Granite Construction Incorporated

Good morning, my name is Steve and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Granite Construction Incorporated 2026 third 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 one. Please note, we'll take one question and one follow-up question from each participant today. 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 is available on the events and presentations page of our investor relations website. We begin 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 for CAP, and Results. Actual results could differ materially from statements made today. Please refer to Grant'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, Cash Gross Profit, and Cash Gross Profit Per Ton. 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.

Thanks, Mike. Before turning to our Q3 results, I want to begin with our 2029 financial targets, and the strategy that supports them. Over the last several years, we have built a more resilient grant by improving the quality of our project portfolio, investing in materials, expanding our home markets and developing capabilities in attractive growth markets. Our home market model remains at the center of this strategy. Local relationships, market knowledge, materials resources and our people provide the foundation from which we compete and grow. Our 2029 financial targets reflect the earnings and cash flow potential from continuing to execute that strategy. Starting with revenue, we are targeting an organic revenue CAGR of 10% to 12% through 2029. This target does not include future M&A, which should be additive. We expect growth to come from three primary sources, continued growth in core public infrastructure, Marketshare gains and discipline expansion within our home markets, and faster growth across the key end markets of federal, rail, and mission-critical infrastructure. Public funding remains at historically high levels across our footprint, and a significant portion of IIJA funding has yet to be spent. That spending should continue to support state and local transportation programs over the next several years. The Highway Reauthorization Bill continues to be under discussion in Congress, although the timing remains uncertain. We are currently operating under a continuing resolution that provides a short-term extension of surface transportation programs, maintaining funding at IIJA levels, while work continues on fiscal year 2027 appropriations and a longer-term surface transportation reauthorization. Even though we are in a wait-and-see period with Congress, transportation infrastructure continues to have bipartisan support, although future extensions may be required before a longer-term bill is enacted. Publicly funded transportation work has always been the foundation of Grant's business in both our construction and material segments. Over the last several years, we've invested significantly in our own markets, including investments in aggregate and asphalt facilities to increase automation and to take advantage of barge logistics. We have also invested heavily to hire and retain the best people as we continue building our relationships with key customers and partners. We believe we can continue to grow in this core transportation market in the mid-single digits through 2029 by leveraging our existing customer relationships and by relying on our experienced local teams to leverage our vertically integrated operations to increase market share. We have demonstrated that we can grow even when market funding and lettings are relatively flat by remaining disciplined in project selection and working to increase our portfolio of collaborative contracting projects. Through collaborative contracting, grant is selected based on its qualifications. Once selected, we work closely with the owner early in the project lifecycle to improve alignment on design, cost, schedule, risk, and execution. We believe that this delivery method results in a higher quality project portfolio where there is more balanced risk allocation and more predictable project outcomes. Our confidence is also supported by the visibility provided by our record cap. and the bidding opportunities we see ahead of us in the next year. Outside our core transportation market, we have also invested significantly in developing the federal, rail and mission critical infrastructure and markets. I will discuss those markets in more detail shortly. Turning to profitability, we believe we have a clear path to achieve an adjusted EBITDA margin of 14 to 16% in 2029 through continued gross profit margin expansion in both segments and through greater SG&A leverage as we grow. In the construction segment, discipline project selection, collaborative contracting, and improved execution has significantly improved the quality and risk profile of our project portfolio. We see further margin opportunity by remaining selective on the projects we pursue, continuing to increase bid margins, and expanding federal, rail, and mission-critical projects. In materials, we anticipate that pricing discipline, increased volumes, greater vertical integration, Plant investments in automation will generate margin expansion over the next three years. We expect greater operating leverage as we continue to grow. Our 2029 targets contemplate CESG&A of approximately 7.5% of revenue, even while we continue to invest in the people, technology, and capabilities needed to support organic growth and M&A. We are confident that we have the markets, plan, resources, and people to achieve our adjusted EBITDA margin expansion target. This expansion should support significantly greater operating cash flow. For 2029, we are targeting operating cash flow of approximately 13% of revenue supported by higher adjusted EBITDA and by maintaining consistent working capital efficiency. We expect CapEx to remain approximately 3% of revenue, resulting in free cash flow of approximately 10% of revenue. That cash generation gives us the