Q3 2022 Granite Construction Inc Earnings Call
Good morning, My name is Brandon and I will be your conference first of all let's say either for today at this time I would like to welcome everyone to the granite construction Investor Relations third quarter 'twenty 'twenty Conference call. This call is being recorded at.
All lines have been placed on mute to prevent any background noise.
And after the Speakers' 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.
I'm pleased to be here today, with President and Chief Executive Officer, Hal Lawton, and executive Vice President and Chief Financial Officer Lisa.
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 judgment of senior management regarding future events, the corrosive 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 granites, 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.
As 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 margin, 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 Carla.
Good morning, and welcome to our third quarter call.
We will start this call with an update on our efforts to drive improved gross profit margin across our portfolio of projects.
I am pleased to report that excluding the ORP or construction gross margin improved to 14, 8% in the quarter I want to congratulate our team on this accomplishment.
This margin improvement validates all the hard work, we have been performing across the company to improve profitability.
Talk more about this pre performance later in the call.
Before we dive into performance I also want to mention an update to our divestiture plan did occur this quarter as we announced in September we are retaining the water resources and mineral services businesses.
This is what we report into the mountain and the construction segment.
Both businesses have performed very well this year and that market outlets to support future growth.
The decision to retain these businesses 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 of water management.
Applied to treatment to delivery maintenance for government agencies commercial municipal water suppliers industrial facilities and agricultural and energy companies.
The water well drilling installation rehabilitation of wells pumps and water treatment technology, our teams identified and developed water sources recharged Aqua first and deliver political water.
Mineral services provides mineral exploration services, the largest mine operators in North America.
Copper and gold operations, while the business is cyclical and there has been recent weakness in copper and gold prices. We believe the push it also fuels to electrification will support strong cycle of growth in the mining industry.
We are well positioned to support our mining partners and this growth not only in mineral exploration, but also through civil construction services on their mindsets.
Turning to the broader view of our three operating groups.
We remain laser focused on achieving our 2024 strategic plan targets construction segment gross profit margin of 14% to 16%.
Holiday is EBITDA margin of 9% to 11%.
As I mentioned at the start of this call. We are seeing progress in this area in the third quarter gross profit margin, excluding the ORP, a 48%, which is an improvement quarter over quarter from 14, 1%.
The improvements we are experiencing are credit to the steps we've 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.
Good day.
Oakland, our margin expectations and our project portfolio consists of higher quality work and granite has had in years.
The second area of the project lifecycle focus has been project execution, we are raising the bar by driving consistency and performance to further standardization of processes.
Medication 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.
We are positioned to build upon these results as we work to achieve our 2020 forced you to plan gross profit margins of 40% to 60%.
During the third quarter, we continued to see positive funding levels and project opportunities across our footprint.
Well there have been instances, where inflation has caused the hope is to be above on our estimate delays or project cancellations have been limited.
Public markets project opportunities continue to be strong despite minimal benefit to date from a federal infrastructure Bill.
Jay.
And 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 landmark.
Surely.
<unk> does not have significant exposure to the residential market, which is showing signs of significant spot.
Turning to the ORP, we continued to burn through the remaining work on these projects.
There is $150 million remaining on the ORP projects at the end of Q3, we expect approximately $90 million to carry into 2023.
As a reminder, $35 million on the ORP cats expected to carry into 2023 relates to one small profitable project that is included in the ERP because it is a non sponsored joint venture.
Excluding this profitable project there is $55 million ORP cap is expected to carry into 2023, you've made to the challenging projects.
For current active challenging our ERP projects to our in the closeout of a parcel of stage 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 schedule delays, which drove increased cost because we're maintaining work.
We expected to pay to be completed this year, there's now pushing into 2023.
This one project represents more than half of the $55 million in challenging ORP project cap, which is expected to be completed in early 2023.
We believe our forecast to capture the cost that will arise 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 223, we believe there are many risk ORP greatly decrease and our focus will be on the construction segment performance as a whole.
As I have said before we cannot finish this works Internet I'm excited to see at the end is in sight for the challenging ORP.
Now I'd like to discuss the transformation of our Central 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 Mountain group's model structure and portfolio that we're working toward across the company.
All markets, we are trusted relationships with stakeholders and employees market intelligence and access to resources.
Attributes result in us winning more projects at higher margins and higher levels of customer satisfaction.
Texas region, our Central group has historically pursued and constructed large projects across south eastern and Midwestern States last year. The region was asked to do two things first de risk this portfolio by changing the types of projects that proceed from complex design build projects to smaller <unk> for best value projects.
