SEC Form 10-Q filed by Granite Construction Incorporated
$GVA
Military/Government/Technical
Industrials
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended | |||||
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the transition period from ___________ to ___________ | |||||
Commission File Number: | |||||
| State of Incorporation: | I.R.S. Employer Identification Number: | ||||
Address of principal executive offices:
(831 ) 724-1011
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer o | Non-accelerated filer o | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 25, 2024.
| Class | Outstanding | |||||||
| Common stock, $0.01 par value | ||||||||
TABLE OF CONTENTS
| EXHIBIT 101.INS | |||||
| EXHIBIT 101.SCH | |||||
| EXHIBIT 101.CAL | |||||
| EXHIBIT 101.DEF | |||||
| EXHIBIT 101.LAB | |||||
| EXHIBIT 101.PRE | |||||
| EXHIBIT 104 | |||||
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
| September 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
Cash and cash equivalents ($ | $ | $ | |||||||||
| Short-term marketable securities | |||||||||||
Receivables, net ($ | |||||||||||
Contract assets ($ | |||||||||||
| Inventories | |||||||||||
| Equity in construction joint ventures | |||||||||||
Other current assets ($ | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net ($ | |||||||||||
| Investments in affiliates | |||||||||||
| Goodwill | |||||||||||
| Intangible assets | |||||||||||
| Right of use assets | |||||||||||
| Deferred income taxes, net | |||||||||||
| Other noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current maturities of long-term debt | $ | $ | |||||||||
Accounts payable ($ | |||||||||||
Contract liabilities ($ | |||||||||||
Accrued expenses and other current liabilities ($ | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Long-term lease liabilities | |||||||||||
| Deferred income taxes, net | |||||||||||
| Other long-term liabilities | |||||||||||
Commitments and contingencies (see Note 17) | |||||||||||
| Equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Retained earnings | |||||||||||
| Total Granite Construction Incorporated shareholders’ equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Construction | $ | $ | $ | $ | |||||||||||||||||||
| Materials | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Construction | |||||||||||||||||||||||
| Materials | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Other costs, net | |||||||||||||||||||||||
| Gain on sales of property and equipment, net | ( | ( | ( | ( | |||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Other (income) expense: | |||||||||||||||||||||||
| (Gain) loss on debt extinguishment | ( | ||||||||||||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Equity in income of affiliates, net | ( | ( | ( | ( | |||||||||||||||||||
| Other (income) expense, net | ( | ( | ( | ||||||||||||||||||||
| Total other (income) expense, net | ( | ( | |||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Amount attributable to non-controlling interests | ( | ( | |||||||||||||||||||||
| Net income attributable to Granite Construction Incorporated | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common shareholders (see Note 15): | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||||||||
| Net unrealized gain (loss) on cash flow hedges, net of tax | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Less: reclassification for net gains (losses) included in interest expense, net of tax | ( | ( | |||||||||||||||||||||
| Net change | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Foreign currency translation adjustments, net | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | $ | $ | $ | ( | $ | ||||||||||||||||||
| Comprehensive income, net of tax | $ | $ | $ | $ | |||||||||||||||||||
| Non-controlling interests in comprehensive (income) loss, net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income attributable to Granite Construction Incorporated, net of tax | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited - in thousands, except share data)
| Outstanding Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock (1) | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Restricted stock units (“RSUs”) vested | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Dividends on common stock ($0.13 per share) | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued in debt redemption | 11,665 | 0 | (0) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Transactions with non-controlling interests | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense and other | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock (1) | ( | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| RSUs vested | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Dividends on common stock ($0.13 per share) | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Transactions with non-controlling interests | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense and other | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
(1) This amount represents employee tax withholding for RSUs vested under our equity incentive plans.
6
| Outstanding Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Granite Shareholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock (1) | ( | ( | ( | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs vested | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends on common stock ($0.13 per share per quarter) | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Capped call transactions | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of warrants | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued in debt redemption | 11,665 | 0 | (0) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Exercise of bond hedge | ( | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Transactions with non-controlling interests | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense and other | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock (1) | ( | (1) | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| RSUs vested | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends on common stock ($0.13 per share per quarter) | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Capped call transactions | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of warrants | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock issued in debt extinguishment | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of bond hedge | ( | ( | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Transactions with non-controlling interests | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense and other | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
(1) This amount represents employee tax withholding for RSUs vested under our equity incentive plans in 2024 and 2023 and stock repurchased in 2024 under the Board approved repurchase plan. During the nine months ended September 30, 2024 and 2023, there were 145,113 shares and 96,936 shares, respectively, withheld related to employee taxes for RSUs. During the nine months ended September 30, 2024, we also repurchased 225,000 shares under the share repurchase program.
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
| Nine Months Ended September 30, | 2024 | 2023 | |||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, depletion and amortization | |||||||||||
| Amortization related to long-term debt | |||||||||||
| Loss on debt extinguishment | |||||||||||
| Gain on sales of property and equipment, net | ( | ( | |||||||||
| Deferred income taxes | |||||||||||
| Stock-based compensation | |||||||||||
| Equity in net (income) loss from unconsolidated construction joint ventures | ( | ||||||||||
| Net income from affiliates | ( | ( | |||||||||
| Other non-cash adjustments | ( | ||||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables | ( | ( | |||||||||
| Contract assets, net | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Contributions to unconsolidated construction joint ventures | ( | ( | |||||||||
| Distributions from unconsolidated construction joint ventures and affiliates | |||||||||||
| Other assets, net | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other liabilities, net | |||||||||||
| Net cash provided by operating activities | $ | $ | |||||||||
| Investing activities: | |||||||||||
| Purchases of marketable securities | ( | ( | |||||||||
| Maturities of marketable securities | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Proceeds from sales of property and equipment | |||||||||||
| Acquisitions of businesses, net of cash acquired (See Note 3) | ( | ( | |||||||||
| Cash paid for purchase price adjustments on business acquisition (See Note 3) | ( | ||||||||||
| Proceeds from company owned life insurance | |||||||||||
| Return of investment in affiliates | |||||||||||
| Collection of notes receivable | |||||||||||
| Net cash used in investing activities | $ | ( | $ | ( | |||||||
| Financing activities: | |||||||||||
Proceeds from issuance of convertible notes (See Note 14) | |||||||||||
| Proceeds from long-term debt | |||||||||||
| Debt principal repayments | ( | ( | |||||||||
| Capped call transactions | ( | ( | |||||||||
| Redemption of warrants | ( | ( | |||||||||
| Debt issuance costs | ( | ( | |||||||||
| Cash dividends paid | ( | ( | |||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Contributions from non-controlling partners | |||||||||||
| Distributions to non-controlling partners | ( | ( | |||||||||
| Other financing activities, net | |||||||||||
| Net cash provided by (used in) financing activities | $ | ( | $ | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
8
| Supplementary Information: | |||||||||||
| Right of use assets obtained in exchange for lease obligations | $ | $ | |||||||||
| Cash paid during the period for: | |||||||||||
| Operating lease liabilities | $ | $ | |||||||||
| Interest | $ | $ | |||||||||
| Income taxes | $ | $ | |||||||||
| Other non-cash operating activities: | |||||||||||
| Deferred taxes related to capped call transactions | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| RSUs issued, net of forfeitures | $ | $ | |||||||||
| Dividends declared but not paid | $ | $ | |||||||||
| Contributions from non-controlling partners | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Basis of Presentation: The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” the “Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission, are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at September 30, 2024 and the results of our operations and cash flows for the periods presented. The December 31, 2023 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP.
During the first quarter of 2024, we reorganized our operational structure to more closely align with our two reportable segments, Construction and Materials. Previously, leaders within our three former operating groups of California, Central and Mountain managed both Construction and Materials operations within each group. This change allows us to better leverage our expertise within each reportable segment with leadership having direct oversight of their respective segment operations. As a result of the reorganization, we will no longer disclose financial information by operating group. There were no material impacts to our unaudited condensed consolidated financial statements and no changes to our reportable segments.
Due to the changes in our operational structure and the resulting changes to reporting units, we performed quantitative goodwill impairment tests, immediately before and after the reorganization, on the affected reporting units. These reporting units previously aligned with our operating group structure, but have now been combined into two reporting units, Construction and Materials. The reporting units associated with the acquisition of Lehman-Roberts Company and Memphis Stone & Gravel Company (collectively, "LRC/MSG") were not impacted by the reorganization. For each of the affected reporting units, we calculated the estimated fair value consistent with the annual impairment assessment using the discounted cash flows and market multiple methods. These tests indicated that the estimated fair values of the affected reporting units exceeded their carrying amounts with headroom in excess of 25 %.
Share Repurchase Program: As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion. During the nine months ended September 30, 2024, we repurchased 225,000 shares under this authorization. The share repurchases are included in Repurchases of common stock on the Condensed Consolidated Statements of Shareholders’ Equity and within Financing activities on the Condensed Consolidated Statement of Cash Flows. As of September 30, 2024, $218.2 million of the authorization remained available.
Seasonality: Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year.
