, or in the case of when it's just a Granite job, it's just Granite. ......................................................................................................................................................................................................................................................





James David Brilliant Analyst, Century Management Q Okay. And then in the guidance for 2020, do you have any assumption of settlements in there? ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A No. And I say that from the perspective that we do not have any, I'll call it, upside or downside in the conclusion of

these settlements in 2020. Now certainly, we're hoping for a good upside. We believe we're conservative in the

way we approach these disputes and we don't forecast what the resolution of the end dispute will be. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Okay. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A But again, I'll remind that, certainly, we don't always win on every settlement. So, there could be some that create

more positive value and there could be some that we lose that could be a negative value in next year. But it is

really important to remember that any settlement is automatically a positive cash flow issue, because... ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Right. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A ...we have already expended all the cash. And if we just put – got back what we thought we were going to get

back and didn't have an uptick to our earnings, we would have an uptick to our cash flow. ......................................................................................................................................................................................................................................................

Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A So, Jim, one point of clarification is when we go through these disputes, we do work with our legal team to come

up with an estimable probable recovery and a portion of it is reflected on our financial statements. And so any

settlement on any of these issues will – could possibly have a true-up on the financial statements but most of

these settlements will have an improvement in our cash position because as Jim said we've been basically

financing these projects. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Well, you've been financing them without booking the offsetting revenues. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A That's correct. The cash portion of it is equivalent to the revenue portion of it. ......................................................................................................................................................................................................................................................





Jigisha Desai Senior Vice President & Chief Financial Officer, Granite Construction, Inc. A Correct. ......................................................................................................................................................................................................................................................

James Roberts President, Chief Executive Officer & Director, Granite Construction, Inc. A That is correct. ......................................................................................................................................................................................................................................................

James David Brilliant Analyst, Century Management Q Okay. Okay, thank you. ......................................................................................................................................................................................................................................................

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to

today's host for any closing remarks. ......................................................................................................................................................................................................................................................


Thank you, everyone, for your questions. A quick note for our shareholders and investors, Jigisha, Lisa and I will

be on the road in the conferences visiting our operations and investors around the country over the next quarter

and two. Please reach out to Lisa and we will look forward to speaking with all of you and meeting with any of you

that care to meet with us.

And as always, thank you to all of our employees for keeping our fellow workers safe and for exhibiting Granite's

core values every single day. And as always Jigisha, Lisa and I are available for follow-up if you have any further

questions. Thank you. ......................................................................................................................................................................................................................................................

Operator: The conference has now concluded. Thank you for attending today's presentation.

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25-Oct-2019 Granite Construction, Inc.

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