GRANITE CONSTRUCTION INC 10-Q

Item 1. FINANCIAL STATEMENTS GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited - in thousands, except share and per share data) June 30, 2024 December 31, 2023 ASSETS Current assets Cash and cash equivalents ($ 121,963 and $ 120,224 related to consolidated construction joint ventures (“CCJVs”)) $ 366,746 $ 417,663 Short-term marketable securities 10,500 35,863 Receivables, net ($ 54,659 and $ 62,040 related to CCJVs) 709,248 598,705 Contract assets ($ 92,513 and $ 68,520 related to CCJVs) 309,376 262,987 Inventories 119,060 103,898 Equity in construction joint ventures 157,070 171,233 Other current assets ($ 5,080 and $ 5,590 related to CCJVs) 34,168 53,102 Total current assets 1,706,168 1,643,451 Property and equipment, net ($ 7,295 and $ 7,557 related to CCJVs) 670,876 662,864 Investments in affiliates 93,499 92,910 Goodwill 146,768 155,004 Intangible assets 107,575 117,322 Right of use assets 78,374 78,176 Deferred income taxes, net 19,989 8,179 Other noncurrent assets 58,120 55,634 Total assets $ 2,881,369 $ 2,813,540 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt $ 1,510 $ 39,932 Accounts payable ($ 65,499 and $ 62,755 related to CCJVs) 450,656 408,363 Contract liabilities ($ 58,170 and $ 50,929 related to CCJVs) 262,198 243,848 Accrued expenses and other current liabilities ($ 6,568 and $ 5,426 related to CCJVs) 302,039 337,740 Total current liabilities 1,016,403 1,029,883 Long-term debt 737,436 614,781 Long-term lease liabilities 64,995 63,548 Deferred income taxes, net 3,272 3,708 Other long-term liabilities 71,848 74,654 Commitments and contingencies (see Note 17) 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: 43,686,508 shares as of June 30, 2024 and 43,944,118 shares as of December 31, 2023 437 439 Additional paid-in capital 435,271 474,134 Accumulated other comprehensive income 270 881 Retained earnings 495,679 501,844 Total Granite Construction Incorporated shareholders’ equity 931,657 977,298 Non-controlling interests 55,758 49,668 Total equity 987,415 1,026,966 Total liabilities and equity $ 2,881,369 $ 2,813,540 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited - in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue Construction $ 917,954 $ 749,413 $ 1,513,167 $ 1,252,829 Materials 164,532 149,139 241,594 205,791 Total revenue 1,082,486 898,552 1,754,761 1,458,620 Cost of revenue Construction 782,582 670,259 1,320,967 1,136,970 Materials 135,193 125,207 214,798 186,205 Total cost of revenue 917,775 795,466 1,535,765 1,323,175 Gross profit 164,711 103,086 218,996 135,445 Selling, general and administrative expenses 70,052 64,563 158,045 137,685 Other costs, net 10,225 13,607 21,235 18,130 Gain on sales of property and equipment, net ( 1,387 ) ( 3,944 ) ( 2,805 ) ( 5,981 ) Operating income (loss) 85,821 28,860 42,521 ( 14,389 ) Other (income) expense Loss on debt extinguishment 27,824 51,052 27,824 51,052 Interest income ( 3,600 ) ( 3,232 ) ( 10,302 ) ( 6,994 ) Interest expense 5,337 4,131 13,420 7,022 Equity in income of affiliates, net ( 4,557 ) ( 7,044 ) ( 8,527 ) ( 12,231 ) Other (income) expense, net 1,267 ( 1,225 ) ( 476 ) ( 3,175 ) Total other expense, net 26,271 43,682 21,939 35,674 Income (loss) before income taxes 59,550 ( 14,822 ) 20,582 ( 50,063 ) Provision for (benefit from) income taxes 20,693 9,024 11,167 ( 445 ) Net income (loss) 38,857 ( 23,846 ) 9,415 ( 49,618 ) Amount attributable to non-controlling interests ( 1,962 ) 6,846 ( 3,503 ) 9,595 Net income (loss) attributable to Granite Construction Incorporated $ 36,895 $ ( 17,000 ) $ 5,912 $ ( 40,023 ) Net income (loss) per share attributable to common shareholders (see Note 15): Basic $ 0.84 $ ( 0.39 ) $ 0.13 $ ( 0.91 ) Diluted $ 0.76 $ ( 0.39 ) $ 0.13 $ ( 0.91 ) Weighted average shares outstanding: Basic 44,060 43,892 44,024 43,829 Diluted 52,727 43,892 44,593 43,829 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited - in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income (loss) $ 38,857 $ ( 23,846 ) $ 9,415 $ ( 49,618 ) Other comprehensive income (loss), net of tax Net unrealized loss on cash flow hedges, net of tax $ ( 735 ) $ ( 366 ) $ ( 146 ) $ ( 558 ) Less: reclassification for net gains (losses) included in interest expense, net of tax ( 144 ) 112 82 112 Net change $ ( 879 ) $ ( 254 ) $ ( 64 ) $ ( 446 ) Foreign currency translation adjustments, net ( 141 ) 396 ( 547 ) 453 Other comprehensive income (loss), net of tax $ ( 1,020 ) $ 142 $ ( 611 ) $ 7 Comprehensive income (loss), net of tax $ 37,837 $ ( 23,704 ) $ 8,804 $ ( 49,611 ) Non-controlling