Granite Construction Incorporated (NYSE: GVA) today reported net income of $15.3 million for the quarter ended September 30, 2014, compared to revised1 net income of $13.0 million in the third quarter of 2013. Diluted earnings per share in the quarter were $0.38 compared to $0.33 in the prior-year period.

“We are encouraged with overall margin improvement in the business, driven by a continued rebound in our Construction Materials business,” said James H. Roberts, President and CEO of Granite Construction Incorporated.

“As we have discussed over the past few years, our materials business acts as a leading indicator of changes in the overall economic environment. This positive change is encouraging not only for our materials business, but it also reflects increased opportunities for our other business lines,” Roberts said.

Third Quarter 2014 Results

Total Company

  • Revenue for the third quarter of 2014 decreased 2.7 percent to $719.8 million compared with $739.8 million last year.
  • Gross profit margin in the third quarter was 9.3 percent compared with 7.6 percent in 2013, driven primarily by improved performance in the Large Project Construction and Construction Materials segments.
  • Third quarter 2014 profit performance was impacted by projects which have not reached profit recognition, coupled with outstanding claims and unsigned change orders.
  • Selling, general and administrative expenses for the third quarter increased $1.9 million from 2013, to $47.4 million, driven by the timing of pre-bid costs and investment in our Continuous Improvement initiative.
  • Total company backlog was $3.0 billion at the end of the third quarter, up from $2.8 billion last year. This total does not include the recently announced successful bid on the Pennsylvania Rapid Bridge Replacement Project, which is expected to add about $360 million to backlog in the fourth quarter.
  • Balance sheet remains strong with $269.3 million in cash and marketable securities.

Construction

  • Construction segment revenue decreased 5.0 percent to $447.1 million, compared with $470.6 million last year. The decrease is attributable to lower volume in a number of Western markets, outstanding claims and unsigned change orders, and timing of new work in our power business.
  • Gross profit margin for the quarter increased slightly to 10.9%, driven by solid performance by our power and underground businesses, and offset by continued competitive markets in the West.

Large Project Construction

  • Large Project Construction segment revenue decreased 3.5 percent to $179.4 million, compared with $186.0 million last year, due primarily to job progression. Revenue in the quarter was impacted by delayed project awards, and several claims involving revenue resolution issues.
  • Gross profit margin for the quarter was 3.2 percent, an improvement of more than 430 basis points from a loss in 2013. The improvement was driven by project execution, which was offset by outstanding claims and unsigned change orders and the continued impact from projects generating revenue from contracts with deferred profit.

Construction Materials

  • Construction Materials revenue increased 12.1 percent to $93.2 million, compared with $83.2 million last year. The revenue increase was attributable to improved volumes related to private sector activity and mixed trends in public markets.
  • Gross profit margin for the quarter was 13.1 percent, compared with 8.8 percent in 2013. Gross profit performance was driven by improved volumes and pricing, along with operational efficiencies.

Outlook and Guidance

“A new long-term highway bill is essential to ensure longer term funding can meet the increasing demand for critical infrastructure projects across the country. We recently experienced delays in project awards and lettings. The delays were an unanticipated headwind in 2014, and will result in a benefit to our business in 2015, highlighting how swiftly current federal funding uncertainty impacts the timing of public sector work,” Roberts continued.

The Company’s 2014 guidance has been updated:

Granite continues to expect improved gross profit in 2014 and consolidated EBITDA2 margin of 5 percent to 7 percent. Consolidated revenues for 2014 are expected to finish at the bottom of the previously announced $2.4 to $2.8 billion range.

“Across the country, our business units are extremely busy executing on our record backlog,” Roberts said. “We are focused on leveraging this momentum as we look to finish strongly in 2014. This late-year activity, coupled with opportunities for resolution of outstanding issues, provides us with an opportunity for strong performance in the fourth quarter and in early 2015.”

    (1)   Please refer to the description of fiscal year 2013 revisions in the Granite Construction Incorporated Quarterly Report on Form 10-Q.
(2) Please refer to the description and non-GAAP reconciliation in the attached tables.

Conference Call

Granite will conduct a conference call today, Monday, November 3, 2014, at 8 a.m. Pacific Time/11 a.m. Eastern Time to discuss the results of the quarter ended September 30, 2014. Access to a live audio webcast is available at http://investor.graniteconstruction.com/index.cfm. The live conference call may be accessed by calling (877) 643-7158; international callers may dial (914) 495-8565. The conference ID for the live call is 23663263. The call will be recorded and available for replay approximately two hours after the live audio webcast through November 11, 2014 by calling (855) 859-2056. The conference ID for the replay is also 23663263; international callers may dial (404) 537-3406.

