Granite(US:GVA)2024-02-22 22:02Financial Data and Key Metrics Changes - For fiscal year 2023, adjusted net income improved to $140 million and adjusted diluted earnings per share improved to $3.14, with adjusted EBITDA margin increasing to 7.7%, up from 6.4% in 2022 [28][51][52] - In the fourth quarter, adjusted net income was $36 million with adjusted diluted earnings per share of $0.82, and revenue increased by 18% compared to the same quarter in 2022 [51][52][54] - The construction segment's annual revenue increased by $188 million or 7% year-over-year to $3 billion, with a gross profit margin of 11% [78][80] Business Line Data and Key Metrics Changes - The construction segment experienced a revenue growth of 19% year-over-year in the fourth quarter, driven by a record capital allocation (CAP) [45][46] - The materials segment saw annual revenue increase by $20 million year-over-year to $517 million, with gross profit increasing by $6 million to $71 million and a gross profit margin of 14% [54][55] - The California group reported a CAP increase of $91 million to $2.4 billion from the third quarter, entering 2024 with a CAP 39% higher than the prior year [71] Market Data and Key Metrics Changes - In California, transportation funding has led to a 38% increase in Caltrans project awards during 2023 compared to 2022, with a proposed budget for the fiscal year ending June 2025 showing an increase in transportation funding to $8.9 billion [19][43] - Texas led the country in state and local government transportation construction contract awards at $16 billion, with California following at $9 billion [32] Company Strategy and Development Direction - The company’s growth strategy is built on two pillars: support and strengthen, and expand and transform, focusing on developing core competencies and growing home markets [6][30] - The acquisition of Lehman-Roberts and Memphis Stone & Gravel is seen as a transformational event, providing a platform for growth in the Southeast [87][119] - The company plans to continue investing in its business with a CapEx range of $130 million to $150 million in 2024, focusing on strategic materials investments and automation projects [85] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the robust level of federal and state funding for transportation projects, indicating a market environment not seen since the mid-2000s housing bubble [16][43] - The company expects strong revenue growth in 2024, targeting a range of $3.8 to $4 billion, driven by positive market conditions and organic growth opportunities [57][60] - Management anticipates achieving an adjusted EBITDA margin range of 9% to 11% in 2024, with a focus on improving operational efficiency [84][62] Other Important Information - The company reported a strong cash generation in the fourth quarter, leading to cash and marketable securities of $454 million at year-end [55] - The company’s de-risk business model is expected to drive further increases in operating cash flow, targeting 7% of revenue in 2024 [56][137] Q&A Session Summary Question: Can you dig into the material segment and discuss organic growth expectations for next year? - Management expects aggregate volume to remain consistent with 2023, with a projected price increase of around 10% for aggregates and a 5% increase for asphalt in California [64] Question: Is there a specific area or region driving further growth in construction CAP? - Management indicated a broad-based growth across all markets, with strong transportation and highway infrastructure spending in California [65] Question: How is extreme weather impacting the business, particularly in California? - Management noted that while weather has changed, they have been able to create efficiencies and expect a strong growth opportunity in 2024 [68][69] Question: Can you discuss the outlook for the water and wastewater business? - Management indicated that the pipeline has strengthened and margins have improved, with expectations for projects to hit the books in 2024 [116] Question: What is the expected free cash flow conversion for 2024? - Management targets an operating cash flow as a percentage of revenue of around 7%, with a conversion ratio of about 35% to 40% for 2024 [137]