interests in comprehensive (income) loss, net of tax ( 1,962 ) 6,846 ( 3,503 ) 9,595 Comprehensive income (loss) attributable to Granite Construction Incorporated, net of tax $ 35,875 $ ( 16,858 ) $ 5,301 $ ( 40,016 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited - in thousands, except share data) Outstanding Shares Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Granite Shareholders’ Equity Non-controlling Interests Total Equity Balances at March 31, 2024 44,149,644 $ 441 $ 479,679 $ 1,290 $ 465,048 $ 946,458 $ 58,147 $ 1,004,605 Net income — — — — 36,895 36,895 1,962 38,857 Other comprehensive loss — — — ( 1,020 ) — ( 1,020 ) — ( 1,020 ) Repurchases of common stock (1) ( 231,133 ) ( 1 ) ( 13,220 ) — ( 505 ) ( 13,726 ) — ( 13,726 ) Restricted stock units (“RSUs”) vested 24,046 — — — — — — — Dividends on common stock ($0.13 per share) — — 79 — ( 5,759 ) ( 5,680 ) — ( 5,680 ) Capped call transactions — — ( 34,189 ) — — ( 34,189 ) — ( 34,189 ) Redemption of warrants — — 466 — — 466 — 466 Exercise of bond hedge ( 260,883 ) ( 3 ) 3 — — — — — Transactions with non-controlling interests — — — — — — ( 4,351 ) ( 4,351 ) Stock-based compensation expense and other 4,834 — 2,453 — — 2,453 — 2,453 Balances at June 30, 2024 43,686,508 $ 437 $ 435,271 $ 270 $ 495,679 $ 931,657 $ 55,758 $ 987,415 Balances at March 31, 2023 43,880,224 $ 439 $ 471,782 $ 653 $ 452,583 $ 925,457 $ 46,954 $ 972,411 Net loss — — — — ( 17,000 ) ( 17,000 ) ( 6,846 ) ( 23,846 ) Other comprehensive income — — — 142 — 142 — 142 Repurchases of common stock (1) ( 6,342 ) ( 1 ) ( 243 ) — — ( 244 ) — ( 244 ) RSUs vested 37,394 1 ( 1 ) — — — — — Dividends on common stock ($0.13 per share) — — 76 — ( 5,786 ) ( 5,710 ) — ( 5,710 ) Capped call transactions — — ( 39,379 ) — — ( 39,379 ) — ( 39,379 ) Redemption of warrants — — ( 13,201 ) — — ( 13,201 ) — ( 13,201 ) Loss on debt extinguishment 1,390,500 14 49,321 — — 49,335 — 49,335 Exercise of bond hedge ( 1,390,516 ) ( 14 ) 14 — — — — — Transactions with non-controlling interests — — — — — — ( 200 ) ( 200 ) Stock-based compensation expense and other 7,538 — 2,142 — — 2,142 — 2,142 Balances at June 30, 2023 43,918,798 $ 439 $ 470,511 $ 795 $ 429,797 $ 901,542 $ 39,908 $ 941,450 (1) This amount represents employee tax withholding for restricted stock units ("RSUs") vested under our equity incentive plans in 2024 and 2023 and stock repurchased in 2024 under the Board approved repurchase plan. During the three months ended June 30, 2024 and 2023, there were 6,133 shares and 6,342 shares, respectively, withheld related to employee taxes for RSUs. During the three months ended June 30, 2024, we also repurchased 225,000 shares under the share repurchase program. 6 Table of Contents Outstanding Shares Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Granite Shareholders’ Equity Non-controlling Interests Total Equity Balances at December 31, 2023 43,944,118 $ 439 $ 474,134 $ 881 $ 501,844 $ 977,298 $ 49,668 $ 1,026,966 Net income — — — — 5,912 5,912 3,503 9,415 Other comprehensive loss — — — ( 611 ) — ( 611 ) — ( 611 ) Repurchases of common stock (1) ( 366,567 ) ( 3 ) ( 20,636 ) — ( 505 ) ( 21,144 ) — ( 21,144 ) RSUs vested 365,440 4 ( 4 ) — — — — — Dividends on common stock ($0.13 per share per quarter) — — 152 — ( 11,572 ) ( 11,420 ) — ( 11,420 ) Capped call transactions — — ( 34,189 ) — — ( 34,189 ) — ( 34,189 ) Redemption of warrants — — 466 — — 466 — 466 Exercise of bond hedge ( 260,883 ) ( 3 ) 3 — — — — — Transactions with non-controlling interests — — — — — — 2,587 2,587 Stock-based compensation expense and other 4,400 — 15,345 — — 15,345 — 15,345 Balances at June 30, 2024 43,686,508 $ 437 $ 435,271 $ 270 $ 495,679 $ 931,657 $ 55,758 $ 987,415 Balances at December 31, 2022 43,743,907 $ 437 $ 470,407 $ 788 $ 481,384 $ 953,016 $ 32,129 $ 985,145 Net loss — — — — ( 40,023 ) ( 40,023 ) ( 9,595 ) ( 49,618 ) Other comprehensive income — — — 7 — 7 — 7 Repurchases of common stock (1) ( 93,602 ) (1) ( 3,766 ) — — ( 3,767 ) — ( 3,767 ) RSUs vested 261,362 3 ( 3 ) — — — — — Dividends on common stock ($0.13 per share per quarter) — — 150 — ( 11,564 ) ( 11,414 ) — ( 11,414 ) Capped call transactions — — ( 39,379 ) — — ( 39,379 ) — ( 39,379 ) Redemption of warrants — — ( 13,201 ) — — ( 13,201 ) — ( 13,201 ) Loss on debt extinguishment 1,390,500 14 49,321 — — 49,335 — 49,335 Exercise of bond hedge ( 1,390,516 ) ( 14 ) 14 — — — — — Transactions with non-controlling interests — — — — — — 17,374 17,374 Stock-based compensation expense and other 7,147 — 6,968 — — 6,968 — 6,968 Balances at June 30, 2023 43,918,798 $ 439 $ 470,511 $ 795 $ 429,797 $ 901,542 $ 39,908 $ 941,450 (1) This amount represents employee tax withholding for restricted stock units ("RSUs") vested under our equity incentive plans in 2024 and 2023 and stock repurchased in 2024 under the Board approved repurchase plan. During the six months ended June 30, 2024 and 2023, there were 141,567 shares and 93,602 shares, respectively, withheld related to employee taxes for RSUs. During the six months ended June 30, 2024, we also repurchased 225,000 shares under the share repurchase program. The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents GRANITE CONSTRUCTION INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ( Unaudited - in thousands ) Six Months Ended June 30, 2024 2023 Operating activities Net income (loss) $ 9,415 $ ( 49,618 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation, depletion and amortization 58,468 41,528 Amortization related to long-term debt 2,334 988 Loss on debt extinguishment 27,824 51,052 Gain on sales of property and equipment, net ( 2,805 ) ( 5,981 ) Stock-based compensation 15,084 6,702 Equity in net (income) loss from unconsolidated construction joint ventures ( 752 ) 4,005 Net income from affiliates ( 8,527 ) ( 12,231 ) Other non-cash adjustments ( 348 ) ( 7 ) Changes in assets and liabilities: Receivables ( 109,787 ) ( 171,469 ) Contract assets, net ( 28,028 ) ( 46,469 ) Inventories ( 15,172 ) ( 3,439 ) Contributions to unconsolidated construction joint ventures ( 2,000 ) ( 14,710 ) Distributions from unconsolidated construction joint ventures and affiliates 15,861 6,246 Other assets, net 16,461 ( 6,464 ) Accounts payable 50,680 51,552 Accrued expenses and other liabilities, net ( 6,624 ) 29,367 Net cash provided by (used in) operating activities $ 22,084 $ ( 118,948 ) Investing activities Maturities of marketable securities 25,000 30,000 Purchases of property and equipment ( 66,861 ) ( 79,689 ) Proceeds from sales of property and equipment 4,229 10,564 Proceeds from company owned life insurance — 1,545 Return of investment in affiliates 693 — Cash paid for purchase price adjustments on business acquisition (See Note 3) ( 13,183 ) — Acquisition of business — ( 26,933 ) Collection of notes receivable — 135 Net cash used in investing activities $ ( 50,122 ) $ ( 64,378 ) Financing activities Proceeds from issuance of convertible notes (See Note 14) 373,750 373,750 Proceeds from long-term debt — 55,000 Debt principal repayments ( 309,808 ) ( 249,589 ) Capped call transactions ( 46,046 ) ( 53,035 ) Redemption of warrants 586 ( 13,201 ) Debt issuance costs ( 9,654 ) ( 9,806 ) Cash dividends paid ( 11,452 ) ( 11,391 ) Repurchases of common stock ( 21,144 ) ( 3,766 ) Contributions from non-controlling partners 17,000 22,400 Distributions to non-controlling partners ( 16,372 ) ( 6,850 ) Other financing activities, net 261 269 Net cash provided by (used in) financing activities $ ( 22,879 ) $ 103,781 Net decrease in cash and cash equivalents ( 50,917 ) ( 79,545 ) Cash and cash equivalents at beginning of period 417,663 293,991 Cash and cash equivalents at end of period $ 366,746 $ 214,446 8 Table of Contents Supplementary Information Right of use assets obtained in exchange for lease obligations $ 10,849 $ 19,558 Cash paid during the period for: Operating lease liabilities $ 11,197 $ 11,351 Interest $ 12,444 $ 5,531 Income taxes $ 2,940 $ 4,851 Other non-cash operating activities: Deferred taxes related to capped call transactions $ 11,857 $ 13,656 Non-cash investing and financing activities: RSUs issued, net of forfeitures $ 19,992 $ 10,981 Dividends declared but not paid $ 5,679 $ 5,709 Contributions from non-controlling partners $ 1,959 $ 1,822 The accompanying notes are an integral part of these condensed consolidated financial statements. 9 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1.   General Basis of Presentation: The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we,” “us,” “our,” the “Company” or “Granite”) pursuant to the rules and regulations of the Securities and Exchange Commission, are unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to state fairly our financial position at June 30, 2024 and the results of our operations and cash flows for the periods presented. The December 31, 2023 condensed consolidated balance sheet data included herein was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. During the first quarter of 2024, we reorganized our operational structure to more closely align with our two reportable segments, Construction and Materials. Previously, leaders within our three former