Granite Construction Inc (GVA) 2022 Q2 法說會逐字稿

Good morning. My name is Nick, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the Granite Construction Investor Relations Second Quarter of 2022 Conference Call. This call is being recorded. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Granite Construction Incorporated Vice President of Investor Relations, Mike Barker. Please go ahead, sir.

Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer, Kyle Larkin; and Executive Vice President and Chief Financial Officer, Lisa Curtis. Please note that today's earnings presentation will be available on the Events & 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, 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 the 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, 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 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'd like to turn the call over to Kyle Larkin.

Good morning, and welcome to our second quarter call.

Before we jump into the results, Lisa and I will discuss a few significant accomplishments during the quarter and the execution of our strategic plan. As I mentioned on our last call, our plan to achieve consistent profitability and sustainable growth is built around 4 strategic themes: develop our people, raise the bar, grow market share and maximize value add. These themes are central to our success.

Within develop our people, we have seen a historically tight construction labor market become even more competitive as we emerge from the pandemic. The current labor environment is the most challenging I've seen in our industry. This challenge exists at all levels in craft to project executives. Granite's best-in-class human resource professionals have risen to the challenge with innovative recruiting programs and by providing our existing workforce with training and development to prepare some for upper mobility and new opportunities within the organization.

The return of our strategic focus to a civil construction and materials provider within our home markets allows us to better leverage our team's recruiting, new training programs across the company and meet the people challenge the industry faces. With the rollout and funding of the infrastructure bill, our future success and growth will hinge on our ability to continue to attract the skilled workforce to meet the labor challenges for all of the expected opportunities. To do so, we must be the employer of choice to have the best people in the industry to execute on new opportunities as we grow our market share across the country. I believe we are well positioned, and we will continue to invest in our people to make it happen.

Within the raise the bar and grow market share themes, we are bolstering our standardized processes and best practices across the business, while strategically investing in our businesses to position them for further growth. During the quarter, we saw evidence that the focus on our strategic plan is taking hold. Although our results were impacted by the old risk portfolio or ORP, gross profit was reduced in the quarter by losses in the ORP along with energy and fuel cost inflation. The ORP are challenging jobs, and we are working hard to mitigate the remaining risk. The good news is that we can see the end of these jobs approaching. Our expectations for ORP CAP at the end of 2022 remain unchanged at approximately $50 million. Outside of the ORP, our efforts are resulting in incremental improvement in bid day margins and project execution in our Construction segment. While we are not yet where we want to be, we continue to make measurable and meaningful progress towards the strategic plan targets we shared in the first quarter earnings call.

Finally, the maximize value-add theme captures our efforts to add value for all stakeholders through industry-leading ESG performance, execution on our capital allocation strategy and delivery of improved and consistent earnings. We will touch on ESG and capital strategy shortly. Our goal is to be the contractor of choice and our home market strategy underpins this goal. In the home market, we are an active member of the community with long-standing trusted relationships with vendors and subcontractors. Through the experience gained with our established presence, we build market intelligence and insights, identify the best project opportunities and implement the most effective strategy to win and execute work. Our home markets have proven resources, both workforce and quality construction materials.

We have long-tenured employees and believe we are the employer of choice for both salaried and craft workforce. We generally leverage our relationships with the union partners in our home markets to obtain the workforce that we want and need for our projects, even in the current challenging labor market conditions. We also have access to quality aggregates and asphalt, which we believe is a key differentiator for us. The access to people and material assets are key to fully leveraging our home market strategy through vertical integration from quarry to construction project. We will continue to opportunistically invest in materials assets to strengthen and expand our home markets as we continue to transform the company and execute upon our strategic plan.

Finally, having strong relationships with both public and private project owners and regulators is crucial to our culture and a key aspect of our home market strategy. In our home markets, we know clients and representatives from working together for many years and enjoy strong relationships to support long-term success. We believe this reduces disputes and legal claims, improves profitability and helps us bring the most value to our clients.

Next, I want to walk you through 2 exciting strategic announcements we made within the Materials segment, and I will also give you an update on the previously announced planned divestitures. Last month, we announced the acquisition of a greenfield aggregate operation in Utah. This decision aligns with our strategy to invest in our vertically integrated operations as we strengthen our key home market in Salt Lake City, a metropolitan area that continues to grow steadily and where nearby aggregate supplies are hard to locate. With 99 million tons of recoverable rock, the new quarry provides Granite with long-term access to aggregate resources in a market where aggregates are scarce. Granite is currently in the process of developing the Grantsville, Utah facility. The hot mix plant will be assembled in the coming months, and the facility is expected to ramp up production in 2022 to full production in 2023.

