Granite Construction Q2 2023 Earnings Call Transcript

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Provided by Quartr
July 27, 2023

There are 9 speakers on the call.

Operator

Morning. My name is Sarah, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Investor Relations 2nd Quarter 2023 Conference Call. This call is being recorded. All lines have been placed on mute to prevent any background noise.

Operator

And after the speakers' remarks, there will be a question and answer period. Please note, we will take one question and one follow-up 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.

Speaker 1

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 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 Private Securities Litigation Reform Act of 1995.

Speaker 1

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 ks 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.

Speaker 1

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 and in company presentations, which are available on our website graniteconstruction.com under Investor Relations. Now, I'd like to turn the call over to Kyle Larkin.

Speaker 2

Good morning, and welcome to our Q2 conference call. I'll start with a quick recap of some significant accomplishments an eventful second quarter. At the beginning of Q2, we closed on the purchase of Coast Mountain Resources or CMR, quarry and processing facility that served as a supplier for our Pacific Northwest region. Our materials business is integral to our home market strategy. As discussed in previous calls, we perform best in markets featuring a combination of an aggregate and asphalt business with a vertically integrated construction business.

Speaker 2

We believe the CMR acquisition provides our Pacific Northwest region with a competitive advantage. This acquisition as well as the Q1 purchase of the Brunswick Canyon Quarry in Northern Nevada reflects our commitment to invest in and grow our materials In addition to these acquisitions, we also continue to invest in greenfield reserves, plant automation and other efficiency projects. We are seeing the results of our investment in the materials business and look forward to sharing more as we continue to execute our plan. We also completed the refinancing of our convertible bonds in May. This refinancing resulted in a $51,000,000 non cash charge that is adjusted in our non GAAP net income and earnings per share.

Speaker 2

The new convertible bonds supplement our credit facility and provide Granite with a strong capital structure that bolsters our liquidity position. Our debt structure provides us with both stability and access to funds as opportunities arise. Turning to our response to a slow Q1, while we were happy in Q2 to finally stop talking about atmospheric rivers out West. Historically wet Q1 weather had a lingering headwind as several of our Western businesses dealt with delays caused by the historic snowpack and associated runoff. Despite these impacts, I'm encouraged by our team's 2nd quarter performance and ability to overcome the slow start of the year.

Speaker 2

Now let's dive into our construction segment. I'm excited to report that total cap increased $334,000,000 from the 1st quarter And is up over $1,200,000,000 year over year to $5,400,000,000 That is an exceptional result for the quarter and a testament to Pursuit teams across the company. I'm pleased by both the number of wins in the quarter and the opportunities that we see on the horizon. We are winning our share of high quality public and private work. This should translate to revenue growth in 2023, but even greater impacts should be recognized in 2024 and 2025.

Speaker 2

I believe current market conditions should allow us to continue building strong quality cap through the remainder of 2023. Looking at our operating groups and starting with the California group, it was another stellar quarter for Pursuit teams across the state. The group ended Q2 with another record cap of $2,300,000,000 an increase of $432,000,000 or 23 percent sequentially and $716,000,000 or 44 percent year over year. There have been some concerns around California's 2023 to 2024 budget deficit. However, the finalized budget package keeps infrastructure investment intact and in fact is up 5% from the previous year.

Speaker 2

The state recognizes the need for infrastructure investment and has protected it in the latest budget. In addition, The budget authorizes Caltrans, the State Department of Transportation to pilot the progressive design build procurement method. This is an example of an alternative procurement model that we prefer. Like the construction manager general contractor procurement method, Progressive Design Build is the best value method that generally provides more successful projects by allowing stakeholders to collaborate throughout the design, preconstruction and construction process. Through the 1st 6 months of the 2023 calendar year, Caltrans awarded $3,400,000,000 of work, including both traditional bid build and construction manager general contractor procurement types.

Speaker 2

This total is the highest amount in terms of number of projects and dollars awarded in the last 5 years. Over the past year, the The dynamics of the state's funding have continued to improve, aided by the federal infrastructure bill and our California group has capitalized on the numerous opportunities available. A quick comment on the California emergency work that we discussed in the Q1. As a reminder, this work was comprised of approximately 100,000,000 not to exceed contracts. Year to date through the Q2, we recognized $43,000,000 in revenue for emergency work.