2. Recently Issued and Adopted Accounting Pronouncements
We closely monitor all Accounting Standards Updates issued by the Financial Accounting Standards Board and other authoritative guidance. No new accounting pronouncements were recently issued or adopted in the nine months ended September 30, 2024 that had or are expected to have a material impact on our financial statements.
3. Acquisitions
Dickerson & Bowen, Inc.
On August 9, 2024, we completed the acquisition of Dickerson & Bowen, Inc. ("D&B") for an estimated purchase price of $124.2 million in cash, subject to customary closing adjustments. D&B is an aggregates, asphalt and highway construction company serving central and southern Mississippi which expands our footprint in that region. The buyer of D&B, Granite Southeast Company ("Granite Southeast"), is a wholly-owned subsidiary of Granite and D&B's results have been included in the Construction and Materials segments since the acquisition date. D&B’s customers are in both the public and private
10
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
sectors. We have accounted for this transaction in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations (“ASC 805”).
Preliminary Purchase Price Allocation
In accordance with ASC 805, the total purchase price and assumed liabilities were allocated to the net tangible and identifiable intangible assets based on their estimated fair values as of August 9, 2024. These estimates are subject to revision, which may result in adjustments to the values presented below. There are certain provisional estimates that are subject to finalization. As we continue to integrate the acquired business, we may obtain additional information which may result in revisions to preliminary valuation assumptions, estimates and the resulting fair values presented herein. We expect to finalize these amounts within 12 months from the acquisition date.
Based on our preliminary purchase price allocation, the net tangible and intangible assets acquired were $31.7 million and $27.7 million, respectively, resulting in acquired goodwill of $64.8 million, none of which is tax deductible. Of the acquired goodwill, $44.0 million is in the Materials segment and $20.8 million is in the Construction segment. The factors that contributed to the recognition of goodwill from the acquisition include strengthening and expanding our vertically integrated southeast home market. The most significant assets acquired were $38.1 million of property and equipment and $18.2 million of customer relationships.
Pro Forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of operations of Granite and D&B as though the companies had been combined as of January 1, 2023. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2023, nor does it intend to be a projection of future results.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(unaudited, in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Revenue | $ | 1,285,341 | $ | 1,150,402 | $ | 3,085,489 | $ | 2,657,316 | |||||||||||||||
Net income attributable to Granite Construction Incorporated | $ | 80,657 | $ | 63,352 | $ | 93,770 | $ | 28,535 | |||||||||||||||
| Basic net income per share attributable to common shareholders | $ | 1.85 | $ | 1.44 | $ | 2.14 | $ | 0.65 | |||||||||||||||
| Diluted net income per share attributable to common shareholders | $ | 1.54 | $ | 1.18 | $ | 1.78 | $ | 0.64 | |||||||||||||||
These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of D&B to reflect the additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and equipment and intangible assets had been applied starting on January 1, 2023. Acquisition and integration expenses related to D&B that were incurred during the nine months ended September 30, 2024 are reflected in the nine months ended September 30, 2023 due to the assumed timing of the transaction. The statutory tax rate of 26% was used for both 2024 and 2023 for the pro forma adjustments.
During the nine months ended September 30, 2024, we incurred $2.3 million of acquisition and integration expenses associated with the D&B acquisition which were primarily related to professional services.
LRC/MSG
On November 30, 2023, Granite Southeast completed the acquisition of LRC/MSG for $278.0 million, subject to customary closing adjustments, plus an estimated amount related to tax make-whole agreements with the seller. We purchased all of the outstanding equity interests in LRC/MSG and the purchase price was funded by a $150.0 million senior secured term loan, a draw of $100 million under our existing revolver and the remainder from cash on hand. Both the senior secured term loan and the draw under the revolver were fully repaid during the first half of 2024.
The acquired businesses are longstanding asphalt paving and asphalt and aggregates producers and suppliers. LRC/MSG operates strategically located asphalt plants and sand and gravel mines serving the greater Memphis area and northern Mississippi.
11
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
LRC/MSG's results have been included in the Construction and Materials segments since the acquisition date. LRC/MSG’s customers are in both the public and private sectors. Revenue attributable to LRC/MSG for the three and nine months ended September 30, 2024 was $45.5 million and $105.0 million, respectively. Gross profit attributable to LRC/MSG for the three and nine months ended September 30, 2024 was $5.7 million and $5.0 million, respectively.
Purchase Price Allocation
In accordance with ASC 805, the total purchase price and assumed liabilities were allocated to the net tangible and identifiable intangible assets based on their estimated fair values as of the acquisition date, as presented in the table below.
We recorded a $22.0 million provisional estimate related to tax make-whole agreements with the seller at the time of the acquisition. In the second quarter of 2024, the former owners of LRC/MSG determined their personal tax burden related to the sale of the businesses which allowed us to finalize our tax make-whole obligation. Our obligation was $7.1 million, which was paid in June 2024.
During the nine months ended September 30, 2024, we made measurement period adjustments to reflect facts and circumstances in existence as of the acquisition date. These adjustments included a $4.6 million net increase from net working capital adjustments and a $2.2 million net decrease in the value of the net tangible and identifiable intangible assets acquired, offset by a $14.9 million decrease in the estimated obligation associated with the tax make-whole agreements noted above. The impact of these adjustments was a decrease in goodwill of $8.1 million. We paid $13.2 million during the nine months ended September 30, 2024 associated with the acquisition of LRC/MSG, which includes $6.1 million for working capital adjustments and $7.1 million for the tax make-whole obligation.
There were no material measurement period adjustments during the three months ended September 30, 2024. As of September 30, 2024, we have finalized the purchase price accounting.
The following table presents the purchase price allocation:
(in thousands) | |||||
| Assets: | |||||
| Cash and cash equivalents | $ | ||||
| Receivables | |||||
| Contract assets | |||||
| Inventories | |||||
| Other current assets | |||||
| Property and equipment | |||||
| Right of use assets | |||||
| Other noncurrent assets | |||||
| Total tangible assets | |||||
| Identifiable intangible assets | |||||
| Liabilities: | |||||
| Accounts payable | |||||
| Contract liabilities | |||||
| Accrued expenses and other current liabilities | |||||
| Long-term lease liabilities | |||||
| Other long-term liabilities | |||||
| Total liabilities assumed | |||||
| Total tangible and identifiable intangible net assets acquired | |||||
| Goodwill | |||||
| Purchase price | $ | ||||
12
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Coast Mountain Resources
On April 24, 2023, we acquired Coast Mountain Resources (2020) Ltd. which changed its name to Granite Infrastructure Canada, Ltd. ("Granite Canada") on May 13, 2024. Granite Canada is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land. Granite Canada results are reported in the Materials segment. This acquisition did not have a material impact on our financial statements.
4. Revisions in Estimates
Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates.
When we experience significant revisions in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future.
In our review of these changes for the three and nine months ended September 30, 2024 and 2023, we did not identify any material amounts that should have been recorded in a prior period.
The projects with increases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, are summarized as follows (dollars in millions, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Number of projects with upward estimate changes | 2 | 1 | 2 | 1 | |||||||||||||||||||||||||||||||
| Range of increase in gross profit from each project, net | $ | 5.4 - 5.7 | $ | 8.6 | $ | 5.2 - 6.2 | $ | 8.1 | |||||||||||||||||||||||||||
| Increase to project profitability, net | $ | 11.1 | $ | 8.6 | $ | 11.4 | $ | 8.1 | |||||||||||||||||||||||||||
| Increase to net income | $ | 8.5 | $ | 6.5 | $ | 8.7 | $ | 6.1 | |||||||||||||||||||||||||||
| Amounts attributable to non-controlling interests | $ | — | $ | — | $ | — | $ | 3.3 | |||||||||||||||||||||||||||
| Increase to net income attributable to Granite Construction Incorporated | $ | 8.5 | $ | 6.5 | $ | 8.7 | $ | 2.8 | |||||||||||||||||||||||||||
| Increase to net income per diluted share attributable to common shareholders | $ | 0.16 | $ | 0.12 | $ | 0.17 | $ | 0.06 | |||||||||||||||||||||||||||
The increases during the three months ended September 30, 2024 and September 30, 2023 were due to changes in the estimated amount of probable recovery on outstanding claims. In the three months ended September 30, 2024, decreases in estimated costs from mitigated risks also contributed to the increase.
The increases during the nine months ended September 30, 2024 were due to changes in the estimated amount of probable recovery on outstanding claims and changes in the estimated transaction price related to unresolved contract modifications resulting from revisions to project work plans, permitting and scheduling. The increase during the nine months ended September 30, 2023 was due to decreases in estimated costs from mitigated risks.
13
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The projects with decreases from revisions in estimates, which individually had an impact of $5.0 million or more on gross profit, are summarized as follows (dollars in millions, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Number of projects with downward estimate changes | |||||||||||||||||||||||||||||||||||
| Range of reduction in gross profit from each project, net | $ | $ | 8.4 | $ | $ | ||||||||||||||||||||||||||||||
| Decrease to project profitability, net | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Decrease to net income | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Amounts attributable to non-controlling interests | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Decrease to net income attributable to Granite Construction Incorporated | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Decrease to net income per diluted share attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
5. Disaggregation of Revenue
As discussed in Note 1, during the first quarter of 2024, we reorganized our operational structure to more closely align with our two reportable segments, Construction and Materials. Previously, leaders within our three former operating groups of California, Central and Mountain managed both Construction and Materials operations within each group. As a result of the reorganization, we will no longer disclose financial information by operating group and we have updated our presentation of disaggregated revenue. The prior year disaggregation of revenue amounts have been recast to conform with the current period presentation.
