Granite Construction Inc (GVA) 2021 Q3 法說會逐字稿

Good morning. My name is Debbie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Incorporated 2021 Third Quarter Conference Call. This call is being recorded. (Operator Instructions)

It is now my pleasure to turn the floor over to Vice President of Investor Relations, Mike Barker. Please go ahead.

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 and Presentations page of our Investor Relations website.

We begin today with an overview of the company's safe harbor language. Some of the discussion today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are estimates reflecting the current expectations and best judgment of senior management regarding future events, occurrences, opportunities, targets, growth, demand, strategic plans, circumstances, activities, performance, shareholder value, outcomes, outlook, guidance, objectives, Committed and Awarded Projects or CAP and results.

Actual results could differ materially from statements made today. Please refer to Granite's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these forward-looking statements. The company assumes no obligation to update forward-looking statements, whether they are results of new information, future events or otherwise, except as required by law.

Certain non-GAAP measures may be discussed on today's call and from time to time by the company's executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net income or loss and adjusted earnings or loss per share. Reconciliations of non-GAAP measures are included as part of our earnings press releases and in accompanying presentations, which are available on our Investor Relations website.

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

Thank you, Mike, and good morning, and welcome to our third quarter earnings call. Today, I'd like to begin by discussing our sustainability program. Sustainability is one of Granite's 5 core values, along with safety, integrity, inclusion and excellence.

In September, we published our 2020 sustainability report, and it's our most comprehensive report to date. This report illustrates the emphasis Granite has placed on sustainability as a core value and as a foundational concept for our business strategy. The report highlights the company's advancement of environmental, social and governance initiatives and articulates our vision to be the leading provider of sustainable infrastructure solutions.

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

Environmental highlights from the report includes the result of Granite's first climate risk assessment, a new carbon emissions reduction target and efforts to minimize waste and maximize recycling to conserve natural resources. The importance of Granite's activities and projects on the environment has been a focus with embedded environmental leaders in our businesses for over 20 years. With our environmental initiatives, we are taking our efforts to the next level.

Within the social responsibility initiative, we disclosed a comprehensive strategy to promote diversity, equity and inclusion across our workforce, including new priority targets. We believe that our hard work is paying off as we have been recognized as a Great Place to Work for 3 years in a row. By fostering an inclusive culture, Granite aims to attract and retain top industry talent and create a fully engaged workforce.

In the area of governance, we have also worked closely with our Board to establish a new framework to support the implementation of our sustainability objectives, which formalizes Board oversight of the company's environmental, social and governance initiatives and clarifies organizational roles and responsibilities. Granite has selected industry-specific metrics to align with stakeholder expectations, which measure material sustainability goals relevant to our operations, and Granite's report aligns with standard sustainability reporting frameworks.

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

Now let's go through our business segments for the quarter, starting with Transportation. Our teams across the country turned in strong segment results during the busiest construction quarter of the year. Revenue in the quarter for our Transportation segment reflects an increase from the Northwest group that was offset by a small decrease in the California group and anticipated decrease in the Heavy Civil group.

Within the Heavy Civil group, we saw an expected year-over-year top line decrease in the quarter as we continue to work through the Old Risk Portfolio or ORP. We continue to narrow our risk profile as we remain focused on procuring projects with greater visibility to project design, smaller project size, shorter durations and geographies that allow us to capitalize on existing relationships with owners, suppliers, employees and subcontractors.

During the quarter, we burned $100 million of ORP CAP, which is in line with what we have discussed previously. While these projects are challenging and complex, we continue to be focused on execution and mitigating risks as they arise. This quarter, we saw some gains and fades in project margin in the portfolio but are meeting our expectations with only a slight loss to Granite year-to-date through September.

Our vertically integrated California and Northwest groups have delivered solid results this quarter. In the Northwest group, the increase in revenue was spread across the different geographies within the group from Washington to Nevada to Arizona.

In California, we saw a decrease in revenue during the quarter when compared to 2020, primarily driven by 2 factors. First, earlier this year, I mentioned that we were experiencing an extended competitive bidding environment. Typically, this is experienced early in the fiscal year as contractors are focused on securing work. While the bidding environment returned to more normalized levels of competition this summer, it impacted California during the third quarter.