Speaker 2

We don't anticipate significantly more revenue from these contracts. While the California Group has the highest cap balanced by group, The Mountain Group is our largest group by revenue both in 2022 and through the first half of this year. At the end of the second quarter, cap in the Mountain Group stood at $1,500,000,000 an increase of $52,000,000 or 4% sequentially and an increase of $428,000,000 or 40% year over year. The cap growth is primarily driven by the Alaska, Nevada and Utah regions. The Mountain Group is the most seasonal group within Granite as several markets are exposed to more intense winter weather and have shorter construction seasons.

Speaker 2

With the higher levels of cap in place at the start of this year, The group ramped up quickly as soon as weather allowed and expects to have a very busy remainder of the year. Finally, in the Central Group, Cap decreased in the quarter by $151,000,000 sequentially, while remaining up $81,000,000 year over year. There was a cap decrease in Q2. The Central Group was the lowest bidder on several projects, which we reflected in 3rd quarter cap, including a $200,000,000 tunnel project in Ohio. The Center Group continues to pursue quality work and is building up its derisked cap portfolio.

Speaker 2

We expect the group to increase its cap in the 3rd quarter with the tunnel division in Illinois and Texas regions leading the way. While the Central Group has substantially derisked its current cap, I am disappointed to report that the construction segment was again impacted by the I-sixty four high rise bridge project. While this project continues to move towards final completion, which is now scheduled for early in Q4, the project suffered cost increases. This resulted in a $21,000,000 impact to gross profit in the quarter with a net impact to Granite of $10,000,000 after non controlling interest. Winding down these types of risky projects has been a long journey.

Speaker 2

We remain focused on completing the project as soon as possible. The challenges we have faced on the project are a stark reminder of why we intentionally derisked our portfolio away from these types of large complex design build projects where project risks are shifted to the design builder. Our experience with these types of projects, which often require 5 or more years to complete and we are working outside our home markets has not proved successful. When we are evaluating larger projects, we have emphasized best value procurement delivery methods such as CMGC. At Best Value Projects, we are better positioned to address all risks as we work collaboratively with the client to mitigate risk for the project, the client and for Granite.

Speaker 2

Although some best value projects have high total contract values, They're often separated into smaller work packages, which are then reviewed through multiple project workshops. This process is a win for the contractor and the owner. Projects are generally completed quicker and with fewer claims. We have constructed more than 60 best value projects and we are very confident in our risk assessment on these types of projects. Overall, assuming the weather cooperates for the last 6 months of 2023, I expect the Q3 and second half of the year to be very busy With revenue exceeding the prior year, I also believe we have numerous opportunities to continue to build cap in every group, setting the stage for strong growth in 2024.

Speaker 2

Moving to the Materials segment, I'm excited about the performance in the 2nd quarter and the momentum we have going into the 3rd quarter. In Q1, inclement weather slowed construction and drove significant decreases in volumes. In Q2, our teams got to work and started to make up ground. Aggregate sales volumes increased 9% year over year in the quarter, while asphalt volumes were flat. The materials business has performed well, increasing prices both in aggregates and asphalt, resulting in improved revenues and margins.

Speaker 2

We are investing more in our materials business to maximize production efficiency through multiple automation projects, greenfield reserves, standardization and implementation of best practices. These initiatives are paying off and I believe we will see further benefits as we drive towards our 2024 gross profit margin targets of 15% to 17%. Now I'll turn it over to Lisa to review our financial performance for the quarter.

Speaker 3

Thank you, Kyle. In the Q2, consolidated revenue increased $50,000,000 to 899,000,000 while gross profit increased $5,000,000 to $103,000,000 In the construction segment, revenue increased 36,000,000 year over year to $749,000,000 The revenue increase was led by the California and Mountain Groups, which were up 18% and 4% year over year, respectively. Their revenue increases were partially offset by a 5% year over year decline in the Central Group. The California and Mountain Groups entered the quarter with higher levels of cap than the same period in the prior year, and they built on that cap during the quarter. The groups have done a great job of making up for the slow start to the year, and I believe they are likely to continue to outpace 2022 in the second half of the year.

Speaker 3

Essential Group has done an excellent job of transforming and building cap within its home markets over the last year, and we expect to see revenue increase as these projects continue to ramp up during 2023. Construction segment gross profit decreased $1,000,000 year over year to $79,000,000 with a gross profit margin of 11%. In the Q2, construction gross profit was adversely impacted by a write down on the I-sixty four high rise bridge project. The impact to gross profit in the 2nd quarter was $21,000,000 and the impact after non controlling interest was $10,000,000 For the 6 months ended June 30, 2023, the I-sixty four impact to gross profit was $32,000,000 and the impact after non controlling interest was $16,000,000 The impact was primarily due to schedule delays driven by weather, unexpected site conditions and utility conflicts encountered as we work to close the project out. In the Materials segment, revenue increased $13,000,000 year over year to $149,000,000 with gross profit increasing $7,000,000 to 20 $4,000,000 or a gross profit margin of 16%.

