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Granite Reports Fiscal Year 2019 Results

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·20 min read
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  • Granite to file its annual report on Form 10-K for 2019

  • The Company expects to file 2020 quarterly reports before the end of February

  • Audit/Compliance Committee independent investigation is now complete

  • New leadership team and refresh of strategic plan underway

Granite Construction Incorporated (NYSE: GVA) today announced its 2019 financial results, reflecting a net loss of ($60.2) million (($1.29) per diluted share) compared to net income of $0.6 million ($0.01 per diluted share) in 2018. The results include after-tax, acquisition-related expenses for 2019 and 2018 of $33.0 million and $60.5 million, respectively. Revenue in 2019 increased $158.6 million, or 5.0%, to $3.4 billion primarily due to incremental revenue from 2018 acquisitions, while gross profit decreased $113.2 million to $221.7 million due to project write downs within the Heavy Civil Operating Group. Selling, general & administrative ("SG&A") expenses in 2019 were $308.0 million, or 8.9% of revenue, compared to $272.8 million, or 8.3% of revenue, in 2018, reflecting a higher cost structure from our 2018 acquisitions.

As of December 31, 2019, Committed and Awarded Projects ("CAP")(1) was $4.4 billion, a 2.4% decrease from $4.5 billion as of December 31, 2018, as the Company works through its Heavy Civil Operating Group portfolio. Cash and marketable securities totaled $295.1 million as of December 31, 2019, and debt totaled $364.4 million.

"Since being appointed to my role in September of last year, my top priority has been to achieve compliance with our reporting requirements," said Kyle Larkin, Granite President. "We assembled the right leadership team to shape the longer-term vision to move Granite forward. We are revisiting Granite's strategic plan, and I look forward to sharing an update in the near future."

Granite's Audit/Compliance Committee Investigation Completed

The previously announced investigation by the Audit/Compliance Committee is now complete. The Audit/Compliance Committee, in consultation with the Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, concluded that the Company's previously issued consolidated financial statements and related disclosures should no longer be relied upon for the years ended December 31, 2018 and 2017, as well as for the first three quarters of the year ended December 31, 2019 and for each of the quarters in the year ended December 31, 2018. As a result, Granite is restating its consolidated financial statements and related disclosures for those periods. Prior year consolidated financial information included herein reflects the impact of the restatement.

In addition, as of December 31, 2019, the Company has determined that it did not maintain effective internal control over financial reporting and disclosure controls and procedures due to the existence of material weaknesses. The Company has implemented, or is in the process of implementing, its remediation plan to address the material weaknesses. The Company has made certain personnel and organizational changes, and it is implementing additional oversight, training and communication programs regarding our Code of Conduct and project forecasting. The Company is also enhancing its internal controls over financial reporting.

"The completion of the investigation and filing of our Annual Report represents the conclusion of a very thorough process," said Larkin. "We are committed to remediating all material weaknesses in our control environment and strengthening our processes and controls within the Heavy Civil Operating Group. These on-going remediation actions will be completed as soon as possible and will not only improve our internal control over financial reporting, but will also enhance processes and communication across the organization." Larkin continued, "These actions further support the results of our strategic review of the Heavy Civil Operating Group that we outlined in October 2019, which included establishing a new Heavy Civil Operating Group management team. Since that time, we have also narrowed the footprint of the Heavy Civil Operating Group, including the closure of our New York office in January 2021. As we continue to work to de-risk our Heavy Civil Operating Group portfolio, we are now pursuing opportunities in markets where Granite’s presence, capabilities and resources provide strategic advantages. These actions will better position Granite to deploy its capital efficiently and to maximize shareholder value. I look forward to sharing more about this with you during our earnings call at the end of February."

In connection with the independent investigation, Granite voluntarily contacted and subsequently received subpoenas from the Securities and Exchange Commission ("SEC") Division of Enforcement. The Company is fulfilling document requests from the SEC, and will continue to cooperate with the SEC in its investigation.

