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Granite Reports Third Quarter 2019 Results

WATSONVILLE, Calif.--(BUSINESS WIRE)--

Highlights

Third Quarter Results

  • Record quarterly revenue of $1.1 billion, up 3.1 percent year-over-year
  • Net income of $20.5 million; adjusted net income of $27.5 million1
  • Strong core operational results impacted by Heavy Civil operating group performance
  • Strategic review of Heavy Civil operating group complete
  • Committed and Awarded Projects2 (CAP) totaled $4.7 billion, up 44.5 percent year-over-year

Granite Construction Incorporated (GVA) today reported net income of $20.5 million ($0.43 per diluted share) for the quarter ended September 30, 2019, compared to net income of $55.7 million ($1.17 per diluted share) for the quarter ended September 30, 2018. On a year-to-date basis, net loss was $111.9 million, ($2.39 per diluted share) compared to net income of $35.9 million ($0.84 per diluted share) last year.

“During the third quarter, strong core operational performance was dampened by a negative contribution from the Heavy Civil operating group primarily driven by disputed work,” said James H. Roberts, President and Chief Executive Officer at Granite Construction Incorporated. “Our core businesses capitalized on good weather this quarter combined with well-funded infrastructure markets. As we restore balance in Heavy Civil, a critical piece of the puzzle is resolution of ongoing disputes which continue to have a distorted impact on our cash flows and earnings. We have completed our strategic review of this business unit and have taken immediate action including:

  • Changed operational management to align Heavy Civil operating group with construction and materials operations;
  • Targeting revenue of no more than 15 percent of overall company revenue for this portfolio;
  • Aggressively pursuing dispute avoidance and resolution;
  • Implementing refined estimating and risk mitigation approach to project pricing; and
  • Pursuing projects solely in markets with strategic, competitive advantages

“A critical component of our current and future success is consistent performance on projects at scale, in this case projects typically in a range of about $100 million to $500 million, with particular emphasis on best-value procurements with more defined design and appropriate risk-sharing. With that said, the vast majority of Granite’s robust project pipeline is comprised of projects well below this level, reflecting our deliberate focus on de-risking our portfolio. Steady funding and buoyant market conditions have resulted in strong bookings, driving more than 44 percent growth in our CAP to $4.7 billion.”

Third quarter 2019 and 2018 results include after-tax, acquisition-related expenses of $7.1 million and $12.2 million, respectively3. Excluding the impact of acquisition-related expenses, third quarter 2019 adjusted net income was $27.5 million1 and 2018 adjusted net income was $67.9 million1, with adjusted income per diluted share of $0.581 and $1.431, respectively.

Selling, general & administrative (“SG&A”) expenses were $73.4 million for the three months ended September 30, 2019, compared to $70.8 million last year. For the first nine months of 2019, SG&A expenses were $224.6 million, compared to $193.3 million during the same prior-year period. The year-to-date increase is primarily attributable to businesses acquired in 2018.

Cash and marketable securities increased to a total $232.6 million as of September 30, 2019 compared to $206.0 million as of June 30, 2019.

The Company’s effective tax rate in the third quarter was 13.7 percent.

Third Quarter and Year-To-Date 2019 Segment Results

Transportation

  • Third quarter 2019 revenue was $598.6 million, compared to $610.8 million in last year’s quarter. Year-to-date 2019 revenue decreased 9.0 percent to $1.3 billion compared to $1.5 billion last year. The year-to-date revenue was impacted by inclement weather that spanned the first part of the year.
  • Third quarter 2019 gross profit was $13.6 million, which included $69.3 million of Heavy Civil operating group losses. Third quarter 2018 gross profit of $71.0 million included $8.2 million of Heavy Civil operating group losses. Year-to-date gross loss was $(65.0) million, compared to a gross profit of $138.4 million last year. Challenges related to projects in our Heavy Civil operating group have negatively affected 2019 results, while the remaining construction and materials business in this segment performed at exceptional levels.
  • Segment CAP totaled nearly $3.7 billion as of September 30, 2019, including $1.0 billion of construction management/general contractor (CMGC) and alternative procurement projects.

