Q4 2022 Granite Construction Inc Earnings Call
Good morning, My name is Dave and I will be your conference facilitator today at this time I would like to welcome everyone to the granite construction Investor Relations fourth quarter 2022 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 to ask a question. Please press Star then 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.
Good morning, and thank you for joining us I'm pleased to be here today, with President and Chief Executive Officer of collagen and executive Vice President and Chief Financial Officer, Lisa Curtis.
Please note that today's earnings presentation will be available on the events and presentations page of our Investor Relations website.
We begin today with a brief discussion regarding forward looking statements and non-GAAP measures. Some of the discussion today may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1999.
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 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, except 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 and adjusted earnings per share the required disclosures regarding our non-GAAP measures are included as part of our earnings press releases.
The company presentations, which are available on our website granite construction dot com under Investor Relations.
We will also be discussing comparable results, which excludes the effects of granite in line, which was sold in March 2022.
Now I'd like to turn the call over to color.
Good morning, and welcome to our fourth quarter Conference call.
We have a lot of good news to discuss today. However, before we share our strong results I would like to briefly discuss the need to restate. Her first few quarters of 2022.
As Lisa will discuss in more detail.
The restatement was primarily caused by our failure to record a $12 million tax accrual in the first quarter, resulting from the sale.
Importantly, we do not expect any impact to our fourth quarter or year end results. We are discussing today.
At the time, we file our Form 10-K.
Now turning to our strong results during 2022, our centennial year granite achieved a number of important accomplishments, including the safest year ever in both frequency and severity of safety related incidents we.
We made notable progress towards achieving our strategic plan goals.
We invested in our home markets.
<unk> worked with margins that align with our 2024 financial targets.
At the same time, we worked through the majority of the central groups challenged hold risk portfolio or ORP and are committed and awarded projects per cap has continued to grow in both come out and quality.
Our focus on execution is resulting in higher margins and I believe we are positioned to experience margin expansion is sustainable growth as we continue to execute on our plan in 2023.
Okay, let's jump into the construction segment.
I've said in previous calls our markets are strong and we are pleased with the mix of opportunities available across the company.
As of the end of the quarter, our cap totaled $4 5 billion, a sequential improvement of 10% or $408 million and a year over year increase of 12% or $475 million or cap has also been transformed we have moved away from complex longer duration higher risk projects and towards more best value.
And the bill projects in our current and future home markets.
We can leverage our existing relationships and resources to execute upon our balanced portfolio of quick turn and longer duration projects.
We believe the combination of smaller and larger projects in our home markets allows us to maximize utilization of our material equipment and personnel, while providing predictable work and stability for our regions.
Turning to our operating groups and the California Group, we ended the quarter with record cap of $1 7 billion.
This reflects a 13% increase from the California groups third quarter cap.
8% increase for the prior year.
Although the end of the year is typically a little slower in the bedroom, we want more projects at higher margins when compared to the same period in the prior year the.
The increase in cap reflects high levels of funding across the state and our team's successful effort to capture work.
Approximately 50% of California's cash at quarter end for best value projects Cal.
Caltrans, California State Department of Transportation has embraced the construction manager general contractor procurement method.
Granite has demonstrated our ability to partner with caltrans to deliver high quality work, which increases the value for the end product for the customer.
In our experience collaborative contracting such as CNBC allows us to partner and innovate with homeowners before construction begins to mitigate potential risks to successfully deliver more complex projects, while avoiding disputes and claims.
We are proud of our long history of working with Caltrans, We believe caltrans is well positioned to deliver central transportation projects and are excited for increased opportunities department them to maximize value for the traveling public.
Despite an overall deficit and the proposed California state budget stays transportation budget remains strong in 2023 supported by funding from the federal infrastructure Bill.
During the first year.
California's federal Formula Transportation funding increased 42% or approximately $1 5 billion with funding expected to remain at this level for the next several years.
Although the majority of this funding has been allocated to projects as the state completes his planning and engineering process. It may still take considerable time for projects to reach the best schedule.
Despite possible delays in releasing Iga a funded projects, we believe opportunities in California will continue to increase allowing us to build cash and grow revenue in line with our strategic plan.
Moving to the Mountain group, we finished the year with cap of $1 1 billion up 8% sequentially and 14% year over year inclusive a cap on our water resources Division, which was held for sale as of December 31 2021.
As a reminder, the mountain group has diverse geographies, Couldnt, Alaska, Washington, Nevada, Utah, as well as diverse businesses, including our water solar and mineral exploration businesses that have a national footprint.
