Granite Construction Incorporated (GVA) Earnings

Management highlights

### Core Infrastructure Market Context - Publicly funded state and local transportation infrastructure remains the cornerstone of Granite's business, supporting both segments. The IIJA has provided sustained funding across the company's footprint, with a substantial portion of funds still to be deployed, supporting ongoing strong market conditions. - The draft Build America 250 Act (BA 250), the planned successor to the expiring IIJA, is viewed positively by management. While the current draft does not include major highway funding increases, its shift toward formula-based funding and bridge investments (away from large discretionary megaprojects) aligns well with Granite's geographic footprint and capabilities. Management expects bipartisan support will result in a final bill with higher funding than the current draft, or a temporary funding extension, that sustains elevated infrastructure investment levels. ### Strategic Growth Initiatives - Granite is pursuing growth via market share gains in core markets, expanded use of collaborative contracting methods (CMGC, progressive design build) that enable earlier client engagement, better risk sharing, lower portfolio volatility, and more predictable margins, and disciplined geographic expansion (both organic and via M&A). - The company has strategically expanded beyond core transportation into complementary high-growth end markets: - Federal infrastructure: Over a decade of capability building across DoD, DHS, and USACE clients, with recently won projects providing near-term revenue growth in 2026-2027 and long-term expansion opportunities. - Rail and transit: Class 1 railroads are making significant investments to expand intermodal capacity and shift freight from truck to rail, and Granite's track record of successful collaboration positions it to capture growing market opportunities. - Data center site development: Granite has over a decade of experience serving this market, and launched a dedicated specialized division earlier in 2026 to expand service across its full footprint. Management targets this segment to grow to 10% or more of annual revenue. - Long-term pipeline: The company is positioned to expand into water and power infrastructure, which are expected to see substantial long-term investment. ### Materials Segment Operations - Despite severe weather disrupting production in the Southeast during the second quarter, demand for construction materials remains healthy across the footprint, with pricing on track to hit targeted mid-single-digit increases for the year. The segment is continuing strategic capital investments in automation, plant upgrades, and reserve expansion to improve efficiency, lower costs, and strengthen competitive positioning. ### Capital Structure Updates - Granite secured inaugural credit ratings from Moody's and S&P, successfully completed a $600 million senior unsecured notes offering, and called its remaining 3.75% convertible notes. The majority of the conversion obligation will be settled in cash (rather than shares) to minimize dilution, which is expected to reduce adjusted diluted shares outstanding by ~2 million shares and strengthen the company's long-term capital structure. - The company's strong cash generation and balance sheet position provides sufficient flexibility to continue executing its M&A strategy and pursue opportunistic share repurchases. Management expects to complete additional acquisitions in 2026, with a robust pipeline of opportunities available.

Guidance

- 2026 full-year revenue guidance was increased to a range of $5.3 billion to $5.5 billion, up from the prior range of $5.2 billion to $5.4 billion. At the midpoint, this represents ~12% annual organic growth and ~10% growth from acquired companies. - 2026 annual guidance for adjusted EBITDA margin, SG&A as a percent of revenue, adjusted effective tax rate, and CAPEX remains unchanged from prior guidance. - The 2026 annual operating cash flow target was raised to 11% of revenue, up from the prior target of 10% of revenue. - 2027 organic revenue growth expectation was substantially increased from a prior range of 6% to 8% to now above 10%. This upward revision reflects the strong visibility provided by Granite's record CAP, favorable public infrastructure funding conditions, and robust opportunity pipelines across all end markets.