Speaker 3

The improvement in gross profit margin was primarily due to sales price increases in both asphalt and aggregates and increased aggregate sales volume over the Q2 of 2022. Oil and energy cost increases in the first half of twenty twenty two had a significant negative impact to materials margins. In the Q2 of 2023, these costs have moderated and margins are more normalized. I expect that we will continue to see improvement in Materials segment margins as our investments in this business take effect. Weather permitting, we expect to see continued strong performance by our materials business in the second half of the year.

Speaker 3

At the end of the Q2, our cash and marketable securities totaled $251,000,000 Historically, Our cash decreases in the first half of the year as the construction season ramps up and we generate cash in the second half of the year. The weather impacted Q1 further exacerbated this pattern with projects and plants having a slower start to the year. This in turn drove higher cash usage and receivable balances. I expect that we will see a reversal of this trend in the 3rd quarter in line with our traditional seasonal cash flow pattern. In May, we issued $374,000,000 of 3 point 75% convertible notes.

Speaker 3

The primary use of the proceeds was to retire 199,000,000 of our outstanding 2.75 percent convertible notes. In a challenging debt market, I am pleased that we were able to complete this transaction that should provide years of capital structure stability at a reasonable net cost to Granite. We also put measures in place through the capped call transactions entered into simultaneously with the issuance of the bonds to protect our shareholders from any dilution from the new convertible bonds until our share price is above $79.83 We believe it is a great result for Granite and all of our stakeholders. On to our guidance, we are refining our 2023 guidance for revenue and adjusted EBITDA margin. As a reminder, last quarter, we talked about our expectation that the $100,000,000 and not to exceed emergency work contracts, which were awarded will allow us to achieve our revenue guidance as we worked to overcome wet weather delays.

Speaker 3

Today, we do not expect our clients will utilize all available funding and the emergency work should total approximately $50,000,000 Additionally, a few projects experienced delayed starts in the California and Central Groups and have pushed to the right. While we are pleased with the recovery in the second quarter To gain ground following the weather impacted Q1, we are revising our guidance for revenue to 3.35 to $3,450,000,000 We are confident that our record cap has us positioned for predictable and sustainable growth. We are also narrowing our adjusted EBITDA margin range to 7.5 to 8.5%. The new range incorporates the losses already incurred on the I-sixty four project in the first half of the year. Our view on 2024 is unchanged.

Speaker 3

Our cap has grown substantially over the last year and and is of higher quality with higher margins that we believe support both our revenue growth and our profitability expectations. Now I'll turn it back over to Kyle.

Speaker 2

Thanks, Lisa. I'll close with the following points. Through the Q2, we are winning work that should allow us to meet our expectations for 2024 and beyond. The second quarter represents a 2nd consecutive record cap company with the California Group leading the way. I'm really pleased with the significant amount of high quality cap that we have in front of us.

Speaker 2

Even with the cap growth over the last year, I believe the opportunities that we see in front of us support further growth in 2023. When we started talking about the IIJA, we said that we thought it would start slowly and ramp up over a number of years. We are seeing that play out in our markets. The opportunities afforded by the IIJA continue to grow as agencies work through the process of bringing more projects to bid. While the results of our construction segment were negatively impacted by our efforts to close out the I-sixty four project, we remain confident that our direction is clear.

Speaker 2

Our momentum is building and our plan is working. We're driving towards our 2024 targets. Lastly, the Materials segment is performing very well and the market remains strong. We will continue to invest in the business and I expect to see further gains both in the top and bottom lines. Operator, I will now turn it back to you for questions.

Operator

Please limit yourself to one question and one follow-up question and feel free to jump back in queue if you have additional questions. Our first question comes from Brent Thielman with D. A. Davidson. Please go ahead.

Speaker 4

Hi, thanks. Good morning. Kyle or Lisa, just I guess wanted to pick on the revenue outlook reduction. I mean your cap is up year on year a lot and sequentially as well. Some concerns coming in to me just as this shift in terms of the demand environment.

Speaker 4

So if you maybe if you could just clarify that Why the revenue outlook ultimately came down? It sounds like maybe some delays in projects, but any color there I think would be helpful for people.