Revenue is disaggregated by reportable segment (see Note 18) and customer type, which we believe best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Customer Type
Customers in our Construction segment are predominantly in the public sector which includes certain federal agencies, state departments of transportation, local transit authorities, county and city public works departments and school districts. Our private sector customers include, but are not limited to, developers, utilities and private owners of industrial, commercial and residential sites. Customers of our Materials segment include internal usage by our own construction projects, as well as third-party customers. Based on the nature of the Materials business, it is not meaningful to disaggregate revenue by customer type.
The following table presents our revenue disaggregated by reportable segment and by customer type for the Construction segment:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
Construction segment revenue: | |||||||||||||||||||||||
| Public | $ | $ | $ | $ | |||||||||||||||||||
| Private | |||||||||||||||||||||||
| Total Construction segment revenue | |||||||||||||||||||||||
| Materials segment revenue | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
14
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. Unearned Revenue
The following table presents our unearned revenue disaggregated by customer type as of the respective periods:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Public | $ | $ | |||||||||
| Private | |||||||||||
| Total | $ | $ | |||||||||
All unearned revenue is in the Construction segment. Approximately $2.7 billion of the September 30, 2024 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter.
7. Contract Assets and Liabilities
As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $43.3 million and $220.7 million during the three and nine months ended September 30, 2024 and $41.6 million and $131.3 million during the three and nine months ended September 30, 2023. The changes in contract transaction price for the three and nine months ended September 30, 2024 and 2023 were from items such as executed or estimated change orders and unresolved contract modifications and claims.
As of September 30, 2024 and December 31, 2023, the aggregate claim recovery estimates included in contract asset and liability balances were $88.0 million and $77.9 million, respectively.
The components of the contract asset balances as of the respective dates were as follows:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Costs in excess of billings and estimated earnings | $ | $ | |||||||||
| Contract retention | |||||||||||
| Total contract assets | $ | $ | |||||||||
As of September 30, 2024 and December 31, 2023, contract retention receivable from Brightline Trains Florida LLC represented 9.1 % and 11.1 %, respectively, of total contract assets. No other contract retention receivable individually exceeded 10% of total contract assets at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year.
As work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $16.7 million and $270.0 million during the three and nine months ended September 30, 2024, respectively, and $17.5 million and $188.6 million during the three and nine months ended September 30, 2023, respectively, that was included in the contract liability balances at December 31, 2023 and 2022, respectively.
The components of the contract liability balances as of the respective dates were as follows:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Billings in excess of costs and estimated earnings, net of retention | $ | $ | |||||||||
| Provisions for losses | |||||||||||
| Total contract liabilities | $ | $ | |||||||||
15
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8. Receivables, net
Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and generally do not bear interest. The following table presents major categories of receivables:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Contracts completed and in progress: | |||||||||||
| Billed | $ | $ | |||||||||
| Unbilled | |||||||||||
| Total contracts completed and in progress | |||||||||||
| Materials sales | |||||||||||
| Other | |||||||||||
| Total gross receivables | |||||||||||
| Less: allowance for credit losses | |||||||||||
| Total net receivables | $ | $ | |||||||||
Included in other receivables at September 30, 2024 and December 31, 2023 were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. Other receivables at September 30, 2024 and December 31, 2023 also included $25.0 10
9. Fair Value Measurement
The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands):
| Fair Value Measurement at Reporting Date Using | |||||||||||||||||||||||
| September 30, 2024 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Accrued and other current liabilities: | |||||||||||||||||||||||
| Crude oil swaps | $ | $ | $ | $ | |||||||||||||||||||
| Heating oil swaps | |||||||||||||||||||||||
| Diesel collars | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
| Accrued and other current liabilities: | |||||||||||||||||||||||
| Interest rate swap | $ | $ | $ | $ | |||||||||||||||||||
| Heating oil swaps | |||||||||||||||||||||||
| Diesel collars | |||||||||||||||||||||||
| Total liabilities | $ | $ | $ | $ | |||||||||||||||||||
16
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Interest Rate Swap
In connection with entering into Amendment No. 2 to the Fourth Amended and Restated Credit Agreement, as amended (the "Credit Agreement") in November 2023, we entered into an interest rate swap designated as a cash flow hedge with an initial notional amount of $75.0 million and an effective date of December 2023 and a maturity date of June 2027. In conjunction with the payoff of our term loan in June 2024, the interest rate swap was terminated resulting in a gain of $1.4 million.
Commodity Derivatives
In 2023, we entered into collar contracts and commodity swaps to reduce our price exposure on diesel consumption and heating oil consumption, respectively. The collars and swaps were not designated as hedges and will be treated as mark-to-market derivative instruments through their maturity dates. The financial statement impact of the collar contracts and commodity swaps for the three and nine months ended September 30, 2024 and 2023 was immaterial
In April 2024 and December 2022, we entered into commodity swaps designated as cash flow hedges to reduce our price exposure on crude oil with a notional amount of $1.8 million and $7.0 million, respectively, and maturity dates of October 31, 2024 and October 31, 2023, respectively. The financial statement impact of these swaps during the three and nine months ended September 30, 2024 and 2023 was immaterial .
Other Assets and Liabilities
The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
| (in thousands) | Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Held-to-maturity marketable securities (1) | Level 1 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Liabilities (including current maturities): | |||||||||||||||||||||||||||||
| Level 2 | $ | $ | $ | $ | |||||||||||||||||||||||||
| Level 2 | $ | $ | $ | $ | |||||||||||||||||||||||||
| Level 2 | $ | $ | $ | $ | |||||||||||||||||||||||||
| Credit Agreement - Term Loan (2) | Level 3 | $ | $ | $ | $ | ||||||||||||||||||||||||
| Credit Agreement - Revolver (2) | Level 3 | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of September 30, 2024 and December 31, 2023.
(2) The fair values of our our 3.25 % convertible senior notes due 2030 (the "3.25 % Convertible Notes"), our 3.75 % convertible senior notes due 2028 (the "3.75 % Convertible Notes") and our 2.75 % convertible senior notes due 2024 (the "2.75 % Convertible Notes") are based on the median price of the notes in an active market. The fair value of the Credit Agreement is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 14 for more information about our convertible notes and the Credit Agreement.
During the nine months ended September 30, 2024 and 2023, we had no material nonfinancial asset or liability fair value adjustments.
10. Construction Joint Ventures
We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three and nine months ended September 30, 2024, we determined no change was required for existing joint ventures.
Due to the joint and several nature of the performance obligations under the related owner contracts, if any of our partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). We are not able to estimate amounts that may be required beyond the current remaining forecasted cost of the work to be performed. These forecasted costs could be offset by billings to the customer or
17
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
by proceeds from our partners’ corporate and/or other guarantees. See Note 13 for disclosure of the performance guarantee amounts recorded in the condensed consolidated balance sheets.
Consolidated Construction Joint Ventures (“CCJVs”)
As of September 30, 2024, we were engaged in ten active CCJV projects. Our proportionate share of the equity in these joint ventures was between 50.0 % and 70.0 %. During the three and nine months ended September 30, 2024 and 2023, total revenue from CCJVs was $101.3 million, $265.1 million, $91.2 million, and $223.3 million, respectively. During the nine months ended September 30, 2024 and 2023, CCJVs provided $33.0 million and used $36.8 million of operating cash flows, respectively. As of September 30, 2024, our share of revenue remaining to be recognized on these CCJVs was $375.8 million and ranged from $1.3 million to $140.1 million by project.
Unconsolidated Construction Joint Ventures
As of September 30, 2024, we were engaged in five active unconsolidated construction joint venture projects. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 30.0 % to 50.0 %. As of September 30, 2024, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $31.4 million and ranged from $0.7 million to $24.6 million by project.
The following is summary financial information related to unconsolidated construction joint ventures:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Assets: | |||||||||||
| Cash, cash equivalents and marketable securities | $ | $ | |||||||||
| Other current assets (1) | |||||||||||
| Noncurrent assets | |||||||||||
| Less: partners’ interest | |||||||||||
| Granite’s interest (1),(2) | $ | $ | |||||||||
| Liabilities: | |||||||||||
| Current liabilities | $ | $ | |||||||||
| Less: partners’ interest and adjustments (3) | |||||||||||
| Granite’s interest | $ | $ | |||||||||
| Equity in construction joint ventures (4) | $ | $ | |||||||||
(1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 was $57.8
(2) Included in this balance as of September 30, 2024 and December 31, 2023 was $68.4 1.7
(3) Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences.
(4) Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $4.5 million and $14.9 million as of September 30, 2024 and December 31, 2023, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses.
