Good morning. My name is Debbie and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Incorporated 2021 Third Quarter 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. Please note, today 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 Vice President of Investor Relations, Mike Barker. Please, go ahead..

Good morning. 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 an overview of the company's safe harbor language. 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 judgment 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, whether they are results of new information, future events or otherwise, except as required by law. Certain non-GAAP measures may be discussed on 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 and adjusted earnings or loss per share. Reconciliations of non-GAAP measures are included as part of our earnings press releases and in companying presentations, which are available on our Investor Relations website.

Now, I would like to turn the call over to Kyle Larkin..

Thank you, Mike, and good morning and welcome to our third quarter earnings call. Today, I'd like to begin by discussing our sustainability program. Sustainability is one of Granite’s five core values, along with safety, integrity, inclusion and excellence.

In September, we published our 2020 sustainability report, and it's our most comprehensive report to-date. This report illustrates the emphasis Granite has placed on sustainability as a core value and as the foundational concept for our business strategy.

The report highlights the company's advancement of environmental, social and governance initiatives and articulates our vision to be the leading provider of sustainable infrastructure solutions.

As part of our commitment, we are integrating new sustainability goals and targets into our company's refreshed strategic plan, to ensure effective implementation of sustainability initiatives.

Environmental highlights from the report includes a result of Granite’s first climate risk assessment, a new carbon emissions reduction target and efforts to minimize waste and maximize recycling to conserve natural resources.

The importance of greenest activities and projects on the environment has been a focus with embedded environmental leaders in our businesses for over 20 years. With our environmental initiatives, we are taking our efforts to the next level.

Within the social responsibility initiative, we disclose a comprehensive strategy to promote diversity, equity, and inclusion across our workforce, including new priority targets. We believe that our hard work is paying off as we have been recognized as a great place to work for three years in a row.

By fostering an inclusive culture, Granite aims to attract and retain top industry talent and create a fully engaged workforce.

In the area of governance, we have also worked closely with our Board to establish a new framework to support the implementation our sustainability objectives, which formalizes Board oversight of the company's environmental, social and governance initiatives and clarifies organizational roles and responsibilities.

Granite has selected industry specific metrics that align with it stakeholder expectations, which measure material sustainability goals relevant to our operations and Granite report aligns with standard sustainability reporting frameworks.

With Granite new sustainability framework, we aim to create shareholder value and address relevant societal needs. As we move forward, we intend to reduce our carbon footprint, enhance positive social impacts in the communities where we work and strengthen our position as a leading provider of sustainable infrastructure solutions.

Now, let's go through our business segments for the quarter, starting with Transportation. Our teams across the country turn in strong segment results during the busiest construction quarter of the year.

Revenue in the quarter for our Transportation segment reflects an increase from the Northwest group that was offset by a small decrease in the California group anticipate a decrease in the Heavy Civil Group.

Within the Heavy Civil Group, we saw expected year-over-year top line decrease in the quarter as we continue to work through Old Risk Portfolio or ORP.

We continue to narrow our risk profile as we remain focused on returning projects with greater visibility to project design, smaller project size, shorter durations, and geographies that allow us to capitalize our existing relationships owners, suppliers, employees and subcontractors.

During the quarter, we've earned $100 million of ORP cap, which is in line with what we have discussed previously. All these projects are challenging and complex. We continue to be focused on execution and mitigating risk as they arise.

This quarter, we saw some gains in phase and project margin in the portfolio, but are meeting our expectations with only a slight loss to Granite year-to-date through September. Our vertically integrated California and Northwest groups have delivered solid results this quarter.

In the Northwest group, the increase in revenue was spread across the different geographies within the group from Washington to Nevada to Arizona. And California, we saw a decrease in revenue during the quarter when compared to 2020 primarily driven by two factors.

First, earlier this year, I mentioned that we were experiencing an extended competitive bidding environment. Typically this is experienced during the fiscal years contractors are focused on securing work, while the bidding environment returned to more normalized levels of competition this summer and impact the California during the third quarter.

