Good morning. My name is Steve, and I will be your conference facilitator today. I would like to welcome everyone to the Granite Construction Inc. 2025 Third Quarter Conference Call. This call is being recorded. It is now my pleasure to turn the floor over to Vice President of Investor Relations, Mike Barker.

Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer, Kyle Larkin; and Executive Vice President and Chief Financial Officer, Staci Woolsey. Please note that today's earnings presentation will be available on the Events and Presentations page of our Investor Relations website. We begin today with a brief discussion regarding forward-looking statements and non-GAAP measures. Some of the discussion today may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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 except as required by law. Certain non-GAAP measures may be discussed during today's call and from time to time by the company's executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share and cash gross profit. 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.

Good morning. Before turning to our third quarter results, I wanted to highlight our most recent acquisition, Cinderlite, discuss how it aligns with our broader investment strategy and our commitment to deploying capital in ways to support growth and enhance shareholder value. In 2022, we introduced an investment framework that is designed to guide our investment decision-making from how we allocate CapEx to M&A and help drive margins and revenue growth across our existing businesses. This investment framework is anchored by two pillars, to support and strengthen and expand and transform. When we are assessing investments that are designed to support and strengthen our business, we are focusing on our growth competencies in our home markets. These types of investments include automation projects, new plants, aggregate reserves and bolt-on acquisitions that complement our vertically-integrated model. Since launching this framework, we've relied on it to assess and ultimately acquire a number of bolt-on acquisitions to support our strategy. In 2023, we acquired the Brunswick Canyon Court, an asphalt plant in Carson City, Nevada. This added 17 million tons of reserves and expanded our vertically-integrated footprint in Northern Nevada. We then acquired Coast Mountain Resources in British Columbia, introducing the potential to barge 40 million tons of high-quality reserves salt to support our Pacific Northwest operations. This year, we added Papich Construction to bolster our California operations while also adding 40 million tons of reserves. Under the expand and transform pillar over the last two years, we've applied our investment framework as we build out our Southeastern platform with the acquisitions of Waymon Roberts, Memphis Stone & Gravel, Dickerson and Bowen and just recently at the beginning of the third quarter, Warren Paving. We are excited about our Southeastern platform. It is a high-quality and profitable vertically-integrated business with numerous opportunities for growth and further expansion. We expect to grow the platform organically with targeted investments to expand its distribution network, perhaps through the addition of more aggregate yards or by purchasing other strategic assets that will bring further capabilities to the platform. We also expect to build upon the Southeastern platform with M&A that will expand our footprint into new geographies and enable us to leverage the high-quality areas and distribution network of Warren Paving. Most recently, in early October, we announced our newest acquisition of Cinderlite, a well-established construction materials, landscape supply and transportation company based in Carson City, Nevada. Cinderlite operates five aggregate quarries and recycling yards, and its operations are supported by a fleet of trucks and drivers. The acquisition complements our existing operations in Northern Nevada and expands our reach in a high-growth region. The acquisition adds approximately 100 million tons of aggregate reserves and an annual production volume of 975,000 tons, significantly enhancing our material reserve base in the area. These acquisitions reflect our disciplined approach to M&A, targeting high-quality material-focused businesses that strengthen our vertically-integrated model and support long-term growth in line with our 2027 financial targets. Since 2021, we have more than doubled our aggregate reserves to a current total of approximately 2.1 billion tons for the full year of our acquisitions. We have increased aggregate production to approximately 25 million tons from 16 million tons in 2021. These investments have allowed us to increase the Materials segment cash gross profit margin from 18% in fiscal year 2022 to 29% through the first nine months of 2025. The progress has been tremendous, and we are excited to see materials become a larger component of our business. We continue to evaluate bolt-on opportunities to complement our operations and unlock synergies. Looking ahead, we'll also continue to evaluate investment opportunities to allow us to expand and transform our business by entering new geographies and building new vertically integrated platforms. We believe our disciplined approach to growth, grounded in our investment framework and supplemented with our operational excellence positions Granite to deliver consistent profitability and sustainable value creation for years to come. Now let's discuss our third quarter results, starting with the Materials segment. The Materials segment delivered an exceptional quarter; impressive growth on both the top and bottom line of our legacy business was bolstered by the inclusion of Warren Paving and Papich Construction for the last two months of the quarter. As I talk with our teams, I am encouraged that demand remains strong, led by the public market. I believe this environment should support volume growth both in aggregate and asphalt in 2026 with orders at the end of the third quarter outpacing the prior year. Our Materials business has shown strong improvement in a relatively short period of time following our realignment to place materials experts in charge of materials business and centralized management functions, such as sales and quality control. We have made tremendous progress, but there's more to do to grow revenue and improve profitability in the segment from capital projects including investments in aggregate plant automation and aggregate and asphalt plant efficiency to bolt-on acquisitions like Cinderlite to implementation of value-enhancing pricing across our geographies. I believe our materials business will continue to transform over the upcoming quarters and years. Now let's move to the Construction segment. We had another strong quarter with gains in revenue, gross profit and CAP. We ended the quarter with record high CAP and entered it with a new record high cap of $6.3 billion despite the third quarter being our highest revenue quarter. This underscores both the strength of the market and the talent of our project pursuit teams. We remain focused on best value projects, which now represent a significant portion of our CAP. These projects allow us to collaborate with owners currently in the process, identify and mitigate risk, and deliver work more efficiently. Best value delivery methods like construction manager, general contractor or progressive design-build are especially effective on complex projects. Our early involvement supports better planning, risk management and cost control. Larger best value projects are often broken into smaller work packages as they are collaboratively reviewed through workshops, allowing for more informed construction of the projects. These projects are generally completed faster and with significantly fewer claims than traditional delivery methods. While the timing of the construction portion of the best value projects can be difficult to predict, we've constructed more than 90 of them, and our confidence in the benefits of Best Value contracting continues to grow. In the third quarter, we had a number of projects ramping up, and I believe we should see revenue accelerate in the fourth quarter and into 2026 as these projects move forward. This continues to be the strongest market I have seen in my career. I believe we are positioned to grow our CAP portfolio and increase bid day margins in the fourth quarter and in 2026. With this market, I expect to achieve our organic growth targets of 6% to 8% through 2027.

