Good morning. My name is, Phil, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Investor Relations Third Quarter 2018 Conference Call. This call is being recorded. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer period [Operator Instructions]. Please note, we'll take one question and a brief follow-up question from each participant today. It's now my pleasure to turn the floor over to your host, Granite Construction, Vice President of Investor Relations and Government Affairs, Ron Botoff. Sir, the floor is yours.

Good morning, welcome to the Granite Construction Incorporated third quarter 2018 earnings conference call. I am pleased to be here today with President and Chief Executive Officer, Jim Roberts; and Senior Vice President and Chief Financial Officer, Jigisha Desai.. We'll begin today with an overview of the company's safe harbor language. Some of the discussion today may include forward-looking statements. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, activities, performance, outcomes and results. Actual results could differ materially from the past most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements whether as a result of new information, future events or otherwise. On October 9, the company filed an 8-K, which provides a quarterly and annual look back in mapping of our new reportable and market focus segments. Our third quarter results reflect this new reporting structure. 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, adjusted earnings per share and backlog. Please note, that as applicable these metrics exclude non-recurring acquisition related expenses and one-time integration costs associated with the acquisition and integration of Layne Christensen Company and LiquiForce. Reconciliation of certain non-GAAP measures is included as part of our earnings press releases, as well as in company presentations, all of which are available on our investor relations website investor.graniteconstruction.com. Thank you. Now, I would like to turn the call over to Granite Construction Incorporated, President and Chief Executive Officer, Jim Roberts.

Good morning, everyone. Thank you for joining us to discuss Granite's performance. The third quarter of 2018 marks something of a starting point for Granite. About two weeks ago, we introduced end market focused reportable segments. This follows the deliberate strategic effort we have made to diversify and to grow both organically and via acquisition led growth over the last five plus years. Our actions emphasize broaden geographic reach, new capabilities and activities that consistently enhanced returns, growing opportunities for Granite's key stakeholders. From our shareholders and employees to our customers and our partners, Granite employees have remained focus this year as we integrate new teams and as we expand the Granite brand as America's infrastructure company. We thank Granite employees for their dedication to our core values and especially to safety. This year's safety performance has been steadily improving across our business. But our focus remains on zero injuries ensuring everyone gets home safely every single day. In fact, safety is one of the key initial focus areas we have been reinforced with the newest members of the Granite team. On top of the obvious people benefits working safely translates consistently into higher quality work and improved financial performance. The emphasis on improved safety highlights the focus on our people, and it aligns with our integration approach to equipment systems and process improvement. We thought it was important to begin by highlighting some examples of our strategy and action both in our current results and in our strategic outlook. Jigisha, will provide additional detail and color on the quarter. Performance in the third quarter and really throughout 2018 has been outstanding. Revenue, profitability and earnings all are solidly higher this year and we expect these trends to continue for some time. Revenue increased double-digits for the quarter and for…

Thank you, Jim and good morning, everyone. Third quarter 2018 revenue was $1.06 billion, up 10.3% from last year, with the year-to-date revenue higher by 10.9% at $2.43 billion. Excluding the impact of acquisition related expenses third quarter and year-to-date 2018 adjusted net income increased nearly 47% and more than 118% respectively from 2017. This translated into adjusted earnings per share of $1.42 in the quarter and $1.85 on a year-to-date basis. As was the case last quarter adjusted EBITDA improved significantly in the third quarter, up 30.9% from 2017. On a year-to-date basis adjusted EBITDA increased 62.5% year-over-year to $172.9 million. This figure already exceeds our full year 2017 performance and at 7.1% year-to-date it translates into 220 basis points of EBITDA margin improvement. Third quarter gross profit increased 26.2% year-over-year and year-to-date gross profit increased 31.2% to $281.1 million. The year-to-date consolidated gross profit margin of 11.6% was 180 point improvement for 2017. Our scalable cost structure continues to produce results, while third quarter and year-to-date 2018 SG&A increased year-over-year the increase was driven acquisition related cost, primarily acquired G&A. Excluding the impact of acquisition related cost and overhead our core our core G&A expenses declined slightly year-over-year through Q3. As Jim noted, we began the Layne and LiquiForce integration with an emphasis on safety. Our teams are working to deliver on cost synergies and growth opportunities, while they continue to improve safety performance. Safety will remain a key focus as we work to capture and to create cost and growth synergies to drive overhead cost steadily lower over the next couple of years. Granite's balance sheet remains strong with more than $300 million in cash and marketable securities at the end of Q3. We continue to target improved working capital trends and cash flow expectations, which are…

