Granite Construction Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Positive Sentiment: Granite closed two strategic acquisitions—Warm Paving and Pabish Construction—for $710 M, expected to add $425 M in annual revenue with ~18% adjusted EBITDA margins, boost aggregate volumes by 27% and reserves by 30%.
  • Positive Sentiment: The Materials segment delivered outstanding Q2 results with revenue up 4%, gross profit +21%, adjusted EBITDA +17%, and aggregate volumes +11%, driven by plant automation and centralized leadership to improve margins.
  • Positive Sentiment: The Construction segment set a record backlog of $6.1 B, Q2 revenue rose 2% to $937 M, and gross margin expanded 170 bps to 16%, supported by a robust federal, state and local bidding environment.
  • Positive Sentiment: Management raised full-year 2025 guidance to $4.35–4.55 B in revenue and 11.25–11.50% adjusted EBITDA margin, while maintaining capex and SG&A targets and reaffirming a 6–8% organic CAGR to 2027.
  • Neutral Sentiment: Following these transactions, Granite’s total debt is approximately $1.35 B with $483 M in cash and an expanded $600 M revolver, supporting its target of 9% operating cash flow margin for 2025 and future M&A flexibility.
AI Generated. May Contain Errors.
Earnings Conference Call
Granite Construction Q2 2025
00:00 / 00:00

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Operator

Good morning. My name is Steve, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction Incorporated twenty twenty five Second Quarter Conference Call. This call is being recorded. All lines have been placed on mute to prevent any background noise.

Operator

And after the speakers' remarks, there will be a question and answer period. Please note, we will take one question and one follow-up question from each participants today. It is now my pleasure to turn the floor over to the Vice President of Investor Relations, Mike Barker.

Mike Barker
Mike Barker
VP - IR at Granite Construction

Good morning, and thank you for joining us. I'm pleased to be here today with President and Chief Executive Officer, Kyle Largen and Executive Vice President and Chief Financial Officer, Stacy Wolsey. 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.

Mike Barker
Mike Barker
VP - IR at Granite Construction

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 Granite's most recent 10 ks 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.

Mike Barker
Mike Barker
VP - IR at Granite Construction

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.

Mike Barker
Mike Barker
VP - IR at Granite Construction

Now I would like to turn the call over to Kyle Arkin.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

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 Warm Paving and Pabish Construction. These transactions are an exciting step forward for Granite 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.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

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 and A. We are using M and A to support, strengthen and expand our home markets into new geographies.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Over the last year, we have built out our corporate development team with the expectation that we will be building our company through M and 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 and 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, both within our current footprint and in new attractive geographies.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

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 $710,000,000 the acquisitions are expected to annually contribute approximately $425,000,000 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 5,000,000 tons or 27% and increasing aggregate reserves and resources by more than four forty 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.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Warren 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 Slas Lucas quarry is strategically located on the Cumberland River, a tributary of the Mississippi and has an estimated 400,000,000 tons of very high quality aggregate reserves and resources. Utilizing the distribution network of approximately 170 owned and leased barges and 11 aggregate yards, Warm Paving sells aggregates both internally to clients own asphalt plants and externally. I'm 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 Warm Paving. The combination of these high quality aggregates and Warren Pavey's logistics expertise should allow us to supply materials to certain Landry Roberts and Dickerson and Bowen asphalt plants and positions us to expand the distribution network as we continue to grow our Southeast platform.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

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, providing revenue and associated gross profit while driving increases in volumes and margin. We are actively evaluating opportunities to continue to build upon the platform and look forward to sharing progress that we make on our strategic plan in the coming quarters. With the acquisition of Warren Pating, 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.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

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 centers or other large commercial developments, the region is attracted due to 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.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

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. Package 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 40,000,000 tons of aggregate reserves and resources spread across the market is in our 20 significant We see our 19. A strengthening existing

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

portfolio home markets of with bolt ons that will enhance our vertical integration in a home market that we know well. Looking forward, I believe that M and 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 and 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.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

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 private 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 involved 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.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

