Q3 2025: Contradictions Emerge on Revenue Growth and Margin Expansion Expectations

Date of Call: November 6, 2025

Financials Results

• Revenue: Q3 revenue increased $158M, up 12% YOY; Construction revenue $1.2B, up 8% YOY; revised FY revenue guidance $4.35B–$4.45B
• Gross Margin: Construction gross profit margin 17%, up 70 bps YOY; Materials cash gross profit margin ~29% through first 9 months of 2025 (vs 18% in FY2022)

Guidance:

• FY 2025 revenue revised to $4.35B–$4.45B
• Adjusted EBITDA margin guidance raised to 11.5%–12.5%
• CapEx expected to be approximately $130M for 2025; long-term target ~3% of revenue
• SG&A target unchanged at ~9% of revenue; adjusted tax rate expected in the mid-20s
• Expect operating cash flow to exceed 9% of revenue for the year
• Anticipate stronger organic growth (roughly 8% in Q4 and into 2026) and continued M&A activity

Business Commentary:

* Revenue and Earnings Growth:

- Granite Construction Inc. reported a 12% increase in revenue to $4.3 billion and a 36% increase in adjusted net income to $73 million for Q3 2025. - This growth was driven by strong performance in both the Construction and Materials segments, supported by recent acquisitions and a strong public market demand, particularly in the Federal Infrastructure Investment and Jobs Act (IIJA).

• Aggregate and Asphalt Volume Increase:
• The Materials segment saw a 26% increase in aggregate volumes and a 14% increase in asphalt volumes compared to the previous year.

• The increase was due to demand from public market environments, strategic acquisitions like Warren Paving and Papich Construction, and operational improvements.

• Construction Segment Performance:

• Revenue in the Construction segment increased by 8% year-over-year to $1.2 billion, driven by recent acquisitions and a record-high backlog of $6.3 billion.

• The strong performance was attributed to the focus on best value projects, which allowed for better planning, risk management, and cost control.

• Bolt-on Acquisitions and Material Reserve Expansion:

• Granite's aggregate reserves more than doubled since 2021, reaching approximately 2.1 billion tons for the full year, with recent acquisitions like Cinderlite adding 100 million tons of reserves.
• The company's disciplined approach to M&A, focusing on high-quality material focused businesses to strengthen its vertically-integrated model, supported long-term growth in line with 2027 financial targets.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • "We had an outstanding third quarter."; "Materials segment delivered an exceptional quarter"; company is "increasing our adjusted EBITDA margin guidance to a range of 11.5% to 12.5%"; revised annual revenue target to "$4.35 billion to $4.45 billion" and expects operating cash flow above its 9% target.

Q&A:

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): Just on the strength of CAP, maybe you could talk about the sources that you're seeing there and where do you see that coming from as you sit here today?
  Response: Market strength is broad-based—driven by IIJA and private markets—creating strong bidding opportunities across geographies; management expects CAP to continue growing and IIJA-funded spend to persist beyond 2026.

• Question from Brent Thielman (D.A. Davidson & Co., Research Division): What is limiting conversion of CAP into revenue short-term and what have you seen so far for acceleration into Q4?
  Response: Conversion timing varies, but several projects are ramping and management expects ~8% organic growth in Q4 and similar momentum into 2026.

• Question from Steven Ramsey (Thompson Research Group, LLC): On the guidance and better EBITDA margin, can you talk about the balance of which of materials vs construction is the greater driver for the margin outlook?
  Response: Both segments contribute; materials are outperforming expectations (~4% product-level expansion) and remain the larger driver (~3%+ expected), with construction contributing roughly ~1% from better bid-day margins and execution.

• Question from Steven Ramsey (Thompson Research Group, LLC): What is driving the upside to operating cash flow and how are you adjusting CapEx this year and going forward?
  Response: Operating cash flow upside driven by claim settlements and strong collections; CapEx reduced to ~$130M as some strategic spend shifted to next year, with a long-term target of ~3% of revenue.

• Question from Michael Dudas (Vertical Research Partners, LLC): How have Warren and Papich performed since close and what opportunities do they provide for integration and expansion?
  Response: Integration is going well; Warren is exceeding the deal model early, with strong Southeast aggregate demand (e.g., data center-related), offering scalable opportunities to expand production and distribution.

• Question from Michael Dudas (Vertical Research Partners, LLC): Regarding best value/CAP timing, are preconstruction contracts from prior years converting to construction and will that support backlog growth?
  Response: Yes—some long-running preconstruction contracts will convert to construction and should help drive organic revenue growth in 2026, though timing can be multi-year and is variable.

• Question from Kevin Gainey (Thompson Davis): How are you thinking about the guide at the low and high end and what would it take to get to each?
  Response: Primary drivers for Q4 variance are weather and execution; with strong momentum through Q3, management believes results will hinge on those two factors.

• Question from Kevin Gainey (Thompson Davis): Can you discuss organic materials performance this quarter and how you'll apply Warren best practices to improve pricing and operations?
  Response: Materials performed ahead of expectations with mid-single-digit volume and price gains; management will apply pricing, automation and the materials playbook across Warren and Papich to target ~3% additional gross profit expansion through 2027.

Contradiction Point 1

Revenue Growth Expectations

It involves differing expectations regarding revenue growth, which can impact investor confidence and strategic planning.

What is specifically limiting the conversion of this CAP into revenue? - Brent Thielman (D.A. Davidson & Co., Research Division)

2025Q3: We expect an 8% organic growth rate in Q4, which will carry into 2026. - Kyle Larkin(CEO)

Construction segment's first-half growth lagged market expectations. Can you comment on the current pace of work in CAP? - Brent Thielman (D.A. Davidson)

2025Q2: We expect our full year 2025 revenue to be in the range of $4.3 billion to $4.5 billion. This represents a growth of 5% to 7% over 2024, which is unchanged from our previous guidance. - Staci Woolsey(CFO)

Contradiction Point 2

Margin Expansion Expectations

It involves changes in financial forecasts, specifically regarding margin expectations, which are critical indicators for investors.

What is driving the operating cash flow upside, and how is the CapEx outlook adjusted? - Steven Ramsey (Thompson Research Group, LLC)

2025Q3: We have seen margin expansion in our Construction and Materials segments. We expect about 1% from Construction and 3% or better from Materials. - Kyle Larkin(CEO)

How is the current pace of progress in the Construction segment compared to market expectations, particularly with CAP initiatives? - Brent Thielman (D.A. Davidson)

2025Q2: Our full year 2025 adjusted EBITDA margin is expected to be approximately 6.7% to 7.2%. This represents an increase of approximately 75 basis points to 125 basis points over the prior year. - Staci Woolsey(CFO)