Thanks, Kyle. We had an outstanding third quarter. Revenue increased $158 million or 12%. Gross profit increased $58 million or 28%. Adjusted net income improved $33 million or 36%. Adjusted EBITDA improved $67 million or 45%, and we ended the third quarter with year-to-date operating cash flow of $390 million. In the Construction segment, revenue increased $82 million or 8% year-over-year to $1.2 billion, driven by the recently acquired Papich Construction and Warren Paving businesses and our record CAP entering the quarter. Construction segment gross profit improved $22 million to $192 million with a gross profit margin of 17%. This 70 basis point increase is largely due to improved execution and performance across our higher-quality project portfolio. In the Materials segment, we continue to realize year-over-year cash gross profit margin improvement. In the third quarter, aggregate and asphalt volumes increased 26% and 14%, respectively, over last year, and the newly acquired companies added 1.4 million tons of aggregates and 177,000 tons of asphalt. The public market environment drove demand and supported price increases in both aggregates and asphalt. The Southeastern platform, including Warren Paving, performed better than expected with pricing and volumes leading to a significant increase in asphalt margin in the quarter year-over-year. Through the third quarter, margin increases at the aggregates, asphalt, and segment level are all ahead of 2025 expectations. We believe there are opportunities to continue to significantly expand the Southeast platform by leveraging Warren Paving's distribution network and driving further gains in margins. We plan to execute on these opportunities, both through strategic CapEx and through acquisitions. In addition, in our Western footprint, we expect to continue to strengthen our Materials segment and vertically integrated businesses through bolt-on transactions such as the recently acquired Cinderlite business. Turning to cash flow. I am once again pleased by our cash generation. We generated $290 million of operating cash flow through the first nine months of the year. Historically, the third and fourth quarters are when we have seen the most cash generation as our teams are fully mobilized to project sites and working hard to progress projects before year-end. As expected, the third quarter followed this pattern, and I expect cash generation will also be strong in the fourth quarter, allowing us to surpass our operating cash flow target of 9% of revenue for the year. As of the end of Q3, cash and marketable securities were $617 million, and we had $1.3 billion of debt outstanding. With our cash and marketable securities, revolver availability of $580 million and strong cash flow generation, we remain in a great position to act on future M&A opportunities that may either bolt on to an existing home market or further expand our geographic footprint. While we will continue to be selective in our pursuits, I expect to achieve our goal of completing several M&A transactions each year. Now let's discuss our guidance for the rest of the year. As we stated previously, we expected an acceleration of revenue growth in the second half of the year with several projects ramping up. Some anticipated project starts shifted later into the second half of the year. As a result, we are revising our annual revenue target to a range of $4.35 billion to $4.45 billion. This target contemplates a busy fourth quarter with increased organic growth, which will position us well for 2026. In addition, due to our strong performance through Q3 and work ahead of us in Q4, we are increasing our adjusted EBITDA margin guidance to a range of 11.5% to 12.5%. Finally, we expect CapEx this year to be approximately $130 million. On a long-term basis, we believe approximately 3% of revenue remains an appropriate expectation for our annual CapEx. Our annual guidance for SG&A as a percent of revenue of 9% and adjusted effective tax rate in the mid-20s are unchanged.