Many of our businesses and the mountain group are vertically integrated.
And operator long established home markets each of the mountain group geographies are different but my California, the markets will benefit from strong public funding aided by the <unk>.
In the fourth quarter, although we remained selective in bid fewer projects. We won more projects by dollar volume at higher margins in the same period of the prior year.
This excellent result is a testament to the disciplined work of the pursuit teams across the group.
2022, the non group generated the most revenue of any group I was curious strong portfolio of projects and markets, where we believe the group continues to grow cap in the first quarter of 2023.
The Central group ended 2022, with a sequential cap increase of $135 million and a year over year increase of $76 million.
As a reminder, the central group includes the Arizona, Illinois, Texas, and Florida regions as well as the federal internal divisions.
2022 was a year of transition for the group.
The group is focused on two primary goals first complete the challenge the ORP projects as efficiently as possible and second secured new work in their home markets, which aligns with our risk criteria.
As anticipated winding down the ORP projects presented challenges, but the group did well and pushing the projects towards completion the.
The Central group enters 2023 with remaining challenged ORP cap of approximately $85 million.
Which is less than 3% of the company's expected 2023 revenue.
As a result of our focus in 2023, we'll be on our construction segment as a whole I don't expect to talk about the ORP anymore and that is good news for the company.
During 2022, the Central group did a nice job focusing on their own markets.
Any projects aligned with our strategic plan targets.
Approximately 50% of the group's cap or in the established markets and the vertically integrated Arizona region.
Illinois region with just over 25% of the cap in the Texas region.
In 2022, Texas region has been successful in transforming their portfolio, while focusing on the opportunities in their home markets.
Our focus across the group as we remain disciplined in our bids and wind projects, where we can leverage our competitive advantages and generate returns in line with our margin expectations.
Overall I am very encouraged by the tailwind we are seeing not only in our construction segment, but also throughout the entire civil construction industry.
While it has taken longer than hoped for.
<unk> funds have reached the states money has been allocated to projects and the states are working to get the projects out to bid.
Our teams are focused on operational excellence both in the bedroom dining project execution, we made a lot of progress in 2022, and I believe we will continue to see meaningful improvement in profitability in the construction segment in 2023 as we continue on our path to the 2020 for EBITDA margin target of 9% to 11%.
Now onto the materials segment, where I am pleased by the strong finish to the year two.
2022% of challenges driven by high inflation and commodity related cost and a general inflationary climate across our nation and world.
Volatility resulted in margin pressure, despite strong materials volumes throughout the year.
Our materials business is a central component of our home market strategy and in 2022, we made several investments to support the business, we acquired 99 million tons of aggregates in Utah.
So liquid asphalt terminal in Bakersfield, California initiated automation projects in multiple facilities. These.
These investments were in addition to the normal capex related to our materials business.
In 2023.
Plan to strengthen and expand our materials resources in our home markets, both organically and through bolt on M&A.
While we did not complete any bolt on M&A in 2022, we explored numerous opportunities and are continually assessing new opportunities across our footprint.
We are being very selective, but there are many worthwhile prospects to consider in 2023.
This year is off to a slow start with ran across California and much of the western States in January but our materials backlog volume is ahead of 2022, both aggregates and asphalt.
I am encouraged by the bid activity across the company and the declining impact of inflationary pressure on energy costs as we entered the first quarter of 2023.
Now I'll turn it over to Lisa to review our financial performance.
Thank you Tom.
Let me first address the restatement as Kyle mentioned, the restatement was primarily caused by a discrete tax accounting error identified during our year end closing process.
In the first quarter, we fail to Evercore.
$12 million tax accrual primarily associated with the treatment of goodwill related to the sale of an liner.
When combined with other immaterial out of period adjustment. This triggered the need for a restatement of our previously reported quarterly results.
While we are disappointed we do not expect any impact to our fourth quarter our year end results.
They were reported today and we expect to timely file our 10-K, which will include a restated quarterly financial information.
Okay now back to our results.
I am pleased with the progress and improvement in financial performance, we achieved in 2022.
We finished the year strong with fourth quarter, adjusted net income of $25 million and adjusted diluted earnings per share at 56%.
For 2022, adjusted net income improved to $104 million and adjusted diluted earnings per share improved to $2 31.
Adjusted EBITDA margin for 2022 was six 4% up from 6% in 2021.