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

While revenue was lower year-over-year, the performance this quarter is in line with our expectations and reflects a very positive environment, driving higher CAP in our California group as of the end of the quarter. Segment CAP increased sequentially from the second quarter, reflecting the strength across our markets and our ability to offset decreases in our Heavy Civil group CAP with increases from our vertically integrated businesses.

I'm pleased when I look at the mix in our Transportation CAP and the progress we have made with the ORP. We have seen wins across the company, highlighted by the California group. Transportation CAP for California is $1.3 billion at the end of the quarter, which is up approximately $166 million sequentially over the second quarter.

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

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

Related to infrastructure funding, late last month, Congress authorized an extension of the FAST Act funding levels through the end of this month, pending continued negotiations on the bipartisan long-term infrastructure bill. The infrastructure bill provides for significant new funding most likely impacting our businesses starting late in 2022 and building into 2023.

Moving to the Water segment. The Water and Mineral Services group performed well during the quarter. Our trenchless and pipe rehabilitation and water supply and maintenance businesses both increased revenues compared to the third quarter of 2020. Water supply and maintenance continued a strong performance from previous quarters across the U.S. This includes opportunities related to water infrastructure needs, not only in the drought-impacted Western U.S. but also across the country with strong demand in the segment.

Segment CAP as of the third quarter stands at $524 million, a slight decrease compared to the second quarter and an increase of $178 million over the prior year. As debate continues in Washington around the funding of water infrastructure projects, the need for investment is largely acknowledged across both aisles of Congress. We believe we are well positioned to take advantage of the numerous civil construction opportunities in the water end market, as funding negotiations proceed to address the critical needs across the country from flood prevention to dam and reservoir construction or repair.

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

In the public sector, we continue to grow our work with branches of the federal government, including the military through Best Value, MATOC, IDIQ and Task Order Contracting. We are proud of our work and relationships we have built with the federal government over many years and intend to continue to build upon those relationships as the country is expected to expand spending in many areas in the years to come.

The private sector of the Specialty segment has been a focus of Granite and resulted in significant successes, allowing us to steadily increase CAP with the pandemic and the inflationary environment. Although we have seen some slowdown in private commercial site development investment, we continue to pursue numerous opportunities, including in the mining and renewable energy industries.

To start with mining, Granite has had a long-standing relationship with mining clients within our Northwest group. We typically have served our mining clients through a variety of civil construction projects from road construction to site development to reclamation. More recently, we have extended our services to mining clients in mineral exploration. With commodity prices such as copper showing strength currently, we expect investments and opportunities to continue in the future.

The renewable energy industry is also an area where we have invested and had success in building relationships and growing revenue. Over the past several years, we have developed a focused strategy in pursuing renewable energy projects, which includes solar field installations and battery storage. While currently not a significant component of our overall revenues, with our industry-leading position in solar installation projects and the current administration's plan to move the U.S. toward a greener future, we believe there will be significant growth in investment and project opportunities in the coming years.

As of the end of the third quarter, segment CAP remains robust, with project progression during the busy third quarter resulting in a $130 million decrease of CAP sequentially from the second quarter. With the relationships across end markets within the Specialty segment, we believe Granite's diversified civil construction expertise will allow us to capitalize on the increasing public funding in resilient private markets and continue to drive revenue growth in the future.

Now turning to the Materials segment. The third quarter continued with the strong levels of demand that we have seen in the first 2 quarters of the year, with overall higher sales volumes of aggregates and asphalt as compared to the prior year period. While we have seen broad support for Materials across our locations, we have also seen demand shift across our geographies, partially offsetting the continued strong demand in sales volumes for increasing prices for fuel and liquid asphalt.

These price increases started at the beginning of 2021, and their impact accelerated in the second and third quarters, resulting in oil-related costs returning to the 2019 levels. The results in 2020 reflected the benefit of these lower costs with 2021 being more indicative of historical performance in this segment. Oil price volatility has been and will continue to be a focus of our Materials teams across the business in the fourth quarter and beyond.