Water

  • Third quarter 2019 revenue was $135.9 million compared to $124.3 million in last year’s quarter. Year-to-date 2019 revenue was $348.0 million, compared to $216.0 million last year. The year-to-date revenue increases were primarily related to 2018 acquisitions, partially dampened by inclement weather experienced across our operations through May.
  • Third quarter 2019 gross profit was $15.0 million compared to $24.1 million last year, with gross profit margin slightly lower at 11.1 percent. Year-to-date gross profit was $34.4 million, compared to $41.1 million last year. Year-to-date gross profit margin was 9.9 percent, down from 19.0 percent in 2018, which included non-recurring emergency work in the prior year. In the current year, gross profit was negatively impacted by a business acquired with the Layne Christensen Company acquisition that we recently divested.
  • Segment CAP totaled $244.9 million as of September 30, 2019.

Specialty

  • Third quarter 2019 revenue was $224.5 million, compared to $190.8 million in last year’s quarter. Year-to-date 2019 revenue was $540.2 million, compared to $461.1 million last year. The revenue increases reflect robust private-market work in our site preparation, power and mining services end markets. On a year-to-date basis, the increase also included the impact related to an acquisition in 2018.
  • Third quarter 2019 gross profit was $38.3 million compared to $28.1 million last year, with gross profit margin of 17.1 percent up from 14.7 percent last year. Year-to-date gross profit was $75.4 million, compared to $65.3 million last year, with gross profit margin relatively flat at 14.0 percent.
  • Segment CAP totaled $746.6 million as of September 30, 2019.

Materials

  • Third quarter 2019 revenue was $129.1 million, compared to $129.6 million in last year’s quarter. Year-to-date 2019 revenue was $268.4 million, compared to $276.3 million last year. The modest year-to-date decline is attributable to inclement weather across the western United States through May.
  • Third quarter 2019 gross profit was $24.5 million, compared to $21.3 million last year, with gross profit margin of 19.0 percent, up from 16.4 percent in 2018. Year-to-date gross profit was $34.7 million, compared to $36.3 million last year, with gross profit margin of 12.9 percent, down slightly from 13.1 percent in 2018, as wet weather persisted through May and slowed plant productivity in the first half of 2019.

Outlook and Guidance

“The alignment of operational capabilities with strategic opportunities at scale will match and be integrated into how we approach our entire portfolio, with all of our businesses using and operating with and from the same playbook,” Roberts said. “These actions set us on a more defined path for future success. Granite has written its nearly century-long history by consistently balancing resources, opportunities, and risks. The actions we are taking are expected to restore balance and eliminate distractions, enabling our talented teams to execute end-market growth strategies and create more value for all of our stakeholders.

“Current operational momentum, robust market dynamics and our strong CAP combined with favorable weather patterns the rest of this year should allow our businesses to deliver positive results well into the fourth quarter. As we look ahead, these positive dynamics have us well positioned for 2020.”

While not providing guidance for the remainder of the year, our preliminary expectations for 2020 are:

  • Mid-single digit consolidated revenue growth
  • Adjusted EBITDA margin1 of 6.5 percent to 8.5 percent

(1)

Adjusted net income (loss), adjusted diluted income (loss) per share, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), 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.

(2)

CAP is comprised of unearned revenue and other awards, as well as CMGC and alternative procurement projects.

(3)

Acquisition-related expenses include acquisition, integration, acquired intangible amortization expenses, acquisition-related depreciation and synergy costs.

Conference Call

Granite will conduct a conference call today, October 25, 2019, at 8:00 a.m. Pacific Time/11:00 a.m. Eastern Time to discuss the results of the quarter ended September 30, 2019. The Company invites investors to listen to a live audio webcast on its Investor Relations website, https://investor.graniteconstruction.com. The live call is available by calling 1-800-353-6461; international callers may dial 1-334-323-0501. An archive of the webcast will be available on the website approximately one hour after the call. A replay will be available after the live call through November 1, 2019, by calling 1-888-203-1112, replay access code 2883572; international callers may dial 1-719-457-0820.