18
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ||||||||||||||||||
| Less: partners’ interest and adjustments (1) | ( | ||||||||||||||||||||||
| Granite’s interest | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ||||||||||||||||||
| Less: partners’ interest and adjustments (1) | ( | ||||||||||||||||||||||
| Granite’s interest | $ | $ | $ | $ | |||||||||||||||||||
| Granite’s interest in gross profit (loss) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Net Income (Loss): | |||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Less: partners’ interest and adjustments (1) | ( | ( | ( | ( | |||||||||||||||||||
| Granite’s interest in net income (loss) (2) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
(1)Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast and/or actual differences.
(2)These joint venture net income amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes.
11. Investments in Affiliates
Our investments in affiliates balance consists of equity method investments in the following types of entities:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Foreign | $ | $ | |||||||||
| Real estate | |||||||||||
| Asphalt terminal | |||||||||||
| Total investments in affiliates | $ | $ | |||||||||
The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Current assets | $ | $ | |||||||||
| Noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Current liabilities | $ | $ | |||||||||
| Long-term liabilities (1) | |||||||||||
| Total liabilities | $ | $ | |||||||||
| Net assets | $ | $ | |||||||||
| Granite’s share of net assets | $ | $ | |||||||||
(1)This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments.
Of the $337.6 million of total affiliate assets as of September 30, 2024, we had investments in two real estate entities with total assets of $34.1 million, our foreign affiliates had total assets of $262.1 million and the asphalt terminal entity had total assets of $41.4 million. As of September 30, 2024 and December 31, 2023, all of the investments in real estate affiliates were in residential real estate in Texas. As of September 30, 2024, our percent ownership in the real estate entities ranged from 10 % to 25 %. We have direct and indirect investments in our foreign affiliates, and our percent ownership in foreign
19
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
affiliates ranged from 25 % to 50 % as of September 30, 2024. Our percent ownership in the asphalt terminal entity was 50 % as of September 30, 2024.
12. Property and Equipment, net
Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets as follows:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Equipment and vehicles | $ | $ | |||||||||
| Quarry property | |||||||||||
| Land and land improvements | |||||||||||
| Buildings and leasehold improvements | |||||||||||
| Office furniture and equipment | |||||||||||
| Property and equipment | $ | $ | |||||||||
| Less: accumulated depreciation and depletion | |||||||||||
| Property and equipment, net | $ | $ | |||||||||
13. Accrued Expenses and Other Current Liabilities
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Accrued insurance | $ | $ | |||||||||
| Deficits in unconsolidated construction joint ventures | |||||||||||
| Payroll and related employee benefits | |||||||||||
| Performance guarantees | |||||||||||
| Short-term lease liabilities | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
Other includes dividends payable, warranty reserves, asset retirement obligations, remediation reserves and other miscellaneous accruals, none of which were greater than 5% of total current liabilities at any of the presented dates. At December 31, 2023, the "other" balance above included the estimated LRC/MSG tax make-whole liability (see Note 3) which was finalized and paid in June 2024.
14. Long-Term Debt and Credit Arrangements
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| $ | $ | ||||||||||
| Credit Agreement - Term Loan | |||||||||||
| Credit Agreement - Revolver | |||||||||||
| Debt issuance costs and other | ( | ( | |||||||||
| Total debt | $ | $ | |||||||||
| Less: current maturities | |||||||||||
| Total long-term debt | $ | $ | |||||||||
Credit Agreement
In June 2022, we entered into the Credit Agreement which matures on June 2, 2027. The Credit Agreement consisted of a $350.0 million senior secured, five-year revolving credit facility (the “Revolver”), including an accordion feature allowing us to increase borrowings up to the greater of (a) $200.0 million and (b) 100 % of twelve-month trailing consolidated EBITDA, subject to lender approval. The Credit Agreement includes a $150.0 million sublimit for letters of credit ($75.0
20
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
million for financial letters of credit) and a $20.0 million sublimit for swingline loans. In May 2023, we entered into Amendment No. 1 to the Credit Agreement ("Amendment No. 1"). Amendment No. 1 amended the Credit Agreement to, among other things, permit us to exchange our 2.75 % Convertible Notes for cash and shares of our common stock and to clarify that (i) the issuance of the 3.75 % Convertible Notes was permitted under the terms of the Credit Agreement and (ii) that a Swap Contract (as defined in the Credit Agreement) does not include any Permitted Call Spread Transaction (as defined in the Credit Agreement).
In November 2023, we entered into Amendment No. 2 to the Credit Agreement ("Amendment No. 2") which amended the Credit Agreement to, among other things, provide for a $150.0 million senior secured term loan (the “Term Loan”), which was fully drawn on closing to fund the LRC/MSG acquisition. The Term Loan was scheduled to mature on June 2, 2027 and amortize 5 % per year, payable in quarterly installments beginning in the first quarter of 2024. The Term Loan was fully repaid with the net proceeds from our 3.25 % Convertible Notes in the second quarter of 2024.
We may borrow on the Revolver, at our option, at either (a) the Secured Overnight Financing Rate (“SOFR”) term rate plus a credit adjustment spread plus applicable margin ranging from 1.0 % to 2.0 %, or (b) a base rate plus an applicable margin ranging from zero to 1.0 %. The applicable margin is based on our Consolidated Leverage Ratio (as defined in our Credit Agreement), calculated quarterly. As of September 30, 2024, the total unused availability under the Credit Agreement was $333.5 million, resulting from $16.5 million in issued and outstanding letters of credit and nothing drawn under the Revolver. The letters of credit had expiration dates between November 2024 and December 2027.
3.25% Convertible Notes
On June 11, 2024, we issued $373.8 million aggregate principal amount of our 3.25 % Convertible Notes. The 3.25 % Convertible Notes bear interest at a rate of 3.25 % per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2024. The 3.25 % Convertible Notes mature on June 15, 2030, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding December 15, 2029, the 3.25 % Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 3.25 % Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding their maturity date.
The 3.25 % Convertible Notes have an initial conversion rate of 12.8398 shares of our common stock per $1,000 principal amount of the 3.25 % Convertible Notes, which is equivalent to an initial conversion price of approximately $77.88 per share of our common stock, subject to adjustment if certain events occur. Upon conversion, we will settle the principal amount of the 3.25 % Convertible Notes in cash, and any conversion premium in excess of the principal amount in cash, or a combination of cash and shares of common stock, at our election.
In addition, upon the occurrence of a “fundamental change” as defined in the indenture governing the 3.25 % Convertible Notes, holders may require us to repurchase for cash all or any portion of their 3.25 % Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 3.25 % Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If certain corporate events that constitute a “make-whole fundamental change” as set forth in the indenture governing the 3.25 % Convertible Notes occur prior to the maturity date of the 3.25 % Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.25 % Convertible Notes in connection with such event or notice of redemption.
We will not be able to redeem the 3.25 % Convertible Notes prior to June 21, 2027. On or after June 21, 2027, we will be able to redeem for cash all or any portion of the 3.25 % Convertible Notes, at our option, if the last reported sale price of Granite’s common stock is equal to or greater than 130% of the conversion price for a specified period of time at a redemption price equal to 100% of the principal amount of the 3.25 % Convertible Notes to be redeemed, plus accrued but unpaid interest to, but excluding, the redemption date. The indenture governing the 3.25 % Convertible Notes contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization, with respect to us or our significant subsidiaries, all outstanding 3.25 % Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25% in aggregate principal amount of the 3.25 % Convertible Notes then outstanding may declare the 3.25 % Convertible Notes due and payable immediately.
The net proceeds from the sale of the 3.25 % Convertible Notes were approximately $365.0 million, after deducting the initial purchasers’ discount. We used approximately $46.0 million of the net proceeds from the 3.25 % Convertible Notes offering to pay the cost of entering into capped call transactions in connection with the 3.25 % Convertible Notes. In addition, we paid approximately $57.6 million of the net proceeds from the 3.25 % Convertible Notes offering to
21
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
repurchase approximately $30.2 million in aggregate principal amount of our 2.75% Convertible Notes in separate and individually negotiated transactions entered into concurrently with the pricing of the offering; repaid amounts outstanding under our Term Loan of $148.1 million; repurchased $13.3 million of shares under our authorized share repurchase program; with the remainder of the net proceeds available for general corporate purposes, which may include acquisitions.
2024 Capped Call Transactions
In June 2024, we entered into privately negotiated capped call transactions in connection with the offering of the 3.25 % Convertible Notes (the "2024 capped call transactions"). The 2024 capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 3.25 % Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 3.25 % Convertible Notes, as the case may be. If, however, the market price per share of our common stock, as measured under the terms of the 2024 capped call transactions, exceeds the cap price of $119.82 of the 2024 capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the 2024 capped call transactions.
On May 11, 2023, we issued $373.8 million aggregate principal amount of our 3.75 % Convertible Notes. The 3.75 % Convertible Notes bear interest at a rate of 3.75 % per annum payable semiannually in arrears on May 15 and November 15 of each year, beginning on November 15, 2023 and mature on May 15, 2028, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding November 15, 2027, the 3.75 % Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 3.75 % Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
The initial conversion rate applicable to the 3.75 % Convertible Notes is 21.6807 shares of our common stock per $1,000 principal amount of the 3.75 % Convertible Notes, which is equivalent to an initial conversion price of approximately $46.12 per share of our common stock, subject to adjustment if certain events occur. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. In addition, upon the occurrence of a “fundamental change” as defined in the indenture governing the 3.75 % Convertible Notes, holders may require us to repurchase for cash all or any portion of their 3.75 % Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 3.75 % Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If certain corporate events that constitute a “make-whole fundamental change” as set forth in the indenture governing the 3.75 % Convertible Notes occur prior to the maturity date of the 3.75 % Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.75 % Convertible Notes in connection with such event or notice of redemption.