Speaker 2

Yes. Good morning, Brent. So, yes, I think the real probably a couple of things that maybe I'll point to. First off, as we anticipated around $100,000,000 of work to be built. Really filling in that void I mentioned in the last quarter between the wet weather and the project starts.

Speaker 2

Ultimately, those contracts ended up being close to around $50,000,000 They were not to exceed contracts and the owners decided not to complete entire budget allotment and some of that $50,000,000 to come out later and other projects are but we could see at some point later in the year next year. So, But we're expecting that to only be $50,000,000 to $100,000,000 The balance of it's really just project restarts and starts, certainly impacted by some of The weather that we had and the amount of snowpack we had on certain parts of our business that impacted projects getting ramped back up in the year, as well as Runoff and then just some project starts themselves and parts of our business. I would if you put $50,000,000 on the emergency work, you The other $50,000,000 split between California and the central groups for project startups.

Speaker 4

Got it. Okay. I guess my follow-up, I mean it looks like you were something over 13% gross margin in the construction segment, I take out the losses on I-sixty four. Is that better or sort of worse than your initial So plan for this year, maybe just curious how you feel the development of kind of the core construction business is coming along as you've implemented a lot of new It's just focused on higher profitability here.

Speaker 2

Yes, I would say it's in line with our plan. I mean, certainly, we had a wet Q1, which Slowed our ramp up of the year. So as you kind of look at Q2, it has a little bit of what would normally be in Q1. So we expect that we'll continue to ramp up and certainly have a strong Q3 and finish to the year. I don't think where we're headed direction is changing at all.

Speaker 2

When we look at our cap, our cap continues to grow both in terms of Kind of the size of our cap, but the quality of our cap is getting better too. And we consistently are picking up more work with higher margins. And that's really good for our business. And even though we have challenges on I-sixty four, we don't have those risky projects in our portfolio moving forward. And so the quality of our cap is really, really different than what we've had historically.

Speaker 2

So as we look forward into 2020 Before and beyond, we feel really good about where we're headed directionally. Okay. Thank you.

Operator

Thank you. Thank you. Our next question comes from Brian Russo with Sidoti. Please go ahead.

Speaker 5

Hi, good morning.

Speaker 3

Good morning. Good morning.

Speaker 5

Just when I look at the midpoint of your revised revenue guidance of $3,400,000,000 And then when I look at the 2024 target, Midpoint of about $3,750,000,000 That implies about 10% year over year revenue growth. And I'm just curious, it seems like maybe the industry might be growing in the mid Single digits, maybe slightly higher. How confident are you to get to that 2024 midpoint?

Speaker 2

Well, I think we're feeling really good. I mean, our cap balance today is up significantly, as I mentioned in the prepared remarks and with Granted, it's higher quality and certainly higher amount. And if you kind of look at the burn, it's tough with these best value projects to really look at a burn On the cap consistently, but if you look at it from a 40% to 50% range, if we continue to pick up work at the pace we've been picking up work, we believe that that 2024 revenue number of 3.6% to 3.9%, if we continue to do things we're doing, we should be on the higher end of the midpoint than the lower.

Speaker 5

Okay, great. Got it. And then just to follow-up on your cap and backlog profile, the several $100,000,000 of projects that you announced in the Q2. Roughly speaking, it looks like they could be anywhere between 12 to 36 months in duration. And I know you commented on that early, but maybe you could just elaborate What gives you maybe the Centimeters GC structure, etcetera, but What gives you the confidence that you can manage those projects and execute them on time And on budget, just given the multiyear durations of some of the projects?

Speaker 2

Yes. And on those projects, I mean, that's what we really appreciate about the best value contracting method. It's really all about collaboration. And the focus of those jobs is all about managing risk, identifying risk and managing risk for the owner, for the project itself and for ourselves. And that allows us to really mitigate most of the challenges that the project or entities with face or different stakeholders.

Speaker 2

And so that's really the value of the CMGC process. A lot of the Projects are broken down into smaller contracts on the construction side, so we can take a larger project like we have in Santa Barbara on that 101 corridor That's almost close to about a $600,000,000 overall project, but it's broken down into several projects ranging from around $75,000,000 to 150,000,000 And so that allows us to really identify and mitigate risk in each specific segment. It limits the exposure we have, which allows us give a better price ultimately to our customer because we don't have to put the risk costs in there necessarily. So we have a lot of confidence also because we've done 60 of these types of projects in Company, we've done them successfully. And we believe that it's really a win for us.