capacity to reinvest in the business, pursue disciplined M&A, and return capital to shareholders. Since 2023 and through the third quarter of 2026, we have deployed more than $1.4 billion on acquisitions. The acquisition pipeline in both materials and construction segments remains strong. I'm hopeful that we can announce new additions to Granite in the near future. Over the next three years, we expect to continue to deploy capital on acquisitions to support and strengthen our home markets and expand into new geographies, subject to the availability, timing, and quality of opportunities, while maintaining our long-term net leverage target of approximately two and a half times. The strength of publicly funded highway and bridge markets should provide a durable foundation. Our ability to increase market share, improve execution, expand margins, leverage our home market platform to develop additional end markets, and invest in our vertically integrated materials business gives us confidence that we will achieve our 2029 targets. Turning to slide 5, I will discuss key growth markets that complement our core transportation business. Over the last several years, we have focused on leveraging our home markets to serve national clients across key growth end markets. Dedicated national leadership works alongside our home market teams, bringing specialized expertise, consistent client engagement, and the ability to coordinate resources across Granite's geographic footprint. We believe this structure allows us to serve national clients locally while providing a consistent experience across our network. We initially established this model in the federal and rail end markets and have now extended it as we work to grow our presence in mission-critical infrastructure. We've invested for more than a decade to build our federal capabilities, customer relationships, and geographic reach. Our federal work is far reaching because airfield and runway paving, roads, site infrastructure, civil work supporting military campuses and other secure facilities, tactical infrastructure, flood control, shoreline protection, and water infrastructure. We have performed federal work from Guam to Alaska and across the continental United States. We had approximately $1.3 billion in federal cap at the end of the third quarter and expect to bid on billions of dollars of opportunities over the next several years. Importantly, our federal growth expectations do not depend on securing additional tactical infrastructure work. Current federal pursuits include airfield recapitalization in Alaska, naval infrastructure modernization in Washington State, integrated air and missile defense infrastructure in Guam, and space infrastructure. The federal procurement environment is also evolving. The 2026 National Defense Authorization Act introduces collaborative contracting procurement to federal work and clean opportunities for progressive design build, construction manager at risk, and other flexible procurement approaches for military construction. With Grant's experience in collaborative contracting, we believe this change in federal procurement practice aligns with our capabilities and will create additional opportunities across much of our footprint. Federal work is expected to represent approximately 15% of construction segment revenue this year, and we believe the federal business can continue to grow through 2029. In rail, we've established relationships with Class 1 railroads and transit agencies, and we have a strong history of project execution in this end market. Our capabilities include intermodal and logistics terminal site work, grading, drainage, paving, utilities, grade crossings, structures, roadway improvements, and other supporting infrastructure. Class 1 railroads continue to invest in intermodal capacity and freight mobility. Granite's broad and civil capabilities, transportation expertise, and geographic footprint position us to support these customers as our programs expand. Notably, we are in the pre-construction with a Class I client on a major intermodal project in Southern California. The proposed development is a 4,500-acre integrated rail facility intended to expand intermodal capacity along a major east-west freight corridor and improve the movement of freight from the ports of Los Angeles and Long Beach. The project remains subject to the permitting process. If it advances to construction, it could represent a meaningful opportunity beginning in 2027 and Ramping Up in 2028. Finally, mission-critical infrastructure represents another significant growth opportunity across our home markets. Today, for Granite, mission-critical infrastructure includes data centers and other facilities supporting the AI build-out, battery storage and space sector clients. Granite has more than a decade of experience working on data center projects in the Pacific Northwest and Northern Nevada. These projects typically include masquerading, utilities, paving, retaining walls, curb and gutter, and broader civil site development. Our capabilities can also extend to early works, utility-ready site development, water infrastructure, water well drilling, power infrastructure, campus-scale civil development, and material supply. At the end of the third quarter, mission-critical infrastructure cap totaled approximately $331 million. More than 5% of 2026 revenue is expected to come from these projects, so we see opportunity for growth. The end market is also increasing with project opportunities growing from approximately 20-30 million historically to approximately 100 million today, although individual project sizes will vary. With continued investment in AI and digital infrastructure, we believe revenue from mission-critical infrastructure projects can grow to at least 10% of construction-centered revenue over the next several years. We plan to pursue this growth selectively, focusing on projects we can build with home market support, strong execution visibility, and