Second build a home market within Texas.
The focus of this effort has been to solidify our presence in the rapidly growing Houston Metro area.
Hello Grant that's been in the Houston market for over 15 years and has good relationships with the Texas D O T. The.
The labor pool contractors and vendors, we have missed opportunities to strengthen those relationships as we chase work across the country.
The Houston area as a growth market with healthy funding levels and a resilient pipeline of job opportunities and end markets for transportation to water to private site development.
We've applied the targeted selected this 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 and southwest Houston totaling $145 million.
The projects are in close proximity to each other should allow us to leverage existing teams and resources, we have built in the market.
Our Central group has done a great job building the foundation for future profitable growth.
A key component granted reaching the targets set out in our strategic plan.
Yeah.
Now turning to cash we entered Q4 with $4 1 billion of cap.
A sequential decrease of 135 million following what is traditionally our busiest quarter of the year.
Year over year, excluding grants and liners cap of $205 million in the prior year cap decreased $45 million again results from our efforts to de risk our project portfolio as we move away from large complex projects to smaller projects that they are within our refined credit risk criteria.
But we are seeing resilience in our private market work and continued strength in public market opportunities.
It appears that the additional funding.
He is taking longer to turn into Lettings and originally expected.
<unk>, we're 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 SB one was first passed.
We hope to see more meaningful impact on the project opportunities over the next six to nine months to go.
Good news is that the <unk> will build upon the current positive market.
We believe we are well positioned to capitalize on the increased funding through our home markets large and high growth states to receive the bulk of the volume as the projects are released.
I am excited as I look at the quality of cash across our groups and 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.
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 remained 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.
As demonstrated by 16% year over year improvement in the volume of aggregate orders as of the end of the third quarter.
Asphalt volumes during the quarter increase year over year, and the mountain central groups, but was more than offset by declines in the California area.
The decline in California is primarily due to a decrease in asphalt paving projects compared to the prior year.
This decline in volumes in the quarter. We are encouraged that any orders are now ahead of the prior year just move into the fourth quarter.
During the quarter, we saw revenue gross profit increase over the same period in the prior year and saw a decrease in gross profit margin is lower asphalt volumes and inflationary costs continued to impact segment profitability.
We expect that the energy surcharges introduced during the second quarter will continue to offset inflationary pressures and boost revenue gross profit and the materials segment now.
Now I'll turn it over to Lisa to discuss our financial results.
Thank you Kyle.
Third quarter revenue decreased 5% from the prior year comparable revenue, which excludes granted in line or $65 million of revenue in the prior year increased 1%.
Third quarter gross profit increased slightly resulting in a gross profit margin of 12%.
And 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 our central group as ORP projects approach completion and as our teams mobilized to recently awarded projects.
Revenue in the California group increased 8% year over year as the group executed on record cat that it carried into the third quarter.
Mountain Group, which is now home to water resources and mineral services.
It's comparable construction revenue increased 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 in the Utah region.
The construction segment gross profit for the quarter was slightly down from the prior year.
Comparable gross profit, which excludes granite and liners gross profit of $5 4 million increased 5% with an overall improved gross profit margin at 12% for the quarter.
<unk> ended the quarter whenever banning capped at $150 million, a decrease of 45 million from the prior quarter.
Challenging ORP cap, which excludes our profitable, California group ORP project totaled $115 million at the end of the quarter.
Now a challenged ORP cap expected to carry into 2023, it's approximately $35 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.
<unk> 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 gross margin of 14, 1% in the second quarter.
Materials segment revenue increased 24 million or 17% compared to the same period in the prior year comparable materials revenue, which exclude granite and liners $5 million and 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 saying 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 nine 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 at <unk> 93 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 grades as well as lower SG&A, resulting from the sale of granite and liner and decreased incentive compensation expense.
Our third quarter results reflect the progress we are making towards 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 at 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 cat heading into the fourth quarter and weather permitting we expect both great 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 eight to eight 5% 40 here.
Regarding the annual effective tax rate during the year, we recognized two significant discrete items with the SEC investigation settlement charge.
The deferred tax effect.
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 twenties.
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 our P 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 and 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.
It will be between $120 million and $130 million at <unk>.
$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.
Because we completed 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'm pleased with our performance across the company, we are making incremental improvements that we believe are necessary to reach our 2024 target of 9%, 11% EBIT margin in the third quarter's noncore ERP gross margin of 14, 8% demonstrates the progress we are making.
In the materials segment, we continue to see strong volumes in aggregates sales you're 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 cat 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 that the interest there is.