In June, we completed the purchase of a liquid asphalt terminal in Bakersfield, California, a 170,000 barrels of liquid asphalt storage capacity. This additional storage capacity should allow us to be more flexible in the timing of liquid asphalt purchases and proactively manage the volatility of oil prices by, for instance, complete purchases during the winter when prices are historically lower than during the busy summer season. The storage capacity will also allow us to stabilize the supply chain and better achieve mix specifications to meet our home market demand due to short-term disruptions. We expect the asphalt terminal to begin full-scale operations in 2023.

Next, I want to give you a quick update on the remaining 2 legacy Water and Mineral Services Group divestitures. During the first quarter, we completed the sale of the Inliner business, leaving the Water Resources and Mineral Service businesses as held for sale and discontinued operations. Both of the remaining businesses continued to perform well in the second quarter, and discussions with potential buyers are continuing as expected. We believe that the combined proceeds from the expected sales of the businesses should exceed the proceeds of Inliner, and we are working to enter into agreements in the third quarter with the expected closing of both transactions by year end.

Now I'll turn it over to Lisa.

Thanks, Kyle. I'd like to focus on one of our core values and a key aspect of our business strategy, sustainability. At its heart, sustainability is about improving quality of life and making sure that we preserve resources for future generations. Sustainability is not just a reporting exercise for Granite. It is something that is integrated into our core business purpose, which is to create value for shareholders by delivering infrastructure that provides essential services and improved quality of life. An important part of our strategic vision is to be a leading provider of sustainable infrastructure solutions because we believe it will competitively position us to win work and attract talent.

The diagram on the right-hand side of this slide shows our holistic view of sustainability, where sustainability is at the center of 3 strategic objective areas: environmental stewardship, social responsibility and enduring value. Overlaying all these areas is dependable governance because we recognize we must have the right corporate governance structure in place to ensure accountability for performance in these areas. Sustainability is important to us not just because it's the right thing to do, but because we see sustainability as a value driver that is also important to our customers. We aim to leverage our strong sustainability program to improve long-term profitability and to support all areas of our strategic plan.

In terms of developing our people, our sustainability program aims to attract, engage and retain top talent. For raising the bar, sustainability helps us improve efficiency and execution and reduce risk. For growing market share, we aim to leverage sustainability as a differentiator to help us win more work. And for maximizing value add, we aim to reward investors through value creation as we lead the industry in ESG performance. You can learn all about our sustainability program, strategy and progress on our goals in Granite's 2021 sustainability report, which was published in May.

Some key improvements and highlights from the report include Granite's first Scope 2 disclosure for our carbon footprint, an innovative asphalt mix with a lower carbon footprint, which utilizes recycled plastic to reduce the use of asphalt binder and the investment of $1.8 million in energy efficiency improvements at our materials facilities. While we recognize sustainability as a journey and continuous improvement, we hold great hope for the promise of how this program will help us deliver more sustainable performance for our investors, clients, employees and the communities in which we operate.

In early May, we completed the refinancing of our long-term credit facility by entering into a 5-year revolving credit facility of $350 million, which is an increase of $75 million over the previous revolver. The new facility provides us with enhanced financing flexibility, allowing us to better match our borrowings with seasonal capital needs. As we outlined in the last quarterly call, 2 of our capital allocation priorities are supporting business operations through organic reinvestment and bolt-on transactions. Our new facility positions us to support our home markets as such opportunities arise and as we continue to execute our strategic plan to grow the company over the next few years.

As part of the refinancing, we paid off the remaining $63 million of the term loan and drew $50 million on our new revolver. As a result, we lowered our overall debt level, ending with a gross debt-to-capital ratio of 24%. This is in line with our capital allocation priorities to keep our gross debt-to-capital ratio at 20% to 30% through debt repayment.

With our strong balance sheet and liquidity and a disciplined approach to capital allocation, we believe we are positioning ourselves to return value to our shareholders. In early May, we announced a repurchase of $50 million of common stock through an accelerated share repurchase transaction. The program demonstrates our confidence in Granite's strategy and future growth prospects and underscores our commitment to deliver value to our shareholders. Final settlement of the ASR transaction is expected to occur in the third quarter of 2022. We will continue to opportunistically repurchase shares when cash is in excess of operational and growth requirements and when a repurchase is highly accretive. Including the $18.5 million of shares repurchased in the first quarter of 2022 and the $50 million to be repurchased pursuant to the ASR, we will have approximately $231.5 million remaining for share repurchase authorization available upon final settlement of the ASR.

