GVA - Granite Reports Second Quarter 2023 Results

• Record Committed and Awarded Projects ("CAP") (1) of $5.4 billion, a sequential increase of $334 million and year-over-year increase of $1.2 billion
• Q2 revenue increased $50 million year-over-year led by the California and Mountain Groups
• Q2 diluted EPS of $(0.39) and adjusted diluted EPS (2) of $1.03

Granite Construction Incorporated (NYSE: GVA) today announced results for the quarter ended June 30, 2023.

Second Quarter 2023 Results

Net loss totaled $17 million, or $(0.39) per diluted share, compared to net income of $19 million, or $0.39 per diluted share, for the same period in the prior year. Net loss in the quarter was primarily attributable to a $51 million non-cash charge related to the refinancing of our convertible bonds and a $12 million charge for litigation. Adjusted net income (2) totaled $46 million, or $1.03 per diluted share, compared to adjusted net income (2) of $34 million, or $0.76 per diluted share, in the same period in the prior year.

• Revenue increased $50 million to $899 million compared to $849 million in the same period in the prior year. Both Construction and Materials segments posted year-over-year increases with the California and Mountain Groups more than offsetting a slight decrease in revenue in the Central Group.
• Gross profit increased $5 million to $103 million compared to $98 million in the same period in the prior year.
• Selling, general, and administrative (“SG&A”) expenses increased $5 million to $65 million, or 7.2% of revenue, compared to $60 million, or 7.1% of revenue, in the same period in the prior year. The increase in SG&A expense was primarily due to higher non-qualified deferred compensation expense of $4.4 million, which was mostly offset in Other (income) expense, net.
• Adjusted EBITDA (2) was $80 million compared to $63 million in the same period in the prior year.

"We ended the second quarter with a record CAP balance,” said Kyle Larkin, Granite President and Chief Executive Officer. “Our public and private markets remain very strong across our geographies, and we believe we are winning the work necessary to meet our 2024 growth and margin targets.”

“In the second quarter, as we expected, the California and Mountain Groups grew construction revenue year-over-year, more than offsetting the decrease in revenue in the Central Group. Our materials business, which is integral to our home market strategy, showed impressive revenue and gross profit margin growth over the prior year as we recovered from a weather-impacted first quarter of 2023. I expect we will see continued year-over-year improvement in materials and construction revenue and gross profit in the second half of the year.”

“As a reminder, we disclosed our 2024 strategic plan revenue and adjusted EBITDA margin targets back in the first quarter of 2021. Since that time, we have taken steps to de-risk the company, grow a higher-quality CAP portfolio, and with a renewed focus on operational excellence, I believe we are well on our way to meet these targets."

Six Months Ended June 30, 2023 Results

Net loss totaled $40 million, or $(0.91) per diluted share, compared to a net loss of $8 million, or $(0.18) per diluted share, in the prior year. In addition to the litigation and convertible bond charges described above, the six months ended June 30, 2023 were significantly impacted by inclement weather in the first half of the year compared to the same period in the prior year. Adjusted net income (2) totaled $28 million, or $0.63 per diluted share, compared to adjusted net income (2) of $22 million, or $0.48 per diluted share, in the prior year.

• Revenue was flat at $1.5 billion compared to the same period in the prior year as project teams and plants rebounded from the weather-impacted first quarter.
• Gross profit decreased $23 million to $135 million compared to $158 million in the same period in the prior year primarily due to schedule impacts on the I-64 High Rise Bridge project and weather impacts in the first quarter of 2023.
• SG&A expenses were $138 million or 9.4% of revenue, compared to $130 million or 8.7% of revenue in the same period of the prior year primarily due to higher non-qualified deferred compensation expenses in 2023, which was mostly offset in Other (income) expense, net. Increased stock-based compensation expense also contributed to the higher SG&A expenses. These increases for the six months ended June 30, 2023 were partially offset by the sale of Inliner on March 16, 2022.
• Adjusted EBITDA (2) totaled $71 million compared to $69 million in the prior year.

(1) CAP is comprised of 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, as well as the general construction portion of construction manager/general contractor, construction manager/at risk and progressive design build contracts to the extent contract execution and funding is probable.
(2) Adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin are non-GAAP measures. Please refer to the description and reconciliation of non-GAAP measures in the attached tables.