We will not be able to redeem the 3.75 % Convertible Notes prior to May 20, 2026. On or after May 20, 2026, we have the option to redeem for cash all or any portion of the 3.75 % Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130 % of the conversion price for a specified period of time at a redemption price equal to 100 % of the principal amount of the 3.75 % Convertible Notes to be redeemed, plus any accrued but unpaid interest to, but excluding, the redemption date. The indenture governing the 3.75 % Convertible Notes contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization, with respect to us or our significant subsidiaries, all outstanding 3.75 % Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25 % in aggregate principal amount of the 3.75 % Convertible Notes then outstanding may declare the 3.75 % Convertible Notes due and payable immediately.
The net proceeds from the sale of the 3.75 % Convertible Notes were approximately $364.4 million, after deducting the initial purchasers’ discount. We used approximately $53.0 million of the net proceeds from the offering to pay the cost of the 2023 capped call transactions (as described below). In addition, we used approximately $198.8 million of the net proceeds and issued 1,390,500 shares of Granite common stock in exchange for approximately $198.7 million aggregate principal amount of our 2.75 % Convertible Notes concurrent with the offering in separate and individually negotiated transactions (the "Exchange Transaction"). In connection with the Exchange Transaction, we entered into partial unwind agreements (the "Unwind Agreements") with certain financial institutions to unwind a portion of the convertible note hedge and warrant transactions entered into in connection with the offering of the 2.75 % Convertible Notes. Pursuant to the Unwind Agreements, we received 1,390,516 shares of our common stock (and cash in lieu of any fractional shares) in
22
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
respect of the unwind of the portion of the existing convertible note hedge transactions that correspond to the 2.75 % Convertible Notes that were exchanged in the Exchange Transaction described above and paid $13.2 million in cash in respect of the unwind of the portion of the existing warrant transactions that correspond to the 2.75 % Convertible Notes that were exchanged in the Exchange Transaction described above.
2023 Capped Call Transactions
In May 2023, we entered into capped call transactions (the "2023 capped call transactions") in connection with the offering of the 3.75 % Convertible Notes. The 2023 capped call transactions are expected generally to reduce the potential dilution to our common stock upon conversion of the 3.75 % Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 3.75 % Convertible Notes, as the case may be. If, however, the market price per share of our common stock, as measured under the terms of the 2023 capped call transactions, exceeds the cap price of $79.83 of the 2023 capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the 2023 capped call transactions.
The 2.75 % Convertible Notes were issued in November 2019 in an aggregate principal amount of $230.0 million, with an interest rate of 2.75 % and a maturity date of November 1, 2024, unless earlier converted, redeemed or repurchased.
In June 2024, we called the 2.75 % Convertible Notes for redemption. As of September 30, 2024, no 2.75% Convertible Notes remained outstanding.
Covenants and Events of Default
Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, the 3.25 % Convertible Notes and 3.75 % Convertible Notes are governed by the terms and conditions of their respective indentures. Our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 3.25 % Convertible Notes, our 3.75 % Convertible Notes or our Credit Agreement would constitute an event of default under the 3.25 % Convertible Notes indenture, the 3.75 % Convertible Notes indenture or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any collateral securing the obligations under such facility. A default under the 3.25 % Convertible Notes indenture or the 3.75 % Convertible Notes indenture could result in acceleration of the maturity of the notes.
The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of September 30, 2024, we were in compliance with all covenants contained in the Credit Agreement. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements.
Debt Issuance Costs
During the three and nine months ended September 30, 2024, we recorded $0.9 million and $3.0 million, respectively, of amortization related to debt issuance costs. We also capitalized $10.3 million in third party offering costs related to the issuance of the 3.25 % Convertible Notes. These debt issuance costs will be amortized over the expected life of the 3.25 % Convertible Notes.
During the three and nine months ended September 30, 2023, we recorded $0.6 million and $3.0 million, respectively, of amortization related to debt issuance costs. This included $1.7 million of accelerated amortization of debt issuance costs associated with the 2.75 % Convertible Notes that were repaid and are included in the loss on debt extinguishment. We also capitalized $10.0 million in third party offering costs related to the issuance of the 3.75 % Convertible Notes. These debt issuance costs will be amortized over the expected life of the 3.75 % Convertible Notes.
23
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
15. Weighted Average Shares Outstanding and Net Income Per Share
The following table presents a reconciliation of the weighted average shares of common stock used in calculating basic and diluted net income per share as well as the calculation of basic and diluted net income per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net income attributable to common shareholders for basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Add: Interest expense related to Convertible Notes (1) | |||||||||||||||||||||||
| Net income attributable to common shareholders for diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted average common shares outstanding, basic | |||||||||||||||||||||||
| Add: Dilutive effect of RSUs | |||||||||||||||||||||||
| Add: Dilutive effect of Convertible Notes (1) | |||||||||||||||||||||||
| Weighted average common shares outstanding, diluted | |||||||||||||||||||||||
| Net income per share, basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share, diluted | $ | $ | $ | $ | |||||||||||||||||||
(1) The dilutive effect of the convertible notes was determined using the if-converted method. As the 3.75 % Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election, the 3.75 % Convertible Notes are assumed to be converted into common stock at the beginning of the reporting period, and the resulting shares are included in the denominator of the calculation. In addition, interest charges, net of any income tax effects are added back to the numerator of the calculation. For the 3.25 % Convertible Notes, we are required to settle the principal amount in cash and any conversion premium in excess of the principal amount in cash, shares of common stock, or a combination of cash and shares of common stock, at our election. As such, the 3.25 % Convertible Notes only have an impact on diluted earnings per share when the average share price of our common stock exceeds the conversion price.
For the nine months ended September 30, 2023, interest expense related to convertible notes of $6.9 million and the potential dilution from the convertible notes converting into 9.1 million shares of common stock have been excluded from the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive.
In connection with the issuance of the 3.25 % Convertible Notes and 3.75 % Convertible Notes, we entered into the 2024 capped call transactions and 2023 capped call transactions, respectively, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive.
16. Income Taxes
The following table presents the provision for income taxes for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Provision for income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
Our effective tax rate for the three months ended September 30, 2024 is lower than the prior year due to tax expense recognized in the third quarter of 2023 associated with recording a non-deductible goodwill impairment and valuation allowances on certain foreign net operating losses. Our effective rate for the nine months ended September 30, 2024 is lower than the prior year primarily due to incurring less nondeductible debt extinguishment costs in 2024 than 2023 as well as the tax expense associated with the goodwill impairment and valuation allowances recorded in the third quarter of 2023.
24
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
17. Contingencies - Legal Proceedings
Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. Disclosure is required when a material loss is probable but not reasonably estimable, a material loss is reasonably possible but not probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded. The total liabilities recorded in our condensed consolidated balance sheets for legal proceedings and government inquiries were immaterial
It is possible that future developments in our legal proceedings and inquiries could require us to (i) adjust or reverse existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period.
Ordinary Course Legal Proceedings
In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which often cannot be predicted with certainty. For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note 1 of our Annual Report. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which often cannot be predicted with certainty.
Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed.
18. Reportable Segment Information
Our reportable segments are the same as our operating segments and correspond with how our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews financial information to allocate resources and assess performance. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer. Our reportable segments are: Construction and Materials.
25
GRANITE CONSTRUCTION INCORPORATED
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Summarized segment information is as follows (in thousands):
| Three months ended September 30, | Construction | Materials | Total | ||||||||||||||
| 2024 | |||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | ||||||||||||||
| Elimination of intersegment revenue | ( | ( | |||||||||||||||
| Revenue from external customers | $ | $ | $ | ||||||||||||||
| Gross profit | $ | $ | $ | ||||||||||||||
| Depreciation, depletion and amortization | $ | $ | $ | ||||||||||||||
| 2023 | |||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | ||||||||||||||
| Elimination of intersegment revenue | ( | ( | |||||||||||||||
| Revenue from external customers | $ | $ | $ | ||||||||||||||
| Gross profit | $ | $ | $ | ||||||||||||||
| Depreciation, depletion and amortization | $ | $ | $ | ||||||||||||||
| Nine Months Ended September 30, | Construction | Materials | Total | ||||||||||||||
| 2024 | |||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | ||||||||||||||
| Elimination of intersegment revenue | ( | ( | |||||||||||||||
| Revenue from external customers | $ | $ | $ | ||||||||||||||
| Gross profit | $ | $ | $ | ||||||||||||||
| Depreciation, depletion and amortization | $ | $ | $ | ||||||||||||||
| Segment assets as of period end | $ | $ | $ | ||||||||||||||
| 2023 | |||||||||||||||||
| Total revenue from reportable segments | $ | $ | $ | ||||||||||||||
| Elimination of intersegment revenue | ( | ( | |||||||||||||||
| Revenue from external customers | $ | $ | $ | ||||||||||||||
| Gross profit | $ | $ | $ | ||||||||||||||
| Depreciation, depletion and amortization | $ | $ | $ | ||||||||||||||
| Segment assets as of period end | $ | $ | $ | ||||||||||||||
A reconciliation of segment gross profit to consolidated income before income taxes is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Total gross profit from reportable segments | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Other costs, net | |||||||||||||||||||||||
| Gain on sales of property and equipment, net | ( | ( | ( | ( | |||||||||||||||||||
| Total other (income) expense, net | ( | ( | |||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
26
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein.