Back to you, Kyle.

Thanks, Lisa. Before I jump into the segments for the quarter, I want to touch on safety and our performance through the second quarter of this year. Safety is a core value, which is embedded in our culture and reflects our belief that the well-being of our people, our partners and the public is our greatest responsibility. Every level of our organization supports our safety culture with training, planning and engagement. We approach every task with safety built into the process, and we do not sacrifice anyone's safety to get the job done. I'm proud of our team's exceptional safety performance through the first half of this year.

Across the company, our recordable injury rate, which is a metric that measures frequency of the number of recordable injuries to the hours worked and our days away, restricted or transfer or DART rate, which is a metric that measures the severity of recordable injuries the lowest in recent history. This performance does not happen by chance. It is accomplished to the planning and hard work of each team every day. We have great success with the rollout of the [sticky or the staff taking QE program], which is focused on avoiding and reducing serious incidents in the company. While sending every team member home safe every day is priority #1, safety is also a leading indicator of good employee morale and engagement, which translates to higher levels of financial performance. I want to thank all of our employees for achieving this accomplishment.

Now let's shift the discussion to the operation results of our Construction segment in the second quarter, where our results were impacted by ORP losses and increased fuel costs during the quarter. The performance in the ORP in contrast with the improvement we are seeing in the rest of the business in the overall market environment. In the Mountain group, revenue for the quarter increased by 15% compared to the prior year. This strength was apparent across the group from Washington to Utah, including our growing solar business in our Industrial and Energy division. I am pleased with what I am seeing across our markets in the Mountain group as we move into our busiest quarter of the year.

In the California group, revenue declined during the quarter compared to the prior year as we continue to see delays in the timing of project starts. While revenue in the group is behind where we were last year, we were expecting a strong second half of the year. As I will touch on in a minute, CAP in the California group is strong with a positive market across the state and more opportunities expected in the second half of the year. And the Central group, as expected, revenue in the second quarter is down as we work to transform and derisk the Central group portfolio.

Turning to CAP. The balance as of the end of the second quarter is impressive that reflects a lot of hard work by our teams across the company. Our CAP is up $279 million from the first quarter. All groups sequentially increased CAP during the second quarter, led by the California group with an increase of $149 million. While revenue in the California group in the second quarter and year-to-date through June is below the prior year, the outlook is bright. The California group is going into the second half of the year with strong CAP and expected to increase bidding opportunities. Another highlight is the Central group's $93 million increase in CAP from the first quarter. We have discussed the ongoing transformation of the Central group and the new project selection criteria used to evaluate the opportunities in the group's own markets.

In the second quarter, the Central group sequentially grew its CAP with an average project size under $20 million. Assessing the big opportunities for the group, I'm optimistic that this momentum will continue to grow, and I expect the group to continue building quality CAP in their home markets that will lead to more consistent profitability. Overall, the public market environments are stronger than we have seen in recent years. We have successfully increased our win percentages, while also increasing bid day margins. As stated in previous calls, we continue to expect the projects funded by the federal infrastructure bill will begin to roll out towards the end of 2022 and should build upon the current positive market.

In the Materials segment, the quarter was impacted by energy and fuel cost inflation. During the quarter, we saw increases in the cost of burner and diesel fuel impacting profit by $4 million compared to the second quarter of the prior year. The increase in material sales was driven by higher sales prices in both aggregates and asphalt that were partially offset by lower sales volumes. While sales prices have increased, a portion of the sales completed during the second quarter were contracted before the additional energy surcharges were put in place at the beginning of the second quarter. This impacted profitability in this segment, resulting in lower margins in the quarter as higher oil-related costs were not completely captured by the energy surcharges. During the second quarter, sales volumes decreased year-over-year in cement and fly ash shortages in various markets, reduced aggregate sales across the group, while project delays in California adversely impacted volumes in the state. As with the outlook for the Construction segment, we expect the Materials segment to have a busy second half of the year, while receiving the benefit of price increases implemented earlier in 2022.

Now I'll turn it back to Lisa to discuss orients results for the quarter.