Thanks, Staci. I'll close with the following points. Our third quarter continued to demonstrate the strength of our people, the earnings power of our strategic plan and our vertically integrated model. We continue to grow CAP fueled by the public market at the federal, state and local levels. As I look at the bidding opportunities ahead of us over the fourth quarter and next six months, I believe we have excellent opportunities, skilled pursuit teams and proven relationships with our clients to continue to grow CAP and raise margins. While we have some work shifted to the right, the quality of the work in our CAP portfolio as well as the opportunities ahead of us only strengthens my belief in being able to meet our growth and margin expectations in our 2027 guidance. Both our Construction and Materials segments are operating at a high level, and I expect further gains in the years ahead. The recent acquisitions of Warren Paving, Papich Construction and now Cinderlite demonstrate our commitment to executing M&A to both strengthen our existing markets and to expand into new markets. We have the financial capacity to act on M&A opportunities that should continue to drive cash flows and build our footprint. And my expectation is that we will continue to complete several acquisitions annually in the years to come. Finally, cash and cash generation remain a primary focus throughout the company. As in 2024, we are on track to deliver operating cash flows in excess of our target for 2025 and continue to drive significant shareholder value. Operator, I will now turn it back to you for questions.

The first question comes from Brent Thielman with D.A. Davidson.

Yes, could you talk about the source of the first point? You sound pretty positive, but please continue discussing the opportunity.

I'm sorry, Brent, your voice is not audible. Could you please come again?

Yes. Can you hear me now?

Yes, perfect.

Okay. Sorry for that. Yes, Kyle, just on the strength of CAP, maybe you could talk about the sources that you're seeing there and it sounds like bidding opportunities are pretty fortuitous over the next several months, maybe quarters. Where do you see that coming from as you sit here today?

The overall market remains very strong, and this trend has been consistent for a while. This is supported by the Infrastructure Investment and Jobs Act and our private markets. We've noticed a consistent theme over the past few years where we are bidding on and procuring more work, and the margins associated with that work have been improving. This has contributed to our margin expansion in the quarter. Our teams are excelling at bidding on the right projects and getting them into our Capital Allocation Plan. We expect this to continue, and we anticipate our CAP balance to grow throughout the year. Notably, Q3 is our largest revenue quarter, and based on the low bids we have currently, along with the timing of potential awards, we see our CAP balance continuing to grow nicely in the fourth quarter. The market is strong across all our regions. It's worth noting that spending from the IIJA is expected to persist beyond its expiration in 2026. According to the American Road Transportation Builders Association, approximately 50% of the IIJA spend has been utilized as of August. Therefore, there will be ongoing opportunities in the marketplace even after its expiration next September. Overall, the markets are healthy, and we believe we will continue to build our CAP.