These gains and financial performance were driven by our team's improved project execution. Despite the drag of the ORP and materials margin pressure from inflation impact earlier in the year.
In 2022, the ORP resulted in gross losses of 51 million with a net loss, including NCI F 35 million on revenue of $207 million in the fourth quarter. The ORP did not significantly impact our results as the net impact at the portfolio was breakeven.
On revenue of $34 million.
For the year comparable revenue, which excludes revenue from granted in liner was slightly down from the prior year, while comparable gross profit and gross profit margin improved $24 million and 78 basis points respectively.
And the construction segment annual comparable revenue declined to $100 million year over year to $2 8 billion. This decline was primarily due to a $206 million decrease in our central group as ORP projects approach completion.
Essential group's revenue decline was partially offset by $118 million increase in the mountain group driven by higher beginning cap levels and stronger market conditions.
The California group remained largely flat year over year.
As I have discussed previously, California group revenue was impacted by delays in project startups earlier in the year and.
In the fourth quarter, we saw some improvement in that dynamic which resulted in a year over year increase in construction revenue in the group.
Annual comparable construction segment gross profit and gross profit margin improved $17 million and 96 basis points year over year to 300 million and 10, 8% respectively.
Comparable annual non ORP gross profit margin improved to 13, 7% in 2022.
From 12, 7% in 2021.
In 2022, we made progress to improve our margins and I believe that we are well positioned to further increase our margins in line with our strategic plan in 2023.
In our materials segment annual comparable revenue increased $87 million year over year to 494 million with comparable gross profit, increasing 7 million to 65 million and comparable gross profit margin declining 96 basis points to 13.
1%.
We closed the year strong and our materials business in the fourth quarter with comparable revenue, increasing $29 million year over year, and gross profit and gross profit margin, increasing $11 million and 522 basis points respectively.
Fourth quarter 2022, gross profit margin was 19, 9% a great result, which helped to offset margin compression earlier in the year.
The late year improvement was driven by volume increases coupled with price increases throughout the year.
Volumes in the fourth quarter for both aggregates and asphalt exceeded the same period of the prior year in all grades I look for that momentum to continue into 2023 with materials orders are currently ahead of 2022 levels.
On to our cash and liquidity in 2022, we provided value back to shareholders through share repurchases of $71 million.
We also made net debt payments of $75 million paid dividends of $23 million and invested $122 million in the business through capex, while maintaining our strong cash and liquidity position.
At the end of 2022, our cash and marketable securities net of debt was 72 million flat against the prior year with liquidity of $629 million, including cash marketable securities and revolver availability.
With our cash and liquidity, we intend to continue to invest and grow our business organically and through opportunistic M&A in 2023.
Now, let's turn to our 2023 guidance.
In 2023, we expect revenue to be in the range of three four to three 6 billion, which is in line with our strategic plan growth CAGR of 6% to 8%.
Our assumptions are supported by our record year end cap of $4 5 billion and the increased levels of funding now available to state and local agencies we.
We are excited about our markets and the industry's outlook over the next several years as the nation implement.
As generational investment in infrastructure.
We expect adjusted EBITDA margin chantry from six 4% in 2022 to a range of seven 5% to 9% in 2023, as we continue to improve our profitability and alignment with our strategic plan target of 9% to 11% in 2020.
Four.
We expect SG&A expense to remain largely consistent with 2022, and we are providing guidance range of eight to eight 5% for 2023.
In 2023, we plan to continue to invest in both our materials and construction businesses through Capex.
While a portion of our investment is maintenance capex, such as equipment for materials and construction operations. Our strategic plan recognizes the importance of vertical integration and our materials business to our home markets and to our ability to maximize profitability.
As such in 2023, we intend to continue to invest in our materials plants to maximize efficiency and bolster materials reserves and.
In total we plan to spend between $100 million to $120 million in Capex in 2023, consistent with the spend in 2022.
Finally, we expect our adjusted effective tax rate to be in the low to mid 20% range now I'll turn it back over to Kyle.
Thanks, Lisa I'll close with the following points.
And the construction industry as a whole are beginning to feel the tailwind is generated by the <unk>. It.
It has taken time to get started but we can see that funds have made their way to states and states are allocating those funds to projects. It will still take time for these funds to be reflected in our revenue and we expect to see meaningful increases in project opportunities in 2023, as a result of AIG.
As I said before this should only improve the already positive market environment 2024 and beyond.
Next our focus on operational excellence is paying off and I believe will lead to further margin improvement and alignment with our 2024, adjusted EBITDA margin target of 9% to 11%.