Thank you, Jigisha. Growth is here for our business across the end markets and geographies that we serve. We have planned for it and we have broaden the reach of our portfolio. Optimism is growing at the long awaited federal infrastructure action in Washington appears finally to be on the horizon. We hope that the recently passed Water Resources Development Act of 2018 as an example of the improved emphasis on infrastructure investment ahead. The new Water Resource Bill authorizes $3.7 billion for new Army Core of Engineers Civil Works projects and $4.4 billion for the Environmental Protection Agency drinking water program, while extension of previous legislation, this reauthorization marks a step-up in funding from previous bills. Of course, through November 6th, a key focus remains on the effort to defeat proposition 6 right here in California. To all in California, we strongly recommend you vote no. We remain optimistic at the short cited purely political anti-transportation measure will be defeated. We believe the tide has changed with citizens committed to vote for investment in their communities in ever larger numbers. Proposition 6 is one of more than 300 state and local transportation funding measures on voters ballot on November 6th. To-date Granite is extremely well positioned to feed our strengths, sharpen our capabilities and grow in all parts of our business. Our Transportation segment, the largest both our revenue and profit today will continue to be a source of significant growth and opportunity for Granite's teams across the country. Chronic underinvestment and stepped up spending trends fuel our growth expectation in water infrastructure, whether for wastewater, dams, in the waterways, levies or drinking water systems. Our strategy was developed to capture the benefit of improving secular demand trends across transportation, water and other infrastructure markets. Across the infrastructure solutions, the roads and the pipes and the wires, our grandparents and parents bill continue to carry the weight of decades of underinvestment and they continue to crumble at scale. Our businesses are positioned to create significant long-term benefits from investment to reduce chronic pent up demand. Even in established mature markets, we continue to emphasize discipline with still very early cycle growth and investment opportunities. This effort is expected to fuel improved financial performance and a strengthening balance sheet to deliver on our growth plan through diversification and geographic expansion, providing significant incremental economic value for Granite stakeholders. And with that everyone, we will be happy to take your questions.

[Operator Instructions] Our first question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Yes. Hi. Good morning everyone.

Good morning, Jerry.

I'm wondering if you could talk about what level of decline you saw in your win rates as a result of the change in the pricing focus. In other words, is the overall bid environment or is overall opportunity set impact or are you seeing the cadence of opportunities slowing?

Okay. Well, that's really important, Jerry. Because as mentioned, as we continue to raise our prices, our win rates too tend in the short run to drop slightly. And I'd say that we've been normally in the 25% to 30% hit rate. And I would suggest today we're down probably in the 20% hit rate. So yes, there is a slight reduction there. But I do think that as you can see what it's doing, it's allowing us to create a more healthy bottom-line, which we believe is by far the more important dynamic of our business. There is no slowdown in the overall market, the market is healthy we're bidding more work today in our Transportation segment than we have bid in recent times, probably in the last 10 years. So it's not an issue relative to the market, it's our opportunity to really focus on higher margins on bid day. And then that will equalize itself as we believe the continued solid market will continue through the next several years and we believe that we'll be able to go back and capture higher win rates overtime.

Okay, thank you. And then in terms of the prior segment reporting, obviously we've had a change here, but can you talk about what large construction margins would have looked like under the prior segment reporting just so we can make an assessment of your progress on the remaining projects that you're working to roll off the books?