Forward-Looking Disclosure
From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, results and strategic actions, that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, results, and strategic actions. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those more specifically described in our Annual Report under “Item 1A. Risk Factors.” Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.
Overview
We deliver infrastructure solutions for public and private clients primarily in the United States. We are one of the largest diversified construction and construction materials companies in the United States. Within the public sector, we primarily concentrate on infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams, power-related facilities, utilities, tunnels, water well drilling and other infrastructure-related projects. Within the private sector, we perform various services such as site preparation, mining services and infrastructure services for commercial and industrial sites, railways, residential development, energy development, as well as provide construction management professional services.
The five primary economic drivers of our business are (i) the overall health of the U.S. economy including access to resources (labor, supplies and subcontractors); (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. Changes in these drivers can either reduce our revenues and/or gross profit margins or provide opportunities for revenue growth and gross profit margin improvement.
During the first quarter of 2024, we reorganized our operational structure to more closely align with our two reportable segments, Construction and Materials. Previously, leaders within our three former operating groups of California, Central and Mountain managed both Construction and Materials operations within each group. This change allows us to better leverage our expertise within each reportable segment with leadership having direct oversight of their respective segment operations. As a result of the reorganization, we will no longer disclose financial information by operating group. There were no material impacts to our unaudited condensed consolidated financial statements and no changes to our reportable segments.
Current Economic Environment and Outlook
Funding for our public work projects, which account for approximately 80% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, the continued rollout of the $1.2 trillion Infrastructure Investment and Jobs Act (“IIJA”) has increased federal highway, bridge and transit funding to its highest level in more than six decades with $550 billion in incremental funding over five years. The increased multi-year spending commitment has improved the programming visibility for state and local governments and has driven an increase in project lettings starting in 2023 that is continuing in 2024 and we believe will carry into 2025 and beyond.
27
At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. While each market is unique, we see a strong funding environment at the state and local levels aided by the IIJA. In California, our top revenue-generating state, despite overall budgetary concerns, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, a 10-year, $54.2 billion program, which may only be used for transportation-related purposes, without any sunset provisions.
Over the recent years, inflation, supply chain and labor constraints have had a significant impact on the global economy including the construction industry in the United States. While it is impossible to fully eliminate the impact of these factors, we have applied proactive measures such as fixed forward purchase contracts of oil related inputs, energy surcharges, and adjustment of project schedules for constraints related to construction materials such as concrete. While we actively work to mitigate the impacts of oil price inflation, further price increases may adversely impact us in the future.
Our Committed and Awarded Projects (“CAP”) balance continues to be strong at $5.6 billion at the end of the third quarter of 2024. Our CAP is supported by a positive public funding environment and resilient private market which we believe will provide further opportunities for continued CAP growth.
Acquisitions
On August 9, 2024, we acquired Dickerson & Bowen, Inc. ("D&B"). D&B is an aggregates, asphalt, and highway construction company serving central and southern Mississippi.
On November 30, 2023, we acquired Lehman-Roberts Company and Memphis Stone & Gravel Company (collectively, "LRC/MSG"). LRC/MSG operates strategically located asphalt plants and sand and gravel mines serving the greater Memphis area and northern Mississippi.
On April 24, 2023, we acquired Coast Mountain Resources (2020) Ltd. which changed its name to Granite Infrastructure Canada, Ltd. ("Granite Canada") on May 13, 2024. Granite Canada is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land.
The results of operations of these businesses are included in our consolidated financial statements from the dates of acquisition, which impacts comparability to the applicable prior periods.
See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for further information.
Results of Operations
Our operations are typically affected more by inclement weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations of a given quarter are not indicative of the results to be expected for the full year.
The following table presents a financial summary for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Total revenue | $ | 1,275,510 | $ | 1,116,820 | $ | 3,030,271 | $ | 2,575,440 | |||||||||||||||
| Gross profit | $ | 202,949 | $ | 166,643 | $ | 421,945 | $ | 302,088 | |||||||||||||||
| Selling, general and administrative expenses | $ | 91,650 | $ | 74,794 | $ | 249,695 | $ | 212,479 | |||||||||||||||
| Other costs, net | $ | 8,543 | $ | 19,843 | $ | 29,778 | $ | 37,973 | |||||||||||||||
| Operating income | $ | 104,298 | $ | 73,818 | $ | 146,819 | $ | 59,429 | |||||||||||||||
| Total other (income) expense, net | $ | (5,148) | $ | (6,101) | $ | 16,791 | $ | 29,573 | |||||||||||||||
| Amount attributable to non-controlling interests | $ | (5,026) | $ | 128 | $ | (8,529) | $ | 9,723 | |||||||||||||||
| Net income attributable to Granite Construction Incorporated | $ | 78,951 | $ | 57,624 | $ | 84,863 | $ | 17,601 | |||||||||||||||
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Revenue
Total Revenue by Segment
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||
| Construction | $ | 1,080,705 | 84.7 | % | $ | 945,698 | 84.7 | % | $ | 2,593,872 | 85.6 | % | $ | 2,198,527 | 85.4 | % | |||||||||||||||||||||||||||||||
| Materials | 194,805 | 15.3 | 171,122 | 15.3 | 436,399 | 14.4 | 376,913 | 14.6 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,275,510 | 100.0 | % | $ | 1,116,820 | 100.0 | % | $ | 3,030,271 | 100.0 | % | $ | 2,575,440 | 100.0 | % | |||||||||||||||||||||||||||||||
Construction Revenue
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||||||
| Public | $ | 828,268 | 76.6 | % | $ | 674,494 | 71.3 | % | $ | 1,944,795 | 75.0 | % | $ | 1,513,046 | 68.8 | % | |||||||||||||||||||||||||||||||
| Private | 252,437 | 23.4 | 271,204 | 28.7 | 649,077 | 25.0 | 685,481 | 31.2 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,080,705 | 100.0 | % | $ | 945,698 | 100.0 | % | $ | 2,593,872 | 100.0 | % | $ | 2,198,527 | 100.0 | % | |||||||||||||||||||||||||||||||
Construction revenue for the three and nine months ended September 30, 2024 increased by $135.0 million and $395.3 million, or 14.3% and 18.0%, respectively, when compared to 2023, primarily due to higher levels of CAP, more favorable weather conditions early in 2024 and revenue from acquired businesses. Our acquired businesses contributed $41.5 million and $77.1 million of construction revenue during the three and nine months ended September 30, 2024, respectively.
Materials Revenue
Materials revenue for the three and nine months ended September 30, 2024 increased by $23.7 million and $59.5 million, or 13.8% and 15.8%, respectively, when compared to 2023. These increases were primarily driven by increases in revenue from newly acquired businesses of $20.8 million and $46.9 million in the three and nine months ended September 30, 2024, respectively, in addition to higher asphalt and aggregate sales prices which offset decreased asphalt volumes.
Committed and Awarded Projects
CAP consists of two components: (1) unearned revenue and (2) other awards. Unearned revenue includes the revenue we expect to record in the future on executed contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable. Contract options and task orders are included in unearned revenue when exercised or issued, respectively. Certain government contracts where funding is appropriated on a periodic basis are included in unearned revenue at the time of the award when it is probable the contract value will be funded and executed.
Other awards include the general construction portion of construction management/general contractor (“CM/GC”) contracts and awarded contracts with unexercised contract options or unissued task orders. The general construction portion of CM/GC contracts are included in other awards to the extent contract execution and funding is probable. Contracts with unexercised contract options or unissued task orders are included in other awards to the extent option exercise or task order issuance is probable. All CAP is in the Construction segment.
| (dollars in thousands) | September 30, 2024 | June 30, 2024 | December 31, 2023 | September 30, 2023 | |||||||||||||||||||||||||||||||
| Unearned revenue | $ | 3,884,146 | 69.1 | % | $ | 3,867,178 | 69.4 | % | $ | 3,596,676 | 64.9 | % | $ | 3,964,749 | 71.0 | % | |||||||||||||||||||
| Other awards | 1,735,649 | 30.9 | 1,709,041 | 30.6 | 1,949,078 | 35.1 | 1,619,774 | 29.0 | |||||||||||||||||||||||||||
| Total | $ | 5,619,795 | 100.0 | % | $ | 5,576,219 | 100.0 | % | $ | 5,545,754 | 100.0 | % | $ | 5,584,523 | 100.0 | % | |||||||||||||||||||
| (dollars in thousands) | September 30, 2024 | June 30, 2024 | December 31, 2023 | September 30, 2023 | |||||||||||||||||||||||||||||||
Customer type: | |||||||||||||||||||||||||||||||||||
| Public | $ | 4,365,669 | 77.7 | % | $ | 4,343,218 | 77.9 | % | $ | 4,368,904 | 78.8 | % | $ | 4,693,728 | 84.0 | % | |||||||||||||||||||
| Private | 1,254,126 | 22.3 | 1,233,001 | 22.1 | 1,176,850 | 21.2 | 890,795 | 16.0 | |||||||||||||||||||||||||||
| Total | $ | 5,619,795 | 100.0 | % | $ | 5,576,219 | 100.0 | % | $ | 5,545,754 | 100.0 | % | $ | 5,584,523 | 100.0 | % | |||||||||||||||||||
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CAP of $5.6 billion at September 30, 2024 was $43.6 million, or 0.8%, higher than at June 30, 2024. Significant additions to CAP during the three months ended September 30, 2024 included $180 million for a pumping station project in Nevada and $158 million of Federal work in Guam. All significant additions listed are for customers in the public sector.