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

CAP from our vertically integrated groups continues to grow, now at 61% of our total. The Heavy Civil operating group CAP decreased to 19% compared to 31% for the same period 1 year ago. We've been successful in replacing the Heavy Civil operating group ORP with work from other operating groups as we maintain discipline around our Heavy Civil group portfolio.

We believe we have also been successful in our efforts to derisk our portfolio through increasing the amount of Best Value procurement work. Best Value procurement awards now comprise $1.7 billion or 39% of our total CAP, while design build continues to decline to $487 million or just under 11% of our total CAP.

While there is more work to do, and we are not taking our eye off the need to focus on project execution, I'm confident we are positioning the company to continue on the path for improved financial performance.

With that, I'll turn it over to Lisa to discuss our financial results for the quarter. Lisa?

Thank you, Kyle. While the third quarter produced solid results, which were consistent with the second quarter, compared to prior year, consolidated revenue was essentially flat at $1.1 billion, and gross profit decreased 5% to $120 million with a gross profit margin of 11%.

Now let me touch on a few key items in each of our segments. In our Transportation segment, revenue was down $56 million year-over-year to $568 million, driven by the expected decrease in the Heavy Civil operating group as well as lower revenues in the California operating group due to the extended competitive bidding environment in 2021 when contrasted with an exceptionally strong 2020. Transportation gross profit for the quarter increased 8% to $59 million, resulting in a gross profit margin of 10%, up from 9% in the same prior year period.

ORP loss to Granite in the third quarter of 2021 was $5 million on revenue of $100 million compared to a loss of $23 million in the third quarter of 2020. ORP loss to Granite is net of the noncontrolling interest, or NCI, from our non-sponsored joint venture projects. The ORP loss of $5 million during the quarter reflects project gains and fades in this challenging portfolio. For the 9 months ended September 30, 2021, the ORP loss to Granite was $400,000, which is in line with expectations, compared to a loss of $62 million in the prior year.

As Kyle previously discussed, the third quarter of 2020 was an exceptional quarter for our vertically integrated groups, driven by efficiencies gained through owner work site accommodations as well as the benefits of lower oil and fuel prices on the segment. During the quarter, ORP CAP decreased $100 million. Assuming expected project burn in the fourth quarter of 2021 of approximately $85 million, we believe we will carry approximately $275 million of ORP CAP into 2022. This is in line with previous guidance.

In our Water segment, third quarter revenue increased 14% for the same period year-over-year to $122 million driven by water supply and maintenance services demand across the U.S. Water gross profit for the third quarter decreased 21% to $10 million, resulting in a gross profit margin of 8%. This decrease in gross profit margin was primarily due to work being performed on 2 challenging projects, which we previously discussed in the second quarter of 2021.

Moving to the Specialty segment. Third quarter revenue increased 14% over the same period last year to $234 million, led by progression on a federal site development project in our Heavy Civil operating group and increased revenues in our mineral exploration business in the mining industry. Although there was a significant increase in gross profit year-to-date through September 2021, for the quarter, Specialty gross profit decreased 7% to $31 million and a gross profit margin of 13%. The decrease was primarily due to continued performance of disputed work on a previously disclosed tunnel project and changes in product mix within the segment.

Finally, in the Materials segment, third quarter revenue increased 6% over the same period year-over-year to $138 million, driven by continued strong volumes in both aggregates and asphalt in the California and Northwest operating groups. Materials gross profit declined to $21 million, resulting in a gross profit margin of 15% in the quarter. The decline in gross profit when contrasted with an outstanding third quarter of 2020 was primarily due to increased oil cost, geographical shifts of volume during the quarter and higher depreciation on 2 new plants placed into service at the beginning of this year.

Turning now to our non-GAAP financial metrics. Adjusted EBITDA for the third quarter decreased $14 million year-over-year to $81 million, resulting in an adjusted EBITDA margin of 8%. The decrease in adjusted EBITDA was primarily due to lower gross profit from an exceptional third quarter of 2020 driven by favorable gross profit impacts mentioned previously and an increase in SG&A during the quarter compared to the prior year.