Okay, Jerry. So I believe that that Jigisha addressed that briefly in her comments that end of Q3 large projects under the old segment reporting would have had a margin of about 4.3%. And - which brings the year-to-date margin in the large projects to about 4.1%. So as we mentioned that that now rolls into the Transportation segment, but we did tell the investor base that we certainly would relay that information in this call.

All right, thank you.

Thank you, Jerry.

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

Morning gentlemen Jigisha.

Hi, Mike, how are you?

Good morning, Mike.

Jim, following up on transportation segment and dynamic with regard to your discipline on bidding in backlog characterize some of the revenue growth we've seen this year and looking forward how quickly is some of the excess capacity going to get mopped up relative to the demand trends in your important markets? And how we should think about as we going into 2019 that we should anticipate better margins, when the revenue growth will be commensurate with the overall macro trends that we're seeing especially throughout the West?

Sure, I think maybe the way to look at it is that as the markets continue to gain momentum and reminder that - and certainly we'll probably somebody asked a question about SB 1 today as SB 1 has started to gain traction in California it was slower than anticipated. So the back half of 2018 has seen some additional bidding opportunities. And I think what needs to happen to match our revenue growth with the bidding opportunities out there in the environment is going to be a kind of a projection that that market is going to stay steady in the long run. So people get nervous as do investors and as do contractors that this is a short-term issue relative to the demand. We believe and based on what we've seen in most of our markets this is not a short-term issue. So as soon as the construction contractor base understands that I think you'll see markets the pricing start moving up and our hit rate will probably start moving up by the middle of next year.

Thank you, Jim. And the follow-up maybe further on SB 1 or Prop 6 maybe elaborate on some of the optimism or some of the concrete and I guess no pun intended there issues regarding the investments and the focus from both sides on getting the message out and leading to the increased confidence that the investor can - the voters will not choose to repeal SB 1?

Sure, well Proposition 6 as most of our investor base understands. If it was a yes vote it would repeal the SB 1 additional investments that were put into place of April 2017. But what we see today in the surveys we've done that although it will be close and almost every creditable survey that we've seen it is being defeated. Some have a wider spread than others. So based on the direction, based on where we see it going with the feedback we've got, we still got - we can have here to get this thing to conclusion, we believe it will be defeated. Although, I will tell you Mike, as we all know that surveys are one thing and reality when people go to border maybe possibly a different thing. So we will be keeping our pedal to the medal all the way until November 6th.

And there has been support from the governor and other officials to look at this thing in the book now?

Absolutely, the governor is a very strong proponent of SB 1 in fact he was probably the one individual who put it into play with the legislature in 2017. And he is out campaigning heavily to defeat Proposition 6.

Thank you, Jim.

Thanks, Mike.

Okay. The next question comes from Kathryn Thompson with Thompson Research Group. Please go ahead.

Good morning this is Steven Ramsey on for Kathryn. Can you maybe talk about the nuances of staying disciplined in bidding in the water market versus some of your more traditional larger businesses that you play in. And kind of thinking about how you guys plan to run the water unit if there are differences in how Layne approached the market.

So, Steve, part of what we're doing today is integrating the business into the Granite system. And I mentioned it a little bit previously, but probably the biggest dynamic and the biggest change in the way that Layne around the water business versus Granite is that now what we try to do is let them operate strictly as operating units and not worry about any corporate issues. Example, all the insurance and bonding all of the banking and the cash metrics and everything are all done away from the operating unit. So they can focus strictly on the bidding and building of their work. Now there is no about that as Granite moves in and has a larger oversight of the water business that we do have reasonable expectations in terms of margins. But I would suggest to you that in the water market as you've seen in the results in the third quarter their margins are pretty healthy right now, and they have been. The issue that was - that needs to be dealt with is basically the SG&A attached to that business more so than the operational function of bidding and building. So what we're really focusing on are the synergies as we talked during the acquisition timeframe that we're talking about synergistically creating a more efficient overhead to help build their business. And we're seeing that today in the changing of the corporate structure with the Layne acquisition where a lot of those folks already are no longer in place because of the Granite folks are already here to handle those corporate functions. But operationally, we are using the same systems for bidding, we are bringing the bidding systems in alignment with Granite today so that if you bid a job in the Inliner and we bid a job let's say up in the State of Washington or Utah or in Florida they're all using the same system today. So we will continue to do that. But overall, the water business the operating basis for it is very strong, the margins are strong. The key now is to integrated the two structural components together and reduce the overall size of the overhead.