This realignment is helping us grow our materials margins. We're also investing in capital improvement projects such as aggregate plant automation to drive efficiency and reduce production costs and we are promoting best practices across all of our operations 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 and profitability in the business for the coming quarters and years.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Now, let's move to the construction segment. During the quarter, our estimating teams 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 $6,100,000,000 The new projects span across our footprint, including Nevada, Utah, California and Alaska. In California, our largest market, the budget for the twenty twenty five-twenty twenty six fiscal year was finalized during Q2. Transportation funding for the upcoming fiscal year remains strong with the key components of the transportation budget, cabo outlay projects and local assistance, increasing budgeted allocations 9% over the fiscal year ended 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 market.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Based on these encouraging signs, we believe we will continue to see cap increase over the next several quarters. I'm 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. In addition, I believe we are on track to achieve our gross margin expansion expectations of greater than 1% during 2025. Through the 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.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Now, I'll turn it over to Stacy to review our financial performance for the quarter.

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

Thanks, Kyle. We had an outstanding second quarter and 2025. In the second quarter, revenue increased $43,000,000 or 4%, gross profit increased $34,000,000 or 21%, adjusted net income improved $9,000,000 or 12%, adjusted EBITDA improved $22,000,000 or 17%, and we ended the second quarter with year to date operating cash flow of $5,000,000 which is on track for our 2025 target. In the construction segment, revenue increased $19,000,000 or 2% year over year to $937,000,000 driven by the recently acquired Dickerson and Bowen and a strong cap we are working through across the company. Heading into the third quarter with a record cap balance, I believe we are on track to meet our revenue guidance for the year.

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

Construction segment gross profit improved $18,000,000 to $154,000,000 with the gross profit margin of 16%. This 170 basis point increase is largely due to improved execution and performance across our higher quality project portfolio as well as increased claim settlement recognition year over year. In the 2025, our cap has increased approximately $800,000,000 from a 2024 year end balance of 5,300,000,000.0 We continue to see cap expand in our public markets across the company as we capitalize on opportunities at the federal, state and local level. In the Materials segment, we continue to realize year over year cash gross profit margin improvement led by aggregates business. Year

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

Year over year aggregate volumes increased 11% for the quarter and 13% year to date driven by strong demand in our regions. These volume increases coupled with higher aggregate prices led to improved cash gross gross profit margin for both the quarter and year to date periods compared to the prior year. In asphalt, we are also seeing volume increases and cash gross profit improvement year over year. The materials business is executing on our plan to grow revenue while implementing initiatives such as automation and best practices to offset cost inflation. Now turning to cash flow and the balance sheet. We generated $5,000,000 of operating cash flow through the first half of the year.

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

Typically, the first half of the year is a slow period for cash flow as projects and operations ramp up. Then as we get further into the construction season, cash flow typically increases. I believe we will see this seasonal pattern this year and expect that we will achieve our operating cash flow target of 9% of revenue for the year. As of the end of Q2, cash and marketable securities were $483,000,000 With the closing of the two transactions this week, we amended our credit facility by adding a new term loan A of $600,000,000 and expanding our revolver from $350,000,000 to $600,000,000 of which $10,000,000 was drawn in conjunction with the transactions. In addition to the new term loan, we have the ability to draw another term loan at $75,000,000 within six months.

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

We also utilized $100,000,000 of cash on hand. After accounting for the transactions, our total debt outstanding is approximately $1,350,000,000 With our expanded revolver, additional available term loans and cash flow generation, we are in a great position to act on future M and A opportunities that bolt on to a home market or further expand our geographic reach. Now let's discuss our guidance for the rest of this year and our 2027 targets. As a result of this week's acquisitions, we are increasing our annual revenue and adjusted EBITDA margin guidance for 2025. Our revised revenue range is now 4,350,000,000.00 to $4,550,000,000 and our adjusted EBITDA margin range is now 11.25120.25%.