The second important factor when I compare the third quarter of 2021 to the prior year is the impact of owner worksite accommodations 2020 due to the pandemic. While we were able to obtain accommodations from owners in most geographies in 2020, this is more significant in California. Our revenue is lower year-over-year.

The performance this quarter is in line with expectations and reflects a very positive environment driving higher cap in a California group as of the end of the quarter.

Segment cap increase sequentially from the second quarter, reflecting the strength across our markets and our ability to offset decreases in our Heavy Civil Group CAP with increases from a vertically integrated businesses. I'm pleased when I look at the mix in our transportation CAP and the progress we have made with the ORP.

We have seen wins across the company highlighted by the California group. Transportation CAP for California is $1.3 billion at the end of the quarter, which is up approximately $166 million sequentially over the second quarter.

At the end of this quarter, the California and Northwest groups amounted to 73% of total segment CAP compared to 61% at the end of the third quarter of 2020. This demonstrates not only our team's ability to obtain high quality work, but also the broader market strength in terms of lettings across our geographies and in particular California.

In the third quarter, we have seen continued strong project lettings ahead of the prior year, which should continue to support our ongoing transformation of the segment portfolio.

Related to infrastructure funding, late last month, Congress authorized an extension of the FAST Act funding levels through the end of this month, and the continued negotiations on the bipartisan long-term infrastructure bill.

The infrastructure bill provides for significant new funding, most likely impacting our businesses starting late in 2022 and building into 2023. Moving to the Water segment, the Water and Mineral Services group performed well during the quarter.

Our trench-less and pipe rehabilitation and water supply and maintenance businesses both increase revenues compared to the third quarter of 2020. Water supply and maintenance continued strong performance from previous quarters across the US.

This includes opportunities related to water infrastructure needs not only in the drought impacted western US, but also across the country with strong demand in the segment. Segment Cap as the third quarter stands at $524 million and slight decrease compared to the second quarter, an increase of $178 million over the prior year.

Segment CAP as of the third quarter stands at $524 million, and slight decrease compared to the second quarter, an increase of $178 million over the prior year.

As debate continues in Washington around the funding of water infrastructure projects, the need for investment is largely acknowledged across both aisles of Congress, and we believe we are well-positioned to take advantage of the numerous civil construction opportunities in the water end market as funding negotiations proceed to address the critical needs across the country, from flood prevention to dam and reservoir construction or repair.

In the Specialty segment, revenue continues to grow with each of our operating groups contributing to a segment diverse in end markets and customers. While the segment includes a significant amount of work with public customers, such as the federal government, it is also the segment with the largest percentage of work for private customers.

In the public sector, we continue to grow our work with branches of the federal government, including the military, Best Value, MATOC, IDIQ and Task Order Contracting.

We are proud of our work and relationships we have built with the federal government over many years and tend to continue to build upon those relationships, as the country is expected to expand spending in many areas in the years to come.

The private sector of the Specialty segment has been a focus to Granite and resulted in significant successes, allowing us to steadily increase CAP.

With the pandemic and the inflationary environment, although we have seen some slowdown in private commercial site development investment, we continue to pursue numerous opportunities, including the mining and renewable energy industries.

To start with mining, Granite has had a long standing relationship with mining clients within our Northwest Group. We typically have served our mining clients through a variety of civil construction projects from both construction to site development to reclamation.

More recently, we have extended our services to mining clients and mineral exploration. With commodity prices such as copper showing strength currently, we expect investment and opportunities to continue in the future. The renewable energy industry is also an area where we have invested and had success in building relationships and growing revenue.

Over the past several years, we have developed a focus strategy in pursuing renewable energy projects, which include solar field installations and battery storage, while currently not a significant component of our overall revenues.

With our industry leading position in store installation projects, and the current administration's plan to move the US toward a greener future, we believe there will be significant growth and investment and project opportunities in the coming years.

As of the end of the third quarter, segment CAP remains robust with project progression during the busy third quarter resulting in a $130 million decrease a CAP sequentially from the second quarter, with the relationships across end markets, within especially segments.