SG&A during the quarter increased $5 million to $78 million or 7% of revenue. The increase in SG&A was primarily due to higher incentive compensation expenses recorded during the quarter. For the 2021 fiscal year, we reaffirm our guidance for SG&A at 8.5% to 9% of revenue for the full year.

Regarding our 2021 adjusted EBITDA margin guidance, I'm narrowing the guidance for the full year from a range of 5.5% to 7.5% to a range of 6% to 7%. Considerations factored into and which may affect the amended range are weather across our regions in the fourth quarter, execution of the ORP and potential impacts from any regulations or mandates related to the pandemic.

Our third quarter resulted in an adjusted net income of $43 million or adjusted diluted income per share of $0.93 compared to $54 million for the same period in the prior year. For the third quarter, 1.5 million potential shares were added back to diluted weighted average shares outstanding. As I have discussed in previous quarters, we have essentially mitigated the dilution impact of our convertible notes with the purchase of an equity derivative instrument.

Turning to our cash and financial position. Operating cash flow decreased $79 million to $60 million for the 9-month period ended September 30, 2021. The decrease in operating cash flow was primarily due to claims settlements of $67 million received in the prior year and an increase of planned contributions to unconsolidated construction joint ventures during the current year.

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

During the third quarter, we received preliminary court approval of the shareholder litigation settlement, which triggered the settlement payment net of insurance of approximately $66 million after quarter end.

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

Our next objective is to strengthen our core capabilities through business reinvestment. As previously mentioned, our markets are healthy and expecting strong growth, and we want to build upon our existing market positions through reinvestment. As we remain focused on the execution of our current portfolio, we also stay abreast of the M&A landscape to look for opportunities that align well with our strategic objectives.

The final capital allocation priority is our share repurchase program authorized by the Board of Directors with over $157 million remaining as of the end of the quarter. In conjunction with the evaluation of our other capital allocation priorities, we continue to consider the use of the program to opportunistically return capital to our shareholders.

Lastly, we are continuing to work with our Board of Directors on the finalization of our strategic plan. With the dynamic environment and significant opportunities in the market, we are following a thoughtful and detailed process reviewing markets, capabilities and structure to best position us for the future. We plan to share more with you concerning our strategic plan in early 2022.

With that, I will turn it back over to Kyle for closing remarks.

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

Our CAP as of the end of the quarter demonstrates the strength of our teams, our markets and our relationships with owners across the country. I expect our expertise as a diversified horizontal civil contractor across end markets, geographies and types of customers will continue to allow us to continue to transform our portfolio and grow in the future.

Our cash and liquidity remain strong and provide us flexibility to invest in growing our business and creating value for our shareholders.

Finally, we are excited about the positive public and private funding environments in our markets.

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

(Operator Instructions) The first question comes from Brent Thielman with D.A. Davidson.

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

Brent, yes, good question. And kind of going back to what we talked about on the prior calls, we did see some lettings kind of get pent up in 2020 with the pandemic, which created a more competitive environment really coming into Q1 of this year, and we talked about how that extended a little bit longer than typical. It was certainly the case this year.

I would say that the bid volumes today are a lot higher than what they were a year ago. They're back to pre-pandemic levels. We really feel good about the bid environment we're in, but it is a little bit more competitive. There's a few things going on that are probably driving that. One is there's some -- still some uncertainty knowing the public spending side of things. There's a lot of debate and discussions today on the federal infrastructure bill. And so hopefully, that will provide some clarity to agencies, so they feel confident they can put work out. Two is the private market is still a little bit questioning some of the supply chain events, some of the inflationary drivers that are affecting them and making decisions around how they want to invest their capital.

So I think it's to be determined. I think we still have a nice market. I think if you kind of point back to the Transportation CAP that we have today in California, it's up, and it's up significantly, and we feel really good about that. So kind of getting back to your question, I think the market is good. There is some competition out there, but we certainly like the direction that it's headed.

Okay. And I guess, my follow-up. You've seen this massive pickup in CAP in the Water segment of the business clearly still under earning. When does that business start to see more of the benefits of the good margin work you picked up offsetting this lower-margin work you're still working through? Is that -- is any of that reflected in the updated guidance today?