Non-controlling partners’ share of CAP as of September 30, 2024, June 30, 2024, December 31, 2023 and September 30, 2023 was $355.2 million, $351.6 million, $243.8 million and $277.5 million, respectively.
At September 30, 2024, only one contract with remaining CAP of $10 million or more had a total forecasted loss with remaining revenue of $71.8 million, or 1.3%, of total CAP.
Gross Profit
The following table presents gross profit by reportable segment for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Construction | $ | 170,685 | $ | 137,162 | $ | 362,885 | $ | 253,021 | |||||||||||||||
| Percent of segment revenue | 15.8 | % | 14.5 | % | 14.0 | % | 11.5 | % | |||||||||||||||
| Materials | 32,264 | 29,481 | 59,060 | 49,067 | |||||||||||||||||||
| Percent of segment revenue | 16.6 | % | 17.2 | % | 13.5 | % | 13.0 | % | |||||||||||||||
| Total gross profit | $ | 202,949 | $ | 166,643 | $ | 421,945 | $ | 302,088 | |||||||||||||||
| Percent of total revenue | 15.9 | % | 14.9 | % | 13.9 | % | 11.7 | % | |||||||||||||||
Construction gross profit for the three and nine months ended September 30, 2024 increased by $33.5 million and $109.9 million, or 24.4% and 43.4%, respectively, when compared to 2023 primarily due to higher revenue and less negative net impacts from revisions in estimates in the current period. For further discussion of projects with revisions in estimates which individually had an impact of $5.0 million or more on gross profit, see Note 4 of "Notes to the Condensed Consolidated Financial Statements." Acquired businesses recognized gross profit of $8.7 million and $7.5 million for the three and nine months ended September 30, 2024, respectively, which include $2.3 million and $6.3 million, respectively, of purchase accounting related depreciation and intangible asset amortization. See Note 3 of "Notes to the Condensed Consolidated Financial Statements" for further information about acquisitions.
Materials gross profit for the three and nine months ended September 30, 2024 increased by $2.8 million and $10.0 million, respectively, when compared to 2023. The increased gross profit was primarily due to the inclusion of the results of acquired businesses and higher sales prices. Acquired businesses recognized gross profit of $0.4 million and $1.4 million for the three and nine months ended September 30, 2024, which include $0.4 million and $3.4 million, respectively, of purchase accounting related depreciation and intangible asset amortization.
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Selling, General and Administrative Expenses
The following table presents the components of selling, general and administrative expenses for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Selling: | |||||||||||||||||||||||
| Salaries and related expenses | $ | 16,515 | $ | 13,939 | $ | 47,339 | $ | 44,195 | |||||||||||||||
| Incentive compensation | 4,738 | 1,816 | 5,366 | 2,327 | |||||||||||||||||||
| Stock-based compensation | 241 | 231 | 1,055 | 1,303 | |||||||||||||||||||
| Other selling expenses | 960 | 1,430 | 4,181 | 4,155 | |||||||||||||||||||
| Total selling | 22,454 | 17,416 | 57,941 | 51,980 | |||||||||||||||||||
| General and administrative: | |||||||||||||||||||||||
| Salaries and related expenses | 25,565 | 22,890 | 80,771 | 74,715 | |||||||||||||||||||
| Incentive compensation | 16,757 | 12,164 | 19,532 | 13,727 | |||||||||||||||||||
| Stock-based compensation | 1,583 | 1,136 | 14,873 | 7,104 | |||||||||||||||||||
| Other general and administrative expenses | 25,290 | 21,188 | 76,577 | 64,953 | |||||||||||||||||||
| Total general and administrative | 69,196 | 57,378 | 191,754 | 160,499 | |||||||||||||||||||
| Total selling, general and administrative | $ | 91,650 | $ | 74,794 | $ | 249,695 | $ | 212,479 | |||||||||||||||
| Percent of revenue | 7.2 | % | 6.7 | % | 8.2 | % | 8.3 | % | |||||||||||||||
Selling Expenses
Selling expenses include the costs for estimating and bidding including offsetting customer reimbursements for portions of our selling/bid submission expenses (i.e., stipends), business development and materials facility permits. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses for the three and nine months ended September 30, 2024 increased by $5.0 million and $6.0 million, or 28.9% and 11.5% when compared to the same periods in 2023, primarily due to increases in incentive compensation due to improved financial performance as well as higher salaries and related expenses.
General and Administrative Expenses
General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, incentive compensation, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses for the three months ended September 30, 2024 increased by $11.8 million, or 20.6%, when compared to the same period in 2023, primarily due to an increase in incentive compensation due to improved financial performance as well as $4.3 million of general and administrative expenses from acquired businesses, including $2.4 million of purchase accounting related depreciation and intangible asset amortization. Total general and administrative expenses for the nine months ended September 30, 2024 increased by $31.3 million, or 19.5%, when compared to the same period in 2023, primarily due to $11.9 million of general and administrative expenses from acquired businesses, including $4.5 million of purchase accounting related depreciation and intangible asset amortization, as well as a $7.8 million increase in stock-based compensation and a $5.8 million increase in incentive compensation, both due to improved financial performance.
Other Costs, net
The following table presents other costs, net for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Other costs, net | $ | 8,543 | $ | 19,843 | $ | 29,778 | $ | 37,973 | |||||||||||||||
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During the three and nine months ended September 30, 2024, Other costs, net decreased $11.3 million and $8.2 million, respectively, compared to prior year. The decreases during the three and nine months ended September 30, 2024 were due to $8.0 million and $20.0 million, respectively, of litigation charges in the prior year that did not recur in the current year combined with $5.0 million of non-cash impairment charges during the three and nine months ended September 30, 2023. Those decreases were partially offset by an increase in costs in the current year associated with the defense of a former Company officer in his ongoing civil litigation with the Securities and Exchange Commission.
Other (Income) Expense
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| (Gain) loss on debt extinguishment | $ | (272) | $ | — | $ | 27,552 | $ | 51,052 | |||||||||||||||
| Interest income | (7,513) | (4,293) | (17,815) | (11,287) | |||||||||||||||||||
| Interest expense | 7,905 | 4,877 | 21,325 | 11,899 | |||||||||||||||||||
| Equity in income of affiliates, net | (4,394) | (7,147) | (12,921) | (19,378) | |||||||||||||||||||
| Other (income) expense, net | (874) | 462 | (1,350) | (2,713) | |||||||||||||||||||
| Total other (income) expense, net | $ | (5,148) | $ | (6,101) | $ | 16,791 | $ | 29,573 | |||||||||||||||
During the three months ended September 30, 2024, total other income, net, decreased $1.0 million compared to the same period in the prior year. During the nine months ended September 30, 2024, total other expense, net, decreased $12.8 million compared to the same period in the prior year. During the nine months ended September 30, 2024, we repurchased approximately $30.2 million in aggregate principal amount of our 2.75% Convertible Notes and incurred a $27.6 million loss on debt extinguishment which was $23.5 million less than the 2023 extinguishment charge.
Interest expense, net of interest income, for the three months ended September 30, 2024 was relatively flat when compared to 2023. During the nine months ended September 30, 2024, interest expense, net of interest income, increased $2.9 million, as a result of increased borrowings, partially offset by higher interest income due to higher cash balances. Equity in income of affiliates, net during the three and nine months ended September 30, 2024 decreased $2.8 million and $6.5 million, respectively, primarily due to lower sales by our affiliates.
Income Taxes
The following table presents the provision for income taxes for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Provision for income taxes | $ | 25,469 | $ | 22,423 | $ | 36,636 | $ | 21,978 | |||||||||||||||
| Effective tax rate | 23.3 | % | 28.1 | % | 28.2 | % | 73.6 | % | |||||||||||||||
We calculate our income tax provision at the end of each interim period by estimating our annual effective tax rate, applying that rate to our income or loss before tax and adjusting for discrete items not included in our estimate of the annual effective tax rate. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. See Note 16 of "Notes to the Condensed Consolidated Financial Statements" for more information.
