KE&G Construction's 2024 Annual Report by KEGConstruction

2024 Annual Report Perspective

Constructing Our Legacy

Safety Integrity Development Excellence Vision, Mission, Values

Board of Directors

Chris Albright Ed Anderson

Joe Dhuey

2023’s Excelling Employee Owners

January

July

February

August

March

September

Emmett Merchant

Marcelino Lara

Gaspar Rosas

Martin Duarte

Jayson Crunk

Freddy SantaMaria

Eddie Norris

Daniel Uchimura

Jesus Santa Maria

Luis Soto Gonzales

Mike Garcia

Roderico Santa Maria

Chris Albright President

Message from the President

As of January 2024, KE&G was restructured under Blue Diamond Legacy Holdings to expand opportunities within our ESOP, now known as the Blue Diamond Legacy Holdings Employee Stock Ownership Plan. This change allows Blue Diamond Legacy Holdings to safeguard its assets while exploring new avenues for growth through potential acquisitions or new ventures, ultimately enhancing the ESOP’s value and benefiting all employee owners.

As we enter this new chapter, I reflect on our accomplishments over the past few years. Since the ESOP’s inception in 2006, we have nearly tripled in size and revenue—a remarkable achievement. Alongside the numerous high-quality projects we’ve completed, we have greatly expanded the events and opportunities we offer to our employee owners. We are particularly proud of our employee development program, which provides unparalleled support for our employees to reach their career goals.

Last year, our performance was mixed. While we expanded our reach throughout southern Arizona and strengthened relationships with existing clients, we fell short of our planned revenue goal. However, thanks to the dedication of our employee owners, we successfully identified and executed projects, resulting in a strong overall financial performance.

Looking ahead, the future of our company and industry is promising. The region’s aging roads, growing demand for housing, robust commercial construction, and ongoing needs in the mining and utility sectors present significant opportunities. We have a solid backlog of work and even more on the horizon. With the current industry potential and the continued efforts of our employee owners to work safely, efficiently, and with high quality, KE&G is wellpositioned to continue thriving.

We are thrilled to announce that KE&G earned the inaugural ESOP Company of the Year award from the Rocky Mountain Chapter of the ESOP Association! This achievement reflects the dedication and hard work of our entire team. We are honored by this recognition and remain committed to continuous improvement as we move forward together.

2023-2024 Scholarship Winners

In 2022, KE&G established a scholarship program to assist our employee-owners’ children achieve their academic/ career goals.

Congratulations to 2023’s winners Rodrigo Holguin, Juliana Acuna & Yasmin Morales!

Safety Division

Our Shared Goal

At KE&G, our collective goal is to ensure that every one of us returns home at the end of the day without injury or incident. As the backbone of this company, your health and safety are our top priorities, and we are committed to making sure everyone goes home safe and sound.

Summary

This past year, some of you received returns from the Captive for working safely and remaining incidentfree in 2018 and 2019. Over the next few years, we can look forward to similar returns for our outstanding performance in 2021 and 2022. However, since May 2023, we have experienced a series of incidents leading to increased claims, injuries, and utility hits. It is crucial that we renew our focus on identifying and addressing even the smallest hazards we face daily on our job sites.

2023-2024 Accomplishments

• Reduced Experience Modification Rate: Successfully lowered our rate from 0.78 to 0.64.

• Decreased Motor Vehicle Accidents: Continued efforts have led to a reduction in motor vehicle incidents.

• Award Recognition: Proud recipients of the Lovitt and Touché Ambassador’s Safety Award for 2023.

• OSHA Certification: Certified approximately 158 new employees with their OSHA 10.

• Comprehensive Training: Trained 416 employees across 35 safety-related topics.

• Safety Challenge Success: Achieved zero recordable injuries during our November/December Safety Challenge.

• Safety Motto Contest: Outstanding participation in our safety motto contest, with more creativity to come in December—get ready to showcase your originality again!