We believe Granite diversified civil construction expertise will allow us to capitalize on increasing public funding and resilient private markets, and continue to drive revenue growth in the future.

Now, turning to the material segment, the third quarter continue with the strong levels of demand we have seen in the two quarters of the year, but overall higher sales volumes of aggregates and asphalt as compared to the prior year period. But we have seen broad support for materials across our locations.

We have also seen demand shift across our geographies, partially offsetting the continued strong demand and sales volumes, for increasing prices for fuel and liquid asphalt. These price increases started beginning of 2021. And are impact accelerated in the second and third quarters, resulting in oil related costs returning to the 2019 levels.

The results in 2020 reflected the benefit of these lower costs with 2021 being more indicative of historical performance in the segment. Oil price volatility has been and will continue to be a focus of materials teams across the business in the fourth quarter and beyond.

Overall, our consolidated CAP as of the end of the third quarter was 4.3 billion, slightly down sequentially from the second quarter of 2021. This decrease was not unexpected in our busiest construction quarter, where project progression can exceed new awards. Consolidated CAP whoever did increase 135 million from the third quarter of 2020.

CAP from a vertically integrated group's continues to grow. Now at 61% of our total, heavy civil operating group cap decreased to 19% compared to 31% for the same period one year ago. We've been successful and replacing the heavy civil operating group ORP with work from other operating groups.

As we maintain discipline around our heavy solar group portfolio. We believe we have also been successful in our efforts to de-risk our portfolio through increasing amount of Best Value procurement work.

Best value procurement awards now comprise $1.7 billion that 39% of our total Cap or design build continues to decline to $487 million, or just under 11% of our total Cap.

Although, there's more work to do, and we are not taking your eye off the need to focus on project execution, I'm confident, we are positioning the company to continue on the path for improved financial performance. With that, I'll turn it over to Lisa discuss her financial results for the quarter.

Lisa?.

Thank you, Kyle. While the third quarter produced solid results, which were consistent with the second quarter, compared to prior year consolidated revenue was essentially flat at 1.1 billion in gross profit decreased 5% to $120 million, with a gross profit margin of 11%. Now, let me touch on a few key items in each of our segments.

In our Transportation segment, revenue was down $56 million year-over-year to $568 million, driven by the expected decrease in the Heavy Civil Operating Group as well as lower revenues in the California Operating Group due to the extended competitive bidding environment in 2021 when contrasted with an exceptionally strong 2020.

Transportation gross profit for the quarter increased 8% to $59 million, resulting in a gross profit margin of 10%, up from 9% in the same prior year period. ORP loss to Granite in the third quarter of 2021 was $5 million on revenue of $100 million compared to a loss of $23 million in the third quarter of 2020.

ORP loss to Granite is net as a non-controlling interest or NCI from our non-sponsor joint venture projects. The ORP loss of $5 million during the quarter reflects project gains and saves in this challenging portfolio.

For the nine months ended September 30th, 2021, the ORP loss to Granite was $400,000 which is in line with expectations compared to a loss of $62 million in the prior year.

As Kyle previously discussed, the third quarter of 2020 was an exceptional quarter for vertically integrated groups, driven by efficiencies gained through owner worksite accommodations, as well as the benefits of lower oil and fuel prices on the segment. During the quarter, ORP cap decreased $100 million.

Assuming expected project burn in the fourth quarter of 2021 of approximately $85 million, we believe we will carry approximately $275 million of ORP cap into 2022. This is in line with previous guidance.

In our Water segment, third quarter revenue increased 14% for the same period year-over-year to $122 million, driven by water supply and maintenance services demand across the US. Water gross profit for the third quarter decreased 21% to $10 million, resulting in a gross profit margin of 8%.

This decrease in gross profit margin was primarily due to work being performed on two challenging projects, which we previously discussed in the second quarter of 2021.

Moving to the Specialty segment, third quarter revenue increased 14% over the same period last year to $234 million led by progression on a federal site development project in our Heavy Civil Operating Group and increased revenues and our Mineral Exploration business in the mining industry.