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

This reflects an expected $150,000,000 in revenue from the acquisitions for the remainder of the year as well as an uplift of 25 basis points to our adjusted EBITDA margin range. Our annual guidance for SG and A as a percent of revenue of 9%, CapEx in the range of 140,000,000 to $160,000,000 and adjusted effective tax rate in the mid-20s are unchanged. Through the second quarter, we have achieved the margin expansion expected in both of our segments and with our busiest month ahead of us, I believe we are on track to meet our guidance for the year. Looking forward, we are also revisiting our 2027 financial targets with the addition of the acquisitions. Our organic revenue growth expectations are unchanged at a CAGR of 6% to 8% through 2027 as we see a robust market ahead of us that should provide for continued growth across the company.

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

With an active deal pipeline, we believe we will be able to complete at least two to three deals each year to strengthen and expand our home markets. While the timing of any transactions is difficult to predict, we believe we have the team, market, cash generation and balance sheet to achieve this growth. Following the completion of two acquisitions this week, we are raising our twenty twenty seven targets for adjusted EBITDA margin, operating cash flow margin and free cash flow margin ranges by 50 basis points. Now, I'll turn it back over to Kyle.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Thanks, Stacy. I'll close with the following points. I'm excited by our performance in the second quarter and the first half of the year. We continue to execute on our strategic plan and we are showing the earnings power of our company in our vertically integrated model. We continue to grow CAF fueled by public market opportunities at the federal, state and local levels.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Our private markets also have a number of strong opportunities, which I believe will contribute to CAF growth in the future. Overall, in 2025, we have bid and won more work than in the previous year, just as we have done for the past several years. Both our Construction and Materials segments, our teams are meeting our margin expectations. And as we head into the third quarter, I believe we are on track to meet our 2025 guidance. The additions of Warm Paving and Pathage Construction are significant strategic transactions for Granite.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Not only do they add great high performing businesses to our portfolio, but they also provide opportunities to continue to expand our home markets in a way that should compound returns by driving volumes. In what has historically been a seasonally slow quarter, we generated positive operating cash flow and I believe we should reach our target for operating cash flow of 9% of revenue for 2025. Finally, with our cash generation, upsized credit facility backed by our strong balance sheet and a number of organic and inorganic investment opportunities ahead of us, we believe that Granite will continue to drive significant shareholder value. Operator, I will now turn it back to you for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Brent Thielman with D. A. Davidson.

Brent Thielman
MD & Senior Research Analyst at D.A. Davidson

Congrats on the great quarter and on the transactions as well. I guess the first question would be, Kyle, I mean, on the construction segment, the growth through the first half may be less robust relative to what I think you're seeing in the markets. And obviously, your cap is picking up pretty nicely here. So maybe if you could just comment on the obviously, you'll have the transactions layering into the second half, but just the pace that you're now seeing on some of this work as you're starting to work through some of the stuff in cap. Has there been things that have held it back and now you're starting to see it moving? Just wanted to get some color there.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Brent, and yes, we agree. It was a great quarter, and we're excited about the performance by our teams. Regarding just the revenue on top line for the company, it really just project starts and finishes. So we feel really strongly about the back half of the year. As you mentioned, we have record cap at $6,100,000,000 And so we've had a lot of projects that have been ramping up.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

And so we do expect things to accelerate in the back half of the year. So if look at our overall guidance and our updated guidance for 2025, we left our legacy guidance alone, and we just added the contributions of the acquisitions to the guidance for the year.

Brent Thielman
MD & Senior Research Analyst at D.A. Davidson

Okay. And then I guess the follow-up question would just be, I mean, the materials profit margin expansion, particularly notable this quarter. And just wanted to get a sense of what might be transitory factors impacting that and what's kind of sustainable as we think about profitability of that business going forward?

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Yes. Well, we were pleased with certainly the volumes in the quarter and for the year to date. We're seeing nice volume improvements in the 10% or better in both asphalt and aggregate. So I think that's signs of a healthy market there as well. I'd say it's more supported by the public markets and the private.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

The private has been pretty much consistent year over year. As we mentioned on the last call and previously that we expected around 3% gross profit margin improvement in our Materials segment for the full year at a minimum, and we're certainly tracking well ahead of that today. So we'll see how the back half shakes out. But I think there's good signs that we're seeing volume increases and we're seeing the margin expansion that we expected in the year. And obviously, that holds true for construction as well.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

We mentioned that we expected a 1% or greater margin expansion in our construction business. Our teams have just done a fantastic job, and they're tracking well out of that too. So across the board, both construction and material segments, we feel really good about our team's performance.