Southern Arizona Division

Goal

The Southern Arizona Division’s goal is to deliver outstanding work for both current and new clients in southern Arizona while upholding our core values of safety, integrity, development, and excellence.

Summary

This year, our ability to embrace new challenges in diverse areas has been key to our success. Collaborating with new clients and expanding our potential with existing ones has created a powerful combination for our division. Through dedicated internal training, we’ve unlocked opportunities for growth and learning, benefiting both the division and its valued members. This commitment to fostering growth has empowered us to successfully execute projects across the state of Arizona.

We’ve completed multiple projects safely and efficiently, earning the trust and recommendations of many new clients. Their endorsements for other projects and contractors in the area speak to our integrity as a team. We don’t just seize opportunities—we create them.

Outlook

As I look toward our division’s future, I see success in every aspect: in our employee owners, in our projects, in our growth, and in our community. I am proud to be part of the Southern Arizona Division.

A heartfelt thank you goes out to all members of our division, with special appreciation to the families who support each and every one of them.

Utility Division

Goal

Our goal is to secure a strong project backlog by enhancing our marketing strategy to better showcase our capabilities. Safely delivering projects remains a top priority, with our facilities crew exemplifying the motto “Safety is No Accident.” We are committed to pursuing sustainable projects in both public and private utility sectors, which continue to offer abundant opportunities. Maintaining profitable margins is achievable, as utilities remain one of our most lucrative areas. Additionally, we aim to ensure that our team enjoys the work they do, contributing to a better environment for tomorrow.

As we expand our service area with a focus on moderate growth, we recognize the potential in southern Arizona’s untapped market. There are ample opportunities to perform, understand, evaluate, and address operational and maintenance challenges for smaller communities. By growing the Utility Division and enhancing the support we offer, we are well-positioned to meet these goals and drive continued success.

Summary

We are focused on strengthening our resources, upskilling our crews, and developing new leaders. While we made significant strides in 2023, there are still opportunities to expand our team and introduce new skill sets. Our current crews have shown great dedication, spending substantial time working on important projects in Clifton, Patagonia, and Ft. Huachuca.

Outlook

The division’s road map should be limitless. As a key part of KE&G, we are committed to strong, professional business practices, leveraging our niche service area, and embracing growth that brings new opportunities for prosperity.

We deeply understand the needs of both large and small public utilities. By expanding our market share, the Utility Division aims to enhance the diversity of our portfolio. The underground utility sector presents significant opportunities within our regional market, and we are strategically positioned to thrive in the Phoenix market alongside underground competitors. Our focus remains on pursuing the right opportunities that align with our long-term goals, ensuring steady progress in this evolving landscape.

In southern Arizona, we will continue seeking opportunities aligned with our resources and availability. We are also committed to exploring strategic partnerships with other contractors, recognizing the potential for growth through collaboration. While we have faced challenges in this area, each effort brings us closer to finding the right partners. We remain open to various solutions, whether it’s through acquiring a smaller contractor or establishing a strong partnership that offers exceptional opportunities for both parties.

Transportation Division

Goal

The Transportation Division aims to train, excel, and expand. Our focus is on increasing KE&G’s profitability and market share while maintaining positive relationships with clients as we grow into new regions and enhance our services in existing markets.

Summary

The Transportation Division consistently delivers safe, timely, and high-quality projects that exceed agency expectations. We have cultivated an environment of trust and mutual respect with our client agencies, establishing ourselves as the preferred contractor for transportation infrastructure projects.

Outlook

The positive feedback our team receives has been instrumental in securing multiple new JOC and Design-Build projects this year. The Transportation Division is also actively engaged in three Joint Ventures: OPSC, our partnership with Malcom International for constructing the 22nd Street Bridge(s); DSKE, our collaboration with DSB Construction for the FHWA Lake Meredith project near Amarillo, Texas; and our latest joint venture, A&K Construction, a partnership with APS to pursue large DOD contracts. We are highly confident in the Transportation Division’s outlook as we aim to secure more Bid-Build infrastructure projects and continue excelling in obtaining additional CMAR, JOC, and Design-Build contracts.