Okay. And then I guess just shorter term in nature, but maybe what specifically is limiting some of the conversion of this CAP into revenue and you sound fairly confident in acceleration here in the fourth quarter. Maybe you could just speak on what you've seen so far?

Yes. Yes, we did speak on the last call about acceleration in the back half of the year. It is more weighted to Q4 than Q3. In Q4, we're looking at around an 8% organic growth rate in the quarter, which is a lot stronger than what we've seen certainly so far this year. And with the CAP that we have in place, we think that 8% growth rate organically is going to continue into 2026. So although we're not necessarily giving guidance yet for next year, but I think the way we're looking at it is an organic growth rate of 8% is pretty realistic as we go into the fourth quarter and into 2026.

The next question comes from Steven Ramsey with Thomson Research Group.

I wanted to examine the guidance a little bit further, reflecting the better EBITDA margin. You called out materials orders and the high-quality project portfolio being the drivers of that. Can you talk about the balance of which of these two factors is the greater driver for the margin outlook? And given some of the work maybe is pushed out to next year, I would assume this bodes well for margins in 2026 as well.

Yes, that's right. Earlier this year, we anticipated margin expansion in both our Construction and Materials segments. We saw progress in construction during the quarter and are currently outperforming those expectations. Our teams are effectively securing the right projects and executing them at a high level. Regarding our materials business, we had previously discussed a 3% margin expansion, but we are currently performing better at around 4%. This puts us ahead of our initial projections for 2025 concerning margin expansion, which boosts our confidence as we aim for 2027. We expect about 1.5% of margin expansion from EBITDA to reach the midpoint of 13.5% by 2027, with approximately 1% coming from construction by enhancing contract performance and operational excellence. Additionally, we anticipate over 3% further margin expansion in our Materials segment. By implementing strategies focused on pricing, automation, and high performance using our materials playbook, we believe these goals are achievable. The progress made by our team in 2025 has been slightly above our expectations, reinforcing our confidence in executing our plans over the next two years to reach that midpoint of 13.5%.

That's great to hear. I wanted to discuss the guidance regarding the operating cash flow from operations and the lower capital expenditures. First, what is contributing to the increase in operating cash flow? Additionally, how are you planning to reduce capital expenditures on a dollar basis despite having a larger base of more material assets from Warren? Could you share your updated outlook for capital expenditures this year and moving forward, especially considering it is expected to decrease as a percentage of revenue?

Yes. Steven, I'll discuss the operating cash flow guidance first. Earlier this year, we achieved some claim settlements and had excellent collections. Along with our steady operating cash flow from current operations, we've exceeded our target of 9%. We believe this will help us maintain above the 9% target. Regarding CapEx, our initial guidance was in the range of $140 million to $160 million, slightly above the 3% target we discussed for capital allocation. This included some strategic materials CapEx, which can sometimes shift in timing, and we are carefully evaluating our investments. Some of that has likely been pushed to next year. As a result, we've lowered our CapEx guidance to about $130 million, which accounts for the new acquisitions of Warren Paving and Papich Construction. Even with these acquisitions, we still believe that around 3% is the appropriate target. There may occasionally be some one-off expenses that are larger as we continue to enhance our materials reserves and other investments.

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

Kyle, can you share your thoughts on Warren and Papich since they joined us about two or three months ago? How do you view the aggregates on the river and the opportunities that Warren offers? What insights do you have about their operations compared to best practices and how you could implement that through Granite? Do you think this will serve as a strong platform for focusing on forward integration and expansion in that market, especially considering the high demand and opportunities available due to our strengthened position in both construction and materials?

Yes. Thanks, Mike. It's a great question. And we're excited about where we're at with Warren and Papich. I think the integration so far has gone very well. Both of those businesses, I think with Warren paving, we're excited because there's tremendous opportunities in that marketplace. Today, they're already exceeding the deal model in the first two months. I think one of the things that we're seeing down in the Southeast is really, really strong aggregate demand. It's a significant private investment that we knew was already taking place in the Southeast, and that's proving to be the case. There's strong demand associated with data center infrastructure improvements and expansion and development. We're already looking at ways that we can meet that demand. Now we have an extremely talented team at Warren Paving, and we get excited and we all get excited working with them because they have lots of ideas on how they can expand that business, increase production, expand their distribution network with yard managing costs and increasing internal sales. We're just here to figure out ways we can best support them to those ends. We remain really excited about that opportunity and how we can best support and grow other business.