Second Quarter 2023 Segment Results ( Unaudited - dollars in thousands)

Revenue in the second quarter increased compared to the same period in the prior year led by increases in the California and Mountain Groups, which more than offset a decline in the Central Group. The increase in revenue was driven by higher levels of CAP going into the quarter that will continue to support the groups for the remainder of 2023. For the six months ended June 30, 2023, revenue declined compared to the same period in the prior year primarily due to the wind down of several large projects in the Central Group, as well as the sale of Granite Inliner in the first quarter of 2022.

Gross profit and gross profit margin during the three and six months ended June 30, 2023 were negatively impacted by additional costs on the I-64 High Rise Bridge project in Virginia. The impact to gross profit from this project in the second quarter was a $21 million decrease, and the impact after non-controlling interest was $10 million. For the six months ended June 30, 2023, the impact to gross profit from the project was $32 million and the impact after non-controlling interest was $16 million. Final completion for the project is expected early in the fourth quarter.

CAP increased $334 million sequentially and increased $1.2 billion year-over-year. Our markets have benefited from a strong public funding environment, with California leading the way. We are pursuing many opportunities that we believe will allow us to continue to build strong quality CAP in the remainder of 2023.

Materials revenue and gross profit in the second quarter increased compared to the same period of the prior year driven by higher asphalt and aggregate sales prices and increased aggregate sales volume. Aggregate sales volume increased 9% year-over-year, while asphalt sales volumes were flat.

Outlook

Our guidance for 2023 is updated as noted below:

• Revenue in the range of $3.35 billion to $3.45 billion
• Adjusted EBITDA margin in the range of 7.5% to 8.5%
• SG&A expense in the range of 8.0% to 8.5% of revenue
• Mid-20s effective tax rate for adjusted net income
• Capital expenditures range of $100 million to $120 million

The Company does not provide a reconciliation of forward-looking adjusted EBITDA margin to the most directly comparable forward-looking GAAP measure of net income (loss) attributable to Granite Construction Incorporated because the Company cannot predict with a reasonable degree of certainty and without unreasonable efforts certain excluded items that are inherently uncertain and depend on various factors. For these reasons, we are unable to assess the probable significance of the unavailable information.

Kyle Larkin added, "Although our teams recovered well from the wet first quarter and continued to win work across the company, we are lowering our expectation for the amount of work that will be completed in 2023. However, we continue to believe that our record CAP will drive expected revenue growth in 2024 and 2025. Additionally, we are narrowing the range of our guidance for adjusted EBITDA margin to 7.5% to 8.5% for 2023 primarily due to the losses incurred on the I-64 High Rise Bridge project. As I have discussed in the past, we are executing on our plan and believe that the work we have been adding to CAP supports our 2024 target of 9.0% to 11.0% adjusted EBITDA margin."

Conference Call

Granite will conduct a conference call today, July 27, 2023, at 8:00 a.m. Pacific Time/11:00 a.m. Eastern Time to discuss the results of the quarter ended June 30, 2023. The Company invites investors to listen to a live audio webcast of the investor conference call on its Investor Relations website, https://investor.graniteconstruction.com . The investor conference call will also be available by calling 1-877-328-5503; international callers may dial 1-412-317-5472. An archive of the webcast will be available on Granite's Investor Relations website approximately one hour after the call. A replay will be available after the live call through August 3, 2023, by calling 1-877-344-7529, replay access code 9668964; international callers may dial 1-412-317-0088.

About Granite

Granite is America’s Infrastructure Company™. Incorporated since 1922, Granite (NYSE:GVA) is one of the largest diversified construction and construction materials companies in the United States as well as a full-suite civil construction provider. Granite’s Code of Conduct and strong Core Values guide the Company and its employees to uphold the highest ethical standards. Granite is an industry leader in safety and an award-winning firm in quality and sustainability. For more information, visit graniteconstruction.com , and connect with Granite on LinkedIn , Twitter , Facebook , and Instagram .