Lastly, we are committed to investing in the growth opportunities for our businesses. Although we pursued multiple opportunities in 2022, we did not close any M&A transactions.
We expect this to change in 2023, we will continue to be selected and we'll only pursue opportunities that fit our home market strategy and add value to granite from daiwa opt.
Operator, I'll now turn it back to you for questions.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two please limit yourself to one question and one follow up question and feel free to jump back into the queue. If you have additional questions. At this time, we will pause momentarily to assemble our roster.
Our first question comes from Steven Ramsey with.
Thompson Research group. Please go ahead.
Hi, everyone.
I wanted to start on the high end of 2023 margins.
At the low end of the 2024 targets how much of this is due to keeping the water segment and at this point do you think 'twenty 'twenty four targets could prove conservative or do you need some more tangible operating.
Before making that assessment.
Yes. So thanks. Thanks for the question and this is Kyle and I think really.
If I understand your question correctly, it's what's our confidence level in that.
<unk> got 24 <unk>.
<unk>.
91% EBIT margin and I think I think you kind of points back to a few things for February we're going to do a year ago at this time and.
First off it was replacing the old risk portfolio as we wound down that was that was a big.
Area that we had to focus on and to go back was around 220 basis points and our teams have done I think the cap that we have on the books today really demonstrates across all of our operating groups that we could replace back half replacing.
We're replacing RV work, which really quality cathode, we feel really good about.
We are focused.
Today around operational excellence like we really have never had before and I think gastro, allowing us to really drive margins up as well and thats. Both in terms of the margins and project execution. So we are going to start to see that continue because we rolled out our construction playbook last year, we're going to start to see the benefits of that in 'twenty.
'twenty three and into 2024.
And our materials business, we saw a little bit of a drag in 2022 with natural gas and diesel.
And that part of our business. We expect fees are starting normalize we saw that in Q4, we expect that to continue in 'twenty, three and that's going to allow us along with our automation investments till you get to the margins, we think in our materials business. So all together, we feel pretty good about our 90, 11% EBIT margin range in 2024, I think we've made the increment.
Steps that we need to take and we're on our way.
Okay.
Very helpful and then on the central.
Group margins can you talk even just order of magnitude.
Where FY 'twenty, two gross and EBIT margin.
Shook out and kind of where you think it lands in 2023, just trying to get a sense of.
The segment improvement and where it stands in relation to corporate margins.
Well, we don't we don't break those out specifically.
Real question is around the ORP and Q4 I think is good we were breakeven in the ERP in the quarter, which I think is very encouraging we still have a little bit of work to do on a couple of projects to finish the ORP out.
Q4 was breakeven from that standpoint, as we move forward without the ORP. The central group margins are in alignment with the rest of the country.
Okay excellent and then one last quick one for me many of our non res channel checks in the public equipment rental companies decided mega projects as key factors supporting their non res market outlook and I know large project kind of a bad word in these parts but.
Thinking about large projects re shoring and federal dollars being a tailwind to non risk can you talk about.
How this is impacting you guys. This environment, if its even having the effective.
Driving contractors to that Greg.
<unk> of the market and maybe creating more space for you guys to succeed in your small projects just any high level thoughts.
I think I think we've over the last year I think we talked each quarter that we were seeing our ability to pick up more work with higher margins. That's continued on as an organization. So we feel like.
The competitive landscape has been better than certainly what we saw in 'twenty. One so that continued on into 'twenty, two and we continue to see it but we have not seen a whole lot of contractors, making the shift today from private residential under the public space.
And.
No I don't think Thats been something we've seen today I know I can't really speak to the Mega projects because were not necessarily pursuing those mega projects anymore. So we don't we don't necessarily have the visibility into that aspect.
I can I can just add one thing that we do have going for US is we arent really correlated to residential construction and thats not a big market for us on the construction or construction materials part of our business.
Great. Thank you.
Thank you. Thank you.
Our next question comes from Brent Thielman with D. A Davidson. Please go ahead.
Hey, great. Thanks, good morning.
I'll start on your favorite topic, which is ORP.
Just maybe a clarification I think you said.
$85 million in remaining cap in <unk>, and 'twenty, three which sounds like it's a little less than what you thought a quarter ago, but can you dissect what's left in there I think you had a few projects you'd expect it to be wrapped up this quarter, what's sort of left within that $85 million and a timeline.
You can offer just for us to think about the flow through into this year.