About Granite

Granite is America’s Infrastructure Company™. Incorporated since 1922, Granite (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 more than 7,000 employees to uphold the highest ethical standards. In addition to being one of the World’s Most Ethical Companies for ten consecutive years, 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, circumstances, activities, performance, growth, demand, strategic plans, outcomes, guidance, backlog, Committed and Awarded Projects (CAP), and results, 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, guidance, backlog, CAP, and results. 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

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

 

 

 

 

 

 

 

 

 

September 30,
2019

 

 

December 31,
2018

 

 

September 30,
2018

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

184,673

 

 

$

272,804

 

 

$

230,259

 

Short-term marketable securities

 

 

37,918

 

 

 

30,002

 

 

 

35,010

 

Receivables, net

 

 

700,387

 

 

 

473,246

 

 

 

618,070

 

Contract assets

 

 

233,925

 

 

 

219,754

 

 

 

213,989

 

Inventories

 

 

95,442

 

 

 

88,623

 

 

 

90,789

 

Equity in construction joint ventures

 

 

209,765

 

 

 

282,229

 

 

 

273,993

 

Other current assets

 

 

42,698

 

 

 

48,731

 

 

 

95,173

 

Total current assets

 

 

1,504,808

 

 

 

1,415,389

 

 

 

1,557,283

 

Property and equipment, net

 

 

542,796

 

 

 

549,688

 

 

 

560,618

 

Long-term marketable securities

 

 

10,000

 

 

 

36,098

 

 

 

46,093

 

Investments in affiliates

 

 

84,914

 

 

 

84,354

 

 

 

84,840

 

Goodwill

 

 

264,112

 

 

 

259,471

 

 

 

244,696

 

Right of use assets

 

 

70,472

 

 

 

 

 

 

 

Deferred income taxes, net

 

 

38,443

 

 

 

2,918

 

 

 

6,408

 

Other noncurrent assets

 

 

118,228

 

 

 

128,683

 

 

 

143,910

 

Total assets

 

$

2,633,773

 

 

$

2,476,601

 

 

$

2,643,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

8,263

 

 

$

47,286

 

 

$

116,796

 

Accounts payable

 

 

399,528

 

 

 

251,481

 

 

 

316,917

 

Contract liabilities

 

 

106,010

 

 

 

105,449

 

 

 

117,759

 

Accrued expenses and other current liabilities

 

 

342,040

 

 

 

273,626

 

 

 

296,033

 

Total current liabilities

 

 

855,841

 

 

 

677,842

 

 

 

847,505

 

Long-term debt

 

 

394,841

 

 

 

335,119

 

 

 

316,926

 

Lease liabilities

 

 

56,740

 

 

 

 

 

 

 

Deferred income taxes, net

 

 

4,652

 

 

 

4,317

 

 

 

5,589

 

Other long-term liabilities

 

 

58,433

 

 

 

61,689

 

 

 

67,429

 

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: 46,741,263 shares as of September 30, 2019, 46,665,889 shares as of December 31, 2018 and 46,897,092 shares as of September 30, 2018

 

 

468

 

 

 

467

 

 

 

469

 

Additional paid-in capital

 

 

567,033

 

 

 

564,559

 

 

 

572,046

 

Accumulated other comprehensive (loss) income

 

 

(3,282

)

 

 

(749

)

 

 

1,841

 

Retained earnings

 

 

656,487

 

 

 

787,356

 

 

 

786,936

 

Total Granite Construction Incorporated shareholders’ equity

 

 

1,220,706

 

 

 

1,351,633

 

 

 

1,361,292

 

Non-controlling interests

 

 

42,560

 

 

 

46,001

 

 

 

45,107

 

Total equity

 

 

1,263,266

 

 

 

1,397,634

 

 

 

1,406,399

 

Total liabilities and equity

 

$

2,633,773

 

 

$

2,476,601

 

 

$

2,643,848

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited - in thousands, except per share data)

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation

 

$

598,646

 

 

$

610,847

 

 

$

1,340,834

 

 

$

1,472,703

 

Water

 

 

135,908

 

 

 

124,292

 

 

 

347,994

 

 

 

215,951

 

Specialty

 

 

224,457

 

 

 

190,836

 

 

 

540,234

 

 

 

461,149

 

Materials

 

 

129,099

 

 

 

129,616

 

 

 

268,389

 

 

 

276,286

 

Total revenue

 

 

1,088,110

 

 

 

1,055,591

 

 

 

2,497,451

 

 

 

2,426,089

 

Cost of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transportation

 

 

585,013

 

 

 

539,871

 

 

 

1,405,830

 

 

 

1,334,302

 

Water

 

 

120,878

 

 

 

100,189

 

 

 

313,582

 

 

 

174,834

 

Specialty

 

 

186,158

 

 

 

162,737

 

 

 

464,858

 

 

 

395,838

 

Materials

 

