Granite(GVA) - 2023 Q4 - Annual Results

Granite Reports Fourth Quarter and FY 2023 Results Granite reported strong Q4 2023 results with increased net income and adjusted EPS, and a transformative FY2023 meeting strategic targets Fourth Quarter 2023 Overview Granite Construction reported strong fourth-quarter 2023 results with significant increases in net income and adjusted net income per diluted share compared to the prior year, despite impacts from legacy projects Q4 2023 Net Income & EPS | Metric | Q4 2023 | Q4 2022 | YoY Change | | :--------------------- | :-------- | :-------- | :--------- | | Net Income | $26M | $22M | +$4M | | Diluted EPS | $0.55 | $0.46 | +$0.09 | | Adjusted Net Income | $36M | $25M | +$11M | | Adjusted Diluted EPS | $0.82 | $0.56 | +$0.26 | Fiscal Year 2023 Overview For the full fiscal year 2023, Granite reported a decrease in GAAP net income but a substantial increase in adjusted net income and adjusted diluted EPS, reflecting a transformative year aligned with its strategic plan FY 2023 Net Income & EPS | Metric | FY 2023 | FY 2022 | YoY Change | | :--------------------- | :-------- | :-------- | :--------- | | Net Income | $44M | $83M | -$39M | | Diluted EPS | $0.97 | $1.70 | -$0.73 | | Adjusted Net Income | $140M | $104M | +$36M | | Adjusted Diluted EPS | $3.14 | $2.31 | +$0.83 | CEO's Strategic Commentary CEO Kyle Larkin highlighted an outstanding Q4 and a transformative FY2023, meeting organic revenue growth and adjusted EBITDA margin targets - FY2023 was a transformative year, meeting organic revenue growth and adjusted EBITDA margin targets[4] - Committed and Awarded Projects (CAP) increased by $1 billion year-over-year[4] - Generated operating cash flow in excess of target at 5.2% of revenue[4] - Completed acquisitions adding exclusive rights to 140 million tons of reserves and expanding vertically integrated footprint to the Southeast[4] - 2024 guidance reflects significant revenue growth driven by high CAP, robust markets, and acquisition contributions[4] - Adjusted EBITDA margin guidance for 2024 remains unchanged, with further improvements in operating cash flow expected[4] Financial Highlights This section details Granite's key financial performance metrics for Q4 and the full fiscal year 2023, including revenue, profit, and cash flow Fourth Quarter 2023 Key Highlights Granite reported an 18% year-over-year revenue increase in Q4 2023, reaching $934 million, driven by growth in Construction and Materials segments Q4 2023 Key Financial Highlights | Metric | Q4 2023 | Q4 2022 | YoY Change / Sequential Change | | :--------------------------------- | :-------- | :-------- | :----------------------------- | | Revenue | $934M | $789M | +18% | | Diluted EPS | $0.55 | $0.46 | +$0.09 | | Adjusted Diluted EPS | $0.82 | $0.56 | +$0.26 | | Operating Cash Flow | N/A | N/A | +$150M (sequential) | | Committed & Awarded Projects (CAP) | $5.5B | $4.4B | +$1.1B (+25%) | Fiscal Year 2023 Key Highlights For FY 2023, revenue increased by $208 million to $3.5 billion, with gross profit rising and adjusted EBITDA totaling $269 million FY 2023 Key Financial Highlights | Metric | FY 2023 | FY 2022 | YoY Change | | :--------------------- | :-------- | :-------- | :--------- | | Revenue | $3.5B | $3.3B | +$208M | | Gross Profit | $396M | $369M | +$27M | | SG&A Expenses | $294M | $273M | +$21M | | Adjusted EBITDA | $269M | $210M | +$59M | - SG&A increase primarily driven by higher incentive compensation and non-qualified deferred compensation expenses[10] Detailed Financial Performance This section provides an in-depth analysis of Granite's financial performance for Q4 and FY 2023, breaking down results by segment Fourth Quarter 2023 Performance Q4 2023 revenue increased 18% year-over-year to $934 million, with adjusted EBITDA significantly increasing to $74 million Q4 2023 Financial Performance | Metric | Q4 2023 ($M) | Q4 2022 ($M) | YoY Change ($M) | YoY Change (%) | | :--------------------- | :----------- | :----------- | :-------------- | :------------- | | Revenue | $934 | $789 | +$145 | +18% | | Gross Profit | $94 | $97 | -$3 | -3.1% | | SG&A Expenses | $82 | $81 | +$1 | +1.2% | | SG&A % of Revenue | 8.8% | 10.2% | -1.4 ppts | | | Adjusted EBITDA | $74 | $50 | +$24 | +48% | Fiscal Year 2023 Performance For FY 2023, total revenue grew to $3.5 billion, with gross profit increasing and adjusted EBITDA reaching $269 million FY 2023 Financial Performance | Metric | FY 2023 ($M) | FY 2022 ($M) | YoY Change ($M) | YoY Change (%) | | :--------------------- | :----------- | :----------- | :-------------- | :------------- | | Revenue | $3,509 | $3,301 | +$208 | +6.3% | | Gross Profit | $396 | $369 | +$27 | +7.3% | | SG&A Expenses | $294 | $273 | +$21 | +7.7% | | SG&A % of Revenue | 8.4% | 8.3% | +0.1 ppts | | | Adjusted EBITDA | $269 | $210 | +$59 | +28.1% | - Increase in SG&A expenses primarily driven by higher incentive compensation and non-qualified deferred compensation expenses[10] Construction Segment Results The Construction segment's Q4 revenue increased 19% year-over-year, driven by strong performance in California and Mountain groups, with CAP growing $1.1 billion YoY Construction Segment Performance | Metric | Q4 2023 ($ thousands) | Q4 2022 ($ thousands) | YoY Change (Q4) | FY 2023 ($ thousands) | FY 2022 ($ thousands) | YoY Change (FY) | | :-------------------------------- | :-------------------- | :-------------------- | :-------------- | :-------------------- | :-------------------- | :-------------- | | Revenue | $793,727 | $665,077 | +19.3% | $2,992,254 | $2,803,935 | +6.7% | | Gross profit | $72,034 | $72,133 | -0.1% | $325,055 | $303,881 | +7.0% | | Gross profit as a percent of revenue | 9.1% | 10.8% | -1.7 ppts | 10.9% | 10.8% | +0.1 ppts | Construction CAP by Group | Group | Dec 31, 2023 ($ thousands) | Sep 30, 2023 ($ thousands) | QoQ Change (%) | Dec 31, 2022 ($ thousands) | YoY Change (%) | | :---------- | :------------------------- | :------------------------- | :------------- | :------------------------- | :------------- | | California | $2,436,521 | $2,345,294 | +3.9% | $1,747,163 | +39.5% | | Central | $1,707,862 | $1,811,426 | -5.7% | $1,661,613 | +2.8% | | Mountain | $1,401,371 | $1,427,803 | -1.9% | $1,076,363 | +30.2% | | Total | $5,545,754 | $5,584,523 | -0.7% | $4,485,139 | +23.6% | - Q4 revenue growth led by California (+61%) and Mountain (+12%) groups, offsetting Central group's 13% reduction due to Tappan Zee project claim recovery adjustment[11] - Q4 gross profit negatively impacted by $19 million from Tappan Zee project and $14 million ($7 million after non-controlling interest) from I-64 High Rise Bridge project[12] - Excluding these two projects, construction gross profit margin was 13% in Q4 and for the fiscal year[12] - CAP increased $1.1 billion year-over-year, entering 2024 with significantly higher CAP than 2023[13] Materials Segment Results The Materials segment saw revenue increases in both Q4 and FY 2023, driven by acquisitions and higher sales prices, despite a Q4 gross profit margin decrease Materials Segment Performance | Metric | Q4 2023 ($ thousands) | Q4 2022 ($ thousands) | YoY Change (Q4) | FY 2023 ($ thousands) | FY 2022 ($ thousands) | YoY Change (FY) | | :------------------------ | :-------------------- | :-------------------- | :-------------- | :-------------------- | :-------------------- | :-------------- | | Revenue | $139,971 | $124,136 | +12.8% | $516,884 | $497,321 | +3.9% | | Gross profit | $22,277 | $24,648 | -9.6% | $71,344 | $65,613 | +8.7% | | Gross profit as a percent of revenue | 15.9% | 19.9% | -4.0 ppts | 13.8% | 13.2% | +0.6 ppts | - Revenue increases driven by sales from 2023 acquisitions and higher asphalt and aggregate sales prices[14] - Q4 gross profit margin decreased by 260 bps due to a gross loss from newly acquired operations, including purchase accounting impacts[14] 2024 Outlook Granite provides its 2024 financial guidance, including revenue, adjusted EBITDA margin, and capital expenditure targets, reflecting confidence in its strategic plan CFO's Commentary and Strategic Targets CFO Lisa Curtis expects Granite to achieve its 2024 revenue growth and profitability targets, driven by higher CAP, robust markets, and strategic investments - Expects to achieve revenue growth and profitability targets announced two years ago in 2024[16] - Entering 2024 with CAP 24% higher year-over-year, expecting significant revenue growth[16] - Profitability expected to increase to an adjusted EBITDA margin of 9.0% to 11.0%, led by transformed project portfolio and improved materials margins[16] - CAPEX expected to be $130 million to $150 million, including approximately $50 million in planned strategic materials investments (land, reserves, aggregate plant) and $20 million for a project-specific tunnel boring machine[16] Key 2024 Guidance Figures Granite's 2024 guidance includes revenue between $3.8 billion and $4.0 billion, an adjusted EBITDA margin of 9.0% to 11.0%, and capital expenditures of $130 million to $150 million 2024 Financial Guidance | Metric | Guidance Range | | :-------------------------- | :------------- | | Revenue | $3.8B - $4.0B | | Adjusted EBITDA Margin | 9.0% - 11.0% | | SG&A Expense (% of revenue) | 7.5% - 8.0% | | Effective Tax Rate (adjusted)| Mid-20s | | Capital Expenditures | $130M - $150M | Company Information This section provides an overview of Granite Construction Incorporated, its history, values, and details regarding forward-looking statements and investor communications About Granite Granite Construction, established in 1922, is a leading diversified construction and materials company in the U.S., emphasizing ethical standards, safety, and sustainability - Granite (NYSE:GVA) is America's Infrastructure Company™, incorporated since 1922[18] - One of the largest diversified construction and construction materials companies in the U.S. and a full-suite civil construction provider[18] - Guided by Code of Conduct and Core Values, with industry leadership in safety and awards in quality and sustainability[18] Forward-looking Statements This section cautions readers that forward-looking statements are based on management's judgment and current expectations, subject to risks and uncertainties, and are not guaranteed - Statements regarding future events, performance, growth, demand, strategic plans, and 2024 guidance are forward-looking[20] - These statements are estimates based on management's best judgment and current expectations, subject to risks and uncertainties beyond company control[20] - Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the press release date, with no obligation to update unless required by law[21] Conference Call Details Details for Granite's Q4 and FY 2023 earnings conference call, including access information and replay availability, are provided - Conference call held on February 22, 2024, at 8:00 a.m. Pacific Time/11:00 a.m. Eastern Time[17] - Live audio webcast available on Investor Relations website; dial-in options provided[17] - Archive of webcast and replay available after the call through February 29, 2024[17] Financial Statements This section presents Granite's condensed consolidated balance sheets, statements of operations, and cash flows for the reported periods Condensed Consolidated Balance Sheets As of December 31, 2023, Granite's total assets increased to $2.81 billion, with total liabilities rising to $1.80 billion, and total equity seeing a modest increase Condensed Consolidated Balance Sheets Summary | Metric | Dec 31, 2023 ($ thousands) | Dec 31, 2022 ($ thousands) | Change ($ thousands) | Change (%) | | :--------------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total Assets | $2,813,540 | $2,167,933 | +$645,607 | +29.8% | | Total Current Assets | $1,643,451 | $1,347,296 | +$296,155 | +22.0% | | Property and equipment, net | $662,864 | $509,210 | +$153,654 | +30.2% | | Goodwill | $155,004 | $73,703 | +$81,301 | +110.3% | | Intangible assets | $117,322 | $9,212 | +$108,110 | +1173.6% | | Total Liabilities | $1,801,794 | $1,182,794 | +$619,000 | +52.3% | | Total Current Liabilities | $1,029,883 | $797,594 | +$232,289 | +29.1% | | Long-term debt | $614,781 | $286,934 | +$327,847 | +114.2% | | Total Equity | $1,026,966 | $985,145 | +$41,821 | +4.2% | Condensed Consolidated Statements of Operations For FY 2023, total revenue increased to $3.51 billion, but net income attributable to Granite decreased to $43.6 million due to a significant loss on debt extinguishment Condensed Consolidated Statements of Operations Summary | Metric | Q4 2023 ($ thousands) | Q4 2022 ($ thousands) | FY 2023 ($ thousands) | FY 2022 ($ thousands) | | :------------------------------------------ | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Total Revenue | $933,698 | $789,213 | $3,509,138 | $3,301,256 | | Gross Profit | $94,311 | $96,781 | $396,399 | $369,494 | | Operating Income | $20,633 | $16,643 | $80,062 | $85,381 | | Loss on debt extinguishment | — | — | $51,052 | — | | Income before income taxes | $29,998 | $24,826 | $59,854 | $91,817 | | Net income attributable to Granite Construction Incorporated | $25,998 | $22,052 | $43,599 | $83,302 | | Diluted EPS | $0.55 | $0.46 | $0.97 | $1.70 | - FY 2023 net income significantly impacted by a $51.05 million loss on debt extinguishment[25] Condensed Consolidated Statements of Cash Flows In FY 2023, net cash from operating activities significantly increased, while net cash used in investing activities rose due to business acquisitions, and financing activities provided substantial cash Condensed Consolidated Statements of Cash Flows