I was going to also add that with the combination of Kenny Underground and LiquiForce now we are a very meaningful player in the water market and that is going to be able to capitalize on some of the services - cross selling services that wasn't available previously to Layne and now we have ability to do that.

And maybe the other thing I'll add here, Steven for is that as we saw the Layne business when we were looking into the diligence on it, it had been under capitalized for quite some time. And so, what we have been through as a cycle now since the acquisition in June our CapEx cycle runs during the late summer months. And they will be receiving additional money to help stabilize and create a stronger asset base in their business, which we believe will create an immediate value for them. So they just been under capitalized in not only repairs, but in acquisitions of new equipment to really optimize their business. And we're going to - as we mentioned from day one we are in middle of making sure they get what they need.

Excellent. And then this maybe kind of more of a stepping back elementary questions thinking about the Materials segment. But could you remind us of your pricing strategy in internal versus external sales channels? And is there anything on the pricing front that you would call out - that would you raise prices enough that maybe the capacity doesn't get used up as much, but you still get solid revenue because of your pricing.

Okay, Steve. So a couple of things and I think it's really good I am glad you brought up materials. A lot of time that's one of the smaller segments, it doesn't get really the discussion that it deserves. I've always said that as our Materials segment maneuvers it is the guiding light of what's going on in the marketplace. And as you can see with significant revenue increase the materials business is starting to really show that the demand is increasing in the marketplace. We price inside versus outside very similarly unless there is a specific job that may create I'll call it, a real value to the company. We might change the internal pricing, but on a day-to-day basis the pricing of internal versus external is very, very similar. And as a reminder that we have a huge fixed asset base of equipment and land reserves attached to that materials business. And what we've said, is that as we create incremental value and incremental demand there is a very large and we suggested it's somewhere in the 40% incremental additional margin as we increase the overall amount of material coming through our products. So volume alone will help the bottom-line and simultaneously we have raised prices and we are continuing to raise prices. So the combination of all of those will create a substantially healthier market as we go into 2019 and beyond and I always go back and make it clear to people that back in, 2005 - 2004, 2005 and 2006 when you look at our materials business. Our margins were substantially higher than they are today. We're at about 13% for the year, which in itself is substantially higher than it was a few years back. It was as low as 3% during the downturn. So we've gone from 3% to 13%, I believe it needs to get up into the high-teens, low-20s in order to be really the business we're looking at.

Great, thank you.

Thank you, Steven.

The next question comes from Brent Thielman with D.A. Davidson. Please go ahead.

Thanks. Good morning.

Good morning, Brent.

Jim, on the transportation backlog, appreciate the comments about the wins not included three for $825 million. Last quarter you talked about four jobs for $875 million you are waiting to book. So, one or two of those since last quarter's call and you have some new one wins any new awards since then?

Well, the answer is yes, and no. We did book the $50 million into the Transportation segment in the quarter and the other three are still hanging out there, which we expect to be booked in late 2018 and 2019 as planned. So nothing has changed from our discussion last quarter.

Okay. I mean, I guess that's the case Jim and this is if you booked fairly sizable $50 million job in the backlog. I mean, that would still suggest the small project or other project work in transportation booking were really low this quarter. I'm just trying to understand why the market is as strong as it is.