(1)

CAP is comprised of contract backlog (unearned revenue and other awards), as well as awarded construction management/general contractor, construction manager at-risk, and progressive design build projects not yet included in contract backlog.

Fiscal Year 2019 Segment Results (Unaudited - dollars in thousands)

Transportation Segment

As Restated

Years Ended December 31,

2019

2018

Change

Revenue

$

1,892,149

$

1,946,750

$

(54,601

)

-2.8

%

Gross profit

$

55,001

$

137,086

$

(82,085

)

-59.9

%

Gross profit as a percent of revenue

2.9

%

7.0

%

As Restated

December 31,

2019

2018

Change

Committed and Awarded Projects

$

3,458,632

$

3,609,920

$

(151,288

)

-4.2

%

The Transportation segment revenue and gross profit decreased due to forecast revisions on certain projects in the Heavy Civil Operating Group. In 2019 and 2018, the Heavy Civil Operating Group recognized gross losses of ($138.7) million and ($54.4) million, respectively. These losses overshadowed our core transportation construction business' exceptional performance in 2019, despite inclement weather in the West experienced through May and again in December.

Segment CAP decreased $151.3 million to $3.5 billion as of December 31, 2019 reflecting the progression of Heavy Civil Operating Group projects, offset by new awards highlighted by the $348 million progressive-design build, Granite led job in Utah that moved into backlog in the fourth quarter of 2019. Heavy Civil Operating Group CAP declined $285 million as of December 31, 2019 as compared to the same period in 2018.

Water Segment

As Restated

Years Ended December 31,

2019

2018

Change

Revenue

$

468,730

$

345,861

$

122,869

35.5

%

Gross profit

$

29,766

$

59,134

$

(29,368

)

-49.7

%

Gross profit as a percent of revenue

6.4

%

17.1

%

As Restated

December 31,

2019

2018

Change

Committed and Awarded Projects

$

226,023

$

330,083

$

(104,060

)

-31.5

%

The Water segment revenue increase was due to incremental revenues from the acquisitions of Layne Christensen Company and LiquiForce in the second quarter of 2018 partially offset by unrepeated emergency work performed in 2018. The decrease in gross profit was primarily due to write downs on three projects totaling $22.5 million during 2019 combined with emergency work performed in 2018 that was not repeated in 2019.

Segment CAP totaled $226.0 million as of December 31, 2019 reflecting the progression on existing projects.

Specialty Segment

As Restated

Years Ended December 31,

2019

2018

Change

Revenue

$

727,537

$

625,666

$

101,871

16.3

%

Gross profit

$

86,729

$

89,935

$

(3,206

)

-3.6

%

Gross profit as a percent of revenue

11.9

%

14.4

%

As Restated

December 31,

2019

2018

Change

Committed and Awarded Projects

$

696,570

$

547,194

$

149,376

27.3

%

The Specialty segment revenue increase was due to increased volume in the West led by private sector customers combined with incremental revenues from the Layne Christensen Company acquisition in the second quarter of 2018. Specialty segment gross profit decreased $3.2 million primarily due to lower profitability on a tunnel project in 2019.

Specialty segment CAP increased $149.4 million driven by successful bids in the Heavy Civil and Federal Operating Groups.

Materials Segment

As Restated

Years Ended December 31,

2019

2018

Change

Revenue

$

357,190

$

368,754

$

(11,564

)

-3.1

%

Gross profit

$

50,182

$

48,685

$

1,497

3.1

%

Gross profit as a percent of revenue

14.0

%

13.2

%

The Materials segment revenue decline reflects lower volumes due to inclement weather in the first half of 2019. The Materials segment gross profit increase reflects cost reduction efforts in our California and Northwest operating groups.

Outlook

  • Fourth Quarter 2020 Preliminary Select Financial Information

    The Company had $670.9 million of available liquidity as of December 31, 2020, inclusive of $441.3 million of cash and marketable securities, compared to $295.1 million of cash and marketable securities as of December 31, 2019. Debt was $338.8 million as of December 31, 2020, compared to $364.4 million as of December 31, 2019. The Company did not have any borrowings under its revolving credit facility as of December 31, 2020 and continues to focus on prudent working capital management.