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

We've seen the -- certainly, the Water business was hit pretty hard with the pandemic. We saw some delayed lettings and certainly in the Inliner business, the pipeliner business, early in the first half of the year, and we see that start to pick up in the second half. We have our Leon Hurse Dam project that's come online that we've started. So I would think that really, what we're seeing in the Water is really a near-term issue. And looking long term, we think it looks a lot better as we go into 2022.

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

Maybe you can talk to the ORP coming down as planned and then the design build being, I think you said, 11% of CAP, while Best Value were near 39%. I guess where can design build and Best Value work trend over the next 1 to 2 years? I would guess, there's some benefit of the ORP melting off as well. But any thought on how -- thoughts on how total CAP can shift more positively over time?

Okay. So maybe I'll start with the ORP as planned. And I think we are through 3 quarters now. We've guided towards kind of a breakeven business with the ORP, and that's really where we're at today, which I think our teams out in the field did a really nice job focusing on those projects. They're tough projects, and they're challenging. And so we are pleased with the progress on the ORP.

Getting back into your question on design build, today, it is about 11% of our CAP. It's come down significantly over the last year or 2, which is planned. We're not in a position where we want to say we're not pursuing design build projects, but there has to be a compelling reason to pursue the design build project for us moving forward just because the risk profile is a lot greater than the risk profile on a project that's 100% design.

And really, we're looking at design build projects that are long term. So from the point of time that you actually price the work to the point that you actually build the work, that there's definitely a higher risk profile. And certainly, in kind of the inflationary times that we're in today and even supply chain times we are today, that risk profile is only going to get worse.

So your question around what that might look like, our profile in terms of the work that we're pursuing on the larger side, being over $150 million within -- with the Heavy Civil group segment, design build is really only around maybe 20% or less of our overall pipeline of projects that we're pursuing today. Bid build, those are ones that are 100% designed, sit right around, say, 13% or so. And really, the CMGC, CMAR progress the design build. Best Value projects that we talked about are just about 65% of the projects that we have in our pipeline.

So I guess to answer your question, if you look at what we're pursuing today, the majority of it is more the Best Value, then it gets down into the bid build on the larger projects. And then really, the design build is probably the smallest portion of our portfolio.

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

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

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

The next question comes from Michael Dudas with Vertical Research.

Hello? Hey, can you hear me?

Yes.

We can.

Yes. Hey, Mike.

Yes. Phone issues here, so I apologize. So just first off, I've been reading about all kinds of wet weather in the Northern California range. Maybe you can talk about how weather was in Q3 and what you're seeing heading in with -- in the Northwest, too, for Q4.

Well, yes, Mike, you picked a good week to ask that question because it's...

I certainly did, didn't I?

It's been very dry here for a long time. And then obviously, we got hit with a big storm really kind of everywhere we work. So we saw it out in the West. We're seeing it down in the South. We're seeing it down in Central. We're seeing really our first storm of the year. There are certain parts of our business, say, up in Alaska, that have already pretty much shut down for the year due to weather. And then we certainly have parts of our business that are still cranking.

So it's the first storm of the year. But I think looking out a little bit further, it looks like it's going to be dry for a period of time. But that is the wildcard for us every year as we get into Q4 is what the weather is going to look quite for the remainder of the year.

Understood. Yes, you picked a good day to host your conference call, I guess, that's the other aspect to it. Right. And I hope you guys are inside.

So second question is the topic du jour is supply chain and the labor tightness and cost inflation. So maybe you can touch a little bit on Materials. Obviously, you sell materials but also buy on the other side. Labor, your access, labor in the marketplace, and anything on the cost side. Or is it -- are some projects being deferred or things being pushed out or decided a little more -- take a little bit longer for FID and to release because of some of these issues going on? Are you seeing any sense of that?

So I mentioned earlier that we are seeing some of the projects kind of being held up as owners look to determine whether they want to put projects out just based on some of the inflationary side of things. On the supply side, we did see that there's -- it's -- I guess, it's a little bit of everything out there. There's some bigger supply issues. And certainly, we saw last year that kind of affected us in a positive way. If you see the diesel and the oil, liquid asphalt prices that we would be a beneficiary of in 2020, that we didn't -- we couldn't keep that margin expansion into 2021 and at least to date.