Yes, Thanks, Brian I'm glad you asked the question because I should clarify.
As of Q3, we anticipate a $55 million of challenged ORP come into 2023 to.
Two projects slipped on a schedule and so we anticipate so today about $85 million of challenged ORP backlog come into 'twenty three.
So it's really down to two projects, it's no longer a portfolio of you recall it was really down to these two one project to be done in early Q2.
The other will go into Q2 Q3.
And Tayo if I recall, there was one project in California that.
Still remains profitable for you, but still got thrown into the mix of that portfolio is that complete.
Yes that project is now complete but it's a profitable project, it's going to be built.
As part of our California group and so we separated it out from the ORP to really highlight the challenge to RV section, but again I think Q4 was really encouraging for us. It was a breakeven quarter from an RP standpoint is represents on the challenge side less than 3% of our revenue in 'twenty three.
So again, we created the ORP to try to capture the risks we had with our old strategy.
<unk> from our future strategy at this point, we do plan on kind of removing the ORP from their conversation.
Moving forward, because we don't see it being a huge risk I don't want to suggest that these projects don't have risk, but we think based on our Q4 and where we're headed.
It's really insignificant to overall book of business I will say, we're hopeful that we'll have an opportunity to talk about cash collection, along the way on specific projects and we do have a lot of claims that are still out there on these jobs.
Over the next quarters, two even years, we'll be able to talk about our cash collection with regards to resolving the <unk>.
Claims that we would be for entitled money for.
Yes, and just the massive improvement in material margin this quarter, there wouldnt be anything unusual in and Miss print. This is.
Totally reflective of cost caps tiered pricing caught up now.
So we can kind of think that continues.
Through 'twenty three.
Yes, I mean, I think if you look at Q4.
It was encouraging as well obviously, our aggregate sales were strong in 2022, the entire year, we saw an asphalt.
And the California group in the first three quarters that our materials teams did a fantastic job in Q4, even despite a couple of weeks of tough weather in the west.
Certainly when but natural gas dropping down really normalizing as well as diesel and we were able to kind of give some margin expansion in the quarter. So we do expect that momentum to carry into 2023.
Really strong backlog in our materials business.
Similar to the cap, we have in our construction business our construction materials business.
Backlog in terms of sales is very very strong.
Okay. Thanks, I'll get back in queue.
Thank you. Thank you.
Again, if you have a question. Please press star and then one our next question comes from Brian Russo with Sidoti.
Yes.
Yes, hi, good morning.
Hey, Bryan good morning.
Can you just talk about.
Youre, California vertical integrated footprint and how you are participating in the storm response efforts.
Efforts from the January 2023.
Flooding. It's my understanding there is some short term projects, but then there are lots of engineering work to be done which could lead to larger.
<unk> later in the year I suppose that's not in your cap today and could be upside.
Yeah, Hey, Brian So, yes, we did get a lot of wet weather certainly in the western part of the U S and California was hit hard as I'm sure you and everybody else saw on the news.
It's been it's been a little slow on the emergency work front for Us I.
I would say, if we had to ballpark it somewhere around $10 million to $15 million worth of construction work from emergency response perspective, and you're right a lot of the projects are going to come out.
Projects are being engineered and put out to bid over the year. So we will participate in those I think it's hard to predict at.
At this point with our success rate will be and how that really falls into our cap.
But more to come I would suppose on that some of the work down in Santa Barbara, where we were hit pretty hard in those communities.
Lot of that work was put out with the Army Corps and a lot of that work into small business enterprises.
Okay got it and then what what's kind of the outlook for the WNS segment.
In 2023, specifically I think it was about $100 million of revenue in 2022, just wanted to get a sense.
Or how that.
Business is doing which seems to be a little bit depth differentiated than kind of your core construction business.
Yes, so the two pieces that remain in the company our water services in our minerals business and both of those are operating fine a little bigger than the $100 million that you had.
The markets are strong we're seeing a really strong market in our water business minerals staying very strong.
We expect it to continue operating those businesses as part of our company.
We haven't seen any change in direction.
Those businesses in <unk>.
Pretty nicely.
Okay, Great and just lastly, the Alaska project regarding some landslides repair to bridges that you announced last night, what's the significance of that within the mountain group.
So with that significant I mean, it's $100 million CVC job for that.
<unk> way up at Denali National Park up in Alaska.
A nice opportunity for us.
It fits exactly the type of work that we're trying to procure and thats. How we constructed primarily over two years. So I would anticipate around $50 million a year a little less for the next two years in that business.