Well, well, I think that maybe another way to look at it is this that remember we said our hit rate is down a little bit from what it was in previous years. We're burning a lot of it faster too. So what you're going to see, I think and I tried to relay this to everybody about two quarters ago. You're going to start seeing more of the smaller work and you're going to start seeing that revenue will pick up and it will not be indicative of an equivalent amount of backlog build-up. And because you're going to bid you are going to burn it in the same quarter. And so with margins coming up, which they are we anticipated the revenue were out today, we anticipated the backlog in most respects where we're at today. I think Brent, what will happen is that you're going to see a steady increase in our revenue and our backlog in transportation as the strength of the market continues to put into play. So I don't think there's anything going on today in the Transportation segment that is a surprise to us. And I think that it is just more of a steady demand and allowing the market to absorb our higher margins, in which we will begin to get a higher percentage of the win rate. And it's as I tell to Granite people it is it is patience. This is a very good market and to capitalize on it we need to be patient. And if you look at the margins that we're getting out of the business today, that is healthy as we've seen in many, many years. So we're going - we're focusing on bottom-line right now for the next several quarters, we will as well and then I believe you're going to see the big revenue uptick.

Okay. And sorry, if I could real quick on CapEx, I mean, it's a big step up this quarter understand what you said about laying in some investment there. Where should we be thinking about sort of recurring CapEx for the business going forward?

Yes. So historically, we've been in the mid-2% of revenue range. And I'm going to say that with where we are today, we're probably going to be in the 3% plus or minus range on revenue. So if you - somebody wants to model that, I think you'd be very safe.

Thank you.

Thanks, Brent.

Okay. [Operator Instructions] The next question comes from Sameer Rathod with Macquarie. Please go ahead.

Hello, and good morning. Just going back to backlog. So, I guess, I understand the strategy I think that makes a lot of sense. But when do you expect back on to bottom then?

Well, okay, so I think it will depend, Sameer, by the way good morning, Sameer. It's going to depend on when we actually receive the awards on those $825 million of outstanding. So that's where it's really important that we're transparent and we talked about what is in the backlog. Is it large project backlog, is it in the older discussion points construction, transportation or water. So most of our backlog today, outside of the larger work, that $825 million is smaller day-to-day work. I think that has pretty much and I'm going to say bottomed out, but it will probably stay very steady for the next couple quarters, you're going to see an increase in the actual backlog because we will layer in this $800 million. But from that point forward, I think it's going to be a steady demand increase going forward. So if you want to say has it bottomed out, it could have bottomed out where it is today, but I'd say that with making sure that our investor base focuses on large project, the moment you put one into play, you're going to get that blip. And we will make sure that everybody understands that when we put one or two big ones in there, that there's a couple big ones in there. Because I think the more important backlog, not to take away from a large work is the size and the amount of all of the work going on in the smaller Transportation and Water segments across the country. So, backlog I think is kind of where I don't think it's going to get any lower unless there's delays in awards, because the market is pretty healthy right now in the bidding environment, Sameer.

Right, right. Okay, thank you.

Thanks, Sameer.

Okay. The next question comes Alex Rygiel with B. Riley FBR. Please go ahead.

Great. Good morning. This is actually Min Cho [ph] for Alex. Quick question about Prop 6. So if it passes, can you talk about how it really impacts your business? I mean, it sounds like you have so many other opportunities outside of SB 1. Could you maybe change your pricing strategy in California? Or just any updates there would be helpful?

You bet, Min, and all of the above. You are right, strategically we have diversified the company significantly over the last couple years. For exactly this reason, not because of this issue, but for this reason is that so that one event doesn't have an overly sizable impact on the company. So we would need to probably adjust our pricing in California. If SB 1 was defeated or Prop 6 got passed. But California in itself is a healthy market and I think people maybe missing the fact that a lot of the local environments are very healthy. The state is still healthy with a very - with a balanced budget. We also look into the private sector, the private sector is very strong in California. So big chunk of our work in California is coming from the private sector. We would most likely need to go ahead and have a little adjustment in our margins. But I don't think it's going to be a huge impact. It won't be any impact in 2018. And we're trying to figure out, what it would be in 2019. But I don't think it's that big of an issue in 2019, because I think that a lot of the contractors in the state already today have been quite aggressive in building their backlog because they're not sure what's going to happen to Prop 6. So they already have a lot of work on their books. But I think that you're exactly correct. It is such a healthy market in California that it will have a slight impact, but it's not going to be substantial.