Although there was a significant increase in gross profit year-to-date through September 2021, for the quarter, Specialty gross profit decreased 7% to $31 million and a gross profit margin of 13%.

The decrease was primarily due to continued performance of disputed work on a previously disclosed tunnel project and changes in profit mix within the segment.

Finally, in the Material segment, third quarter revenue increased 6% over the same period year-over-year to $138 million, driven by continued strong volumes in both aggregates and asphalt in the California and Northwest operating groups. Materials gross profit declined to $21 million, resulting in a gross profit margin of 15% in the quarter.

The declining gross profit when contrast it with an outstanding third quarter of 2020 was primarily due to increased oil cost, geographical shifts of volume during the quarter, and higher depreciation on two new plants placed into service at the beginning of this year. Turning now to our non-GAAP financial metrics.

Adjusted EBITDA for the third quarter decreased $14 million year-over-year to $81 million, resulting in an adjusted EBITDA margin of 8%.

The decrease in adjusted EBITDA was primarily due to lower gross profit from an exceptional third quarter of 2020 driven by favorable gross profit impacts mentioned previously, and an increase in SG&A during the quarter compared to the prior year. SG&A during the quarter increased $5 million to $78 million or 7% of revenue.

The increase in SG&A was primarily due to higher incentive compensation expenses recorded during the quarter. For the 2021 fiscal year, we reaffirm our guidance for SG&A at 8.5% to 9% of revenue for the full year.

Regarding our 2021 adjusted EBITDA margin guidance, I'm narrowing the guidance for the full year from a range of 5.5% to 7.5% to a range of 6% to 7%.

Considerations factored into in which may affect the amended range or weather across our regions in the fourth quarter, execution of the ORP and potential impacts from any regulations, or mandates related to the pandemic.

Our third quarter resulted in an adjusted net income of $43 million or adjusted diluted income per share of $0.93, compared to $54 million for the same period in the prior year. For the third quarter $1.5 million potential shares were added back to diluted weighted average shares outstanding.

As I have discussed in previous quarters, we have essentially mitigated the dilution impact of our convertible notes with the purchase of an equity derivative instrument. Turning to our cash and financial position, operating cash flow decreased $79 million to $60 million for the nine-month period ended September 30, 2021.

The decrease in operating cash flow is primarily due to claim settlements of $67 million received in the prior year, and an increase of plan contributions to unconsolidated construction joint ventures during the current year.

Our cash and marketable securities remained very strong at $475 million, as of the end of the third quarter up $81 million compared to the same period in the prior year and up $71 million sequentially. Our revolver availability as of the end of the third quarter stands at $228 million, with no debt currently drawn on the revolver.

During the third quarter, we received preliminary court approval of the shareholder litigation settlement, which triggered the settlement payment net of insurance of approximately $66 million after quarter end. Next, I want to briefly go over our capital allocation priorities.

We remain disciplined and intent on executing our capital allocation strategies to support the growth of our business and to preserve our financial strength. Since 2007, we have maintained the quarterly dividend of $0.13 per common share, we understand the importance of a sustainable dividend program to our shareholders.

Our next objective is to strengthen our core capabilities through business reinvestment. As previously mentioned, our markets are healthy and expecting strong growth and we want to build upon our existing market positions through reinvestment.

As we remain focused on the execution of our current portfolio, we also stay abreast of the M&A landscape to look for opportunities that align well with our strategic objectives. The final capital allocation priority is our share repurchase program authorized by the Board of Directors, with over 157 million remaining as of the end of the quarter.

In conjunction with the evaluation of our other capital allocation priorities, we continue to consider the use of the program to opportunistically return capital to our shareholders. Lastly, we are continuing to work with our Board of Directors on the finalization of our strategic plan.

With the dynamic environment and significant opportunities in the market, we are following a thoughtful and detailed process reviewing markets, capabilities and structure to best position us for the future. We plan to share more with you concerning our strategic plan in early 2022. With that, I will turn it back over to Kyle for closing remarks..