Segment performance

Total company revenue for the second quarter of 2026 increased 29% year-over-year to $1.5 billion, with gross profit increasing 20% to $239 million, adjusted net income up $15 million to $101 million, and adjusted EBITDA up $34 million to $186 million. Year-to-date operating cash flow reached $142 million, a significant improvement from $5 million in the prior year. 1. Construction Segment: Revenue increased $270 million (29%) year-over-year to $1.2 billion, accounting for 80% of total company revenue. Of this growth, 11% ($98 million) came from acquired businesses, while organic growth contributed 18% ($172 million). Gross profit margin increased slightly year-over-year, and segment performance is ahead of management expectations entering the peak third quarter. Backlog (Committed Awarded Projects/CAP) increased $250 million sequentially to a record $7.4 billion, outpacing revenue burn for the quarter. Data center-related CAP grew from $65 million year-over-year to $223 million at quarter-end, and the recently acquired Kenny Sane Construction contributed $150 million to segment CAP. 2. Materials Segment: Revenue increased $60 million year-over-year to $248 million, accounting for ~16.5% of total company revenue. All revenue growth came from acquired businesses (led by Warren Paving), with organic volume also coming in stronger than expected. Aggregate and asphalt volumes increased year-over-year both organically and from acquisitions, with demand and orders outpacing prior year levels. The segment realized targeted mid-single-digit aggregate price increases in the quarter. Gross profit margin decreased 800 basis year-over-year, and cash gross profit margin decreased 310 basis points, driven by severe weather disrupting production in the Southeast and higher one-time costs from quarry development activities in the quarter.

Risks & headwinds

- Final timing and content of the BA 250 infrastructure funding bill remain uncertain, as the legislation is still being developed. - Severe weather events can disrupt materials production and construction activity, creating near-term margin pressure (the second quarter saw ~$10 million in negative impact from severe weather in the Southeast). - Geopolitical uncertainty in the Middle East has driven increases in oil prices, which can raise costs for liquid asphalt and diesel. While second quarter energy price impacts were minimal and well-mitigated, sustained price increases could create future margin pressure. - Large, multi-year construction contracts carry inherent exposure to commodity price volatility (including fuel and labor) that cannot be fully hedged or contracted away.

Analyst Q&A

• Q: An analyst asks about Materials segment margin expectations for the second half of 2026, after severe weather and quarry development costs pressured margins in Q2. /

  A: Management confirms strong demand (both internal and external) for materials, with mid-single-digit aggregate price increases holding as expected. The Q2 margin drag (~$10 million from severe weather and ~$5 million from quarry development) is expected to be temporary: lost volumes will shift to the second half, and similar development-related margin pressure is not expected in Q3 or Q4. Management reaffirms the segment is on track to hit full-year 2026 margin targets.

• Q: An analyst asks what drives the upward revision to 2027 organic growth expectations, given uncertainty around IIJA reauthorization. /

  A: The increase is driven primarily by Granite's record, high-quality CAP, which provides substantial visibility into 2027 revenue after already delivering strong performance through the first half of 2026. Management also notes that the bid pipeline remains very strong, and the company is consistently capturing more work, supporting confidence in continued growth through 2027.

• Q: An analyst asks for an update on data center growth, including current backlog, future size targets, and the impact of broader U.S. industrial construction growth. /

  A: Data center CAP grew from $65 million year-over-year to $223 million at Q2 end, after launching a dedicated division with specialized leadership earlier in 2026. Management targets this segment to reach 10% or more of annual revenue, which Granite expects to hit relatively quickly. Granite's broad in-market footprint and flexible crews allow it to capture growth across data centers, industrial, and traditional infrastructure projects, giving the business meaningful optionality to respond to shifting market demand.

• Q: An analyst asks how fuel inflation and cost pressures impact margins, and whether Granite can pass higher fuel costs through to customers in new bids. /

  A: Management states that teams have successfully mitigated energy price volatility: materials segment uses energy surcharges, physical storage, and fixed forward contracts to offset cost increases, while most public construction contracts include commodity price escalators that de-risk fuel cost exposure. Granite further de-risks its business by pricing most projects at 100% design (allowing it to lock in supplier prices) and limiting contract pricing exposure to less than four years. Net impact of current energy price increases is slightly positive for the company, per management.

• Q: An analyst asks for an update on Granite's M&A pipeline, including target focus, valuation trends, and expected deal volume. /

  A: Management confirms a robust active deal pipeline focused on opportunities that strengthen existing market positions, particularly expanding the company's Southeast platform. Valuations have remained fairly consistent over the last 18-24 months, varying by target type (construction, materials, or integrated business). Management expects to close $200 million to $400 million in additional deal volume in the remaining half of 2026, with typical annual acquisition spend ranging from $300 million to $800 million in future years.