Thank you, Kyle. In the [first] quarter, revenue decreased 8% from the prior year, while gross profit decreased 20%, resulting in a gross profit margin of 10%. In the Construction segment, quarterly revenue declined $81 million year-over-year to $632 million. This decline was primarily due to an $81 million decrease in the Central group as ORP projects move towards completion and as recently awarded project start up. Decreased revenue in the California group was partially offset by an increase from the Mountain group. The revenue decrease in the California group was largely driven by project start delays, while the Mountain group continued its strong revenue performance from the first quarter.

The Construction segment's gross profit for the quarter decreased 20%, resulting in gross profit margin of 10%. This decrease in gross profit was primarily driven by losses incurred in the ORP in the quarter and, to a lesser extent, lower revenue in the California group. The ORP ended the quarter with remaining CAP of $195 million, a decrease of $47 million from $242 million in the prior quarter. The burn during the quarter was less than expected due to project cost increases, so we expect more burn in the ORP in the second half of 2022. The amount of ORP CAP expected to carry into 2023 remains at approximately $50 million with only 2 active projects and most of the remaining CAP attributable to a small profitable project in the portfolio.

Second quarter net ORP losses to Granite, which excludes noncontrolling interest, were $18 million on revenue of $49 million compared to a profit of $4 million on revenue of $115 million in the prior year. Excluding ORP, Construction segment margin during the quarter improved to 14% compared to 12% in the prior year. We continue to make progress towards our 2024 gross margin targets of 14% to 16% across our groups. Our teams remain focused on executing on bid day and during each day on the project as we work to leverage our standard processes and best practices, making the incremental improvements necessary to reach our financial goals. I'm encouraged by the progress we have made so far and expect continued progress in the remainder of this year and into 2023. Unfortunately, during the second quarter, the improvement in profitability was overshadowed by losses in the ORP, which is why we remain laser-focused on expeditiously completing ORP projects.

Materials segment revenue increased $15 million or 12% and as price increases more than offset volume decreases in both aggregates and asphalt during the quarter. While we believe markets are still strong, we saw cement shortages depress aggregate sales and project delays impact both aggregate and asphalt volumes. With our level of CAP and market activity, we believe these pressures will lessen in the second half of the year, and we expect a busy 2 quarters to complete 2022. Materials gross profit decreased $5 million, lowering gross profit margin to 13% year-over-year. During the quarter, profit was impacted by higher fuel and energy costs as many sales completed in the second quarter were for orders placed prior to implementation of the energy surcharges early in the second quarter. As such, we did not receive the full benefit of the surcharges in the quarter, and we expect the price impact associated with the timing differences to decline in the third quarter.

Turning now to our non-GAAP financial metrics. Adjusted EBITDA and EBITDA margin from continuing operations for the second quarter was $39 million and 5% compared to $62 million and 8% in the prior year. Adjusted net income from continuing operations for the quarter decreased $13 million year-over-year to $17 million and adjusted diluted income per share of $0.38 compared to adjusted net income of $30 million and adjusted diluted income per share of $0.66 in the prior year. The decreases in adjusted EBITDA and adjusted net income were driven by increased ORP losses in the quarter with SG&A remaining relatively unchanged as a percentage of revenue compared to the prior year.

Now on to our cash and financial position. For the 6 months ended June 2022, our operating cash flow was $103 million compared to an outflow of $31 million in the prior year. While we typically expect cash outflows in the first half of the year as projects ramp up, a slight increase in days sales outstanding, an increase in retainage and underbillings caused a decrease in operating cash flow this year. We expect this dynamic to shift in the second half of the year as teams refocus on timely collection of receivables and retainage. Our cash and marketable securities balance remains solid at $242 million as of the end of the second quarter. On a year-over-year basis, cash and marketable securities are lower, reflecting share buybacks of approximately $50 million through the ASR in the second quarter, debt repayment, timing of capital expenditures and a decrease in operating cash flow. Revolver availability stands at $267 million with $50 million drawn following the refinancing. Our debt at the end of the quarter is $288 million, down from $340 million at the end of the second quarter of 2021.

Now I'd like to touch on our 2022 guidance. For revenue, our guidance is unchanged with a low-single-digit revenue increase expected for the year. While our revenue this year is behind the prior year through the first 6 months, we expect to have a strong second half of the year led by the California group's high level of CAP. Also, our 2024 strategic plan revenue target of 6% to 8% organic CAGR is unchanged. We continue to be encouraged by our CAP, which is supported by the macro market environment as of the end of the quarter and prior to any benefit from the federal infrastructure bill.