Thanks, Lisa, and I'll close with the following points. Despite the losses in the ORP during the quarter, we continue to burn to the remaining work in the portfolio and are on schedule to begin 2022 with approximately 275 million in ORP cap. Our focus on execution has not changed on these challenging projects.

Our cap as of the end of the quarter demonstrates the strength of our teams, our markets and our relationships with owners across the country.

I expect our expertise as a diversified, horizontal, civil contractor across end markets, geographies and types of customers, who will continue to allow us to continue to transform our portfolio and grow in the future.

Our cash and liquidity remain strong, and provides us flexibility to invest in growing our business and creating value for our shareholders. Finally, we are excited about the positive public and private funding environments in our market. Operator, I will now turn it back to you for questions..

We will now begin the question-and-answer session The first question comes from Brent Thielman with D. A. Davidson. Please go ahead..

Great. Thank you.

Hey, Kyle, on the transportation business, when do you think we start to see a more material turn in your California operating group? Are you sort of beyond these competitive market conditions? You talked about and starting to see the business pick back up, or is that a 2022 event?.

Good, Brent yes, good. Good question. It kind of going back to what we talked about on the prior calls, we did see some weddings kind of get pent up in 2020 with a pandemic, which created a more competitive environment really coming into Q1 of this year.

And we talked about how that extended a little bit longer than typical, was certainly the case – case this year. I would say that – the bid volumes today are a lot higher than what they were a year ago. They're back to pre-pandemic levels, we really feel good about the bid environment we're in. But it is a little bit more competitive.

There's a few things going on that are probably driving that. One is there's some still some uncertainty during the public spending side of things. There's a lot of debate and discussions today on the federal infrastructure bill. And so hopefully, I will provide some clarity to agencies. So they feel confident they can work out.

Two, as a private market is still a little bit questioning some of the supply chain events, some of the inflationary drivers that are affecting them and making decisions around how they want to invest their capital. So I think it's to be determined. I think we still have a nice market.

I think if you kind of point back to the transportation cap that we have today, in California, it's up and it's up significantly, and we feel really good about that. So kind of getting back to your question, I think the market is good. There is some competition out there. But we certainly like the direction it's headed..

Okay. And I guess my follow-up, you've seen this massive pickup in cap in the Water segment that the business clearly still under earning. When does that they can start to see more of the benefits of the good margin work you've picked up offsetting this lower margin work, you're still working through.

Is that -- is any of that reflected in that the updated guidance today?.

Well, it's all considered in the guidance that we updated today everything that we're really talking about. And I would say that the write-downs we had in the Water segment last quarter and even this quarter, as the same channel projects that consider near term issues. One project is basically closed out and one is just about on a closeout phase.

We seen the certainly the water business was hit pretty hard with the pandemic. We saw some delay lettings certainly in the liner business, the pipeline of business really in the first half of the year and we see that start to pick up in the second half. We have our Leon Hurse Dam project. It's come online that we started.

So I would think that really what we're seeing in the water is really a near term issue. We’re thinking long-term. We think it looks a lot better as we go into 2022..

Okay. Thanks..

The next question is from Steven Ramsey with Thompson Research Group. Please go ahead..

Hey, good morning. Maybe talk to the ORP coming down as planned. And then the design build being, I think you said 11% of cap, while best-value work near 39%, I guess, where can design build and best-value work trend over the next one to two years? I would guess, there's some benefit of the ORP melting off as well.

But any thought on how total cap can shift more positively over time?.

Okay. Well, so maybe I'll start with the ORP as planned. And I think we are three quarters now we've guided towards kind of breakeven business with the ORP. And that's really where we're at today, which I think our teams on the field, doing a really nice job focusing on those projects. And they're tough projects, and they're challenging.

And so we are pleased with the progress on the ORP. Getting back into your question around design build, today that it is about 11% of our cap has come down significantly over the last year or two, which is planned.

We're not in a position where we want to say we're not pursuing design build projects, but there has to be a compelling reason to pursue this design build project for us moving forward, just because the risk profile is a lot greater than the risk profile on a project. It's 100% design.