    During the fourth quarter of 2020, Heavy Civil Operating Group CAP decreased by $170 million from third quarter of 2020, as the Company continues to work through Heavy Civil Operating Group backlog and focuses on maintaining discipline with regard to pursuits of new projects in line with our Heavy Civil Operating Group strategic review. This decrease was more than offset by new awards in our core construction businesses, resulting in a net increase of CAP during the quarter of $0.1 billion. CAP totaled $4.3 billion as of December 31, 2020, including over $1.5 billion of best-value procurement work(2).

    During 2020, we recorded goodwill impairments related to our Water and Mineral Services Operating Group totaling $147.1 million. The impairments are primarily attributable to an adverse change in the business climate, exacerbated by economic disruption and market conditions associated with the COVID-19 pandemic.


  • Conference Call

    The Company will hold its next call with the investment community in conjunction with the release of its third quarter 2020 results, which is expected before the end of February. A press release will be issued at a later date providing more details on the timing with dial in information.

  • Late Filing 2020 Form 10-K

    Given the significant effort and focus on filing the Company's 2019 Form 10-K and anticipated filings of the Company's 2020 Form 10-Qs before the end of February, the Company does not expect to complete and file its 2020 annual report on Form 10-K by the required filing or Form 12b-25 extension dates. The Company expects to file its 2020 annual report on Form 10-K before the end of March 2021.

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 provider in the transportation, water infrastructure and mineral exploration markets. 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 the Granite website, 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, circumstances, activities, performance, growth, demand, strategic plans, outcomes, outlook, guidance, backlog, Committed and Awarded Projects (CAP), results, preliminary select financial information and the expected completion and filing of Granite's quarterly and annual reports for 2020, 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," 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, circumstances, activities, performance, growth, demand, strategic plans, outcomes, outlook, guidance, backlog, CAP, results, preliminary select financial information and the expected completion and filing of Granite's quarterly and annual reports for 2020. 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 specifically 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.

GRANITE CONSTRUCTION INCORPORATED

CONSOLIDATED BALANCE SHEETS

(Unaudited - in thousands, except share and per share data)

As Restated

December 31,

2019

2018

ASSETS

Current assets

Cash and cash equivalents

$

262,273

$

272,804

Short-term marketable securities

27,799

30,002

Receivables, net

547,417

484,753

Contract assets

211,441

184,247

Inventories

88,885

88,623

Equity in construction joint ventures

193,110

231,365

Other current assets

46,016

48,710

Total current assets

1,376,941

1,340,504

Property and equipment, net

542,297

549,688

Long-term marketable securities

5,000

36,098

Investments in affiliates

84,176

84,354

Goodwill

264,279

259,471

Right of use assets

72,534

Deferred income taxes, net

50,158

30,142

Other noncurrent assets

106,703

126,893

Total assets

$

2,502,088

$

2,427,150

LIABILITIES AND EQUITY

Current liabilities

Current maturities of long-term debt

$

8,244

$

47,286

Accounts payable

400,775

256,757

Contract liabilities

95,737

109,011

Accrued expenses and other current liabilities

337,300

324,383

Total current liabilities

842,056

737,437

Long-term debt

356,108

335,119

Lease liabilities

58,618

Deferred income taxes, net

3,754

4,160

Other long-term liabilities

63,136

61,080

Commitments and contingencies

Equity

Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding

Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 45,503,805 shares as of December 31, 2019 and 46,665,889 shares as of December 31, 2018

456

467

Additional paid-in capital

549,307

564,559

Accumulated other comprehensive loss

(2,645

)

(749

)

Retained earnings

594,353

679,453

Total Granite Construction Incorporated shareholders’ equity

1,141,471

1,243,730

Non-controlling interests

36,945

45,624

Total equity

1,178,416

1,289,354

Total liabilities and equity

$

2,502,088

$

2,427,150

GRANITE CONSTRUCTION INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited - in thousands, except per share data)