Summary | Activity | FY 2023 ($ thousands) | FY 2022 ($ thousands) | Change ($ thousands) | | :----------------------------------- | :-------------------- | :-------------------- | :------------------- | | Net cash provided by operating activities | $183,707 | $55,647 | +$128,060 | | Net cash used in investing activities | $(359,290) | $(11,000) | $(348,290) | | Net cash provided by (used in) financing activities | $299,255 | $(164,311) | +$463,566 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $123,672 | $(119,664) | +$243,336 | | Cash, cash equivalents and restricted cash at end of period | $417,663 | $293,991 | +$123,672 | - Investing activities included $294.0 million for business acquisitions, net of cash acquired[27] - Financing activities included $373.75 million from issuance of 3.75% Convertible Notes[27] Non-GAAP Financial Information This section defines and reconciles Granite's non-GAAP financial measures, including EBITDA, adjusted EBITDA, and adjusted net income, used for performance evaluation Non-GAAP Measures Description Granite provides non-GAAP measures like adjusted EBITDA and adjusted diluted EPS to evaluate operating performance, excluding specific non-recurring items - Non-GAAP measures include EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted income before income taxes, adjusted provision for income taxes, adjusted net income, and adjusted diluted EPS[28][29] - These measures are used to evaluate operating performance and facilitate comparisons by excluding items like loss on debt extinguishment, other costs (e.g., investigation-related legal fees, strategic acquisition costs, litigation charges, impairment charges), transaction costs, and specific tax effects[28][30] - Non-GAAP measures are supplemental to GAAP results and may not be comparable to similar measures from other companies[29] EBITDA and Adjusted EBITDA Reconciliation For FY 2023, Granite's Adjusted EBITDA was $268.9 million (7.7% margin), significantly higher than GAAP EBITDA, primarily due to adjustments for other costs and debt extinguishment loss EBITDA and Adjusted EBITDA Reconciliation Summary | Metric | Q4 2023 ($ thousands) | Q4 2022 ($ thousands) | FY 2023 ($ thousands) | FY 2022 ($ thousands) | | :------------------------------------------ | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Net income attributable to Granite Construction Incorporated | $25,998 | $22,052 | $43,599 | $83,302 | | EBITDA | $61,743 | $48,222 | $167,656 | $185,976 | | EBITDA margin | 6.6% | 6.1% | 4.8% | 5.6% | | Other costs, net | $12,244 | $1,719 | $50,217 | $24,120 | | Loss on debt extinguishment | — | — | $51,052 | — | | Adjusted EBITDA | $73,987 | $49,941 | $268,925 | $210,096 | | Adjusted EBITDA margin | 7.9% | 6.3% | 7.7% | 6.4% | - Adjusted EBITDA excludes 'Other costs, net' and 'Loss on debt extinguishment'[32] Adjusted Net Income Reconciliation For FY 2023, GAAP net income of $43.6 million was adjusted to $139.6 million for adjusted net income, with diluted EPS adjusted to $3.14, reflecting various non-GAAP adjustments Adjusted Net Income Reconciliation Summary | Metric | Q4 2023 ($ thousands) | Q4 2022 ($ thousands) | FY 2023 ($ thousands) | FY 2022 ($ thousands) | | :------------------------------------------ | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Income before income taxes | $29,998 | $24,826 | $59,854 | $91,817 | | Adjusted income before income taxes | $43,902 | $28,281 | $167,829 | $125,617 | | Net income attributable to Granite Construction Incorporated | $25,998 | $22,052 | $43,599 | $83,302 | | Adjusted net income attributable to Granite Construction Incorporated | $36,287 | $24,608 | $139,625 | $103,813 | | Diluted net income per share attributable to common shareholders | $0.55 | $0.46 | $0.97 | $1.70 | | Adjusted diluted earnings per share attributable to common shareholders | $0.82 | $0.56 | $3.14 | $2.31 | - Adjustments include 'Other costs, net', 'Transaction costs', 'Loss on debt extinguishment', and specific tax effects[35] - Adjusted diluted weighted average shares of common stock are used to reflect the impact of purchased equity derivative instruments offsetting potential share dilution from convertible notes[37] Contacts This section provides contact information for Granite's investor relations and media inquiries Investor and Media Contacts Contact details for investor relations and media inquiries are provided for Granite Construction Incorporated - Investors contact: Wenjun Xu, 831-761-7861[38] - Media contact: Erin Kuhlman, 831-768-4111[38]