About Granite

Through its offices and subsidiaries nationwide, Granite Construction Incorporated (NYSE: GVA) is one of the nation’s leading infrastructure contractors and construction materials producers. Recognized as one of the top 25 largest construction companies in the U.S., Granite specializes in complex infrastructure projects, including transportation, industrial and federal contracting, and is a proven leader in alternative procurement project delivery. Granite is an award-winning firm in safety, quality and environmental stewardship, and has been honored as one of the World’s Most Ethical Companies by Ethisphere Institute for five years in a row. For more information, visit www.graniteconstruction.com. Granite is listed on the New York Stock Exchange and is part of the S&P MidCap 400 Index, the MSCI KLD 400 Social Index and the Russell 2000 Index. For more information, please visit our investor relations website at investor.graniteconstruction.com.

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, outcomes 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, outcomes 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, December 31, September 30,
2014 2013 2013
            As Revised
ASSETS
Current assets
Cash and cash equivalents $ 167,174 $ 229,121 $ 212,463
Short-term marketable securities 27,950 49,968 22,892
Receivables, net 417,628 313,598 422,609
Costs and estimated earnings in excess of billings 62,823 33,306 40,837
Inventories 74,605 62,474 61,667
Real estate held for development and sale 11,773 12,478 50,250
Deferred income taxes 55,874 55,874 36,687
Equity in construction joint ventures 181,259 162,673 161,063
Other current assets     21,743     30,711     32,836
Total current assets 1,020,829 950,203 1,041,304
Property and equipment, net 424,272 436,859 458,024
Long-term marketable securities 74,140 67,234 64,014
Investments in affiliates 34,177 32,480 31,338
Goodwill 53,799 53,799 53,799
Other noncurrent assets     75,826     76,580     78,655
Total assets   $ 1,683,043   $ 1,617,155   $ 1,727,134
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt $ 21 $ 21 $ 20
Current maturities of non-recourse debt 1,226 1,226 2,147
Accounts payable 205,493 160,706 198,282
Billings in excess of costs and estimated earnings 115,809 138,375 146,343
Accrued expenses and other current liabilities     221,618     197,242     219,169
Total current liabilities 544,167 497,570 565,961
Long-term debt 270,127 270,127 270,148
Long-term non-recourse debt 5,822 6,741 7,048
Other long-term liabilities 45,887 48,580 46,474
Deferred income taxes 9,977 7,793 7,988
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 39,152,255 shares as of September 30, 2014, 38,917,728 shares as of December 31, 2013 and 38,878,194 shares as of September 30, 2013 391 389 388
Additional paid-in capital 132,396 126,449 123,681
Retained earnings     648,017     655,102     689,181
Total Granite Construction Incorporated shareholders’ equity 780,804 781,940 813,250
Non-controlling interests     26,259     4,404     16,265
Total equity     807,063     786,344     829,515
Total liabilities and equity   $ 1,683,043   $ 1,617,155   $ 1,727,134

           
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,

    2014  

2013
As Revised

       2014  

2013
As Revised

Revenue
Construction $ 447,097 $ 470,567 $ 873,357 $ 956,287
Large Project Construction 179,446 185,997 611,110 539,268
Construction Materials 93,214 83,172 200,985 173,107
Real Estate     7       16           29       141  
Total revenue     719,764       739,752           1,685,481       1,668,803  
Cost of revenue
Construction 398,295 419,848 790,584 868,298
Large Project Construction 173,767 188,160 538,846 497,139
Construction Materials 81,010 75,884 185,536 167,839
Real Estate     —       —           —       14  
Total cost of revenue     653,072       683,892           1,514,966       1,533,290  
Gross profit 66,692 55,860 170,515 135,513
Selling, general and administrative expenses 47,386 45,527 147,731 149,477
Gain on sales of property and equipment     3,004       3,259           6,891       7,653  
Operating income (loss) 22,310 13,592 29,675 (6,311 )
Other income (expense)
Interest income 451 602 1,343 1,111
Interest expense (2,488 ) (3,736 ) (10,426 ) (11,082 )
Equity in income of affiliates 1,109 (2 ) 2,310 273
Other (expense) income, net     (1,196 )     1,022           450       1,630  
Total other expense     (2,124 )     (2,114 )         (6,323 )     (8,068 )
Income (loss) before provision for (benefit from) income taxes 20,186 11,478 23,352 (14,379 )
Provision for (benefit from) income taxes     6,081       4,946           8,301       (2,867 )
Net income (loss) 14,105 6,532 15,051 (11,512 )
Amount attributable to non-controlling interests     1,177       6,505           (6,681 )     3,986  
Net income (loss) attributable to Granite Construction Incorporated   $ 15,282     $ 13,037         $ 8,370     $ (7,526 )
 