As Restated

Years Ended December 31,

2019

2018

Revenue

Transportation

$

1,892,149

$

1,946,750

Water

468,730

345,861

Specialty

727,537

625,666

Materials

357,190

368,754

Total revenue

3,445,606

3,287,031

Cost of revenue

Transportation

1,837,148

1,809,664

Water

438,964

286,727

Specialty

640,808

535,731

Materials

307,008

320,069

Total cost of revenue

3,223,928

2,952,191

Gross profit

221,678

334,840

Selling, general and administrative expenses

307,981

272,776

Acquisition and integration expenses

15,299

61,520

Gain on sales of property and equipment

(18,703

)

(7,672

)

Operating (loss) income

(82,899

)

8,216

Other (income) expense

Interest income

(7,433

)

(6,082

)

Interest expense

18,374

14,571

Equity in income of affiliates, net

(11,454

)

(6,935

)

Other income, net

(5,308

)

(1,666

)

Total other income

(5,821

)

(112

)

(Loss) income before benefit from income taxes

(77,078

)

8,328

Benefit from income taxes

(20,376

)

(3,208

)

Net (loss) income

(56,702

)

11,536

Amount attributable to non-controlling interests

(3,489

)

(10,954

)

Net (loss) income attributable to Granite Construction Incorporated

$

(60,191

)

$

582

Net (loss) income per share attributable to common shareholders

Basic

$

(1.29

)

$

0.01

Diluted

$

(1.29

)

$

0.01

Weighted average shares of common stock

Basic

46,559

43,564

Diluted

46,559

44,025

Dividends per common share

$

0.52

$

0.52

GRANITE CONSTRUCTION INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - in thousands)

As Restated

Years Ended December 31,

2019

2018

Operating activities

Net (loss) income

$

(56,702

)

$

11,536

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation, depletion and amortization

123,418

111,544

Gain on sales of property and equipment, net

(18,703

)

(4,910

)

Change in deferred income taxes

(22,924

)

12,110

Stock-based compensation

10,213

14,784

Equity in net loss from unconsolidated joint ventures

120,632

44,689

Net income from affiliates

(11,454

)

(6,935

)

Other non-cash adjustments

4,020

4,916

Changes in assets and liabilities, net of the effects of acquisitions:

(37,062

)

(101,344

)

Net cash provided by operating activities

111,438

86,390

Investing activities

Purchases of marketable securities

(9,952

)

Maturities of marketable securities

30,000

75,000

Purchases of property and equipment

(106,828

)

(111,101

)

Proceeds from sales of property and equipment

37,091

16,238

Cash paid to purchase businesses, net of cash and restricted cash acquired

(6,227

)

(55,027

)

Proceeds from the sale of a business

47,812

Other investing activities, net

5,642

(2,568

)

Net cash used in investing activities

(40,322

)

(39,598

)

Financing activities

Proceeds from issuance of debt

105,574

203,250

Proceeds from issuance of 2.75% Convertible Notes, net

230,000

Proceeds from issuance of common stock warrants, net

11,500

Purchase of Hedge Option, net

(37,375

)

Debt principal repayments

(313,150

)

(153,924

)

Cash dividends paid

(24,316

)

(22,424

)

Repurchases of common stock

(36,900

)

(16,557

)

Contributions from non-controlling partners

68

200

Distributions to non-controlling partners

(12,235

)

(13,275

)

Debt issuance costs

(6,507

)

Other financing activities, net

1,704

856

Net cash used in financing activities

(81,637

)

(1,874

)

Net (decrease) increase in cash, cash equivalents and restricted cash

(10,521

)

44,918

Cash, cash equivalents and restricted cash of $5,825 and $0 at beginning of period

278,629

233,711

Cash, cash equivalents and restricted cash of $5,835 and $5,825 at end of period

$

268,108

$

278,629

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 additional non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted (loss) income before (benefit from) provision for income taxes, adjusted (benefit from) provision for income taxes, adjusted net (loss) income attributable to Granite Construction Incorporated and adjusted diluted net (loss) income per share to indicate the impact of amortization of debt discount related to our convertible notes and non-recurring acquisition, integration, acquired intangible amortization expenses, acquisition related depreciation and synergy costs (collectively referred to as "transaction costs") related to the acquisition of the Layne Christensen Company and LiquiForce. Acquisition and integration costs include external transaction costs, professional fees and internal travel. Synergy costs include expenses incurred which will be eliminated as the integration of Layne and LiquiForce is completed.