Brent Thielman
MD & Senior Research Analyst at D.A. Davidson

Okay. Thank you.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Thank you.

Operator

The next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Brian Biros
Senior Analyst at Thompson Research Group

Hey, good morning. This is actually Brian Barros on for Steven. Thank you for taking my questions today. On Pappage, can you just maybe touch on what that business, I guess, excels at? I think you mentioned expertise in infrastructure projects in the prepared remarks.

Brian Biros
Senior Analyst at Thompson Research Group

But just curious on what Pappage can add to you, what you can add to them and why their margin profile is as strong as it is?

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Yes. And thank you for the question. Pappich is very similar to Grant. Our businesses look similar in terms of mix of work. So they're primarily a public works contractor.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

It's around 80% of their business spend on a given year, 20% private. They can be very strong in the private market. And they fill an area within the state of California that we don't have a strong spread. So it's the Central Coast, kind of the Central area of California. So it's really complementary to our current footprint.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

And it's in a state that we believe in and obviously has really nice budget and funding behind it, even coming into the 25, 26 cycles. I think the timing of it is really good for us as well. Our businesses in the central part of the state rely a lot on third party materials buyers. So having Patbich's materials business is going be really additive to our overall business as a company. So we're excited about that.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

And I think together, we see this opportunity. We see opportunity to drive volume increases and pull through to their plants to internal sales. I think we can leverage our pricing strategies, how we look at automation, hit our plants business today and learn from some of the previous projects we've done, implement our materials playbook, our construction playbook. And I think our legacy business can also learn a little bit from Tapich around private work and some of the customer relationships that they have and bring that into other areas as well. So again, we're really excited about the acquisition.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

It's a great market for us, and I can tell I think and I know PAPIC is excited about being part of the Granite team.

Brian Biros
Senior Analyst at Thompson Research Group

Sounds like a great pickup for you guys. Secondly, can you just compare and contrast maybe cap trends year to date and the outlook, I guess, between the home regions of the West and then the Southeast?

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Yes. We don't necessarily break it apart. I would say just in general, it's across the board. So that record cap at $6,100,000,000 again, it's across the entire footprint. You can see some recent announcements that we put out.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

It could be some of our federal work in Guam, but we've been successful there. We were successful in Utah, Nevada, so obviously in California, even up in Alaska. So it's really across our entire footprint as a company, which isn't surprising because the overall market with the IJA funding continues to be strong. I think that's pretty universal in all the markets that we're in. And just as a reminder that the spending to date on the IJA is still less than 50%.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

And so we haven't seen in opinion that peak yet. We think it's probably going to peak sometime in 'twenty six, 'twenty seven. So we still have a long runway ahead of us, and we do believe we can continue to build up our cap across our footprint.

Operator

The next question comes from Michael Dudas with Vertical Research Partners. Please go ahead. Michael, your line has been unmuted. Please go ahead with your question.

Michael Dudas
Partner at Vertical Research Partners

Thank you. Sorry about that. Good morning, Stacy, Mike and Kyle.

Staci Woolsey
Staci Woolsey
EVP & CFO at Granite Construction

Good morning.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Good morning.