And really, we're looking at design build projects that are long-term. So from the point of time that you actually price the work, to the point that you actually build the work that there's definitely a higher risk profile.

And certainly the kind of inflationary times that we're in today, and even supply chain times we are today, that risk profile is only going to get worse. So your question around what that might look like, our profile in terms of the work that we're pursuing on the larger side have been over 150 million with Heavy Civil Group segment.

Design Build is really only around maybe 20%, or less of our overall pipeline of projects that we're pursuing today. Bid Build those are ones that are 100%, designed, sit right around, say 13% or so.

And really the CMGC, CMAR, and progressive Design Build, best value projects that we talked about are just about 55% of the projects that we have in our pipeline. So I guess to answer your question, we look at what we're pursuing today, the majority of it is more of the Best-value, then it gets down into the Bid Build on the larger projects.

And then really, the Design Build is probably the smallest portion of our portfolio. .

Okay, okay, helpful, helpful.

And then maybe to follow-on to combine this discussion with California being more competitive, as you discussed and channel checks that we have done, point to the whole country being very competitive, I guess, how can we balance that with the pursuit of more, best value work? Does this environment limit the ability to expand that best value CAP, in the near-to-medium term?.

No, I don't think so. I mean, right now, our CAP is up year-over-year. So we do feel good about that. Certainly our best value portion of our CAP is actually a higher percentage as well. So we do think there is a shift in general, from owners to moving towards a best value, contracting method, and certainly in certain parts of our geographies.

But, we think there is a good market out there, and despite the fact that there might be higher competition. And there's really not a lack of opportunities for us to pursue. So I do think that is something we can we can look to as we look to build CAP. And we do think the best value will continue to grow as part of it..

Excellent. Thank you..

Thank you..

The next question comes from Michael Dudas with Vertical Research. Please go ahead..

Hello.

Hey, can you hear me?.

Yes..

Yes. Hey, Mike..

Yeah. Phone issues here, so I apologize. Oh, yeah. Good morning, Lisa. Good going, Kyle and Mike. So first of all, reading about all kinds of weather in the Northern California range. We can talk about how weather was in Q3.

And what you're seeing heading in with in the Northwest to Q4?.

Yeah, Mike, you picked a good week to ask that question..

Yeah. Excuse me. I didn't mean that..

Because it's been very dry here for a long time. And then obviously we got hit with a big storm. Kind of everywhere we work. So we saw it out in the West were seated down in the south, we seated down in central we're seeing really a first storm of the year.

There are certain parts of our business say up in Alaska that have already pretty much shutdown for the year due to weather, and we certainly have parts of our business that are still cranking. So, it's the first time of the year. But I think looking out a little bit further it looks like, it's going to be dry for a period of time.

But that is the wildcard for us. Every year, as we get into Q4 is what the weather's going to look like for the remainder of the year..

Understood. Yeah, you think a good day to call? I guess that's the other aspect to it, right. And I hope you guys are inside. So second question is topic does your is supply chain and the labor tightness and cost inflation.

So maybe you can touch a little bit on materials, obviously, you sell materials well for buying the other side, labor you access, labor in the marketplace.

And anything on the cost side, or is it are some projects being deferred or things being pushed out or decided to move more, take a little bit longer for FID and to release because some of these issues going on these things?.

So I mentioned earlier, that we are seeing some of the projects kind of being held up as owner selected to determine whether they want to put projects out just based on some of the inflationary side of things.

On the supply side, we did see, there's, it's just, it's a little bit of everything out there, there's, there's some bigger supply issues, and certainly we saw last year that affected us in a positive way through the diesel, oil, and liquid asphalt prices that we were the beneficiary of in 2020, that we didn't, we couldn't keep that margin expansion in the 2021 at least today.

You shift over into the labor side. Labor is pretty consistent. We talked before that in the West. We're a union contractor. We have really strong relationships with our union partners, our employees in our -- these are vertically integrated business has been with us for a long time.

