GRANITE CONSTRUCTION INC

Previous wording

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 operating groups of California, Central and Mountain managed both Construction and Materials operations within each group. This change will allow 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 wording

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.

Previous wording

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. We believe that the increased multi-year spending commitment has improved the programming visibility for state and local governments and drove an increase in project lettings starting in 2023 that will continue in 2024 and beyond.

Current wording

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.

Previous wording

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, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, which is a 10-year, $54.2 billion program without any sunset provisions.

Current wording

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.

Previous wording

Our Committed and Awarded Projects (“CAP”) balance continues to be strong with $5.5 billion at the end of the first 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.

Current wording

Our Committed and Awarded Projects (“CAP”) balance continues to be strong at $5.6 billion at the end of the second 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.

Previous wording

As previously disclosed, we completed two acquisitions during 2023. The results of operations of these businesses are included in our consolidated financial statements from the dates of acquisition, therefore current quarter results relating to these businesses are not comparable to the first quarter of 2023.

Current wording

As previously disclosed, we completed two acquisitions during 2023. 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.

Previous wording

On April 24, 2023, we acquired Coast Mountain Resources (2020) Ltd. (“CMR”). CMR is a construction aggregate producer based in British Columbia, Canada operating on Malahat First Nation land.

Current wording

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.

Previous wording

The following table presents a financial summary for the three months ended March 31, 2024 and 2023:

Current wording

The following table presents a financial summary for the three and six months ended June 30, 2024 and 2023:

Previous wording

Construction revenue for the three months ended March 31, 2024 increased by $91.8 million, or 18.2%, when compared to 2023. This increase was led by operations in California, Utah and the Midwest driven by more favorable weather conditions in 2024 and higher levels of CAP going into the current quarter. CAP of $5.5 billion at December 31, 2023 was $1.1 billion, or 24% higher than December 31, 2022. Additionally, our acquired businesses contributed $5.9 million of construction revenue during the three months ended March 31, 2024.

Current wording

Construction revenue for the three and six months ended June 30, 2024 increased by $168.5 million and $260.3 million, or 22.5% and 20.8%, respectively, when compared to 2023. These increases were primarily driven by operations in California, Nevada and Alaska due to more favorable weather conditions in 2024 and higher levels of CAP going into the first and second quarters of this year compared to the prior year. Additionally, our acquired businesses contributed $29.7 million and $35.6 million of construction revenue during the three and six months ended June 30, 2024, respectively.

Previous wording

Non-controlling partners’ share of CAP as of March 31, 2024 and December 31, 2023 was $219.4 million and $243.8 million, respectively.

Current wording

Non-controlling partners’ share of CAP as of June 30, 2024, March 31, 2024 and December 31, 2023 was $351.6 million, $219.4 million and $243.8 million, respectively.

Previous wording

At March 31, 2024, five contracts with remaining CAP of $10 million or more per project had total forecasted losses with remaining revenue of $201.4 million, or 3.7%, of total CAP.

Current wording

At June 30, 2024, five contracts with remaining CAP of $10 million or more per project had total forecasted losses with remaining revenue of $145.1 million, or 2.6%, of total CAP.

Previous wording

The following table presents gross profit (loss) by reportable segment for the respective periods:

Current wording

The following table presents gross profit by reportable segment for the respective periods:

Previous wording

Construction gross profit for the three months ended March 31, 2024 increased by $20 million, or 54.8%, 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." This gross profit improvements was somewhat offset by a gross loss from acquired businesses of $4.8 million, including purchase accounting related depreciation and intangible asset amortization of $2.5 million. See Note 3 of "Notes to the Condensed Consolidated Financial Statements" for further information about acquisitions.

Current wording

Construction gross profit for the three and six months ended June 30, 2024 increased by $56.2 million and $76.3 million, or 71.0% and 65.9%, 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 $3.5 million for the three months ended June 30, 2024 and gross loss of $1.3 million for six months ended June 30, 2024, which include purchase accounting related depreciation and intangible asset amortization of $2.8 million and $7.1 million, respectively. See Note 3 of "Notes to the Condensed Consolidated Financial Statements" for further information about acquisitions.

