Granite Construction Incorporated

good morning my name is renan and i will be your conference facilitator for today at this time i would like to welcome everyone to the granite construction investor relations third quarter 2022 conference call this call is being recorded all lines have been placed on mute to prevent any background noise and after the speaker's remarks there will be a question and answer session to ask a question please press star one Please note we will take one question and one follow-up question from each participant today. It is now my pleasure to turn the floor over to your host, Granite Construction Incorporated Vice President of Investor Relations, Mike Barker. Please go ahead, sir.

Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer, Kyle Larkin, and Executive Vice President and Chief Financial Officer, Lisa Curtis. Please note that today's earnings presentation will be available on the events and presentations page of our Investor Relations website. We begin today with a brief discussion regarding forward-looking statements and non-GAAP measures. Some of the discussion today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are estimates reflecting the current expectations and best judgments of senior management regarding future events, occurrences, opportunities, targets, growth, demand, strategic plans, circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, committed and awarded projects or CAP, 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 a more complete description of risk factors that could affect these forward-looking statements. The company assumes no obligation to update forward-looking statements. Check is required by law. 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 margins, adjusted net income or loss, and adjusted earnings or loss per share. The required disclosures regarding our 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 Kyle Larkin.

Good morning, and welcome to our third quarter call. We'll start this call with an update on our efforts to drive improved gross profit margin across our portfolio of projects. I'm pleased to report that excluding the ORP, our construction gross margin improved to 14.8% in the quarter. I want to congratulate our teams on this accomplishment. This margin improvement validates all the hard work we have been performing across the company to improve profitability. I will talk more about this improved performance later in the call. Before we dive into performance, I also want to mention an update to our divestiture plan that occurred this quarter. As we announced in September, we are retaining the water resources and mineral services businesses. These businesses will report into the mountain group in the construction segment. Both businesses have performed very well this year and have market outlooks to support future growth. We are confident the decision to retain these businesses is in the best interest of our shareholders and we intend to invest in and grow these businesses to their full potential. As a reminder, Water Resources provides full lifecycle water management, from supply to treatment to delivery and maintenance for government agencies, commercial and municipal water suppliers, industrial facilities, and agricultural and energy companies. Through water well drilling, installation and rehabilitation of wells, pumps and water treatment technology, our teams identify and develop water sources, recharge aquifers, and deliver potable water. Mineral Services provides mineral exploration services for the largest mine operators in North America, particularly copper and gold operations. While the business is cyclical and there has been recent weakness in copper and gold prices, we believe the push from fossil fuels to electrification will support a strong cycle of growth in the mining industry. We are well positioned to support our mining partners in this growth, not only in mineral exploration, but also through civil construction services on their mindsets. Now, turning to the broader view of our three operating groups. We remain laser-focused on achieving our 2024 strategic plan targets of construction segment gross profit margin of 14% to 16% and consolidated EBITDA margin of 9% to 11%. As I mentioned at the start of this call, we are seeing progress in this area, the third quarter gross profit margin excluding the ORP of 14.8%, which is an improvement quarter over quarter from 14.1%. The improvements we are experiencing are credit to the steps we have been taking to implement our strategic plan throughout the project lifecycle. We have been focusing on two primary areas of the project lifecycle across our groups. Project selection is one area of emphasis. We are pursuing projects suited to our strengths, and we are being selective with the clients that we choose to work with. Disciplined project pursuit focuses on jobs where we have a competitive advantage based on our knowledge of the project and home market. On bid day, we are disciplined on margin expectations, and our project portfolio consists of higher quality work than Granta has had in years. The second area of the project lifecycle focus has been project execution. and best practices across the company. During the third quarter, we saw our focus on bid-day margin and project execution gain momentum as demonstrated by our non-ORP construction gross margin. We are pleased with this progress and we are positioned to build upon these results as we work to achieve our 2024 sheet of planned gross profit margins of 14% to 16%. Through the third quarter, we continue to see positive funding levels and project opportunities across our footprint. Although there have been instances where inflation has caused low bids to be above owner estimates, delays or project cancellations have been limited. Public markets and project opportunities continue to be strong despite minimal benefit to date from the Federal Infrastructure Bill, or IIJA. In the private market, which accounts for around 25% of our business, inflation is causing some uncertainty. We are still seeing a number of clients pushing forward with planned work. Grant does not have significant exposure to the residential market, which is showing signs of significant slump. Turning to the ORP, we continue to burn through the remaining work on these projects. There is $150 million of cap remaining on the ORP projects at the end of Q3, and we expect approximately $90 million to carry into 2023. As a reminder, $35 million of the ORP cap expected to carry into 2023 relates to