Granite(US:GVA)2023-10-31 20:28PART I. FINANCIAL INFORMATION Financial Statements Total assets increased to $2.58 billion, Q3 revenue grew to $1.12 billion, but net income declined significantly Condensed Consolidated Balance Sheets Total assets increased to $2.58 billion, liabilities to $1.57 billion, and equity to $1.01 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total current assets | $1,695,050 | $1,347,296 | +$347,754 | | Total assets | $2,580,321 | $2,167,933 | +$412,388 | | Total current liabilities | $1,056,476 | $797,594 | +$258,882 | | Long-term debt | $403,785 | $286,934 | +$116,851 | | Total liabilities | $1,573,744 | $1,182,788 | +$390,956 | | Total equity | $1,006,577 | $985,145 | +$21,432 | Condensed Consolidated Statements of Operations Q3 revenue grew to $1.12 billion, but net income fell sharply due to a $51.1 million debt extinguishment loss Q3 2023 vs Q3 2022 Performance (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 (Restated) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,116,820 | $1,008,910 | +10.7% | | Gross Profit | $166,643 | $115,055 | +44.8% | | Operating Income | $73,818 | $54,699 | +35.0% | | Net Income Attributable to Granite | $57,624 | $69,302 | -16.8% | | Diluted EPS | $1.13 | $1.36 | -16.9% | Nine Months 2023 vs 2022 Performance (in thousands, except per share data) | Metric | Nine Months 2023 | Nine Months 2022 (Restated) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $2,575,440 | $2,512,043 | +2.5% | | Gross Profit | $302,088 | $272,713 | +10.8% | | Operating Income | $59,429 | $68,738 | -13.5% | | Loss on debt extinguishment | $51,052 | $0 | N/A | | Net Income Attributable to Granite | $17,601 | $61,250 | -71.3% | | Diluted EPS | $0.40 | $1.25 | -68.0% | Condensed Consolidated Statements of Cash Flows Operating cash flow improved to a $34.2 million inflow, reversing prior year's outflow, with financing providing $53.2 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 (Restated) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $34,198 | $(14,631) | | Net cash provided by (used in) investing activities | $(89,270) | $13,874 | | Net cash provided by (used in) financing activities | $53,205 | $(157,814) | | Net decrease in cash | $(1,867) | $(158,571) | Notes to the Condensed Consolidated Financial Statements Key notes detail 2022 financial restatement, project estimate revisions, and a $51.1 million debt extinguishment loss - The company restated its 2022 quarterly financial information to correct errors related to deferred taxes and income tax expense calculation following the sale of its Inliner business. For the nine months ended Sep 30, 2022, the restatement reduced previously reported net income by $16.4 million373843 - For the nine months ended Sep 30, 2023, downward revisions in estimates on three projects reduced gross profit by $51.1 million, primarily due to increased costs and lower productivity. This was partially offset by an $8.1 million upward revision on one project4749 - On May 11, 2023, the company issued $373.8 million of 3.75% Convertible Notes due 2028. Proceeds were used to exchange a portion of the existing 2.75% Convertible Notes, leading to a $51.1 million loss on debt extinguishment in Q2 20238487143 - The company settled the Salesforce Tower legal matter in October 2023, resulting in a pre-tax charge of $20.0 million, net of estimated insurance recovery, which was recorded in the nine months ended September 30, 2023107 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong market outlook, $5.6 billion CAP, Q3 revenue growth, improved gross margin, and sufficient liquidity Current Economic Environment and Outlook The company maintains a positive outlook, supported by federal IIJA funding and state initiatives, with $5.6 billion in CAP - Public work, accounting for approximately 70% of the company's business, is supported by the ongoing rollout of the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA)117 - Committed and Awarded Projects (CAP) reached $5.6 billion at the end of Q3 2023, indicating a strong future revenue pipeline121 Results of Operations Q3 2023 revenue grew 10.7% to $1.12 billion, gross profit margin expanded to 14.9%, with higher SG&A and legal settlement costs Revenue by Segment (in thousands) | Segment | Q3 2023 | Q3 2022 (Restated) | YoY Change | | :--- | :--- | :--- | :--- | | Construction | $945,698 | $847,371 | +11.6% | | Materials | $171,122 | $161,539 | +5.9% | | Total | $1,116,820 | $1,008,910 | +10.7% | Gross Profit by Segment (in thousands) | Segment | Q3 2023 | Q3 2022 (Restated) | YoY Change | | :--- | :--- | :--- | :--- | | Construction | $137,162 (14.5% margin) | $93,017 (11.0% margin) | +47.5% | | Materials | $29,481 (17.2% margin) | $22,038 (13.6% margin) | +33.8% | | Total | $166,643 (14.9% margin) | $115,055 (11.4% margin) | +44.8% | - Committed and Awarded Projects (CAP) increased by $1.1 billion from year-end 2022 to $5.6 billion at September 30, 2023133 - Selling, general and administrative (SG&A) expenses increased by $13.0 million in Q3 2023 compared to Q3 2022, primarily due to higher incentive compensation resulting from improved financial performance139141 Liquidity and Capital Resources The company maintains strong liquidity with $329.2 million in cash and $330.8 million unused credit, sufficient for future needs - As of September 30, 2023, the company had total cash, cash equivalents, and marketable securities of $329.2 million150 - The company has $330.8 million in unused availability under its Credit Agreement as of September 30, 2023149 - The share repurchase program, with $231.5 million remaining available, saw no activity during the nine months ended September 30, 2023164 Quantitative and Qualitative Disclosures About Market Risk No material change in the company's exposure to market risk since the last annual report - There has been no material change in the company's exposure to market risk since the last annual report167 Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective168 - No material changes to internal control over financial reporting occurred during the third quarter of 2023169 PART II. OTHER INFORMATION Legal Proceedings Legal proceedings information is incorporated by reference from Note 17 of the financial statements - Information regarding legal proceedings is detailed in Note 17 of the Notes to the Condensed Consolidated Financial Statements171 Risk Factors No material changes to risk factors from those disclosed in the company's Annual Report - There have been no material changes in risk factors from those disclosed in the company's Annual Report172 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities Shares were repurchased for employee tax withholding, not under the $231.5 million authorized share repurchase program - During Q3 2023, 3,334 shares were repurchased in connection with employee tax withholding for vested RSUs173 - No shares were repurchased under the Board-authorized $300 million share repurchase program during the quarter174