Development Division

Goal

In 2024, the Development Division’s primary goal is to expand the division’s capacity to take on more work. This includes increasing our visibility among homebuilders managing their own developments and commercial builders seeking reliable contractors.

Summary

We are currently in the construction phase of three projects that began in late Q4 of 2023. This is particularly encouraging as these projects were highlighted in last year’s projections. Lot shortages, especially in the Marana District, are a key focus for KE&G. We have 541 lots currently out for bid in Marana, translating to approximately 18-24 months of work.

Outlook

Despite a cautious national outlook, Tucson’s housing market has shown positive momentum, with new home permits up by 109% compared to the first quarter of last year. This surge reflects growing builder confidence and suggests a robust construction market as existing lots are developed. Meanwhile, the resale market is experiencing a decline, with a 17% drop from last year and a 36% decrease since 2022. This lagging resale market fuels demand in the new home industry, creating opportunities for us.

As builders aim to secure lots to keep pace with their future inventory needs, the urgency in hot markets like Marana increases. These surges drive residential development and open new commercial opportunities as businesses seek to meet the needs of emerging communities.

Job Order Contract Division

Goal

The goal of the JOC Division is to be the preferred contractor for clients seeking improvements or ideas for new construction projects. We aim to build new relationships and expand our presence in the roadway, concrete, and flood control markets across both public and private sectors. Additionally, we are committed to ongoing education within the division, focusing on safety, maximizing profitability, and enhancing marketing efforts.

Summary

We have successfully achieved our goal of increasing high-quality work and expanding into new markets. This year, in addition to maintaining our long-standing relationships and forging new ones, we have been awarded three new Job Order Contracts (JOCs) and one renewal option:

1. City of Tucson Miscellaneous Concrete, Sidewalk, and Curb Access Ramps

2. City of Benson Miscellaneous Paving Services

3. City of Tucson Park Improvements

4. Town of Sahuarita - Roadway Construction (Option to Renew – Awarded)

These new contracts represent four additional revenue sources for the division and benefit all our employee owners. The JOC Division continues to maintain a strong backlog and remains dedicated to achieving excellence.

Outlook

The demand from both longstanding and new clients has fueled growth within the division at both management and field levels. Our positive reputation and strong company culture have paved the way for new opportunities, which we are prepared to seize. With an excellent outlook and a talented team, we are poised to achieve even greater success.

Mining Division

Goal

The Mining Division’s goal is to deliver safe, high-quality, and timely construction services to mining clients. We strive to be recognized as a reliable partner who is always available when needed. Our skilled team achieves this through experience and dedication.

Summary

2023 was a successful year for KE&G Mining. We advanced our commitment to safety and quality while expanding our capabilities and project portfolio. HDPE pipelines remain a core area of focus, but we have also gained valuable experience in acid unloading and storage facilities, as well as refreshed our expertise in cast-in-place box culverts.

We prioritize repeat business by focusing not only on what we build but also on how we build it. In the private market, success is not solely determined by the lowest bid; maintaining high standards and client satisfaction is key. By staying true to our values and consistently serving our clients well, we ensure that our reputation and project backlog remain strong.

At the end of the day, our success is driven by performance in the field. Let’s continue this excellent work and make 2024 another outstanding year!

Outlook

The future of KE&G Mining looks promising. The mining industry in our region is robust and expanding. We have built a solid reputation as a trusted partner, and with copper prices at record highs, we are well-positioned for continued growth. Numerous new mining projects are on the horizon as they move through the permitting process and begin development. In the meantime, we are committed to safely completing projects, enhancing our reputation, and expanding our resource base.

Shop & Equipment

KE&G’s Equipment Shop is committed to providing outstanding service, equipment, and materials for all projects, ensuring minimal downtime or delays while supporting the continued growth of our company. To maximize the efficiency of our mechanics and better manage our fleet, we are integrating the E360 system into the department. Additionally, we are utilizing the IWT program to offset training costs. We are also exploring options for a new location.