one small profitable project. that is included in the ORP because it is a non-sponsored joint venture. Excluding this profitable project, there is $55 million of ORP cap expected to carry in 2023 related to challenging projects. Of the four current active challenging ORP projects, two are in the closeout or punch list phase and two are completing construction. During the third quarter, losses in the ORP, primarily from one project on the East Coast, negatively impacted our results. The losses arose out of the scheduled delays, which drove increased costs with remaining paving work. We expected the paving to be completed this year, but it is now pushing into 2023. This one project represents more than half of the $55 million in challenging LRP project cap, which is expected to be completed in early 2023. We believe our forecasts have captured the cost that will rise out of the delays, and our teams are diligently working to complete the project as quickly and efficiently as possible. As we move from 2022 to 2023, we believe the remaining risk of the ORP has greatly decreased, and our focus will be on the construction segment performance as a whole. As I have said before, we cannot finish this work soon enough. I am excited to see that the end is in sight for the challenging ORP. Now, I'd like to discuss the transformation of our center group, another area of our strategic plan where we are making significant progress. As previously discussed, Having well-developed home markets is key to our strategy. Our vertically integrated California and mountain groups model the structure and portfolio that we are working toward across the company. In our home markets, we have trusted relationships with stakeholders and employees, market intelligence, and access to resources. These attributes result in us winning more projects at higher margins and higher levels of customer satisfaction. Texas region of our central group has historically pursued and constructed large projects across southeastern and midwestern states. Last year, the region was asked to do two things. First, de-risk its portfolio by changing the types of projects it pursued from complex design-build projects to smaller bid-build or best-value projects. Second, build a home market within Texas. One focus of this effort has been to solidify our presence in the rapidly growing Houston metro area. Although Grant has been in the Houston market for over 15 years and has good relationships with the Texas DOT, the labor pool, the contractors and vendors, we have missed opportunities to strengthen those relationships as we chase work across the country. The Houston area is a growth market with healthy funding levels and a resilient pipeline of job opportunities and markets from transportation to water to private site development. We've applied a targeted and selective bid strategy We believe we have a competitive advantage and can leverage our strengths through our expertise in roads and highways, as well as our experience in solar, water, airport site work, and structures. In the third quarter, we had three highway project wins in southwest Houston, totaling $145 million. The projects are in close proximity to each other and should allow us to leverage existing teams and resources we have built in the market. Our center group has done a great job building the foundation for future profitable growth and will be a key component of Granted reaching the targets set out in our strategic plan. Now, turning to cap. We enter Q4 with $4.1 billion in cap, a sequential decrease of $135 million following what is traditionally our busiest quarter of the year. Year over year, excluding Granted's in-liners cap of $205 million in the prior year, cap decreased $45 million. This, again, results from our efforts to de-risk our project portfolio as we move away from large, complex projects to smaller projects that fit within our refined risk criteria. While we have seen resilience in our private market work and continued strength in public market opportunities, it appears that the additional funding from the IIJA is taking longer to turn into lettings than originally expected. State DOTs are still working through the process of prioritizing and advertising the projects. We expect a ramp-up of opportunities over a period of several years, similar to what we experienced in California when SB1 was first passed. We hope to see a more meaningful impact on the project opportunities over the next six to nine months. The good news is that the IIJA will build upon the current positive market. We believe we are well positioned to capitalize on the increased funding through our home markets in large and high-growth states that receive the bulk of the funding as the projects are released. I'm excited as I look at the quality of CAP across our groups and the opportunities ahead of us in the fourth quarter. We believe the quality of our CAP has never been better and will support our strategic plan and profitable growth. Our successful strategy to target best value opportunities has changed the risk profile of our CAP and should lead to more consistent profitability and cash generation for years to come. Shifting to the materials segment, Aggregate volumes remain strong during the quarter, increasing year-over-year across our operating groups. Activity in the markets during the quarter and aggregate orders as of the end of the quarter continue to suggest that the general economy remains healthy, despite inflationary pressure and interest rate increases. This strength is demonstrated by a 16% year-over-year improvement in the volume of aggregate orders as of the end of the third quarter. Asphalt volumes during the quarter increased year over year in the mountain and central groups, but was more than offset by a decline in the California group. The decline in California is primarily due to a decrease in asphalt paving projects compared to the prior year. Despite this decline in volumes in the quarter, we are encouraged that penny orders are now ahead of the prior year as we move into the fourth quarter. During the quarter, we saw revenue and gross profit increase over the same period in the prior year and saw a decrease in gross profit margins. as lower asphalt volumes and inflationary costs continue to impact sediment profitability. We expect that the energy surcharges introduced during the second quarter will continue to offset inflationary pressures and boost revenue and gross profit in the materials segment. Now, I'll turn it over to Lisa to discuss our financial results.