I appreciate that. My follow-up is, Kyle, when you think about your best value or your CAP, you've really emphasized over the past several years the importance of timing in preconstruction, construction design, and full construction. Where are we in that cycle considering that the contracts you negotiated three years ago are now at a point where we might see more conversion into construction? Could this lead to revenue backlog growth in the next couple of years? And how does this relate to achieving the organic targets you have outlined for the upcoming years?

Yes, that's a good point. If we look at where we are headed in 2025, our original guidance had the organic growth rate around 6%. We expect to finish just below that. For next year, we are already seeing growth approaching 8%, as I mentioned earlier. This increase is partly due to the conversion of our CAP and best value projects. It can take time to transition from preconstruction contracts to construction contracts. We have a few contracts that will convert to construction in 2026, which will boost our organic growth. Predicting the timing of these conversions is challenging. Some best value projects face hurdles, which is why they seek our partnership to help manage those issues. We've had some contracts in preconstruction for 4 to 5 years, so it can take a while to resolve all those challenges as we work alongside our clients. I believe this will support our organic revenue growth in 2026 and beyond.

The next question comes from Kevin Gainey with Thompson Davis.

It's a good quarter. Maybe we can start with the guide and how you guys are thinking about both at the top and the bottom line from kind of the low end to the high end and what it would take to get to each?

For overall guidance, at this point, we feel pretty good about where we're at. Since we're through Q3 now, and we've got our final Q4, I think the challenge for us and the opportunity for us in the fourth quarter always comes down to weather. That's one of the things that can help us or hurt us, and we'll have to see how things shake out for the full quarter. So far in October, the weather has held and supported what we're trying to do. I think it's just going to continue strong execution by our teams in operations. Certainly, we have a lot of momentum through the first three quarters are performing at a high level. We expect that to continue as well. I think really, at this point in time, Kevin, it's going to come down to.

That's always the tricky part with Q4.

Yes, it is.

And then.

I'll turn it back to you, Kevin.

Maybe if we can talk about the organic materials segment and how that performed in the quarter? And how you're taking what you've got with Warren and how you might apply that there to maybe catch them up from the standpoint of pricing and such, any best practice there, too?

Yes. So far, we're pleased with our Materials segment in the quarter and the full year. As I mentioned earlier about the margin expansion, they've done a really nice job. Our teams have done a really nice job expanding margins, just on track, a little bit ahead of where we thought we're going to be. Executing on that strategy, again, around pricing and the automation efforts and leveraging materials playbook. We've also seen some nice volume increases. We've seen mid-single-digit volume increases both on aggregate and asphalt. We expect it to be flat, slightly up, and it turns out we're going to be a little bit up in both. It’s also really nice to see that the orders are already up so far through Q3 and where we were certainly last year at the time. I think these are pointing to continued volume growth in our Materials segment into 2026. That's really good news. Hopefully, we'll see that private market start to come back a little bit stronger in '26, and that would continue to drive increased volumes in the year. We also saw that our pricing increases helped. We saw some nice mid-upper single-digit price increases in 2025. We expect to see kind of mid-single-digit price increases in 2026. Of course, we're working closely with Warren. We're working closely with Papich. As a collective team, we're trying to figure out how we can leverage those same things, pricing, how we can automate some of those facilities and how we can leverage our materials playbook and learn from each other to just continue to get better. That's going to allow us to get that additional 3% gross profit margin in our materials business, including Warren, including Papich through 2027.

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

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. I would also like to take this opportunity to welcome our newest team members from Cinderlite. We're excited to have you on the team and look forward to building that together. Thank you for joining the call and your interest in Granite. We look forward to speaking with you all soon.

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