 

104,629

 

 

 

108,303

 

 

 

233,675

 

 

 

239,972

 

Total cost of revenue

 

 

996,678

 

 

 

911,100

 

 

 

2,417,945

 

 

 

2,144,946

 

Gross profit

 

 

91,432

 

 

 

144,491

 

 

 

79,506

 

 

 

281,143

 

Selling, general and administrative expenses

 

 

73,424

 

 

 

70,769

 

 

 

224,577

 

 

 

193,337

 

Acquisition and integration expenses

 

 

2,744

 

 

 

9,334

 

 

 

15,244

 

 

 

44,030

 

Gain on sales of property and equipment

 

 

(7,101

)

 

 

(3,018

)

 

 

(13,936

)

 

 

(5,066

)

Operating income (loss)

 

 

22,365

 

 

 

67,406

 

 

 

(146,379

)

 

 

48,842

 

Other (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(1,713

)

 

 

(1,533

)

 

 

(6,257

)

 

 

(4,227

)

Interest expense

 

 

4,839

 

 

 

4,452

 

 

 

13,011

 

 

 

10,090

 

Equity in income of affiliates

 

 

(6,275

)

 

 

(1,769

)

 

 

(10,159

)

 

 

(5,527

)

Other expense (income), net

 

 

127

 

 

 

(1,533

)

 

 

(2,394

)

 

 

(2,205

)

Total other income

 

 

(3,022

)

 

 

(383

)

 

 

(5,799

)

 

 

(1,869

)

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

 

 

25,387

 

 

 

67,789

 

 

 

(140,580

)

 

 

50,711

 

Provision for (benefit from) income taxes

 

 

3,474

 

 

 

8,692

 

 

 

(37,451

)

 

 

7,357

 

Net income (loss)

 

 

21,913

 

 

 

59,097

 

 

 

(103,129

)

 

 

43,354

 

Amount attributable to non-controlling interests

 

 

(1,425

)

 

 

(3,425

)

 

 

(8,793

)

 

 

(7,490

)

Net income (loss) attributable to Granite Construction Incorporated

 

$

20,488

 

 

$

55,672

 

 

$

(111,922

)

 

$

35,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.44

 

 

$

1.20

 

 

$

(2.39

)

 

$

0.84

 

Diluted

 

$

0.43

 

 

$

1.17

 

 

$

(2.39

)

 

$

0.84

 

Weighted average shares of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

46,788

 

 

 

46.308

 

 

 

46,771

 

 

 

42,443

 

Diluted

 

 

47,170

 

 

 

47,810

 

 

 

46,771

 

 

 

42,910

 

GRANITE CONSTRUCTION INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - in thousands)

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(103,129

)

 

$

43,354

 

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

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

92,700

 

 

 

77,816

 

Gain on sales of property and equipment, net

 

 

(13,936

)

 

 

(5,066

)

Change in deferred income taxes

 

 

(37,338

)

 

 

(2,207

)

Stock-based compensation

 

 

8,924

 

 

 

12,621

 

Equity in net loss from unconsolidated joint ventures

 

 

173,008

 

 

 

16,343

 

Net income from affiliates

 

 

(10,159

)

 

 

(5,527

)

Other non-cash adjustments

 

 

4,630

 

 

 

 

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

 

 

(141,198

)

 

 

(122,591

)

Net cash (used in) provided by operating activities

 

 

(26,498

)

 

 

14,743

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

 

 

 

(9,952

)

Maturities of marketable securities

 

 

20,000

 

 

 

60,000

 

Purchases of property and equipment

 

 

(83,329

)

 

 

(86,131

)

Proceeds from sales of property and equipment

 

 

28,104

 

 

 

9,480

 

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

 

 

(6,227

)

 

 

(55,030

)

Other investing activities, net

 

 

(3,756

)

 

 

320

 

Net cash used in investing activities

 

 

(45,208

)

 

 

(81,313

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

105,574

 

 

 

143,250

 

Debt principal repayments

 

 

(86,018

)

 

 

(42,149

)

Cash dividends paid

 

 

(18,240

)

 

 

(16,328

)

Repurchases of common stock

 

 

(6,916

)

 

 

(6,369

)

Distributions to non-controlling partners, net

 

 

(12,234

)

 

 

(10,128

)

Other financing activities, net

 

 

1,242

 

 

 

441

 

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