It is only a matter of time until we receive the benefits from this generational investment and 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 and the company has been in many years, we're 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 one.
Please limit yourself to one question and one follow up question and then 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, so thats, certainly youre, making some great progress there.
How do you.
You see you so youre encouraged about bid day, what you're putting into the backlog could you maybe reflect on the.
The risk and margin profile of whats going into the backlog amongst your divisions.
And relative to what youre executing off that backlog and how that gap has narrowed.
Or the type of opportunities you are putting into backlog from a margin today.
Fit with what you anticipate could be generated in 2024 or is there still a market that.
Or execution issues that need to be addressed to achieve those targets.
Yes, Thanks, Mike we feel really good about the catheter, we havent placed today.
We've been working on our capital the last couple of years is transforming our cap de risking your company really working hard to shift away from those.
Really large projects that we had in the past.
And it's really across the board in the Donut chart that we share really highlights. The fact that we reduce that design build portion going back two years in Q3 of 20% of our cap is now down to 5%. So that's a big evolution for us and really speaks to the derisking of our port.
Folio I'd also shows.
About 43% of our cap today is his desk value of these projects that are really negotiated were hired for the value we bring to the client that.
We do fairly well on a relative to sort of the design build projects as the projects get larger so the teams have been working really hard.
We've been 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 thats been on the cap for a while and we're adding new work that has a higher margin profile than what we had say a year ago, but last three quarters now including Q3.
I can say, we picked up more work with higher margins and so we're right, where we want to be and I think that's really really pointed in the right direction and that's how we're bridging to the 2024 on gross profit.
Alright.
And the execution from the margin bid to executed has narrowed better still needs a room for improvement.
It's better execution, even outside the ORP there was an opportunity for us to do what were already really good at and become what we say is the best at it and we've made progress.
We think theres still opportunities for us to.
Focusing on our execution and get even stronger outside the RFP, but yeah, our execution is getting stronger across the board.
And my follow up is just could.
Could you remind us in Q4 2021.
What the weather impacts were and how.
How is it how we start in 2022 and just to give a sense of chemical where it was dry wet or in between amongst your important regions.
It was it was wet out in the west we didn't have the strongest Q4 to the company we did not as strong in Q4.
Necessarily in California, I can tell you the numbers that I've already seen and what you've seen in October indicate that we're already way ahead of where we were last year.
Certainly on the west.
Thank you Paul.
Thank you.
Yeah.
Thank you. Our next question comes from Steven Ramsey with Thompson Research group.
Good morning can you talk about how much of the.
The EBITDA margin raise was due to keeping WNS versus the other previous core segments and does the FY 'twenty three and 'twenty four margin commentary include WNS in it.
Yeah, Hey, good morning, Stephen I'll take that and Karl has any comments. He can he can add to it so for the increase the other majority of that is.
The benefit from adding water resources and mineral services.
Our continuing operations.
And we did have some ORP fades in the quarter and that this more than offset the increases from.
From adding in water and minerals and so for our guidance looking out what we provided for 2023 and still our 2024 outlook. It is inclusive of the water resources and mineral services businesses. So it is 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 Terry do you plan to acquire coreys around the country.
To make the central group.
More like the western groups, just any color you can share and just.
To add to that does the 2024 margin target count on this happening to any degree.
The short answer is no. It is not counting on that vertical integration expansion to get those those targets Matt.
That's really using the business that we have in place today.
And we do 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 thats certainly easier to do out in the west we want to look like.
California Inner mountain groups and other areas of the country. I'm wondering is that we would want to go is certainly down in the markets of Texas, and Florida, where we house our business operations already there I think that that's going to be to come.
But that's certainly on the list of things that we wanted to get accomplished over the next two to three years.
Okay helpful and one more quick one on.
II JA.
<unk> projects.
Can you take on in the Central region, and do you expect projects.
From government funds like this.
How much will they aligned but your operating plan too.
Have a quicker burn smaller project focus in that region.
Well I think the align really well I mean, we haven't we haven't seen to.
To date I think that's something that we're looking forward to see that gets a little bit behind what we originally anticipated in terms of project letting late this year and starting to see impacts in terms of construction early next year in 2023.
But our teams across the country.
Very well positioned to formulate portion of that is really based on population where in those locations even in our central our central group I think the work that we're picking up.
Kind of indicates the fact that we are competitive.
The margin profiles, they have and that work is consistent with the targets that we have a longer term as a company. So we think we're very well positioned.
Other highlights then I will share the amount of work that we're bidding in the bid pipeline today.