Thank you, Kyle. In the third quarter, revenue decreased 5% from the prior year. Comparable revenue, which excludes granted in-liners $65 million of revenue in the prior year, increased 1%. Third quarter gross profit increased slightly, resulting in a gross profit margin of 12%. In the construction segment, quarterly comparable revenue declined $16 million year over year to $848 million. This decline was primarily due to a $73 million decrease in the central group as ORP projects approach completion and as our teams mobilize to recently awarded projects. Revenue in the California group increased 8% year over year as the group executed on record cap that it carried into the third quarter. Mountain Group, which is now home to Water Resources and Mineral Services, saw its comparable construction revenue increase 12% to $362 million. This increase was primarily driven by strong performance in our solar power business and Washington region and was supported by the continued strength of the Utah region. The construction segment's gross profit for the quarter was slightly down from the prior year. Comparable gross profit, which excludes Granite Inliner's gross profit of $5.4 million, increased 5% with an overall improved gross profit margin of 12% for the quarter. The ORP ended the quarter with a remaining cap of $150 million, a decrease of $45 million from the prior quarter. Challenging ORP cap, which excludes a profitable California group ORP project, totaled $115 million at the end of the quarter. The amount of challenged ORP cap expected to carry into 2023 is approximately $55 million, with the majority remaining on a single project that our teams are working to complete. Third quarter net ORP losses to Granite, which excludes non-controlling interest, totaled $13 million on revenue of $44 million, compared to a loss of $5 million on revenue of $99 million in the same prior year period. The losses during the quarter were primarily from one project on the East Coast. Construction segment margin, excluding the ORP, was 14.8%, a sequential improvement from growth margin of 14.1% in the second quarter. Material segment revenue increased 24 million, or 17%, compared to the same period in the prior year. Comparable materials revenue, which excludes Granite Inliner's $5 million of materials revenue, increased 22%. This increase was driven by strong aggregate sales volumes from each group and price increases implemented in April that more than offset the volume decreases in asphalt sales compared to the same prior year period. Materials gross profit increased $1 million compared to the same period in the prior year with gross profit margin of 13.6%. This is up sequentially from 12.7%, but down from 15% in the same prior year period. While we are seeing gross profit margin improvement, margins are down compared to the prior year due to lower asphalt volumes and inflationary costs. Turning now to our non-GAAP financial metrics. Adjusted EBITDA and adjusted EBITDA margin for the third quarter was $97 million and 9.6% compared to $81 million and 8% in the same period in the prior year. Adjusted net income for the quarter increased $20 million year-over-year to $63 million and adjusted diluted income per share of $1.41. This compares to adjusted net income of $43 million and adjusted diluted income per share of 93 cents in the same period in the prior year. The increases in adjusted EBITDA and adjusted net income were driven by strong performances from our California and Mountain groups, as well as lower SG&A resulting from the sale of Granite Inliner and decreased incentive compensation expense. Our third quarter results reflect the progress we are making toward consistent profitability across our portfolio of projects as we work to meet our targets within our 2024 strategic plan. Now onto our cash and financial position. For the nine months ended September 2022, our operating cash outflow was 15 million compared to a cash inflow of 60 million in the prior year. During the third quarter, operating cash inflow was 89 million as projects that were starting in the first half of the year generated cash. We expect strong cash flows to continue in the fourth quarter. Our cash and marketable securities balance rose sequentially to 317 million as of the end of the third quarter. On a year-over-year basis, cash and marketable securities are lower, reflecting year-to-date share buybacks of approximately 71 million, net debt repayments of $75 million, investment in our materials business, and a decrease in operating cash flow. Revolver availability stands at $267 million, and our debt at the end of the quarter is $288 million, down from $340 million in the prior year. Now I'd like to discuss our 2022 guidance. This guidance update reflects the addition of the water resources and mineral services businesses, which were not included in the continuing operations guidance provided earlier this year. We expect our full year revenue to be in the range of $3.2 to $3.3 billion. Both California and Mountain have strong cap heading into the fourth quarter, and weather permitting, we expect both groups to have a busy quarter to close the year. Our guidance for SG&A as a percent of revenue is unchanged at a range of 8 to 8.5% for the year. Regarding the annual effective tax rate, during the year we recognize two significant discrete items with the SEC investigation settlement charge and the deferred tax effect of no longer classifying water resources and mineral services as held for sale. Excluding these two discrete items, our adjusted effective tax rate range remains in the low to mid-20s. With the inclusion of water resources and mineral services, we are increasing guidance for adjusted EBITDA margin to a range of 6% to 7%. With ORP projects nearing completion, we believe that they will not pose a significant drag on our profitability in 2023. While we have not yet completed our budgeting process for 2023, we expect that the midpoint of our 2023 adjusted EBITDA range will be at least 8% as we continue to work to improve our profitability in alignment with our 2024 targets. Finally, we continue to invest in our vertically integrated business with a current focus on investing in our materials operations. We expect that full-year capital expenditures for 2022 will be between $120 million and $130 million, up $10 million from our previous guidance. We will continue to be opportunistic in investing in automation, materials reserves, and strategic assets that will further strengthen our business. Now I'll turn it back to Kyle for closing remarks.