And we have a lot of work outside of ourselves, which is what our employees want. And then we provide that safe environment for them to work in, which is certainly attractive for -- so we are an attractive employer. As you look maybe out on some of the large projects, there is a challenge for us.

When there's a new large project that comes in adjacent to a large project that we have, which is going to have a longer kind of working schedule, maybe another year or two. So we do have employees that go and work on these projects that are going to have an extended opportunity for them.

And then certainly in the water division, we are challenged, we have a lot of hires, and that non-union environment. And that's been a challenge for us. But there's definitely a lot of labor out there and a lot of competition for labor that's out there today. And I think the other one is maybe drivers.

We're seeing some issues in certain parts of the geographies we're in for truck drivers themselves, which kind of ease you into that supply side. It's not just the driver shortage. It's also just the parts I'm hearing around. If the truck breaks down having the parts available to repair the truck to get it back in service.

There's chlorine tablets that we use for install Hi. And so just little things that kind of add up. But I would say in general, our teams have done a really nice job. The impact financially have been relatively small. And it's really around scheduling and it is right in front of it, they navigate the challenges that they have.

And I think they've done a really nice job getting us through the issues that we're facing..

Excellent commentary. And my question would be for Lisa, an overall claims and progress on that front.

I noticed there's a new governor installed in New York State this past quarter, any thoughts of these things changing a little bit there because of the new administration?.

Yeah, hey, Mike. So from a claim perspective in the current year, we continue to work on those in New York in particular.

We haven't had any significant movement at this point in time, but we are hopeful with the changing of the guard there that you know, there was a different set of eyes on it that we could see some better progress moving forward, but nothing significant at this point in time..

Got it. That's perfect. Thanks. Thanks, Lisa, Kyle..

Thank you.

Thank you..

The next question comes from Jerry Revich with Goldman Sachs. Please go ahead..

Hi, this is Adam Beavis on for Jerry Revich today. Just had a couple of questions back to the water business. Wondering, how you think about your addressable market in water, you know, strong growth prospects here and double digit growth this quarter.

You know, how do you think about the organic growth cadence once the environment sort of normalizes in this business?.

Well, yeah, that's a good question. I would say that, you know, in the Water segment for us, a lot of our operating groups and parts of our business participate in the Water segments. So it's really hard to, to give you an exact number. And that's really why we guide towards kind of the overall revenue for the company.

But I would say that, you know, we're excited about what's going on within our Water business, certainly, whether it's heavy filigree participation on Leon Hurse Dam, whether the inliner business, on the Pipeliner and what we're seeing in the back half of the year in terms of opportunities certainly are well joined businesses done a lot better in 2021 as we've seen a lot of pent up demand get put in -- get built back up and actually have customers calling and moving that business forward in 2021.

So I think just in general, we're starting to see a lot more movement in our Water business. That's probably the best way I can answer that is, I think it's going fall in line with the overall guidances not only this year, but as we move our guidance forward in the water segment..

Okay, that's helpful. And then also sticking in the water segment gross margins this year have been in the high single digit range.

And just wondering, how to think about the trajectory for margins as you continue to readjust the risk profile in this business?.

Yeah, we expect our Water segment just like we do when we give our revenue guidance, and we expect our Water segments at similar margins to what we see in other parts of our business. So if you've heard those write downs, or just under 13%, we still have a ways to go to get up to those maybe mid teen margins that we desire.

But we do see that that's kind of the trajectory that we're headed towards..

Great. Thanks so much..

Thank you. .

This concludes our question and answer session. I would like to turn the conference back over to Kyle Larkin for closing remarks. Okay,.

Okay. Well, thank you for your questions. To all of our employees we appreciate everything you do for Granite every day. Granite is a strong company we are to your efforts.

Together, we will continue to work in a way that demonstrates our commitment to our core values and positions us for success as we complete the fourth quarter and move into our second century as a company. And to the investors analysts, thank you for our continued interest -- your continued interest in Granite. It is an exciting time for the company.

We look forward to speaking with you soon..

The conference has not concluded. Thank you for attending today's presentation. You may now disconnect..