Granite(GVA) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Granite Construction Incorporated, reflecting a significant net loss for the nine months ended September 30, 2019, primarily due to downward revisions in project estimates Condensed Consolidated Balance Sheets As of September 30, 2019, total assets slightly decreased to $2.63 billion, while total liabilities increased to $1.37 billion, leading to a decrease in total equity to $1.26 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | | Sep 30, 2019 | Dec 31, 2018 | Sep 30, 2018 | | :--- | :--- | :--- | :--- | | Total current assets | $1,504,808 | $1,415,389 | $1,557,283 | | Total assets | $2,633,773 | $2,476,601 | $2,643,848 | | Total current liabilities | $855,841 | $677,842 | $847,505 | | Total liabilities | $1,370,507 | $1,078,967 | $1,237,449 | | Total equity | $1,263,266 | $1,397,634 | $1,406,399 | Condensed Consolidated Statements of Operations For Q3 2019, revenue increased to $1.09 billion, but net income fell to $20.5 million, and the nine-month period reported a net loss of $111.9 million due to increased cost of revenue Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,088,110 | $1,055,591 | $2,497,451 | $2,426,089 | | Gross profit | $91,432 | $144,491 | $79,506 | $281,143 | | Operating income (loss) | $22,365 | $67,406 | $(146,379) | $48,842 | | Net income (loss) attributable to Granite | $20,488 | $55,672 | $(111,922) | $35,864 | | Diluted EPS | $0.43 | $1.17 | $(2.39) | $0.84 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities for the nine months ended September 30, 2019, was $26.5 million, a significant decrease from the $14.7 million provided in the prior year, driven by net loss and working capital changes Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(26,498) | $14,743 | | Net cash used in investing activities | $(45,208) | $(81,313) | | Net cash (used in) provided by financing activities | $(16,592) | $68,717 | | Net (decrease) increase in cash | $(88,298) | $2,147 | Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies, project profitability impacts from estimate revisions, joint venture financial information, and a new securities class action lawsuit - Revisions in estimates on certain projects resulted in a decrease to gross profit of $264.1 million for the nine months ended Sep 30, 2019, compared to a $57.8 million decrease in the prior-year period, primarily in the Transportation segment due to increased costs, schedule delays, and lower productivity[42][43][44] - The company's share of net losses from unconsolidated construction joint ventures was $173.0 million for the nine months ended Sep 30, 2019, a substantial increase from a loss of $16.3 million in the same period of 2018, primarily due to differences in estimated revenue and costs compared to partners on four projects[69] - A putative securities class action lawsuit was filed on August 13, 2019, against the Company and its CEO and CFO, alleging false and misleading statements regarding the company's business, operations, and prospects between October 2018 and August 2019[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant decline in profitability for the first nine months of 2019 due to revisions on large legacy projects, strategic review of the Heavy Civil group, robust market demand, and efforts to manage liquidity Current Economic Environment and Outlook Management reports robust market demand and multi-year funding visibility for public infrastructure, while completing a strategic review of the Heavy Civil operating group to reduce risk and align its footprint - The company's Committed and Awarded Projects (CAP) totaled nearly $4.6 billion as of September 30, 2019, including $3.6 billion in contract backlog and an additional $1.0 billion of construction manager/general contractor projects[103] - The company has completed a strategic review of the Heavy Civil operating group, taking steps to reduce risk and exposure to large, complex projects by narrowing its footprint and aligning it with the company's vertically integrated model[107] Results of Operations For the nine months ended Sep 30, 2019, total revenue increased to $2.50 billion, but gross profit plummeted to $79.5 million, resulting in an operating loss of $146.4 million, primarily due to negative revisions in the Transportation segment Gross Profit (Loss) by Segment - Nine Months Ended Sep 30 (in thousands) | Segment | 2019 | 2018 | | :--- | :--- | :--- | | Transportation | $(64,996) | $138,401 | | Water | $34,412 | $41,117 | | Specialty | $75,376 | $65,311 | | Materials | $34,714 | $36,314 | | Total gross profit | $79,506 | $281,143 | - Transportation segment gross profit decreased by $203.4 million year-over-year for the nine-month period, primarily due to negative revisions in estimates within the Heavy Civil operating group[129] - Total contract backlog stood at $3.65 billion at September 30, 2019, an increase from $3.24 billion at September 30, 2018, but a decrease from $3.82 billion at June 30, 2019[118] Liquidity and Capital Resources The company's liquidity weakened with $26.5 million cash used in operating activities for the first nine months of 2019, and total cash decreased to $232.6 million, though management expects sufficient liquidity from existing cash and available borrowings - Net cash used in operating activities was $26.5 million for the nine months ended Sep 30, 2019, a $41.2 million decrease from the same period in 2018, driven by the net loss and changes in working capital[149] - As of September 30, 2019, the company had $67.7 million available for borrowing under its revolving credit facility[140] - During Q3 2019, the company repurchased approximately 100,000 shares for $2.9 million, with $187.1 million remaining available under the share repurchase authorization as of September 30, 2019[157][158] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no significant change in its exposure to market risks since December 31, 2018 - There has been no significant change in the company's exposure to market risks since December 31, 2018[160] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective[161] - No changes were made during the quarter ended September 30, 2019, that materially affected or are reasonably likely to materially affect the company's internal control over financial reporting[164] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, updated risk factors, equity security sales, and mine safety disclosures Item 1. Legal Proceedings This section incorporates legal proceedings information from Note 18, highlighting a putative securities class action lawsuit filed in August 2019 - This section refers to Note 18, which details a securities class action lawsuit filed on August 13, 2019, alleging false and misleading statements about the company's business and prospects[93][165] Item 1A. Risk Factors The company highlights updated risk factors concerning potential adverse litigation outcomes and the impact of worse-than-anticipated results in its Heavy Civil operating group - A new risk factor highlights that the company's results of operations, cash flows, and liquidity could be materially impacted by underperformance in its Heavy Civil operating group, even after the strategic review and actions taken[167] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company repurchased approximately 100,000 shares of common stock for $2.9 million as part of its publicly announced share repurchase program Share Repurchase Summary - Q3 2019 | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased as Part of Plan | | :--- | :--- | :--- | :--- | | Jul 2019 | 951 | $43.35 | — | | Aug 2019 | 168 | $32.39 | 100,000 | | Sep 2019 | 356 | $32.82 | — | | Total | 1,475 | $39.56 | 100,000 | - The company purchased approximately 100,000 shares for $2.9 million during the third quarter of 2019 under its share repurchase program[169] Item 4. Mine Safety Disclosures Information regarding mine safety violations and other regulatory matters is included in Exhibit 95 of this quarterly report - Information concerning mine safety violations is included in Exhibit 95 to this Form 10-Q[170] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, mine safety disclosures, and interactive data files