Yes, in fact, we will be meeting with our leadership team in a couple of weeks to review our 2019 budget. And our California Group will be coming with kind of before and after on with the SB 1 implication. So we will know more obviously in a bit.

Yes. And Min, as a reminder, I mean we firmly believe the Proposition 6 will be defeated. And with that said, we would be bullish not to figure out what the opportunities would be coming our way if it did pass. So we - based on where we are today it's full steam ahead with the anticipation that Prop 6 will be defeated.

Yes, I hope that is the case. On the Materials business I know it's kind of a new materials group, but what percentage of that is the Layne liner product right now? And I guess I'm trying to get to is kind of where your organic revenue growth is in the quarter, seems like it was probably pretty flattish on a year-over-year basis?

So I would put Liner Products at about 10% of the Granite materials business.

Okay. So you did see an increase in the construction - the old construction materials business in the quarter?

Well absolutely, absolutely.

Great, thank you.

Yes, and I would suggest also Min that the materials business is as I have always mentioned it's healthy and it is a leading indicator of what to come as well.

Yes. Great, thank you.

Thank you, Min.

Okay. The next question comes from Joe Giordano with Cowen. Please go ahead.

Hey good morning everyone.

Good morning, Joe.

Hey. So I guess we kind of been talking about this throughout the call here, but Jim, what I think is critical is understanding how your business is operating today relative to like what changes on November 7th one way or another. Like if SB 1 is repealed what kind of change are we talking about like order patterns and if it remained do we see this influx I think that's like where people are struggling a little bit to just gauge why your current operating environment is like relative to continued reality or not reality of SB 1?

Okay. So to kind of maybe put it into a little more granular nothing is going to change in 2018. The way we see the events of election day are that it will slow down word that would have been put out in 2019 we know that. The work that has been put out and kind of a misnomer is that it will still be put out if it has been funded, which the majority of it has been funded. And it won't change the way we do business in California. It may make a slight adjustment in the margins as they go forward, but as you can tell from what we're today in California without picking up a lot of work. Our business is very healthy and because of the different types of work that we're doing in California not just DOT transportation type work. So we're really kind of saying to ourselves that it's business as usual, it will be an emotional letdown if Proposition 6 was to pass, it will not have an immediate effect on the California business. And I'm comfortable that our business units will maneuver around it very quickly in 2019 if it passes. So I don't think there's - I do think that a lot of people are talking about this significant binary opportunity that occurs on election day and I understand why, but if we had been reliant on SB 1 moneys since April of 2017 to be when we are in California it would be a much more of a binary event than it is. But we have not been...

So fair to say what we're seeing now from your operations does not really reflect some massive uptake from SB 1 related spending anyway. So it's that…

That is absolutely correct, Joe. And as I've said Joe, it has not kicked in as quickly for Granite as it may have for other competitors in the market strictly because of our pricing mechanism. So - and it was somewhat anticipated and talked about a year ago. And so, no, we have not seen the big uptick due to SB 1.

Okay. And then my related question there and we talked a lot about the pricing mechanisms in California and how you guys are being more vigilant there. Now a lot of times in the past we've talked about when the private market is really strong and really helps your ability to push price in new public markets and your comment that the private markets are still really strong seems to be a little bit of a dislocation to what we're talking about with the ability to get pricing and on the win rate. So can we talk about how that dynamic has maybe changed a little bit or people just like you said building backlog because they're nervous and being more aggressive now than they normally would be in a strong private sector environment?