Forward-looking Statements

Any statements contained in this news release that are not based on historical facts, including statements regarding future events, occurrences, opportunities, circumstances, activities, performance, growth, demand, strategic plans, shareholder value, outcomes, outlook, 2023 fiscal year guidance for revenue, adjusted EBITDA margin, SG&A expense, effective tax rate, and capital expenditures, Committed and Awarded Projects (“CAP”), results, our belief that we are winning the work necessary to meet both our growth and margin targets in 2024, our expectation that we will continue to see year-over-year improvement in materials and construction revenue and gross profit in the second half of the year, our 2024 strategic plan revenue and adjusted EBITDA margin targets, our belief that we are well on our way to meet those targets, higher levels of CAP going into the quarter will continue to support the groups for the remainder of 2023, final completion of the I-64 project is expected early in the fourth quarter, our pursuit of opportunities that we believe will allow us to continue to build strong quality CAP in the remainder of 2023, lowering expectation for work to be completed in 2023, record backlog will drive expected revenue growth in 2024 and 2025, narrowing adjusted EBITDA margin guidance and our belief that the work we have been adding to CAP supports our 2024 target of 9.0% to 11.0% adjusted EBITDA margin 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,” "guidance" and the negatives thereof or other comparable terminology or by the context in which they are made. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, opportunities, circumstances, activities, performance, growth, demand, strategic plans, shareholder value, outcomes, outlook, 2023 fiscal year guidance for revenue, adjusted EBITDA margin, SG&A expense, effective tax rate, and capital expenditures, CAP, results, our belief that we are winning the work necessary to meet both our growth and margin targets in 2024, our expectation that we will continue to see year-over-year improvement in materials and construction revenue and gross profit in the second half of the year, our 2024 strategic plan revenue and adjusted EBITDA margin targets, our belief that we are well on our way to meet those targets, higher levels of CAP going into the quarter will continue to support the groups for the remainder of 2023, final completion of the I-64 project is expected early in the fourth quarter, our pursuit of opportunities that we believe will allow us to continue to build strong quality CAP in the remainder of 2023, lowering expectation for work to be completed in 2023, record backlog will drive expected revenue growth in 2024 and 2025, narrowing adjusted EBITDA margin guidance and our belief that the work we have been adding to CAP supports our 2024 target of 9.0% to 11.0% adjusted EBITDA margin. 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 described in greater detail in our filings with the Securities and Exchange Commission, particularly those described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

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 news release and, except as required by law; we undertake no obligation to revise or update any forward-looking statements for any reason.

Non-GAAP Financial Information

The tables below contain financial information calculated other than in accordance with U.S. generally accepted accounting principles (“GAAP”). Specifically, management believes that non-GAAP financial measures such as EBITDA and EBITDA margin are useful in evaluating operating performance and are regularly used by securities analysts, institutional investors and other interested parties, and that such supplemental measures facilitate comparisons between companies that have different capital and financing structures and/or tax rates. We are also providing adjusted EBITDA and adjusted EBITDA margin, non-GAAP measures, to indicate the impact of loss on debt extinguishment and other costs, net, which include investigation-related legal fees and settlement charges, a litigation charge, reorganization costs, strategic acquisition and divestiture expenses, and a gain on sale of a business in 2022.

We provide adjusted income before income taxes, adjusted provision for income taxes, adjusted net income attributable to Granite Construction Incorporated, adjusted diluted weighted average shares of common stock and adjusted diluted earnings per share attributable to common shareholders, non-GAAP measures, to indicate the impact of the following:

• Other costs, net;
• Transaction costs which includes acquired intangible amortization expense and acquisition related depreciation related to the acquisition of Layne and Liquiforce;
• Loss on debt extinguishment, and
• Income taxes related to the disposal of Inliner goodwill.

Management believes that these additional non-GAAP financial measures facilitate comparisons between industry peer companies, and management uses these non-GAAP financial measures in evaluating the Company's performance. However, the reader is cautioned that any non-GAAP financial measures provided by the Company are provided in addition to, and not as alternatives for, the Company's reported results prepared in accordance with GAAP. Items that may have a significant impact on the Company's financial position, results of operations and cash flows must be considered when assessing the Company's actual financial condition and performance regardless of whether these items are included in non-GAAP financial measures. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures provided by the Company may not be comparable to similar measures provided by other companies.

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