Equipment Added to Fleet Since Last Shareholders Meeting

• 2 New Mechanics Trucks

• 16 Pickup Trucks

• 4 Flatbed/Crew Trucks

• 5 Dump Trucks

• 5 Excavators

• 3 Semi Truck/Tractors

• 1 Slipform Paver

• 2 Asphalt Pavers

• 3 Water Trucks

• 3 Wheel Loaders

• 1 Grout/Concrete Truck

• 1 Roll Off Truck

• 2 Sweepers

• 2 Compactors

• 1 Transport Truck

• 1 Lowboy Transport Trailer

Employee Development

Goal

Employee Development aims to establish a meaningful and fluid career path that accelerates our workforce. By encouraging employees to take ownership of their career paths, we create an environment where great outcomes benefit both the individuals and KE&G. Our Apprentice Program plays a crucial role in this strategy, serving as an excellent resource for recruiting and training skilled Heavy Equipment Operators. Each apprentice follows a comprehensive 3+ year Development Plan, gaining the knowledge and tools needed to advance their careers upon graduation. Our goal is to provide a range of tools and learning systems that support a dynamic and effective Employee Development program. These resources include BuildWitt, books, feedback mechanisms, on-the-job training, and career maps. We hope to purchase a simulator soon.

Summary

This year, approximately 30 employees are actively engaged in Development Plans, and 87 employees are utilizing Buildwitt. Our Heavy Equipment Operator Apprenticeship Program is progressing well, with three apprentices currently in their second year and expected to advance to year three on December 1, 2024. Additionally, three apprentices recently entered their second year. On July 8, we hired four new apprentices.

Outlook

Implementing new programs requires time and dedication, with employee feedback being crucial for continuous improvement. The Apprentice Program is a cornerstone of our strategy, offering an effective means to recruit and train future employee owners. Its ongoing success is a testament to its value and the commitment of our team.

Finance & Accounting

Goal

Our goal is to provide excellent customer service to our stakeholders, both internal and external while helping KE&G increase profitability and lead the way in financial, payroll, and benefit operating efficiencies. We strive to present accurate and timely financial information while serving our employees as best we can.

Summary

The finance department is responsible for fostering an environment of reliability, trust, and responsiveness within itself and to those outside of the department.

We are responsible for safeguarding the company's assets, assisting management in making informed financial decisions, closing our financials in a timely manner, and keeping the Company compliant with auditors, taxing authorities, regulators, and other users of our financial information.

Outlook

As we continue to grow, our outlook remains focused on implementing strategies across KE&G that will make us more efficient and profitable. These strategies include, but are not limited to, scoping better spending platforms for vendor payments, gas cards, travel, and expense reimbursements that will make us more efficient and increase our cash rebates. The finance department is also working towards developing valuable KPIs on SharePoint that will help the divisions make better-informed decisions.

Communications & Marketing

At the beginning of 2024, KE&G celebrated a significant milestone: the 10th anniversary of becoming fully 100% employee-owned. The ESOP Communications Committee has been diligently working to commemorate this achievement with a variety of activities. Our celebrations so far have included volunteer events, sporting events, our annual company picnic, a trap shoot tournament, and numerous other group activities. Looking ahead to the Fall of 2024, the committee is planning KE&G’s second golf tournament, a Diamondbacks game, and many more exciting events.

Usually, we tell everyone to check their email. However, with the implementation of the Beekeeper App in July, we are now saying, Check your Beekeeper Stream! Beekeeper is designed to enhance our communications, so it’s an important platform for staying informed about KE&G. If you need any assistance with Beekeeper, please reach out to us. Additionally, we’ve updated The Dirt to be a printed quarterly newsletter. Keep an eye on both Beekeeper and The Dirt for important updates, timely announcements, and information about KE&G’s 2025 celebrations.