Well, I think what's happened, Joe, is that as the markets have strengthen that you start seeing competitors migrate into one camp or the other and Granite's large enough where we always migrate into both camps. But what you've seen is the maneuverability of certain company going over to the private sector. Other companies going to the public sector, the public sector that group has been competitive as we anticipated. The private sector is pretty much the sector that we deal in on the private side is a larger private sector we talked about following certain industrial and technology companies that we have a very close relationship with. That part has been very healthy and staying very healthy. So our bookings are very steady year-over-year on the private sector in fact increasing. And you got to look at in the two separate camps right now. And when I say competitive it's been very competitive on the public side, because a lot of people are strictly playing in the public side today, because there is enough work there for them to not migrate back into the private side.

Fair enough. Thanks, guys.

Okay. The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Yes, hi. Thank you for taking the follow up. Jim, I'm wondering if you could talk about the guidance revision this year. So nice to see margins moving up, but the top-line expectations came down. Can you just talk about whether that was driven by Layne or the base business? Can you just give us some context in terms of the moving pieces around the negative revision to top-line in the guide?

Well, I spend more energy on the positive revision on the percentage of EBITDA margin than the negative perspective on the revenue, Jerry. So let's look at the glass half full year.

And great to the margins, absolutely.

There you go, Jerry. So yes, I believe what we're trying to suggest there is that our plan is exactly working. We have had a slight reduction in revenue and a refocus on the bottom line. And it's working with an expectation that our EBITDA margins are moving up and we're not as aggressive on the revenue side as we could be if we wanted to be. And I told some investors that we probably could have optimized a little bit better. We kind of been - we could have been very aggressive and seen that we've gotten that revenue back up to maybe the high-teens low-20s. But we don't think that's the best for the company in the long run. We think that what we're doing today is creating another level of margin expectations that will stick with the company for quite some time. So I believe it is a - please to be patient, it is an environment where bottom-line is more important than top-line. And top-line is going to come. The markets are plenty strong enough for us to get that top-line at any point in time that is not an issue. The issue is to try to get that top-line up, while retaining the bottom line margins and to do that we have to mandate a certain type of margin on the bottom line in the short run and then the top-line will come with it.

And in terms of the length of that transition, how should we be thinking about that playing out clearly big step change this quarter. So should we think about comps from a top-line standpoint being pretty tough through the first half of 2019 for top-line, but hopefully improving for margins. Is that the way to think about it?

Yes, I would actually suggest to you that I think there is going to be a very methodical steady healthy growth over the next three years. And we talked a little bit about this, Jerry, that if you wanted to just from a modeling standpoint just straight line it with a really nice growth over the next three to five years, I think that's very important. We try not to blow it out in one quarter or another quarter we're trying to create a long term methodical revenue stream. And our growth on the overall business is very healthy. It's an exciting time to be able to now take these acquisitions and build those businesses into healthier businesses. So I would just suggest that the growth - the revenue side will grow steadily in 2019.

Even though the backlog is down entering the year and even though we're pushing pricing more and as a result the win rates are down. You're still comfortable with organic top-line growth through 2019.

Absolutely. In fact, Jerry, I think that's exactly what I've been trying to say maybe not saying it well enough is that the market is strong enough, is very strong enough to be able to support nice revenue growth in 2019 and beyond, while maintaining margin expectations. And it's just the matter which one you do first, and we've decided over the last 12 months to focus on margin improvement first, revenue improvement will come along and the market is plenty strong enough to drive those revenue expectations.

Okay, thank you.

Thank you, Jerry.

Okay. The next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.

Yes, Jim just wanted to touch base on couple things. One, maybe can review, Jigisha, your thoughts on the balance sheet and target ratios. How comfortable you are with your debt, net debt and some of the things you're working towards improving the cash flow moving into 2019? And then Jim, maybe if you could review how you're thinking about what you've acquired say the Permian business the international business. I know you said you'd be looking all different opportunities now you've had the company here for several months. Maybe give us your thoughts on how that you're thinking about that relative to positioning Granite?