Michael Dudas
Partner at Vertical Research Partners

So shifting to the warrant acquisition, maybe you could share more perspective on the quality of the assets and some of these locations that you're picking up and how well capitalized are they? Have they been? Are the operations to be additive or is there things you can learn from the other parts of your business that you take from this? And how much helpful can it be to the Dixon Bone and the acquisitions you've made in that Mississippi market? Because again, I think you're correct in assessing that not just on the public side, but there's certainly a lot of energy and data center investment in that region here over the next several years.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Yes. Great. Thanks, Mike. Yes, we're excited about Warren Paving as part of our Southeast platform. And clearly, warrant paving is a high performing business, Justice Lehman Roberts and Dickerson Bowen.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

We're getting excited about having all three of these businesses together as part of the Southeast platform. Warrant paving is a little bit different. We mentioned we've been looking at these material focused acquisitions. Well, Warrant paving is actually material centric. Of its revenue around 75% is materials and 25% is construction.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Now that 75% is materials, 70% is ag and about 30% is asphalt. So it's really an ag centric business. And that's going to provide a lot of opportunities for us down in the Southeast part of our company now. So we're focused on pull through. We think there's opportunities to drive volumes with internal sales.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

We think we can expand this distribution yard network, which is really impressive. We think there's obviously opportunities for pricing, even the automation that we can install a business like PAPAGE, introducing liquid cutting materials playbook. We also think there's opportunities now that we have scale and even explore liquid asphalt options as well. I think another piece of this that's interesting is we can connect Warm Paving to our federal division. And there's a lot of shoreline protection opportunities with the Army Corps in that part of the country that we could pursue both on the contracting side and also drive pull through to the quarry.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

So it is a great business alone, but we see tremendous opportunities as it being part of our Granite Southeast platform.

Michael Dudas
Partner at Vertical Research Partners

Sounds terrific and a great fit for the company. My follow-up would be, as you indicated or as Lisa talked about it in the remarks on the twenty twenty seven targets, I just want to clarify. So those targets include the acquisitions you closed on this month. Is that also including potential or a percentage of potential opportunities of these two to three deals a year? Or is there could there be wider upside from the low to high levels on revenue and margin?

Michael Dudas
Partner at Vertical Research Partners

Kind of conceptualize so I can understand it clearly what the visibility is on 2027 leases as you look at it today?

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Yes. So what we provided in the updated guidance through 2027 is consistent organic growth of that 6% to 8%. So we still feel confident in that. We still feel as though the underlying market, the public funding, the private market supports that range.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

So we feel good there. And then we do believe that we're going be able to continue to layer in acquisitions. So we're set up to do that. We have the balance sheet. I think our business is operating very strong.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

And so that's going to give us what we need to continue to do deals. We didn't want to come out and put a dollar amount to those deals because it's really tough to predict the size and the timing of these things, as you know. And so historically now over the last couple of years, we've been able to get them across the finish line. I think it's starting to show the consistency in our business in that regard. So I think two to three deals a year is just a good number for us to put out there.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

And obviously, we have the EBITDA margin improvement. That's all you put the benefit of these new acquisitions. So that's about 50 basis points.

Michael Dudas
Partner at Vertical Research Partners

Great. Just a quick just to quickly follow-up on well, how was it was it gestation period or the time of negotiating with these two companies? Are these not companies I obviously know Pathogen in the past, but was it something happened recently or has it happened over several months to years as your business development team has been much more active?

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

How these came to fruition? Sorry, you're breaking up a little bit on our Yes, PAPITS was a self sourced deal and Warren Paving was a banquet process.

Michael Dudas
Partner at Vertical Research Partners

Thank you.

Operator

Concludes our question and answer session. I would like to turn the conference back to Kyle Larkin for any closing remarks.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Okay. Well, thank you for joining the call today. As always, we want to thank all of our employees for the work they do every day. We would also like to take this opportunity to welcome our newest team members from Warren Paving and Patfish Construction. We're excited to have you on the team and look forward to building better together.

Kyle Larkin
Kyle Larkin
President and Chief Executive Officer at Granite Construction

Thank you for joining the call and your interest in Granite. We look forward to speaking with you all soon.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Mike Barker
      Mike Barker
      VP - IR
    • Kyle Larkin
      Kyle Larkin
      President and Chief Executive Officer
    • Staci Woolsey
      Staci Woolsey
      EVP & CFO
Analysts
    • Brent Thielman
      MD & Senior Research Analyst at D.A. Davidson
    • Brian Biros
      Senior Analyst at Thompson Research Group
    • Michael Dudas
      Partner at Vertical Research Partners
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