Granite Construction Incorporated

Good morning, my name is Steve and I'll be a conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Incorporated 2025 Second Quarter Conference Call. This call is being recorded. All lines have been placed on mute to prevent any background noise. And after the speaker's remark, there will be a question and answer period. To ask a question, please press star, then 1. Please note, we will take one question and one follow-up question from each participant today. It is now my pleasure to turn the floor over to the 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 Stacey 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 the 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 granted 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 would like to turn the call over to Kyle Larkin.

Good morning, and thank you for joining us. Before we discuss our second quarter results, I'd like to talk about the recently announced acquisitions of Warren Paving and Pappas Construction. These transactions are an exciting step forward for Grant as we continue to execute on our strategic plan. The strategic plan started with a focus on raising construction margins and driving organic growth by selecting the right projects in the right markets with the right owners, while standardizing execution practices across the business. We also revisited our capital deployment and shifted strategic investments to support our materials business as we work to maximize the benefits of our vertically integrated business model. Our strategy is working. Both our construction and materials businesses are seeing significantly higher margins, which in turn are driving strong cash generation. As we progress with our construction and materials strategy, we are continuing to grow and strengthen the company with M&A. We are using M&A to support, strengthen, and expand our home markets in the new geographies. Over the last year, we have built out our corporate development team with the expectation that we will be building our company through M&A. We have also been putting a lot of work into our integration framework. We are prepared to efficiently integrate these companies into our organization. We will continue to maintain a disciplined and targeted approach to M&A, only pursuing those targets to support our strategic plan. We remain committed to our vertical integration strategy with target companies being primarily materials focused. and in new, attractive geographies. The deals announced this week will add significant resources to our Southeast platform with a large supply of high-quality aggregates on the Mississippi River and will also strengthen our Central California operations by adding a leading, vertically integrated contractor to our business portfolio. With a combined transaction price of $710 million, the acquisitions are expected to annually contribute approximately $425 million of revenue with an approximate adjusted EBITDA margin of 18%. The acquisition should provide a significant uplift to the materials segment by increasing annual aggregate volumes by approximately 5 million tons, or 27%, and increasing aggregate reserves and resources by more than 440 million tons, or approximately 30%. The acquisitions are expected to be immediately accretive to adjusted EBITDA margin with an annual uplift of approximately 60 basis points, driven by the increased aggregate exposure. Now, I will discuss each acquisition, starting with the new addition to the Southeast platform. Warm Paving, which owns the Flat Lucas Quarry, is a premier producer of construction materials and provider of construction services in Mississippi and the Gulf Coast regions of Louisiana and Alabama, and is a great addition to our Southeast platform. The Las Lucas Quarry is strategically located on the Cumberland River, a tributary of the Mississippi, and has an estimated 400 million tons of very high quality aggregate reserves and resources. Utilizing a distribution network of approximately 170 home and lease barges and 11 aggregate yards, Warren Paving sells aggregates both internally, supplying its own asphalt plants, and externally. I am excited, not only because we are adding such a high-performing business to our Southeast platform, but also because of the future growth opportunities provided by the addition of Warren Paving. The combination of these high quality aggregates and Warren Paving's logistics expertise should allow us to supply materials to certain Landon Roberts and Dickerson and Bowen asphalt plants and positions us to expand the distribution network as we continue to grow our Southeast platform. Investment in and further growth of the distribution network in addition to building out additional outlets for the aggregates along the Mississippi River system should have a compounding impact on the profitability of the Southeast platform by adding revenue and associated gross profit while driving increases in volumes and margin. We are actively evaluating opportunities to continue to build upon the platform. I look forward to sharing progress that we make on our strategic plan in the coming quarters. With the acquisition of Warren Paving, the Southeast platform has grown to be a more significant component of Granite. We are excited by the opportunities to continue that growth. The market from Memphis through Mississippi and into Louisiana is growing in terms of public funding and private investment. We view the region as a historically underfunded area, but recently the Mississippi and Louisiana state legislatures have recognized the need for infrastructure investment and are working on initiatives that should support future growth. In addition to the expected continued increase in public funds, we believe private investment will ramp up in the region, whether through data center affordable land, plentiful water and electricity, and labor availability. A number of large developments have begun in Mississippi, and we expect this trend to continue. Throughout Granite's history, we have found success by investing in markets that were historically underfunded, but growing and expanding. We believe this region aligns well with that formula, and we are excited to be part of that growth. Now, let's move on to our acquisition in California. Pappage Construction is a leading producer of aggregates and asphalt in California's Central Coast and Central Valley and has expertise in infrastructure projects across the public and private sectors. The addition of more than 40 million tons of aggregate reserves and resources spread across the market is complementary to Grant's current operations in the area. With a combined footprint, we will be better positioned to serve the market in aggregate and asphalt sales as well as construction projects. The addition of package construction is a great example of executing on a strategy of strengthening existing home markets with bolt-ons that will enhance our vertical integration in a home market that we know well. Looking forward, I believe that M&A will be a significant component of our growth. We are focused on generating cash while being prudent with CapEx, resulting in strong free cash flow. Whether it is through proactive outreach by our teams or bank-led auction processes, there is a robust lifting of active M&A opportunities ahead of us. While we will continue to be selective in the coming quarters, I believe we will continue to execute on transactions that will further strengthen our national footprint. Now, let's discuss our strong second quarter results, starting with the materials segment. Our materials business completed another exceptional quarter. The strong public market environment is continuing to drive growth, as has been the case in previous quarters, with product market levels relatively unchanged. We continue to execute on our strategic plan, and we remain focused on continuing to raise the bar across all of our businesses. Part of our strategy involves restructuring our operational leadership to place our materials experts in charge of our materials business and to centralize management functions such as sales and quality control. This realignment is helping us grow our materials margins. We are also investing in capital improvement projects such as aggregate plant automation to drive efficiency and reduce production costs, and we are promoting through the implementation of our materials playbook. These efforts are driving increases in volumes and prices per ton on aggregates and asphalt as we work to increase our margin. I'm proud of the accomplishments of the materials team and of our performance this quarter. We have a long runway of opportunities to capture additional potential gains in profitability in the business for the coming quarters and years. Now, let's move to the construction segment. During the quarter, our SME team did a great job capitalizing on the robust bidding environment by winning a number of high-quality projects that drove our cap to a new record high of $6.1 billion. The new projects span across our footprint, including Nevada, Utah, California, and Alaska. In California, our largest market, the budget for the 2025-2026 fiscal year was finalized during Q2. Transportation funding for the upcoming fiscal year assistance, increasing budget allocations 9% over the fiscal year into June 2025. In California and across our footprint, we continue to see a healthy list of project bidding opportunities in both the public and private markets. Based on these encouraging signs, we believe we will continue to see cap increase over the next several quarters. I am pleased with the segment performance during the quarter. Revenue during the quarter was strong, and we expect revenue growth to accelerate in the second half of the year as projects progress. I believe we are on track to achieve our gross margin expansion expectations of greater than 1% during 2025. Through the first half of 2025, we are seeing the benefits of the steps we have implemented to improve project performance, and I expect further gains in the construction segment in the future. Now, I'll turn it over to Stacey to review our financial performance for the quarter.