Previous wording

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 months ended March 31, 2024 were relatively flat when compared to 2023.

Current wording

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 six months ended June 30, 2024 were relatively flat when compared to 2023.

Previous wording

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 March 31, 2024 increased by $13.9 million, or 25.6% when compared to the same period in 2023, primarily due to a $7.0 million increase in stock-based compensation due to improved financial performance as well as $4.5 million of general and administrative expenses from acquired businesses, including $1.0 million of purchase accounting related depreciation and intangible asset amortization.

Current wording

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 and six months ended June 30, 2024 increased by $5.5 million and $19.4 million, or 11.3% and 18.8% when compared to the same period in 2023, primarily due to a $7.3 million increase year to date in stock-based compensation due to improved financial performance as well as $3.0 million and $7.6 million, respectively of general and administrative expenses from acquired businesses, including $1.1 million and $2.1 million, respectively of purchase accounting related depreciation and intangible asset amortization.

Previous wording

During the three months ended March 31, 2024, Other costs, net increased $6.5 million compared to prior year. These increases were primarily due to higher 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.

Current wording

During the three and six months ended June 30, 2024, Other costs, net decreased $3.4 million and increased $3.1 million, respectively, compared to prior year. The decrease during the three months ended June 30, 2024 was due to a $12.0 million litigation charge in the prior year that did not recur in the current year, partially offset by an increase in costs associated with the defense of a former Company officer in his ongoing civil litigation with the Securities and Exchange Commission. These defense costs were the primary driver of the increase for the six months ended June 30, 2024.

Previous wording

The following table presents the benefit from income taxes for the respective periods:

Current wording

The following table presents the provision for (benefit from) income taxes for the respective periods:

Previous wording

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. During the three months ended March 31, 2023, we had one consolidated construction joint venture with a negative impact from revisions in estimates, which did not recur in 2024 (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Current wording

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 six months ended June 30, 2024 decreased $8.8 million and $13.1 million, respectively, compared to the prior year primarily due to decreased losses from downward revisions in estimates in the current year on one consolidated construction joint venture (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”).

Previous wording

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 2.75% Convertible Notes.

Current wording

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, our 3.25% Convertible Notes and our 2.75% Convertible Notes.

Previous wording

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.

Current wording

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 of the "Notes to the Condensed Consolidated Financial Statements" for information on our share repurchases during the second quarter of 2024.

Previous wording

As of March 31, 2024, the total unused availability under our Credit Agreement was $333.3 million, resulting from $16.7 million in issued and outstanding letters of credit and nothing drawn the Revolver. See Note 14 of “Notes to the Condensed Consolidated Financial Statements.”

Current wording

As of June 30, 2024, the total unused availability under our Credit Agreement was $333.4 million, resulting from $16.6 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.”

Previous wording

As of March 31, 2024, we had $1.2 million of receivables and $29.1 million of contract retention receivables from Brightline Trains Florida LLC ("Brightline") (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”). As of the date of this report, all $1.2 million of the receivables are past due. Our project with Brightline is nearing completion and final payment, including the retention receivable, will be due to us no later than 40 days after all conditions of final completion are satisfied. We expect to achieve final completion in the second quarter of 2024; however, timing cannot be assured. 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.

Current wording

As of June 30, 2024, we had $29.2 million of contract retention receivables from Brightline Trains Florida LLC ("Brightline") which represented 9.4% of total contract assets (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”). Once all conditions of final completion are satisfied, the Brightline retention receivable will be due to us within 40 days; however, timing cannot be assured. 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.

Previous wording

Granite’s portion of CCJV cash and cash equivalents was $83.5 million and $73.1 million as of March 31, 2024 and December 31, 2023, respectively. Excluded from the table above is $39.3 million and $34.2 million as of March 31, 2024 and December 31, 2023, respectively, of Granite’s portion of unconsolidated construction joint venture cash and cash equivalents.