Thanks, Lisa. I'll close with the following points. As we complete the fourth quarter and move into 2023, we believe that we will no longer need to talk about the challenged ORP and will instead be focused on what we expect to be improved, consistent performance in our construction segment. Outside of the ORP, I am pleased with our performance across the company. We are making the incremental improvements that we believe are necessary to reach our 2024 target of 9% to 11% EBITDA margin The third quarter's non-ORP gross margin of 14.8% demonstrates the progress we have made. In the materials segment, we continue to see strong volumes in aggregate sales and are encouraged with asphalt orders ahead of last year at the end of the quarter. The market environment remains strong across our home markets, as demonstrated by the strength of our cap and the opportunities that we see ahead of us in the fourth quarter and into 2023. While the impact from the infrastructure bill has been slower than anticipated by the industry, we know the funding is there. It is only a matter of time until we receive the benefits from this generational investment in the country's infrastructure. Finally, we are executing on our strategic plan. I believe Granite is better positioned to take advantage of the opportunities ahead of us than the company has been in many years. We are positioned to drive consistent profitability and sustainable growth for years into the future. Operator, I'll now turn it back to you for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, please press star 1. Please limit yourself to one question and one follow-up question, and feel free to jump back in the queue if you have any additional questions. Please hold while we assemble our roster. Our first question comes from Michael Dudas with Vertical Research Partners. Please go ahead, sir.