Regarding adjusted EBITDA margin, we are lowering our range from 6% to 8% to 5.5% to 6.5% for 2022. This decrease in the range of adjusted EBITDA margin reflects the losses we have incurred during the first half of the year in the ORP and the impact of lower margins year-to-date in the Materials segment, driven by increased fuel and energy-related costs since the start of the year. We are pleased with the progress we are making in raising margins outside of the ORP with a gross profit margin of 14% in the second quarter. This is consistent with our expectations and with improvement in profitability necessary to reach our strategic plan target of adjusted EBITDA margin in 2024 of a range between 9% and 11%. We continue to believe this is attainable, and we are making progress to reach this target through our focus on bid day and daily execution. Finally, our SG&A as a percentage of revenue guidance is unchanged, and we remain on track for a range of 8% to 8.5% for the year.

Now I'll turn it back to Kyle for closing remarks.

Thanks, Lisa. I'll close with the following points. In alignment with our strategic plan, we are focused on our core civil construction and materials business with divestitures moving forward as planned and strategic investments in our home markets. We can't complete the ORP projects soon enough. While some of the ORP work has shifted to the second half of the year, we continue to be on track to largely put the ORP behind us in 2022. While overshadowed by the ORP losses in our second quarter financial results, we are making progress to increase profitability in our Construction segment with 14% gross profit margin, excluding the ORP. We continue to make strides to reach the level of consistent profit that we expect across our business and expect to reach our strategic planned profit margins discussed last quarter by 2024, unlocking value for shareholders. Finally, the amount and quality of our CAP going into the second half of 2022 has not been stronger in recent history. Our teams are being selected with bidding opportunities, while growing CAP at the same time. We have not seen any benefit from the infrastructure bill through the second quarter, and we believe the bill should result in an increase in opportunities late in 2022, that should then carry into 2023.

Operator, I will now turn it back to you for questions.

(Operator Instructions) Our first question comes from Brian Russo with Sidoti.

Just on the California group, do you still expect the California group revenue to be up year-over-year despite the ongoing project delays in 2Q similar to what we saw in the first quarter?

Yes, we do. And this is Kyle. And we expect to see the revenue really in the back half of the year accelerate. And a lot of the -- some key projects in California were just delayed really due to contract administration on the owner side. So we expect those projects to ramp up. And we expect that also to correlate over into our materials business in California as well. So we're still comfortable with what we're seeing in California.

Okay. Great. And just on the vertical integration strategy, and you mentioned the California acquisition and in Utah. Can you give us a sense of how long does it take to integrate some of these acquisitions for you to capture the incremental productivity that you've laid out previously? And I think it's 20 to 40 basis points improvement into 2024 through vertical integration.

So a couple of things there. I think first off, as we look at our -- really our longer-term strategic plan and what we shared on Q1 in terms of increasing the margin in our vertically integrated business, I mean, I think what you see in the quarter is we've actually shown some indicators that we're making progress there, and we've been working really hard at it. So our margins are up. If you look outside of the ORP, we're up at about 14% in the quarter in construction, which is really encouraging. That certainly indicates that we're on our way. If you look at our CAP, we have really strong CAP in our business. We've overcome really that decline in CAP as part of our Central group with the ORP wind down, and we're seeing things really pick up in California and Mountain. So we think that we're well on our way to doing the 2 things that said we wanted to do in the last call, which was raise margins on bid day and improve execution in all the work that we're doing. I think our teams are actually well on our way there.

And the other part of the question was right around how quickly we can do some sort of M&A and integrate it into our business. Certainly, with the Grantsville quarry that we shared, that's something that's going to come online next year. And so we're going to start to see the benefits of that, and it will ramp up over the next year or 2. And then Centennial Asphalt is really the oil terminal in Bakersfield, we expect that to really provide value in 2023. We are out looking at opportunities to do some bolt-ons that we shared that we want to do 1 or 2 a year, and we are actively pursuing those out in the West in the markets that we're in today.

Okay. And as we look through to the second half of 2022, are the risks of further ORP losses on a margin basis? Are they diminished naturally just given that you're burning through the portfolio? Or are the losses incurred in the second quarter, is that indicative of losses that we might see in the second half?

So the answer is we have these projects forecasted based on what we know today. And that's been how we've been forecasting the projects. They're complex projects. They are big projects. So when there's movement on them, it can be big. So we don't ever want to suggest that the risk associated with the ORP, it doesn't exist until those projects are surely really complete. Now the good news is we are further along on the projects. As you've indicated, we're almost through these things. We expect our burn to stay on track for the year, which is good news. So we're down to really $50 million worth of ORP CAP going into 2023. So these projects are winding down, they're closing out. We're getting them towards final completion.

