Granite Construction Inc Q3 FY2021 Earnings Call

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 capital 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 result from 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 accompanying 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 include 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 green 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 of 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 its stakeholder expectations, which measure material sustainability goals relevant to our operations, and the Granite report aligns with standard sustainability reporting frameworks. With Granite's 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 delivered 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 and an anticipated decrease in the Heavy Civil Group. Within the Heavy Civil Group, we saw the 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 on our existing relationships with 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 focus 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 from Washington to Nevada to Arizona. California 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, we experience this during fiscal years when contractors are focused on securing work. While the bidding environment returned to more normalized levels of competition this summer, it impacted California during the third quarter. The second important factor when comparing the third quarter of 2021 to the prior year is the impact of owner worksite accommodations in 2020 due to the pandemic. While we were able to obtain accommodations from owners in most geographies in 2020, this was 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 the California group as of the end of the quarter. Segment cap increased 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 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 our team's ability to obtain high-quality work and the broader market strength in terms of lettings across our geographies, particularly 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 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 trenchless and pipe rehabilitation and water supply and maintenance businesses both increased 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, a slight decrease compared to the second quarter, but 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 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 intend 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 for Granite, resulting in significant successes that allow 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 in 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 serve our mining clients through a variety of civil construction projects, from 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 focused 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 storage 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, creating 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 in CAP sequentially from the second quarter. With the relationships across end markets within especially segments, we believe Granite's diversified civil construction expertise will allow us to capitalize on increasing public funding and resilient private markets, continuing to drive revenue growth in the future. Now, turning to the material segment, the third quarter continues 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. However, we have 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 at the beginning of 2021 and had an 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, while 2021 has been 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 however 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 in 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 an increasing amount of Best Value procurement work. Best value procurement awards now comprise $1.7 billion, representing 39% of our total CAP, while design build continues to decline to $487 million, or just under 11% of our total CAP. Although there is more work to do, and we are not taking our 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 to 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, and 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 savings 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 in 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 Materials 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 contrasted 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 range from 5.5% to 7.5% to a range of 6% to 7%. Considerations factored into this may affect the amended range are 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 the 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, will continue to allow us to transform our portfolio and grow in the future. Our cash and liquidity remain strong, providing 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 goes back to what we talked about on the prior calls. We did see some weddings get pent up in 2020 with a pandemic, which created a more competitive environment coming into Q1 of this year. And we talked about how that extended a little bit longer than typical, was certainly the 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, and 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, there's 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, this will provide clarity to agencies so they feel confident they can work out. Two, as the private market is still a little bit questioning some of the supply chain events and 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 point back to the transportation cap that we have today, in California, 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. In my follow-up, you've noticed a significant increase in capital in the Water segment, which is clearly still underperforming. When can we expect to see more benefits from the improved margins you're achieving, offsetting the lower-margin work you're still addressing? Is any of this reflected in the updated guidance today?

It's all considered in the guidance that we updated today; everything that we're really talking about. I would say that the write-downs we had in the Water segment last quarter and even this quarter are for the same channel projects that consider near-term issues. One project is basically closed out, and one is just about in the closeout phase. We have seen the water business was hit pretty hard with the pandemic. We saw some delayed lettings certainly in the liner business, the pipeline 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, which has come online that we started. So I would think that really what we're seeing in the water is a near-term issue. 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. I think we are three quarters now we've guided towards breakeven business with the ORP. And that's really where we're at today, which I think our teams on the field are doing a really nice job focusing on those projects. And they're tough projects, and they're challenging. 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 that's 100% design. Really, we're looking at design build projects that are long-term. From the point of time that you actually price the work, to the point that you actually build the work, there's definitely a higher risk profile. And certainly the kind of inflationary times that we're in today, and even supply chain issues we have 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 is over $150 million with the 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, which are those ones that are 100% designed, sits 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, 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 moving towards a best value contracting method, certainly in certain parts of our geographies. We think there is a good market out there, and despite the fact that there might be higher competition, there’s really not a lack of opportunities for us to pursue. So I do think that is something we can look to as we look to build CAP. 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 the weather was in Q3, and what you're seeing heading into Q4 in the Northwest?

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; we’re seeing it down in the south; we’re seeing it down in central; we’re seeing really the first storm of the year. There are certain parts of our business, say up in Alaska, that have already pretty much shut down for the year due to weather, and we certainly have parts of our business that are still cranking. So, it's the first storm 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, it's what the weather's going to look like for the remainder of the year.

Understood. Yeah, you think it's 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 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 of some of these issues that are going on?

So I mentioned earlier that we are seeing some projects being held up as owners decide 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 a little bit of everything out there. There are 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. As the margins have changed in 2021, we couldn’t keep that margin expansion 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 businesses that have been with us for a long time. 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. 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 we have, which is going to have a longer working schedule, maybe another year or two. So we do have employees that go work on these projects that will have an extended opportunity for them. In the water division, we are challenged. We have a lot of hires that are non-union. That's been a challenge for us. But there's definitely a lot of labor and a lot of competition for labor out there today. And I think the other issue is 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 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 are chlorine tablets that we use for install Hi. 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 has been relatively small. And it's really around scheduling, and it is right in front of us, and they navigate the challenges that they have. 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, on overall claims and progress on that front. I noticed there’s a new governor installed in New York State this past quarter; any thoughts on whether these changes might help with progress moving forward 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 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 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 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 the Leon Hurse Dam or the inliner business on the pipeline and what we're seeing in the back half of the year in terms of opportunities certainly has improved with a lot of pent-up demand getting put back up and customers moving 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 to fall in line with the overall guidance 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. I’m 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 to have similar margins to what we see in other parts of our business. So if you’ve heard those write-downs earlier, 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. 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 due 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 and analysts, thank you for your continued interest in Granite. It is an exciting time for the company. We look forward to speaking with you soon.

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