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 to all of our teams on funding them today and Thats in advance of the <unk>.
Good color. Thank you.
Thank you. Thank you.
Thank you. Our next question comes from Brian Russo with Sidoti.
Hi, good morning.
Good morning, Good morning, Brian .
Just on the recent contract wins in Texas, and California, I'm, just trying to get a sense.
The competitive bidding like or the behavior.
Right you from your.
Competitors.
Maybe just a macro environment, maybe just balance sheet.
That is enabling you to.
To win these awards.
<unk>.
Our margin profile.
That you're that you're targeting.
So that is really our strategy around these home markets, that's where we do our best as where we have local knowledge local resources, we have the labor.
Sometimes you have materials.
And we understand the owners and we understand the regulators in those markets. So that's really the key for US is what we do best and Thats really why we changed our strategy.
That's really focusing in on these home markets, we've had home market as a company, we certainly out of mountain West and a real shift for US is on these these teams that we historically chasing large projects throughout the United States. We're focused on developing our home market strategy for those states in those markets and asking them to allow them to really be successful in the long term.
Okay got it and then I was surprised maybe you mentioned this earlier you could elaborate I was surprised to see the margins down in the materials. Despite the.
The energy surcharges implemented in the second quarter is there some contract lag on that or.
How should we look at the year.
Year over year quarterly margins going forward.
Yes, I would say there was still a little bit of lag on that we won't have that energy surcharge will completely get us whole until the end of the year. So it's been slowly decreasing or amount of exposure.
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 we missed the natural gas product line with everybody.
At the end of Q1, and so we did have some some pricing out in advance of that but we expect.
Really as you look in the comments, we spoke about our backlog and really.
Materials, and California is up.
So it's up versus where we were last year at this time. So as you look forward and 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.
Okay, great. Thank you very much.
Thank you.
Thank you. Our next question comes from Jean Ramirez with D. A Davidson.
Yes.
Good morning. This is John Lewis for Brent how are you.
Good morning, good morning.
Good morning.
Do you mind recapping, the ORP remains and what the burn is expected for the remainder of 2022 and how much is less into 2023.
Yeah, I can cover that and so just even to recap further to show the progress that we've made on cash we entered the year with $314 million and and so far at the end of Q3, we're down to total RP cap at $150 million. So we burned 40.
$4 million of revenue related to Cat M O R. P cat.
In the quarter so.
Two to clarify 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 OSB 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 are 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.
You look at it in totality for our portfolio.
The 100, and the 314 million with about 8% of our total cat. So by the end of the year and entering into 2020 three the challenged our RP will only be about 1% to 2% of our overall cap. So that's why as Carl has said earlier that we really don't anticipate to be talking about the ORP.
Into 2023.
And you said, that's a $115 million at the end of Q.
At the end of Q3 hundred $15 million of arch out yeah of.
Of our challenged ORP.
Perfect.
Yes, and then I just wanted to know.
Given the funding and bidding environment. When do you expect to see more meaningful growth in cap is I know you talked a little bit about that.
Moving into two and three but can you give us some color in terms of the projects.
And how it aligns with.
The smaller projects and faster burn.
Yes, 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 towards smaller projects regarding 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 cheeses, 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 in advance of the <unk> and I expect if we continue to pick up work at the pace that we've seen and we see.
The opportunities continue or expect Q4 to be a really strong quarter for us.
Okay. Thank you so much I'll hop back in the queue.
Thank you. Thank you.
Thank you. Our next question comes from Jeremy <unk> with Goldman Sachs.
Hi, This is Adam <unk> on for Gary 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 is.
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 over the long term, but the decision was really based on valuation.
We're in exclusivity with two buyers for those businesses the credit market changed.
Over the last month or two they were looking to reach to a level that we didn't think it 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 and we've got great leadership and we have great teams in those businesses. So we're excited to have him as part of the granite portfolio.
Our balance sheet is strong too so we don't see this having any sort of.
Providing a hindrance on our ability to grow the company.
Either so.
Hopefully I answer your question Greg.
Great and someone asked about the margin guidance earlier I have a similar question on revenues.
Is the entirety of the revenue guidance increase 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 we.
We did the <unk>.
Adding in water resources and mineral services, obviously does impact our revenue guidance at this point in time for 2023.
Just providing a little bit of insight for what we're seeing for next year for adjusted.
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 two to 3.3 billion. So yes. So definitely there is 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 and as always we want to thank all of our employees for the work did you every day and thank you for your interest in granite, we look forward to speaking with you all soon.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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