Speaker 2

It's a win for our customers. And ultimately, they don't result in claims. And so, we that's what gives us the confidence that as we continue to bring in these best value projects, these collaborative contracting type projects that we can execute on them. It's very different than design build Certainly on these mega projects, I mean the challenges that we saw in I-sixty four and even in the last quarter, those would have been managed differently under CMGC. And It would have been something that could have been identified, mitigated or even risk would have been shifted back over to the owner.

Speaker 2

So I guess hopefully that answers your question there, Brian.

Speaker 5

Yes, yes, it does. Thank you very much.

Speaker 2

Yes, thank you.

Operator

Our next Question comes from Stephen Ramsey with Thompson Research Group. Please go ahead.

Speaker 6

Good morning. Good morning. Good

Speaker 3

morning, Steve.

Speaker 6

Yes, good morning. I wanted to think of make sure I And the project completion factors pushing out the revenue. I think I understand the emergency work part that's pretty clear. After that, is the I-sixty four bridge a part of that push out? And then thinking about California in the central groups, Was that more of a broad push out in a number of areas and geographies or were there certain geographies and project types pushing that out.

Speaker 2

Yes, it's really just specific projects, Couple of projects in California and a couple of projects in our center group that just pushed to the right a little bit, so that work will still take place. We just didn't we're not going to get the berm we thought on those projects in 2023, it'll shift into 2024. So if you split between the two groups, it's around $25,000,000 per group.

Speaker 6

Okay, helpful. That makes sense. Okay. And then thinking about the quick turn burn work that takes place a lot in the busy season, a focus for you guys. Is there more of that work in hand in 2023 than 2022?

Speaker 2

Yes. So in the donut charts that we shared, right now our bid build, which is really the 100% design Competitively bid projects. Right now, it's about 54%. Last year, it was around 50%. So we've actually seen the best value Pretty consistent.

Speaker 2

We've seen the design build come down. It's being replaced with those bid build projects. So that's becoming a bigger part of our portfolio in our cap today.

Speaker 6

Okay, helpful. And then one more quick one, maybe just some clarity on the water vertical strength that you're seeing there, if there's any push outs in that vertical.

Speaker 2

No, the water business is doing well. I mean, we continue to see a strong market Certainly with municipalities and industrials. So yes, no concerns in the water business. We see plenty of opportunities for that team.

Speaker 6

Great. Thank you.

Speaker 3

Yes. Thank you. Thank you.

Operator

Our next question comes from Michael Dudas with Vertical Research. Please go ahead.

Speaker 7

Good morning, Kyle, Mike Leeson.

Speaker 2

Good morning, Mike. Good morning.

Speaker 3

Hey, good

Speaker 7

morning. Your materials business, it looks

Speaker 8

like it will be some pretty good When you think second half

Speaker 7

of the year, can you share a little bit about what you're seeing in pricing on the aggregate front? And Has there been some stickiness and some improved pricing and on the demand on that front relative to maybe what you expected in the beginning of the year?

Speaker 2

Yes, I think it's back to what we expected in the year. Obviously, as we get past, I think, the wet weather in Q1, I think we were encouraged by the Growth in our aggregate business, not surprised by the relatively flat asphalt sales in the quarter. Typically, you would anticipate aggregate to proceed The asphalt as you kind of ramp up projects generally. So that was in alignment with what we believe we'd see. I think the pricing, it's probably a little bit different everywhere we are in our geographies, but typically we've seen pricing go up.

Speaker 2

We've been able to raise prices in Certain markets, which is again encouraging for us as we look towards the back half of the year. Naturally, last year, we were hindered by liquid asphalt, natural gas and diesel in the business. I think this year, I don't know if I want to say normalized, but I think it is things that normalized to some level versus certainly what we saw in 2020

Speaker 7

Appreciate that, Kyle. And Lisa, as you indicated in your prepared remarks about how Cash flow certainly seasonally should improve the second half of the year. Can you maybe share with this, remind us, given you restructured through the balance sheet 2nd quarter and with some of the puts and takes with the guidance, how you're looking at total year operating cash flow and CapEx and free cash flow generation for the full year.

Speaker 3

Yes, definitely. So for where the activity that we had in the Q2 related just to operating cash flow, that's from an operational perspective is consistent if you look at kind of if You look at a 5 year average related to operating cash flow. On the CapEx side, For our with our guidance, we have not changed that component, so for full year. So we're still anticipating $100,000,000 to $120,000,000 CapEx expenditures for the full year. So that piece has not changed.