Amount Attributable to Non-controlling Interests
The following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Amount attributable to non-controlling interests | $ | (5,026) | $ | 128 | $ | (8,529) | $ | 9,723 | |||||||||||||||
The amount attributable to non-controlling interests represents the non-controlling owners’ share of the net (income) or loss of our consolidated construction joint ventures. The amounts for the three and nine months ended September 30, 2024
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increased $5.2 million and $18.3 million, respectively, compared to the prior year primarily due to the impact of revisions in estimates in the current year on one consolidated construction joint venture (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, investments, available borrowing capacity under our credit facility and cash generated from operations. We may also from time-to-time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions or sell one or more business units or assets. See Note 14 of the "Notes to the Condensed Consolidated Financial Statements" for information on our Credit Agreement, our 3.75% Convertible Notes and our 3.25% Convertible Notes.
Our material cash requirements include paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness, repurchase shares of our common stock or acquire assets or businesses that are complementary to our operations. See Note 1 and Note 3 of the "Notes to the Condensed Consolidated Financial Statements" for information on our share repurchases during the nine months ended September 30, 2024 and our acquisitions.
We believe our primary sources of liquidity will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments and other liquidity requirements associated with our existing operations for the next twelve months. We also believe our primary sources of liquidity, access to debt and equity capital markets and cash expected to be generated from operations will be sufficient to meet our long-term requirements and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.
As of September 30, 2024, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisting primarily of U.S. Government and agency obligations.
As of September 30, 2024, the total unused availability under our Credit Agreement was $333.5 million, resulting from $16.5 million in issued and outstanding letters of credit and nothing drawn under the Revolver. See Note 14 of “Notes to the Condensed Consolidated Financial Statements.”
As of September 30, 2024, we had $29.2 million of contract retention receivables from Brightline Trains Florida LLC ("Brightline") which represented 9.1 % of total contract assets (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”). As of the date of this report, $24.2 million is past due. Once all conditions of final completion are satisfied, the remaining $5.0 million will be due to us within 40 days. Brightline has experienced delays in securing additional funding in the past, therefore the timing and probability of future payments may be affected, and our liquidity impacted if Brightline faces future funding difficulties.
In evaluating our liquidity position and needs, we also consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”). The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates:
| (in thousands) | September 30, 2024 | December 31, 2023 | |||||||||
| Cash and cash equivalents excluding CCJVs | $ | 313,218 | $ | 297,439 | |||||||
| CCJV cash and cash equivalents (1) | 149,068 | 120,224 | |||||||||
| Total consolidated cash and cash equivalents | 462,286 | 417,663 | |||||||||
| Short-term marketable securities (2) | 10,147 | 35,863 | |||||||||
| Total cash, cash equivalents and marketable securities | $ | 472,433 | $ | 453,526 | |||||||
(1)The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed.
(2)All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of September 30, 2024 and December 31, 2023.
Granite’s portion of CCJV cash and cash equivalents was $91.1 million and $73.1 million as of September 30, 2024 and December 31, 2023, respectively. Excluded from the table above is $26.2 million and $34.2 million as of September 30,
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2024 and December 31, 2023, respectively, of Granite’s portion of unconsolidated construction joint venture cash and cash equivalents.
Capital Expenditures
Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. During the nine months ended September 30, 2024, we had capital expenditures of $108.2 million, compared to $109.0 million, during the nine months ended September 30, 2023. We currently anticipate 2024 capital expenditures to be approximately $130 million, including approximately $40 million in planned strategic materials investments in land, reserves and an aggregate plant. This also includes approximately $20 million related to a project-specific tunnel boring machine.
Cash Flows
| Nine Months Ended September 30, | |||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 283,549 | $ | 34,198 | |||||||
| Investing activities | $ | (211,107) | $ | (89,270) | |||||||
| Financing activities | $ | (27,819) | $ | 53,205 | |||||||
Operating activities
As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including project progression toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements. Our working capital assets result from both public and private sector projects. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our construction contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer.
Cash provided by operating activities of $283.5 million for the nine months ended September 30, 2024 represents a $249.4 million increase in cash provided by operating activities when compared to the same period of 2023. The change was primarily attributable to a $107.1 million increase in net income after adjusting for non-cash items and a $107.2 million increase in cash provided by working capital, which includes receivables, net contract assets, inventories, other assets, accounts payable and accrued expenses and other liabilities. Additionally, distributions from, net of contributions to, unconsolidated construction joint ventures and affiliates increased $35.0 million when compared to the same period of 2023.
Investing activities
Cash used in investing activities of $211.1 million for the nine months ended September 30, 2024 represents a $121.8 million increase in cash used in investing activities when compared to the same period of 2023. The change was primarily due to a $108.7 million increase in cash used related to business acquisitions (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”).
Financing activities
Cash used in financing activities of $27.8 million for the nine months ended September 30, 2024 represents an $81.0 million increase in cash used in financing activities when compared to the same period of 2023. The change was primarily due to a $40.7 million increase in debt repayments and related charges, net of proceeds from debt issuances. See Note 14 of the “Notes to the Condensed Consolidated Financial Statements” for further information. The year over year increase in cash used in financing activities was also due to a $17.5 million increase in repurchases of common stock as well as a decrease in contributions from non-controlling partners, net of distributions, of $23.9 million.
Derivatives
We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value using Level 2 inputs. See Note 9 to “Notes to the Condensed Consolidated Financial Statements” for further information.
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Surety Bonds and Real Estate Mortgages
We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At September 30, 2024, approximately $3.5 billion of our $5.6 billion CAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds when the obligations of the underlying contract have been fulfilled. The ability to maintain bonding capacity requires that we maintain cash and working capital balances satisfactory to our sureties.
Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. Our unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 10 of “Notes to the Condensed Consolidated Financial Statements.”
Covenants and Events of Default
Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, the 3.25% Convertible Notes and 3.75% Convertible Notes are governed by the terms and conditions of their respective indentures. Our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 3.25% Convertible Notes, our 3.75% Convertible Notes or our Credit Agreement would constitute an event of default under the 3.25% Convertible Notes indenture, the 3.75% Convertible Note indenture or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any collateral securing the obligations under such facility. A default under the 3.25% Convertible Notes indenture or the 3.75% Convertible Notes indenture could result in acceleration of the maturity of the notes.
The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of September 30, 2024, we were in compliance with the covenants in the Credit Agreement.
Share Repurchase Program
As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion (the “2022 authorization”). During the nine months ended September 30, 2024, we repurchased 225,000 shares under the 2022 authorization and $218.2 million remained available under the 2022 authorization as of September 30, 2024.
The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors.
Website Access
Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in our exposure to market risk from what was previously disclosed in our Annual Report.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2024. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were
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effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The description of the matters set forth in Part I, Item I of this Report under Note 17 of “Notes to the Condensed Consolidated Financial Statements” is incorporated herein by reference.
Item 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth information regarding the repurchase of shares of our common stock during the three months ended September 30, 2024:
| Period | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs (2) | |||||||||||||||||||
| July 1, 2024 through July 31, 2024 | 2,794 | $ | 68.12 | — | $ | 218,187,374 | |||||||||||||||||
| August 1, 2024 through August 31, 2024 | 527 | $ | 69.51 | — | $ | 218,187,374 | |||||||||||||||||
| September 1, 2024 through September 30, 2024 | 225 | $ | 77.14 | — | $ | 218,187,374 | |||||||||||||||||
| 3,546 | $ | 68.90 | — | ||||||||||||||||||||
(1)The shares purchased were in connection with employee tax withholding for restricted stock units vested under our equity incentive plans.
(2)As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion. The specific timing and amount of any future purchases will vary based on market conditions, securities law limitations and other factors.
Item 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
Item 5. OTHER INFORMATION
Trading Arrangements
During the three months ended September 30, 2024, none of the Company’s directors or “officers,” as defined in Rule 16a-1(f) of the Exchange Act, adopted , modified, or terminated
On August 6, 2024 , Mr. Kyle T. Larkin , the Company's President and Chief Executive Officer , adopted a Rule 10b5-1 trading arrangement, as such term is defined in Item 408. The maximum number of shares to be sold under the plan is 30,000 . The plan will terminate upon the earlier of December 31, 2025 or the completion of all the sales under the plan.
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Item 6. EXHIBITS
10.1 | * | |||||||||||||
| 31.1 | † | |||||||||||||
| 31.2 | † | |||||||||||||
| 32 | †† | |||||||||||||
| 95 | † | |||||||||||||
| 101.INS | † | Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document) | ||||||||||||
| 101.SCH | † | Inline XBRL Taxonomy Extension Schema | ||||||||||||
| 101.CAL | † | Inline XBRL Taxonomy Extension Calculation Linkbase | ||||||||||||
| 101.DEF | † | Inline XBRL Taxonomy Extension Definition Linkbase | ||||||||||||
| 101.LAB | † | Inline XBRL Taxonomy Extension Label Linkbase | ||||||||||||
| 101.PRE | † | Inline XBRL Taxonomy Extension Presentation Linkbase | ||||||||||||
| 104 | † | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||||
| * | Incorporated by reference | |||||||||||||
| † | Filed herewith | |||||||||||||
| †† | Furnished herewith | |||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GRANITE CONSTRUCTION INCORPORATED | |||||||||||||||||
| Date: | October 31, 2024 | By: | /s/ Staci M. Woolsey | ||||||||||||||
Staci M. Woolsey | |||||||||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||||||||
| (Duly Authorized Officer and Principal Financial Officer) | |||||||||||||||||
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