Good morning, gentlemen, Lisa.

Good morning. Good morning.

First question for Kyle. Yes, we can't wait not to hear ORP ever mentioned again, and certainly you're making some great progress there. How do you look, you see, you're encouraged about bid day, what you're putting into the backlog. Could you maybe reflect on the risk and margin profile of what's going into the backlog amongst your divisions and relative to what you're executing off that backlog and is how that gap has narrowed and are the type of opportunities you're putting in the backlog from the margin today kind of fit with what you anticipate could be generated in 2024? Or is there still a market or execution issues that need to be addressed to achieve those targets?

Yeah, thanks, Mike. We feel really good about the cap that we have in place today. We've been working on our cap over the last couple of years, as you know, transforming our cap, de-risking our company, really working hard to shift away from those really large, design bill projects that we had in the past. And that's really across the board. And the donut chart that we share really highlights the fact that we reduced that design bill portion going back two years in Q3 at 20% of our cap. It's now down to 5%. So that's a big evolution for us and really speaks to the de-risking of our portfolio. It also shows that About 43% of our cap today is this best value. These projects that are really negotiated were hired for the value we bring to the client that we do fairly well on relative to certainly the design and build projects as the projects get larger. So the teams have been working really hard. We've been getting more money on bid day, as we've indicated, and that's in our cap today. So we're going to burn through some of the work that's been on the cap today while and we're adding new work that has a higher margin profile than what we've had say a year ago but last three quarters now including Q3 I can say we've picked up more work with higher margins and so we're right where we want to be and I think that's really really pointing in the right direction that's how we're bridging to the 2024 gross profit charts and the execution from the margin bid to Executed is narrowed better still needs room for improvement It's better yeah our execution even outside the ORP There's an opportunity for us to do what we're already really good at and become what we say is the best at it And we've made progress We think there's still opportunities for us to Continue focusing on our execution and get even stronger outside the ORP, but yeah our execution is getting stronger across the board

And my follow-up is just, could you remind us in Q4 2021 what the weather impacts were and how we start in 2022? And just to give a sense of, I can't recall whether it was dry, wet, or in between amongst your important regions.

It was wet out in the west. We didn't have the strongest Q4 for the company. We didn't have the strongest Q4 necessarily in California. I can tell you the numbers that I've already seen and we've seen in October indicate that we're already way ahead of where we were last year in the month, certainly out in the West.

Thank you, Kyle. Thank you.

Thank you. Our next question comes from Stephen Ramsey with Thompson Research Group.

Good morning. Can you talk about how much of the EBITDA margin raise was due to keeping WMS versus the other previous core segments? And does the FY23 and 24 margin commentary include WMS in it?

Yeah. Hey, good morning, Stephen. I'll take that. And if Kyle has any comments, he can add to it. So for the increase, yeah, the majority of that is the benefit from adding water, resources, and mineral services into our continuing operations. And we did have some ORP phase in the quarter, but this more than offset the increases from adding in water and minerals. And so for our guidance, looking at what we provided for 2023 and still our 2024 outlook, it is inclusive. of the water resources and mineral services businesses. So it is all in.

Okay, helpful. And then if you think about the vertical integration of California being kind of the goal for the rest of the country, if I understood that commentary, do you plan to acquire quarries around the country to make the central group more like the western group? just any color you can share. And to add to that, does the 2024 margin target count on this happening to any degree?