Current wording

Granite’s portion of CCJV cash and cash equivalents was $74.9 million and $73.1 million as of June 30, 2024 and December 31, 2023, respectively. Excluded from the table above is $36.3 million and $34.2 million as of June 30, 2024 and December 31, 2023, respectively, of Granite’s portion of unconsolidated construction joint venture cash and cash equivalents.

Previous wording

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 three months ended March 31, 2024, we had capital expenditures of $27.9 million, compared to $40.5 million, during the three months ended March 31, 2023. The decrease year over year is primarily due to acquisition of materials reserves in 2023. We currently anticipate 2024 capital expenditures to be approximately $130 million to $150 million, including approximately $50 million in planned strategic materials investments in land, reserves and an aggregate plant. This range also includes approximately $20 million related to a project-specific tunnel boring machine.

Current wording

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 six months ended June 30, 2024, we had capital expenditures of $66.9 million, compared to $79.7 million, during the six months ended June 30, 2023. The decrease year over year is primarily due to acquisition of materials reserves in 2023. We currently anticipate 2024 capital expenditures to be approximately $130 million to $150 million, including approximately $50 million in planned strategic materials investments in land, reserves and an aggregate plant. This range also includes approximately $20 million related to a project-specific tunnel boring machine.

Previous wording

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 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.

Current wording

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.

Previous wording

Cash provided by operating activities of $24.1 million for the three months ended March 31, 2024 represents a $100.8 million increase in cash provided by operating activities when compared to the same period of 2023. The change was primarily attributable to an $80.0 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, net of contributions, from unconsolidated construction joint ventures and affiliates increased $6.8 million when compared to the same period of 2023.

Current wording

Cash provided by operating activities of $22.1 million for the six months ended June 30, 2024 represents a $141.0 million increase in cash provided by operating activities when compared to the same period of 2023. The change was primarily attributable to a $64.3 million increase in net income after adjusting for non-cash items and a $54.5 million decrease in cash used 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 $22.3 million when compared to the same period of 2023.

Previous wording

Cash used in financing activities of $109.2 million for the three months ended March 31, 2024 represents a $116.0 million increase in cash used in financing activities when compared to the same period of 2023. The change was primarily due to repayment of the balance drawn on our revolving credit facility, which had $100 million outstanding as of December 31, 2023. See Note 14 of the “Notes to the Condensed Consolidated Financial Statements” for further information about our credit facility. The year over year increase in cash used in financing activities was also due to a decrease in contributions from non-controlling partners, net of distributions, of $10.2 million.

Current wording

Cash used in financing activities of $22.9 million for the six months ended June 30, 2024 represents a $126.7 million increase in cash used in financing activities when compared to the same period of 2023. The change was primarily due to a decrease in proceeds from debt issuances, net of debt repayments and related charges of $94.3 million. 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 $17.4 million increase in repurchases of common stock as well as a decrease in contributions from non-controlling partners, net of distributions, of $14.9 million.

Previous wording

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 March 31, 2024, approximately $3.2 billion of our $5.5 billion CAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.

Current wording

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 June 30, 2024, approximately $3.6 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 after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties.

Previous wording

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 2.75% 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 2.75% Convertible Notes, our 3.75% Convertible Notes or our Credit Agreement would constitute an event of default under the 2.75% 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 2.75% Convertible Notes indenture or the 3.75% Convertible Notes indenture could result in acceleration of the maturity of the notes.

Current wording

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 2.75% Convertible Notes, 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 2.75% Convertible Notes, our 3.25% Convertible Notes, our 3.75% Convertible Notes or our Credit Agreement would constitute an event of default under the 2.75% Convertible Notes indenture, 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 2.75% Convertible Notes indenture, the 3.25% Convertible Notes indenture, or the 3.75% Convertible Notes indenture could result in acceleration of the maturity of the notes.

Previous wording

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”). There were no share repurchases under the 2022 authorization in the three months ended March 31, 2024 and $231.5 million remained available as of March 31, 2024.

Current wording

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 three and six months ended June 30, 2024, we repurchased 225,000 shares under the 2022 authorization and $218.2 million remained available under the 2022 authorization as of June 30, 2024.