You shift over into the labor side. Labor is pretty consistent. We talked before that in the West, we're a union contractor. We have really strong relationships with our union partners. Our employees in our -- at least our vertically integrated business have been with us for a long time, and we have a lot of work out in front of ourselves, which is what our employees want. And then we provide that safe environment for them to work in, which is certainly attractive for -- so we are an attractive employer.

As you look maybe out on some of the large projects, there is a challenge for us. When there's a new large project that comes in adjacent to a large project that we have, it's going to have a longer kind of working schedule, maybe another year or 2. So we do have employees to go and work on these projects that are going to have an extended opportunity for them.

And then certainly, in the Water division, we are challenged. We have a lot of hires in the non-union environment, and that's been a challenge for us. But there's definitely a lot of labor out there and a lot of competition for labor that's out there today.

And I think the other one is maybe drivers. We're seeing some issues in certain parts of the geographies we're in for truck drivers themselves, which kind of leads you into that supply side. It's not just the driver, say, shortage. It's also just the parts I'm hearing around. If a truck breaks down, having the parts available to repair the truck to get it back in service, there's chlorine tablets that we use for -- when we install pipe. And so just little things that kind of add up.

But I would say, in general, our teams have done a really nice job. The impact financially have been relatively small. And it's really around scheduling. And our teams are out in front of it. They navigate the challenges that they have, and I think they've done a really nice job getting us through the issues that we're facing.

Excellent commentary. And my follow-up question would be maybe for Lisa, on overall claims and progress on that front. I noticed there's a new governor installed in New York State this past quarter. Any thoughts of maybe things changing a little bit there because of the new administration?

Yes. Mike, so from a claim perspective in the current year, we continue to work on those. In New York, in particular, we haven't had any significant movement at this point in time, but we are hopeful with the changing of the guard there that there -- with a different set of eyes on it, that we could see some better progress moving forward. But nothing significant at this point in time.

The next question comes from Jerry Revich with Goldman Sachs.

This is Adam Bubes on for Jerry Revich today. Just had a couple of questions back to the Water business. Wondering how you think about your addressable market in Water. Strong growth prospects here and double-digit growth this quarter, how do you think about the organic growth cadence once the environment sort of normalizes in this business?

Well, yes, Adam, that's a good question. I would say that in the Water segment for us, a lot of our operating groups and parts of our business participate in the Water segment. So it's really hard to give you an exact number. And that's really why we guide towards kind of the overall revenue for the company. But I would say that we're excited about what's going on within our Water business, certainly, whether it's the Heavy Civil group participation on Leon Hurse Dam, whether it's the Inliner business on the pipeliner and what we're seeing in the back half of the year in terms of opportunities.

Certainly, our well-drilling business has done a lot better in 2021 as we've seen a lot of pent-up demand get put in -- get built back up and actually have customers calling and moving that business forward in 2021. So I think just, in general, we're starting to see a lot more movement in our Water business. But that's probably the best way I can answer that is I think it's going to fall in line with our overall guidance as -- not only this year, but as we do our guidance forward in the Water segment.

Okay, that's helpful. And then also sticking in the Water segment, gross margins this year have been in the high single-digit range. And just wondering how to think about the trajectory for margins as you continue to readjust the risk profile in this business.

Yes. We expect our Water segment just like we do when we give our revenue guidance. I mean we expect our Water segment to have similar margins to what we see in other parts of our business. So if you exclude those write-downs, we're just under 13%. We still have a ways to go to get up to those maybe mid-teen margins that we desire. But we do see that that's kind of the trajectory that we're headed towards.

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

Okay. Well, thank you for your questions. To all of our employees, we appreciate everything you do for Granite every day. Granite is a strong company we are due to your efforts. Together, we will continue to work in a way that demonstrates our commitment to our core values and positions us for success as we complete the fourth quarter and move into our second century as a company.

And to the investors and analysts, thank you for our continued interest -- your continued interest in Granite. It is an exciting time for the company, and we look forward to speaking with you soon.

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