Beyond organizing events, the Communications Department also supports all divisions with proposal development and design. In 2023, KE&G submitted a total of 12 proposals, surpassing the typical annual average of 9. As of July 1, 2024, we have submitted 6 proposals and are on track to meet our annual goal.

Follow us on social media!

KE&G’s Potential Wealth Calculator

As employee-owners, we do well financially when our company succeeds. But what exactly could that mean for you and your family? To help you visualize the long-term wealth building potential of ownership, we’ve partnered with Certified EmployeeOwned to create an interactive wealth calculator. Scan the QR code on this page and use the business scenarios below to see what we can accomplish together. All values are expressed as averages and will likely change from year to year.

Remember that nobody knows the future. The wealth calculator and our business scenarios are reasonable, but they might not come to pass. It’s up to us to work together as a team of owners to make the company successful. As employee owners, we win as a team.

If our company does as planned...

This is our base case scenario, but still requires great execution.

BENEFIT LEVEL: 7%

RATE OF RETURN: 9%

If our company does well...

This is a good outcome where our business outperforms.

BENEFIT LEVEL: 10%

RATE OF RETURN: 12%

If our company exceeds expectations...

This is a great scenario where we experience rapid growth over many years.

BENEFIT LEVEL: 12%

RATE OF RETURN: 14%

Benefit Level

This is the value of the annual allocation you receive for being an employee-owner. It is expressed as a percentage of your salary.

Rate of Return

This is the change in our share price on an annualized basis. Remember that nobody knows for sure what this will be in the future!

The scenarios above and the wealth calculator linked are solely for illustrative purposes and should not be relied upon in any way, nor should they be construed as an appraisal, legal, financial, tax, or other professional advice. Your company and Certified EO do not guarantee the accuracy of the results, the hypothetical scenarios selected by any participant, or its relevance to your specific circumstances.

KE&G Potential Wealth Calculator

Employee Apparel & Discounts

KE&G established our Boot Bucks Program to assist employees in purchasing quality safety boots. The program has grown to include reimbursement for approved footwear and now includes safety eyewear, safety shirts and logoed KE&G apparel.

Every quarter an employee works, without an accident or incident, KE&G deposits $30 into their Boot Bucks account. Earnings stop when you hit $240 so don’t hesitate to buy a new pair of boots!

Boot Barn offers KE&G employees 15% off purchases of eligible safety styles. (In-store purchases only.)

Red Wing Shoes offers KE&G employees 13% off purchases of eligible safety styles! (In-store purchases only.)

KE&G has teamed with Optometric Consulting Services & Eyemart Express to bring you affordable prescription safety eyewear.

Ariat is now offering KE&G employees a 15% discount through their website. Contact Jessica to order.

KE&G’s Safety Department offers a few varieties of safety work shirts.

KE&G Apparel - Choose from a large selection of workwear, activewear, and outerwear. www.timberlakecrafts.com

*Employees, turn Boot Barn, Red Wing Shoes, Optometric Consulting Services & Eyemart Express receipts into payroll for reimbursement. Contact Jessica Ogiba if you have any questions (520.777.5807 or jogiba@kegtus.com).

Thank you to KE&G’s Communications Committee for organizing fantastic events in 2023!

Monsoon Innovations

Goal

Monsoon Innovations helps technology companies grow by offering business development support and finding funding opportunities for them.

Summary

We provide consulting services to companies looking to expand their market presence. We also help technology companies secure funding through the government’s Small Business Innovation Research (SBIR) program and private investments.

Outlook

Our business development efforts are progressing with several ongoing projects. The SBIR program includes multiple applications for advanced funding stages, with one expected to receive a significant amount of money in the fourth quarter. We are also expanding our partnerships with business incubators and accelerators, giving us access to many companies that could benefit from our support. Additionally, our collaborations with the Department of Defense are growing, focusing on areas such as construction, drone technology, and sensor systems. Currently, we are active in seven tech ecosystems and plan to be involved in ten by mid-2025.