Management believes that these additional non-GAAP financial measures facilitate comparisons between industry peer companies. 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.

GRANITE CONSTRUCTION INCORPORATED

EBITDA(1)

(Unaudited - dollars in thousands)

As Restated

Years Ended December 31,

2019

2018

Net (loss) income attributable to Granite Construction Incorporated

$

(60,191

)

$

582

Depreciation, depletion and amortization expense(2)

123,418

111,544

Benefit from income taxes

(20,376

)

(3,208

)

Interest expense, net of interest income

10,941

8,489

EBITDA(1)

$

53,792

$

117,407

EBITDA margin(3)

1.6

%

3.6

%

Transaction costs

$

17,944

$

65,098

Adjusted EBITDA(1)

$

71,736

$

182,505

Adjusted EBITDA margin(1)(3)

2.1

%

5.6

%

(1)

We define EBITDA as GAAP net income (loss) attributable to Granite Construction Incorporated, adjusted for net interest expense, taxes, depreciation, depletion and amortization. Adjusted EBITDA and adjusted EBITDA margin exclude the impact of transaction costs as defined above.

(2)

Amount includes the sum of depreciation, depletion and amortization which are classified as cost of revenue and selling, general and administrative expenses in the consolidated statements of operations of Granite Construction Incorporated.

(3)

Represents EBITDA or Adjusted EBITDA divided by consolidated revenue of $3.4 billion year ended December 31, 2019, and $3.3 billion year ended December 31, 2018.

GRANITE CONSTRUCTION INCORPORATED

Adjusted Net (Loss) Income Reconciliation

(Unaudited - in thousands, except per share data)

As Restated

Years Ended December 31,

2019

2018

(Loss) income before benefit from income taxes

$

(77,078

)

$

8,328

Transaction costs

43,497

81,785

Amortization of debt discount(1)

1,071

Adjusted (loss) income before (benefit from) provision for income taxes

$

(32,510

)

$

90,113

Benefit from income taxes

$

(20,376

)

$

(3,208

)

Tax effect of the transaction costs and amortization of debt discount(2)

11,588

17,276

Adjusted (benefit from) provision for income taxes

$

(8,788

)

$

14,068

Net (loss) income attributable to Granite Construction Incorporated

$

(60,191

)

$

582

After-tax transaction costs and amortization of debt discount

32,980

64,509

Adjusted net (loss) income attributable to Granite Construction Incorporated

$

(27,211

)

$

65,091

Diluted net (loss) income per share attributable to common shareholders

$

(1.29

)

$

0.01

After-tax transaction costs and amortization of debt discount

0.71

1.45

Adjusted diluted net (loss) income per share attributable to common shareholders

$

(0.58

)

$

1.46

(1)

Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, the $230.0 million aggregate principal amount of convertible senior notes that were issued in November 2019 (the "2.75 % Convertible Notes"), are separated into liability and equity components on the consolidated balance sheets. The equity component represents the excess of the $230.0 million principal amount of the 2.75% Convertible Notes over the carrying amount of the liability component ("debt discount"). We are amortizing the debt discount to interest expense using an effective interest rate of 6.62% over the expected life of the 2.75% Convertible Notes.

(2)

The tax effect of transaction costs was calculated using the Company’s estimated annual statutory tax rate.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210219005111/en/

Contacts

Investors
Wenjun Xu, 831-761-7861

Or

Media
Erin Kuhlman, 831-768-4111