Net income (loss) per share attributable to common shareholders:
Basic $ 0.39 $ 0.34 $ 0.21 $ (0.19 )
Diluted $ 0.38 $ 0.33 $ 0.21 $ (0.19 )
Weighted average shares of common stock:
Basic 39,150 38,876 39,073 38,773
Diluted     39,813       39,759           39,790       38,773  

   
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
         
Nine Months Ended September 30,   2014  

2013
As Revised

Operating activities
Net income (loss) $ 15,051 $ (11,512 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, depletion and amortization 49,968 54,788
Gain on sales of property and equipment (6,891 ) (7,653 )
Stock-based compensation 8,933 10,645
Equity in net income from unconsolidated joint ventures (27,001 ) (51,826 )
Contributions to unconsolidated construction joint ventures (24,797 ) (28,514 )
Distributions from unconsolidated construction joint ventures 46,991 68,033
Changes in assets and liabilities     (109,087 )     (98,476 )
Net cash used in operating activities     (46,833 )     (64,515 )
Investing activities
Purchases of marketable securities (49,975 ) (34,957 )
Maturities of marketable securities 40,000 57,000
Proceeds from sale of marketable securities 25,000 5,000
Purchases of property and equipment (37,471 ) (30,467 )
Proceeds from sales of property and equipment 12,257 18,431
Payment of Kenny post-closing adjustments — (8,382 )
Other investing activities, net     (1,109 )     1,088  
Net cash (used in) provided by investing activities     (11,298 )     7,713  
Financing activities
Long-term debt principal payments (919 ) (10,900 )
Cash dividends paid (15,229 ) (15,150 )
Purchase of common stock (4,751 ) (5,457 )
Contributions from non-controlling partners 15,842 6,007
Distributions to non-controlling partners (686 ) (28,015 )
Other financing activities, net     1,927       790  
Net cash used in financing activities     (3,816 )     (52,725 )
Decrease in cash and cash equivalents (61,947 ) (109,527 )
Cash and cash equivalents at beginning of period     229,121       321,990  
Cash and cash equivalents at end of period   $ 167,174     $ 212,463  

                 
GRANITE CONSTRUCTION INCORPORATED
Business Segment Information
(Unaudited - dollars in thousands)
                                   
Three Months Ended September 30, Nine Months Ended September 30,
    Construction  

Large Project
Construction

  

Construction
Materials

   Real Estate     Construction  

Large Project
Construction

  

Construction
Materials

   Real Estate
 
2014
Revenue $ 447,097 $ 179,446 $ 93,214 $ 7 $ 873,357 $ 611,110 $ 200,985 $ 29
Gross profit 48,802 5,679 12,204 7 82,773 72,264 15,449 29
Gross profit as a percent of revenue 10.9 % 3.2 % 13.1 % 100.0 % 9.5 % 11.8 % 7.7 % 100.0 %
 
2013 As Revised
Revenue $ 470,567 $ 185,997 $ 83,172 $ 16 $ 956,287 $ 539,268 $ 173,107 $ 141
Gross profit (loss) 50,719 (2,163 ) 7,288 16 87,989 42,129 5,268 127
Gross profit (loss) as a percent of revenue 10.8 % (1.2 )% 8.8 % 100.0 % 9.2 % 7.8 % 3.0 % 90.1 %

           
GRANITE CONSTRUCTION INCORPORATED
Contract Backlog by Segment
(Unaudited - dollars in thousands)
                         
Contract Backlog by Segment   September 30, 2014   June 30, 2014   September 30, 2013
 
Construction $ 817,365 27.5 % $ 974,986 38.1 % $ 705,839 25.6 %
Large Project Construction     2,154,289   72.5 %     1,586,879   61.9 %     2,049,003   74.4 %
 
Total   $ 2,971,654   100.0 %   $ 2,561,865   100.0 %   $ 2,754,842   100.0 %

   
GRANITE CONSTRUCTION INCORPORATED
EBITDA(1)
(Unaudited - dollars in thousands)
         

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

    2014
Net income attributable to Granite Construction Incorporated $ 15,282 $ 8,370
Depreciation, depletion and amortization expense(2)

18,090

49,968
Provision for income taxes 6,081 8,301
Interest expense, net of interest income     2,037       9,083  
EBITDA(1)   $

41,490

    $ 75,722  
Consolidated EBITDA Margin     5.8 %     4.5 %
Note:
(1)We define EBITDA as GAAP net income (loss) attributable to Granite Construction Incorporated, adjusted for interest, taxes, depreciation, depletion and amortization. We believe this non-GAAP financial measure and the associated margin are useful in evaluating operating performance and are regularly used by security analysts, institutional investors and other interested parties in reviewing the Company. 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. 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.
 
(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 condensed consolidated statements of operations of Granite Construction Incorporated.