WATSONVILLE, Calif.–Granite Construction Incorporated (NYSE: GVA) today reported a net loss of $97.8 million ($2.09 per diluted share) for the quarter ended June 30, 2019, compared to a net loss of $8.4 million ($0.20 per diluted share) for the quarter ended June 30, 2018. On a year-to-date basis, net loss was $132.4 million, ($2.83 per diluted share) compared to a net loss of $19.8 million ($0.49 per diluted share) last year. The 2019 figures include non-cash after-tax charges of $106.7 million ($2.28 per diluted share).
“As previously announced, our second quarter results were impacted by non-cash charges related to four legacy, unconsolidated Heavy Civil joint venture projects, and we are taking additional action to de-risk the business and improve the stability and trajectory of our results,” said James H. Roberts, President and Chief Executive Officer at Granite Construction Incorporated. “We remain very encouraged by the strong underlying performance of our overall portfolio, with our construction, materials, and water businesses delivering solid second quarter results despite wet weather that continued through May. We have a robust project pipeline ahead for 2019 and beyond, with CAP at a record $4.9 billion. We remain confident that our end-market focused businesses and strategy will create significant value in the second half of 2019 and beyond for our stakeholders.”
Second quarter 2019 and 2018 results include after-tax, acquisition-related expenses of $12.0 million and $26.5 million, respectively2. Excluding the impact of acquisition-related expenses, second quarter 2019 adjusted net loss was $85.8 million3 and 2018 adjusted net income was $18.2 million3, with adjusted loss per diluted share of $1.833 and adjusted income per diluted share $0.443, respectively.
Selling, general & administrative (“SG&A”) expenses were $70.0 million for the three months ended June 30, 2019, compared to $61.3 million last year. For the first six months of 2019, SG&A expenses were $151.2 million, compared to $122.6 million during the same prior-year period. The increase is primarily attributable to businesses acquired in 2018.
Including non-cash charges in the current quarter, adjusted EBITDA3 was $(84.3) million, compared to $50.9 million last year. On a year-to-date basis, adjusted EBITDA3 totaled $(93.6) million, compared to $60.2 million last year.
Cash and marketable securities total $206.0 million as of June 30, 2019 reflecting Granite’s disciplined cash management and operational strength. This, in addition to Granite’s diverse business portfolio, positions the Company to navigate the current situation while maintaining a strong balance sheet.
The Company’s effective tax rate in the second quarter was 25.3 percent.
Second Quarter and Year-To-Date 2019 Segment Results
- Second quarter 2019 revenue was $404.0 million, compared to $502.7 million in last year’s quarter. This quarter’s results included a revenue reduction of $114.2 million due to increased project costs on four legacy, unconsolidated Heavy Civil joint venture projects, and corresponding reductions in project percent completion. Year-to-date 2019 revenue decreased 13.9 percent to $742.2 million (including $114.2 million negative impact), compared to $861.9 million last year. Revenue was also impacted by inclement weather that continued across the country through May.
- Including charges of $143.7 million on four legacy, unconsolidated Heavy Civil joint venture projects, second quarter 2019 gross loss was $99.9 million, compared to gross profit of $36.0 million last year. Year-to-date gross loss was $78.6 million, compared to a gross profit of $67.4 million last year. The pre-tax charges are related to 1) increased project completion costs, which were exacerbated by schedule delays and execution of a significant amount of disputed work, and 2) a recent unfavorable court ruling on a project dispute.
- Segment CAP totaled nearly $4.0 billion as of June 30, 2019, including $1.1 billion of construction management/general contractor (CMGC) and alternative procurement projects.
- Second quarter 2019 revenue was $112.8 million compared to $51.6 million in last year’s quarter. Year-to-date 2019 revenue was $212.1 million, compared to $91.7 million last year. The revenue increases were primarily related to 2018 acquisitions, though operations were impacted by inclement weather experienced across our operations through May.