operating groups of California, Central and Mountain managed both Construction and Materials operations within each group. This change allows us to better leverage our expertise within each reportable segment with leadership having direct oversight of their respective segment operations. As a result of the reorganization, we will no longer disclose financial information by operating group. There were no material impacts to our unaudited condensed consolidated financial statements and no changes to our reportable segments. Due to the changes in our operational structure and the resulting changes to reporting units, we performed quantitative goodwill impairment tests, immediately before and after the reorganization, on the affected reporting units. These reporting units previously aligned with our operating group structure, but have now been combined into two reporting units, Construction and Materials. The reporting units associated with the acquisition of Lehman-Roberts Company and Memphis Stone & Gravel Company (collectively, "LRC/MSG") were not impacted by the reorganization. For each of the affected reporting units, we calculated the estimated fair value consistent with the annual impairment assessment using the discounted cash flows and market multiple methods. These tests indicated that the estimated fair values of the affected reporting units exceeded their carrying amounts with headroom in excess of 25 %. Share Repurchase Program: As announced on February 3, 2022, on February 1, 2022, the Board of Directors authorized us to purchase up to $300.0 million of our common stock at management’s discretion. During the three and six months ended June 30, 2024, we repurchased 225,000 shares under this authorization at an average price of $59.32 per share for $13.3 million. The share repurchases are included in Repurchases of common stock on the Condensed Consolidated Statements of Shareholders’ Equity and within Financing activities on the Condensed Consolidated Statement of Cash Flows. As of June 30, 2024, $218.2 million of the authorization remained available. Seasonality: Our operations are typically affected more by weather conditions during the first and fourth quarters of our fiscal year which may alter our construction schedules and can create variability in our revenues and profitability. Therefore, the results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the full year. Subsequent Event: On July 31, 2024, we agreed, subject to customary closing conditions, to acquire Dickerson & Bowen, Inc. with the transaction expected to close in the third quarter. Dickerson & Bowen is an aggregates, asphalt, and highway construction company serving central and southern Mississippi. This acquisition is not expected to have a material impact on our results of operations. 2.   Recently Issued and Adopted Accounting Pronouncements We closely monitor all Accounting Standards Updates issued by the Financial Accounting Standards Board and other authoritative guidance. No new accounting pronouncements were recently issued or adopted in the six months ended June 30, 2024 that had or are expected to have a material impact on our financial statements. 3.   Acquisitions On April 24, 2023, we acquired Coast Mountain Resources (2020) Ltd. which changed its name to Granite Infrastructure Canada, Ltd. ("Granite Canada") on May 13, 2024. Granite Canada is a construction aggregate producer based in British 10 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Columbia, Canada operating on Malahat First Nation land. Granite Canada results are reported in the Materials segment. This acquisition did not have a material impact on our financial statements. On November 30, 2023 (“acquisition date”), we completed the acquisition of LRC/MSG for $ 278.0 million, subject to customary closing adjustments, plus an estimated amount related to tax make-whole agreements with the seller. We purchased all of the outstanding equity interests in LRC/MSG and the purchase price was funded by a $ 150.0 million senior secured term loan, a draw of $ 100 million under our existing revolver and the remainder from cash on hand. Both the senior secured term loan and the draw under the revolver were fully repaid during the the six months ended June 30, 2024. The acquired businesses are longstanding asphalt paving and asphalt and aggregates producers and suppliers. LRC/MSG operates strategically located asphalt plants and sand and gravel mines serving the greater Memphis area and northern Mississippi. The buyer of LRC/MSG, Granite Southeast, is a wholly-owned subsidiary