GRANITE CONSTRUCTION INC Q3 FY2024 earnings call

Strategic Plan and Growth Expectations

• Since adopting the new strategy in early 2022, the company has achieved strong top-line growth, margin expansion, and cash flow generation. Expect organic revenue growth at 6%-8% CAGR through 2027, supported by public and private market tailwinds.

Construction Segment Details

• Q3 revenue was a record high, driven by operations across geographies. Cap increased to $5.6 billion, with best value projects representing a significant portion. Focus on execution and best value projects for margin expansion.

Materials Segment Updates

• Continued price increases in aggregates and asphalt. Completed acquisition of Dickerson & Bowen to expand southeastern market. Expect incremental growth and price increases to drive revenue growth over the next three years.

Organizational Realignment

• Recently announced realignment better positions the company to leverage expertise, serve key clients, and capitalize on the robust market.

M&A Strategy

• Intends to execute on strengthen and expand M&A strategy with bolt-on acquisitions and geographical expansion. Has expanded in the southeast with recent acquisitions, with options to pursue larger M&A opportunities aligned with vertically integrated strategy.

Construction Segment

• Revenue totaled $1.1 billion in Q3, a record high for the quarter and a 14% year-over-year increase. Driven by operations across geographies, with California, Alaska, and Utah leading. Gross profit improved $34 million with a segment gross profit margin of 16%. Cap portfolio ended at $5.6 billion, with best value projects representing $2.4 billion or 42% of total cap.

Materials Segment

• In Q3, revenue increased $24 million year-over-year to $195 million. Increased pricing for asphalt and aggregates offset lower asphalt volume. Gross profit was up $3 million to $32 million. Cash gross profit margins totaled 22% due to price increases and newly acquired businesses. The acquisition of Dickerson & Bowen in August expanded the southeastern home market.

Revenue Guidance

• 2024 revenue guidance remains at $3.9 billion to $4 billion.

Margin Guidance

• Adjusted EBITDA margin target range of 12% to 14% by 2027. Narrowed adjusted EBITDA margin guidance for 2024 to 10% to 11%, with no change in the midpoint.

CapEx and Other

• Expect CapEx for 2024 to be approximately $139 million. Anticipate gain on sales of assets of approximately $17 million in the fourth quarter. SG&A as a percent of revenue expected to be in the range of 8.3% to 8.5% for 2024.

Project Delays

• Some profitable projects delayed by owners into 2025, though delayed work remains in cap.### Macroeconomic Uncertainties
• Volatility in the macro environment could impact project pursuits and revenue growth.### Market Volatility
• Private work markets, while strong, have less visibility compared to public markets, potentially affecting growth projections.

Q: Brent Thielman asked about clarifying the organic growth CAGR baseline and material pricing confidence.

A: Kyle Larkin clarified the organic growth CAGR is based on 2024, and confidence in material pricing for 2025 comes from public market visibility, private market recovery signs, and operational excellence efforts in the materials segment.

Q: Unidentified Analyst asked about potential share gains and M&A pipeline for vertically integrated assets.

A: Kyle Larkin responded that share gains are seen in the West, particularly California, due to home market strategy, and there is a healthy M&A pipeline with many vertically integrated assets available for potential acquisitions.