- Second quarter 2019 gross profit was $11.3 million compared to $5.5 million last year, with gross profit margin slightly lower at 10.0 percent. Year-to-date gross profit was $19.4 million, compared to $17.0 million last year. Year-to-date gross profit margin was 9.1 percent, down from 18.6 percent in 2018, which included non-recurring emergency work.
- Segment CAP totaled $318.1 million as of June 30, 2019.
- Second quarter 2019 revenue was $175.1 million, compared to $151.8 million in last year’s quarter. Year-to-date 2019 revenue was $315.8 million, compared to $270.3 million last year. The revenue increases were primarily related to the acquisition of the Layne Christensen Company in June 2018.
- Second quarter 2019 gross profit was $22.2 million compared to $21.5 million last year, with gross profit margin of 12.7 percent down from 14.1 percent last year. Year-to-date gross profit was $37.1 million, compared to $37.2 million last year, with gross profit margin of 11.7 percent, down from 13.8 percent in 2018. The margin was adversely impacted by project delays and by a labor dispute, resolved late in the quarter, that temporarily disrupted a key customer’s operations.
- Segment CAP totaled $559.3 million as of June 30, 2019.
- Second quarter 2019 revenue was $97.6 million, compared to $100.9 million in last year’s quarter. Year-to-date 2019 revenue was $139.3 million, compared to $146.7 million last year. The decrease is attributable to inclement weather across the western United States through May.
- Second quarter 2019 gross profit was $14.0 million, compared to $17.5 million last year, with gross profit margin of 14.3 percent down from 17.3 percent in 2018. Year-to-date gross profit was $10.2 million, compared to $15.0 million last year, with gross profit margin of 7.4 percent, down from 10.2 percent in 2018 as wet weather persisted all the way through May, slowing plant productivity.
Outlook and Guidance
On July 29, 2019, Granite announced that it has accelerated its strategic review of the Heavy Civil operating group with a clear objective to expedite the Company’s plan to reduce risk and exposure to the large, complex projects business. “This next step in de-risking our portfolio is critical on our path to produce predictable, consistent results,” Roberts said. “This action, coupled with a robust economic environment in our core business, creates profitable growth opportunities across geographies and end markets. Importantly, we just celebrated the one-year anniversary of the Layne Christensen acquisition and the completion of their systems conversion. This allows our companies to operate on one platform, providing increased efficiencies as we enter the back half of 2019.”
Roberts concluded, “Although our second quarter results reflected near-term challenges, we are energized to leverage the Company’s immense skill sets and broad capabilities and capitalize on a market that is both healthy and opportunistic. Now is the time to unlock the earnings power of our Company.”
The Company’s expectations for 2019 are:
• High single-digit consolidated revenue growth
• Adjusted EBITDA margin of 4.0 percent to 5.0 percent, including the impact of the charges
(1) Committed and Awarded Projects (“CAP”) is comprised of unearned revenue and other awards, as well as CMGC and alternative procurement projects.
(2) Acquisition-related expenses include acquisition, integration, acquired intangible amortization expenses, acquisition-related depreciation and synergy costs.
(3) 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.
Granite will conduct a conference call today, August 2, 2019, at 5:00 a.m. Pacific Time/8:00 a.m. Eastern Time to discuss the results of the quarter ended June 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 August 9, 2019, by calling 1-888-203-1112, replay access code 8102255; international callers may dial 1-719-457-0820.
Through its offices and subsidiaries nationwide, Granite Construction Incorporated (NYSE: GVA) is a full-suite provider in the transportation, water infrastructure and mineral exploration markets. Granite is America’s Infrastructure Company as well as an award-winning firm in safety, quality and environmental stewardship. The Company has been honored as one of the World’s Most Ethical Companies by Ethisphere Institute for ten consecutive years. 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, visit www.graniteconstruction.com and connect with Granite on LinkedIn, Twitter, Facebook and Instagram.
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.
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 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 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 securities analysts, institutional investors and other interested parties. 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. 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 timing and amount of the excluded items are unreasonably difficult to fully and accurately estimate.
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