The short answer is no. It's not counting on that vertical integration expansion to get those targets met. That's really using the business that we have in place today. And we do anticipate continuing to grow our company. We want to do Deals that are, I guess, less risky to start, and those would be more bolt-on type acquisitions within our home markets today. So that's certainly easier to do out in the West. We want to look, certainly like California and our mountain groups and other areas of the country. And one area that we would want to go is certainly down in the markets of Texas and Florida where we have our business operations already there. I think that's going to be to come, but that's certainly on the list of things that we want to get accomplished over the next – two, three years.

Okay, helpful. And one more quick one on IIJA projects. How much can you take on in the central region? And do you expect projects from government funds like this, how much will they align with your operating plan to have a quicker burn, smaller project focus in that region?

Well, I think they align really well. I mean, we haven't seen the IIJA to date. I think that's something that we're looking forward to seeing. I think it's a little bit behind what we originally anticipated in terms of project lettings late this year and starting to see an impact in terms of construction early next year in 2023. But our teams across the country are very well positioned. I mean, the formulate portion of that is really based on population. We're in those locations, even in our central groups. I think the work that we're picking up kind of indicates the fact that we're competitive. And the margin profiles that they have in that work is consistent with the targets that we have longer term as a company. So we think we're very well positioned. I think another highlight that I'll share, the amount of work that we're really bidding in the bid pipeline today that's active is well above what we were pursuing at this time last year. So the markets are strong, and that's across the board. So we feel really good about the opportunities All of our teams found a month today. And that's in advance of the IIJA.

Good color. Thank you.

Thank you. Thank you.

Thank you. Our next question comes from Brian Russo with Sedoti. Hey, good morning.

Good morning. Good morning, Brian.

Hey. Just on, you know, the recent contract wins in Texas and California, I'm just trying to get a sense, you know, what's the competitive bidding like or the behavior? You know, what separates you from your competitors? You know, maybe it's the macro environment, maybe it's the balance sheet, you know, that is enabling you to win these awards, you know, at the margin profile, you know, that you're targeting.

So that is really our strategy around these home markets. That's where we do our best. That's where we have local knowledge, local resources. We have the labor. Sometimes we have the materials, and we understand the owners, and we understand the regulators in those markets. So that's really the key for us. That's where we do best, and that's really why we changed our strategy to really focusing on these home markets. We've had home markets as a company. We certainly had them out in the West, and the real shift for us is on these These teams that were historically chasing large projects throughout the United States were focused on developing a home market strategy for those states and those markets, and that's going to allow them to really be successful in the long term.

Okay, got it. And then I was surprised, maybe you mentioned this earlier or you could elaborate, I was surprised to see the margins down in the materials despite The energy surcharge is implemented in the second quarter. Is there some, you know, contract lag on that? Or, you know, how should we look at the year-over-year quarterly margins going forward?

Yeah, I'd say there was still a little bit of lag on that. We won't have it. The energy surcharge won't completely get us whole until the end of the year. So it's been slowly decreasing our amount of exposure. But certainly there was still a little bit of lag. some of the pricing that we had out early on. And again, that was where we missed the natural gas, probably along with everybody that hit at the end of Q1. And so we did have some pricing out in advance of that. But we expect, really, as you look in the comments we spoke about, our backlog really of materials in California is up. So it's up versus where we were last year at this time. So as you look forward, We think we're well on our way. And again, I mentioned in October, the numbers that we already saw in October are really encouraging that we're ahead of where we were last year at this time too.

Okay, great. Thank you very much.

Thank you.

Thank you. Our next question comes from Jean Ramirez with DA Davidson.

Good morning. This is John Ramirez for Brent Hillman. How are you?

Good morning. Good morning.

Good morning. Do you mind recapping the ORP remains and what the burden is expected for the remainder of 2022 and how much is left into 2023?