Alright, great. Thank you very much.
Thank you.
Our next question comes from Brent Thielman with D. A Davidson. Please go ahead.
Hey, thanks.
Just a follow up Tayo I mean, you kind of look at cap over the last couple of years I mean, it's been sort of stagnant up until this quarter it had been burned enough.
Some of the old work.
Taking from you your commentary various things, but I guess as you look at the pipeline of new business opportunities in front of you I mean does this sort of feel like a true inflection point in cap and you can continue to build off a bit this year with the uptick in <unk>.
And activity, that's happening in California and elsewhere.
Yes, we do I mean, I think this is certainly what it is we've had a nice market over the last year and with the <unk> funds and kind of in place and that we expect those will accelerate as time goes on and we're starting to hear snead kind of early stages of those funds.
Now to the states.
So we expect it to continue I can tell you we're actually negotiating several broadband projects right now out in the West I think will be really nice additions to our cap in Q1, and I think at the pace. We're looking at in Q1 already in 2023, I would expect our cash to continue to grow after the first quarter. If we continue at the pace we're at today.
Okay, and then just in consideration of that the alpha whether you've had to deal with it.
First quarter is never a particularly significant quarter.
<unk> four year perspective, but it would it.
Is it any more unusual than years past that we ought to be considering as we kind of buildup to that the outlook for the full year. This year.
No I think it's a little early to know if we're going to get wet weather I think the first couple of weeks two or three weeks in January is probably the preferred time to get it is our slowest time of the year. So that would be the best time to get the wet weather.
You'll see we'll see how it goes from weather perspective, obviously with our guidance. This year. Some of the main the main drivers of our ability to immediate or exceeded.
One of them is weather and thats going to be a big thing, we're going to keep an eye on we can't necessarily control it for Q1.
It's been dry since those storms. So we'll see how Q1 shapes up and obviously Q4 is always a little bit of a wildcard wildcard as to how it's going to finish up.
Okay. Thanks, Scott.
You.
Our next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.
Hi, two quick follow ups, the EBITDA margin range.
Fairly wide I guess, what are the swing factors, you're looking at that could move you to the low and high end you talked about weather, but is there anything else.
Yes, Hey, Stephen I can make a couple comments on that so as Carl talked about weather as a component looking at Q1 and Q4.
And then.
As we work on our strategic plan.
<unk> remained diligent on bid day as well as.
For our project execution.
That's something that we're closely monitoring throughout the year, we've got good momentum going from 2022 into 2023.
And as well and also with opportunities with Iga as those roll out and we started to see some of those in Q4. So really those are just a few of the components that we've better include.
Included in that range that we provided for EBITDA margin.
And maybe I'll, just add I think a point around the risk to kind of the de risking of the company and certainly over the last two years our company as well.
It's a lot different than it looks today as you look at our cap and the work that we have on the books and we think the project execution risk.
Reduced significantly over where we were the last couple of years. So I think we anticipate having more consistent financial performance as we move forward.
Very helpful and then something else to follow up on an operating cash flow it looks like working capital or.
Claims and JV.
<unk>.
Attribute maybe were a drag to operating cash flow can you maybe share any details there.
Operating cash flow will be much better in 2023.
Yes Stephen.
For the contribution that we made in 2022 those are higher than we had initially planned during.
At the beginning of the year and so they relate to the non sponsored joint ventures.
And those continue to have some challenges throughout the year so that contributed to.
Two what we're saying is the cash flow for the full year.
As it relates to operating cash flow for 2023, how we look at it that is a component in our <unk>.
Incentive compensation plan that we added last year to really have the company focus.
On the cash flow component because as you know.
It's something that's been very volatile for us historically and is it included in our strategic plan and bringing the company together to make sure that that's an area of focus and so for US operating cash flow target is is around 5% and so then when you think about it for capex.
Maintenance Capex is anywhere from one 5% to 2%.
Which then leaves free cash flow to 3% to 4%. So that's how we look at operating cash flow internally and then the various components to get to free cash flow.
Thank you Lisa thanks.
This concludes our question and answer session I would like to turn the conference back over to Mr. Larson for any closing remarks.
Okay. Thank you for joining the call today and as always we want to thank all of our employees for the work. They do every day I can't think of a better way to close out our centennial year and achieving the safest year grants history.
Along with our highest net income since 2008 granted as well positioned as we build beyond 100.
<unk> you for your interest in granite and look forward to speaking with you all soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.