Speaker 3

So when we think about free cash flow for the year, That's a component that we've talked about related to our strategic plan and remains a focus area to ensure that As receivables increase that we're timely collecting, ensuring that our contracts are structured so that the cash flow is managed across the life of the project and then just ensuring as we end the year from a retention perspective that those balances are collected. And so For operating cash flow, overall, our internal targets, which we've started to incentivize based on over the last couple of years, We've discussed it at 5% of revenue for operating cash flow. Maintenance CapEx is anywhere from approximately 2.5% to 3%. For free cash flow, currently what we look at is about 2%. So those are the targets that we're striving for and continue to look at to increase those actually as we move to execute on our strategic plan further.

Speaker 7

That's very helpful. And just quickly, any progress on claims outstanding and some of that fun stuff?

Speaker 2

Well, I mean, we're working through them. I wish we could share the progress we're making, but it's We're continuing to chase down a lot of the cash that we think we're entitled to. I think it's we're going to I believe we're going to get that money that we're due. It's Just a matter of the timing. And so we are making progress, but nothing we can import today.

Speaker 2

Thanks. Yes. Thank you.

Operator

Thank you. Our next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Speaker 8

Hi, this is Adam on for Jerry today. Thanks for taking my question. I was wondering if you could just update us a little more on the I-sixty C4 project. What's your level of confidence this can be complete by the end of the year and any visibility on if the challenges there around delays and other issues are behind us.

Speaker 2

Yes. Well, right now, we're looking at the project It's scheduled to be complete in mid October. So that's a slip from where we thought we're going to be in terms of Kind of the mid Q3. So that is a slippage for us. It's really down to a few things.

Speaker 2

It's production. The production rates have declined simply when you have a lot of scope going on in the same location. We saw a lot of impacts from different scopes working in the same area. So that was one component. There were some weather impacts that delayed the project.

Speaker 2

The other two things That we incurred as part of our asphalt removal, we encountered some existing concrete that was underneath the asphalt section It wasn't anticipated in the design. And so we had to remove that concrete and that set the project back. We also hit an unmarked water line, With Step Back, our storm drain crews. So those are some of the challenges that that project faced in the last month or 2 and is contributing to the delay. My confidence level of getting it done this year is high.

Speaker 2

I actually met with the project team and our executive team on that project with our joint venture partners. This week, we discussed the project and our ability to complete and we feel good. I think our team is confident that they can meet the October deadline, obviously, there's a lot of work to do, but we have the resources and capabilities to get it done. So we are Excited to get this thing behind us to a point where we are working and throwing everything we have at to get it done because we need to get this job behind us just as I think everybody would agree.

Speaker 8

That's helpful. And then can you just comment on what you're seeing out of DOT award activity in Your markets, houses trended year to date and are you seeing growth in prospective projects in that category?

Speaker 2

Yes. I mean, I think our market is strong. I think we're certainly our cap reflects the market that we're in. In our minds, we have a really healthy market. We're seeing the IIJA monies coming through.

Speaker 2

The private market is strong too. So it's not just on the public space. We're seeing a really strong market in the private space,

Speaker 7

Which

Speaker 2

is encouraging, that's around mining and rail, solar and industrial work. So that and again, that's across all of our geographies and that's why you're seeing really cap improvement, certainly in California and Mountain, and we're going to we expect to see cap improvement in our center group with Some recent wins. So I think that really tells you we have an active market. There's a lot of information out there. If you go to the ARPDA website, American Road and Transportation Builders That really shows what the activity looks like even into 2024 and we're encouraged.

Speaker 2

So we expect to continue to be able to build our cap And kind of getting back to that longer range plan for us around 2024, we believe we have the market to continue to grow the company in a derisked way. And so we're excited about the opportunities out in front of us.

Speaker 8

Great. Thanks so much.

Speaker 2

Yes. Thank you.

Operator

Thank you. This is the end of Q and A. And I would now like to turn the call back over to Mr. Larkin.

Speaker 2

Okay. Well, thank you for joining the call today. As always, we want to thank all of our employees for the work they do every day. We are now in the heart of our season and I know how hard you are working to deliver results for the company while setting another record safety year. I can feel the excitement around the trajectory of our company in every location I visit.

Speaker 2

Our focus on operational excellence is paying off. Thank you for joining the call and your interest in Granite. We look forward to speaking with you all soon.

Operator

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

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