Yes, so let me address the balance sheet question first very comfortable with our strong balance sheet. We had the two tranches that we had assumed from Layne, one has already been converted partially converted, which was about the $100 million tranche. We have a one that's outstanding $70 million that we will take it out in November and we'll replace it with our revolving facility. And even with that additional debt our leverage is going to be significantly below than what we typically expect. And so - and then from a liquidity perspective, it's pretty strong as of the third quarter the large projects cash contributions are what has driven the variability in the cash flow for the year. And with the addition of Layne that changes our kind of risk profiles because these are small duration jobs, which means that the cash generation is much more predictable. So I mean from a balance sheet perspective, I'm very comfortable.

Maybe - and then is that satisfy the balance sheet discussion there Mike, before we move on to some of the other businesses.

Yes, sure.

Okay, Mike. So certainly we have with the acquisition of Layne brought in several businesses what we call midstream and certainly the international businesses. Relative to that, we've actually as discussed in previous calls have considered divesting on some of the businesses, considered enhancing others and considered strengthening some. So we are still in the play potentially divesting of one or more of the businesses and some of those plays are in action as we speak and we'll be able to give further notice on it in the very near future.

Excellent Jim, thank you.

Thanks, Mike.

The next question comes from Brent Thielman with D.A. Davidson. Please go ahead.

Yes, thanks. Jigisha, the $63 million in assets held for sale, does that pertain to what you were just discussing, Jim on the midstream side, or is that something else?

it is.

Yes, I think that when you look into the Q, you'll see that we do have a certain amount of value set aside for assets for sale.

Got it, okay. And then I don't think we delve into it, but could you just update us exactly where the problem large projects are. I know we want to put these behind us, but they're still in front of us to some extent, what's left on these? And I guess should we see a similar situation as we did in the last 12 months to go into fourth quarter, first quarter, maybe to slow these things down expedite the good jobs such that the margins could actually increase further from here because of that just little more help there.

Yes, Brent, I think that that is absolutely what we intend to have happened. The - we have mentioned several times before we made the change - the segment change that on the large project segment previously, we had three jobs that we're still on play that were slow mature projects that were certainly slowing down the bottom line. Two of them will be essentially completed in 2018, one of them has a longer tail attached to it. And if we were to be go back and talk about large projects in itself, what we've suggested is that taking our current numbers and it was in the 4% range. We do believe that is a mid-teen margin business and that we'd anticipate that it would take through 2020 to get it back there because of some of that lag that will just unfortunately still be there. But a very simple way to look at that portion of the Transportation segment is somewhat of a straight line between now and the end of 2020 getting it back to the mid-teen margins.

Okay. So Jim, would this one carrying into 2019 I don't know how much is left. Is it large enough that it could prevent you from getting to a 10 plus percent EBITDA margin next year. I don't have that answer in front of me. But it in the bigger scheme of Granite, it will have a play in the Transportation segment. But the remainder of our business will have a much larger offset to it. So it will have substantially less of an impact on the business in 2019 than the top large projects did in 2018.

Plus Brent, we will be updating our guidance in February when we announce our fourth quarter results too.

Okay, thanks guys.

You bet.

The final question comes from Brian Rappin with Morgan Dempsey. Please go ahead. Okay. Brian has dropped off the Q&A session. This is the end of Q&A, and now I'd like to turn the call back over to our hosts.

Okay, well everybody thank you as always for your questions. A quick note for our shareholders and investors, Jigisha, Ron and I will be on the road and a conference is visiting our operations and investors around the country in the fourth quarter. So please reach out to Ron and we will look forward to speaking with all of you and meeting with you whenever possible. And as always thank you to all of our employees for keeping your fellow workers safe and for exhibiting Granite's core values every single day. As always Jigisha, Ron and I are available for follow-up, if you have any further questions. And thank you for joining us today everybody.

Thank you.