Yeah, I can cover that. And so just even to recap further to show the progress that we've made on CAP, you know, we entered the year with $314 million. And so far at the end of Q3, we're down to total ORP cap of $150 million. So we burned $44 million of revenue related to cap, ORP cap, in the quarter. But two, to clarify, of the $115 million, and we've talked about this before, we do have one project. It's a profitable project, but we included it in the ORP because it is a non-sponsored joint venture. And we are not entering into those type of projects moving forward. So really, at this point in time, our challenged ORP is $115 million at the end of Q3. So at the end of the year, we anticipate that our challenged ORP cap will be right at about $55 million. So we've really made good progress through the year. If you look at it in totality for our portfolio, the $314 million was about 8% of our total cap. So by the end of the year and entering into 2023, the challenged ORP will only be about 1% to 2% of our overall cap. So that's why, as Kyle has said earlier, that we really don't anticipate to be talking about the ORP entering into 2023.

And you said that's $115 million at the end of Q3?

At the end of Q3? 115 million of our challenged ORP.

Perfect. And, yeah, and then I just wanted to know, given the funding and bidding environment, when do you expect to see more meaningful growth in CAP? I know you talked a little bit about that, you know, moving into 2023, but do you want some color in terms of the projects and, you know, and how it aligns with... the smaller projects and faster burn?

Yeah, I mean, we've had these big projects as part of our cap historically, so it's kept our cap high. As we start shifting to our smaller projects, we are going to start turning those projects quicker than our historical large projects, so there will be a little bit of shift in cap, but in general, our teams have done a really nice job picking up work and offsetting that decline that we saw in the ORP. Again, Our bid schedule today is really strong, and we feel really good about our opportunities out in front of us. Even that's in advance of the IIJA. And I expect if we continue to pick up work at the pace that we've seen and we see the opportunities continue, I expect Q4 to be a really strong quarter for us.

Great. Thank you so much. I'll hop back in with you.

Thank you. Thank you.

Thank you. Our next question comes from Jerry Ravish with Goldman Sachs.

Hi, this is Adam Buvis on for Jerry today. Thanks for taking my question. I was wondering if you could elaborate on the decision to retain the water resources and mineral services business. You know, is this more a reflection of the current environment we're in for M&A, or should we expect this business to remain as part of the portfolio on an ongoing basis for the long term?

So the quick answer is you should expect it to be part of the portfolio for the long term. But the decision was really based on valuation. We were in exclusivity with two buyers for those businesses. The credit market changed over the last, say, month or two. They were looking to retrade. It was to a level that we didn't think was in the best interest of our shareholders or the company. And so that was really the change. I can tell you these businesses have been performing well. The markets are very strong. We've got great leadership, and we have great teams in those businesses. So we're excited to have them as part of the Granite portfolio. And our balance sheet is strong, too. So we don't see us having any sort of providing a hindrance on our ability to grow the company either. So hopefully that answers your question.

Great. And someone asked about the margin guidance earlier. I have a similar question on revenues. Is the entirety of the revenue guidance increased from the inclusion of water resources and mineral services, or is there any contribution from better performance in your core civil and materials business?

So, you know, we did the adding in water resources and mineral services obviously does impact our revenue guidance. You know, at this point in time for 2023, you know, we were really just providing the a little bit of insight for what we're seeing for next year for our adjusted EBITDA margin. But definitely, even with the update that I provided this morning for the rest of the year, we increased revenue to the range of 3.2 to 3.3 billion. So yeah, so definitely there's improvement there for adding in those businesses back into continuing operations.

Great. Thank you. Thank you.

Thank you. Ladies and gentlemen, this is the end of our question and answer session. I would now like to turn the call back over to Mr. Larkin for his final remarks.

Okay. Well, thank you for joining the call today. As always, we want to thank all of our employees for the work they do every day. And thank you for your interest in Granite. We look forward to speaking with you all soon.

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