attractive risk-adjusted returns. We believe that the common thread across these end markets rests with our ability to leverage our home market model for strategic national clients. Local relationships, retail resources, equipment, workforce, market knowledge, and proven execution remain the foundation of our competitive advantage. We are overlaying that foundation with in-market expertise, shared resources, coordinated national leadership, and broader client relationships. This allows us to pursue opportunities across our footprint and deploy Grants capabilities more effectively. We believe this model should allow us to expand our addressable markets, improve the quality of CAP, and add meaningful organic growth to our core transportation business. Together, our growing presence in these end markets reinforce our confidence and our ability to achieve our 2029 financial targets. Now, let's turn to our third quarter results, beginning with the construction segment. I'm pleased to report that the construction segment delivered record revenue and gross profit, driven by the record cap we carried into the quarter and strong project execution across our footprint. CAP increased $37 million sequentially to a record $7.5 billion as Project WINS again outpaced revenue burn during our busiest construction quarter. Maintaining CAP at this level reflects healthy end markets and provides future visibility. Our federal emission-critical infrastructure end markets continue to build momentum, and we see opportunities across both markets to continue growing CAP through the remainder of 2026 and into 2027. At the end of the quarter, federal cap totaled $1.3 billion, including $569 million associated with tactical infrastructure projects. Previously, these projects were expected to be completed in the second quarter of 2027, but based on current right-of-way availability, are now expected to be completed in the third quarter of 2028. While the duration of the projects have been extended, our expectations for the overall success and profitability of the projects remain unchanged. Bidding environment remains healthy across our markets. Year-over-year bidding activity and project wins increased again in the quarter, supported by the strength in core public transportation markets and growing opportunities across federal, rail, and mission-critical infrastructure. We believe we are well-positioned to continue growing CAP as we close out 2026 and move into 2027. Now, let's turn to the materials segment. The materials segment delivered resilient results and solid execution by our teams to help mitigate the impact of higher energy costs. Demand remains healthy, with aggregate orders outpacing the prior year and asphalt orders in line with the prior year as of the end of the quarter. Public construction demand has been consistent, and we believe mission critical infrastructure represents a growth opportunity for this segment. During 2026, we have seen an environment that remains strong. and through the third quarter we are realizing our targeted mid-single digit aggregate price increases. Based on current demand trends, we believe the environment should support continued pricing momentum in the 2027. Over the last several years, we've invested significantly in the materials segment through both acquisitions and strategic capital investments. These investments have been designed to increase vertical integration, expand distribution capabilities, Improve production efficiency and strengthen our competitive position in our home markets. Our strategic capital investments are focused on four key initiatives. Increasing aggregate pull-through across our western footprint, expanding our Pacific Northwest waterborne strategy, continuing to build out our southeast logistics network, and increasing automation across our aggregate operations. We are deploying capital to support our efforts to increase aggregate pull-through across our home markets. These investments take many forms, including adding additional asphalt capacity, expanding distribution capabilities, launching retail landscape operations, and deploying asphalt silos that extend the reach of our aggregate reserves and production facilities. In 2023, we invested in a waterborne strategy with the acquisition of what is known as Granite Canada, which operates the Bamberton Quarry in British Columbia. Since this acquisition, we have transported aggregates by barge from the quarry to our Pacific Northwest home market. We believe there is significant opportunity to increase both volumes and profitability of this operation through continued investment in quarry production capacity and in the expansion of our downstream distribution network of aggregate yards. We have already made meaningful progress, and I expect that momentum to continue over the next several years. In the Southeast, we are in the early stages of fully leveraging the materials logistics network that stretches from Kentucky through Louisiana. Current initiatives include increasing the aggregate production capacity, expanding distribution yards, implementing a liquid asphalt strategy, and investing in distribution capabilities. Automation remains an important component of our materials strategy. By the end of 2026, we expect approximately 45% of our eligible aggregate facilities to be automated. While the level of automation varies by operation, we are hopeful that these automation investments will generate approximately $1 per ton of benefit through improved efficiency, lower operating costs, and more consistent plan performance. Collectively, these initiatives are intended to increase volumes, improve margins, enhance cash generation, and strengthen our vertically integrated platforms. We believe the materials segment means one of the largest opportunities to create long-term shareholder value as we work to deliver our 2029 financial targets. Now, I'll turn it over to Staci to review our financial performance for the quarter.