And then really our plan, as we get to the end of the year, is we're not going to have to talk about the ORP in a meaningful way into 2023. So we're close. I can tell you that, but I do not want to tell you that there isn't any further risk in these projects. But we do believe we're at the point where we're really focused on closing them out. And I just want to add, as we go into 2023, we have about $50 million of CAP in the ORP. The majority of that is one project. And that project is in California. We're a nonsponsored joint venture partner, which is something that we wouldn't be doing moving forward. So that's why it's called or put in the ORP bucket. But that project is actually profitable. And so really, the ORP changes as we move into 2023.

Next question comes from Jerry Revich, Goldman Sachs.

This is Adam on for Jerry today. With your 2022 guidance unchanged, that implies a pretty significant improvement in the back half growth rate. So wondering if you can just talk about how much visibility you have today in the project burn in the back half? And what's driving your confidence levels there?

Yes, Adam, this is Lisa. So I'll touch on some points on your question. So for the most part, our guidance remained unchanged. There is a component that did change, and that's our EBITDA margin. So we had projected at the beginning of the year a range of 6% to 8%, and we did lower that range to 5.5% to 6.5%. And what that is, is we took the midpoint down by about 1%, which equates to around $30 million and that represents the impact that we took in Q2, primarily with the ORP pace in the quarter. So that is a change in our guidance that we communicated through our press release and through the script. So for the second half of the year, we expect a very robust second half. As Kyle just talked about in the last question, ORP still remains a risk for us, and we are actively managing it. And based on the best available information, we do update our forecast. So that is reflected when we look out for the rest of the year.

California did have a slower start, but it's really due to project delays. And so we expect that to pick up in the second half of the year. And the Mountain group is performing very well. They performed well in Q1, and that continued into Q2. So we expect a continued strong quarter for them in the second half, along with Materials overall in all 3 of our operating groups.

Got it. That's helpful. And then you announced a pretty meaningful $55 million project on the Alaska Roadway this quarter. Just for clarification, are there any other contractors on this project? And do you have full scope of that entire $55 million?

Yes. So that would be under our scope on that project.

And can you just comment on margins for this project? Are they in line with Construction segment average? Or how should we be thinking about that?

Yes, I will look at it that way. I mean we obviously released a lot of projects along the way. And I would just -- I think the best way to look at any project we release is in alignment with what our margin expectations are in the Construction segment.

Our next question comes from Jean Ramirez, D. A. Davidson.

This is Jean Ramirez for Brent Thielman. My first question is looking some additional color on the cost of the additional losses on the legacy projects. We just wanted to know, were there any unique issues to the projects themselves? Or are the inflationary or labor issues that are being cost -- impacting costs?

Well, when it relates to the ORP, I think it's probably all of the above. These are, again, they're complex projects, they're large projects. They are in varying geographies. But in general, I would probably summarize the phase that we saw in Q2 around scheduling issues and some cost inflation. Certainly, there were some supply chain issues on one project with steel and steel delivery. There was a longer punch list, certainly related to electrical items on the project and one project slipped a little bit due to some weather. So that's really the primary driver. But again, it's kind of all of the above as well as even some production issues as we kind of wind those projects down. Things get a little bit harder. But again, I just want to reiterate, we're close. These projects are getting completed, and we're close to getting these projects wrapped up to where going to next year, we will be down to that $50 million. So we feel good about that.

And to what extent is slowing housing having an impact on the business, either directly or indirectly?

I missed the first part of that question. Can you ask that again? I'm sorry.

No problem. Just in general, to what extent is the slowing of housing having an impact on the business, either directly or indirectly?

This, to date, we haven't seen that impact hit us certainly through Q2. So I think that's something that we'll certainly keep an eye on what that looks like moving forward here. We did see some materials business slowdown in terms of sales to ready mix suppliers on the concrete aggregate side, and that was more associated with the cement shortage, which I think was partially fueled by the housing and growth in housing. So we'll kind of see where this all goes. But at this point in time, we're not seeing a big slowdown in housing that's affected us the first 2 quarters.

At the end of the question-and-answer session, I'd like to turn the call back over to Mr. Larkin.

Okay. Well, thank you for joining the call today. And as always, we want to thank all of our employees and the work that you do every day that will allow us to meet our strategic goals. And thank you for your continued interest in Granite. We look forward to speaking with you all soon.

Thank you for attending today's presentation. You may now disconnect.