of Granite Construction Incorporated, and its results have been included in the Construction and Materials segments since the acquisition date. LRC/MSG’s customers are in both the public and private sectors. We have accounted for this transaction in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations (“ASC 805”). Revenue attributable to LRC/MSG for the three and six months ended June 30, 2024 was $ 45.5 million and $ 59.5 million, respectively. Gross profit (loss) attributable to LRC/MSG for the three and six months ended June 30, 2024 was a profit of $ 7.9 million and a loss of $ 0.7 million, respectively. Preliminary Purchase Price Allocation In accordance with ASC 805, the total purchase price and assumed liabilities were allocated to the net tangible and identifiable intangible assets based on their estimated fair values as of the acquisition date, as presented in the table below. These estimates are subject to revision, which may result in adjustments to the values presented below. We recorded a $22.0 million provisional estimate related to tax make-whole agreements with the seller at the time of the acquisition. In the second quarter of 2024, the former owners of LRC/MSG determined their personal tax burden related to the sale of the businesses which allowed us to finalize our tax make-whole obligation. Our obligation was $7.1 million, which was paid in June 2024. During the six months ended June 30, 2024, we made measurement period adjustments to reflect facts and circumstances in existence as of the acquisition date. These adjustments included a $ 4.6 million net increase from net working capital adjustments and a $2.2 million net decrease in the value of the net tangible and identifiable intangible assets acquired, offset by a $14.9 million decrease in the estimated obligation associated with the tax make-whole agreements noted above. The impact of these adjustments was a decrease in goodwill of $8.1 million. We paid $ 13.2 million during the six months ended June 30, 2024 associated with the acquisition of LRC/MSG, which includes $6.1 million for working capital adjustments and $7.1 million for the tax make-whole obligation. As we continue to integrate the acquired business, we may obtain additional information on the acquired identifiable intangible assets which, if significant, may require revisions to preliminary valuation assumptions, estimates and resulting fair values. We expect to finalize these amounts within 12 months from the acquisition date. 11 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The following table presents the preliminary purchase price allocation: (in thousands) Assets Cash and cash equivalents $ 12,798 Receivables 18,373 Contract assets 3,388 Inventories 13,738 Other current assets 1,032 Property and equipment 86,329 Right of use assets 15,539 Other noncurrent assets 3,718 Total tangible assets 154,915 Identifiable intangible assets 107,460 Liabilities Accounts payable 6,806 Contract liabilities 3,213 Accrued expenses and other current liabilities 10,166 Long-term lease liabilities 15,558 Other long-term liabilities 5,960 Total liabilities assumed 41,703 Total tangible and identifiable intangible net assets acquired 220,672 Goodwill 72,744 Estimated purchase price $ 293,416 4.   Revisions in Estimates Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. Changes in estimates of transaction price and costs to complete may result in the reversal of previously recognized revenue if the current estimate adversely differs from the previous estimate. In addition, the estimated or actual recovery related to estimated costs associated with unresolved affirmative claims and back charges may be recorded in future periods or may be at values below the associated cost, which can cause fluctuations in the gross profit impact from revisions in estimates. When we experience significant revisions in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future. In our review of these changes for the three and six months ended June 30, 2024 and 2023, we did not identify any material amounts that should have been recorded in a prior period. There were no increases to revisions which individually had an impact of $5.0 million or more on gross profit during the three months ended June 30, 2024 or 2023. During the six months ended June 30, 2024, there was one project with an increase from revisions in estimates which had an impact to gross profit of $6.1 million and an increase in net income of $4.7 million, none of which was attributable to non-controlling interests. The revision increased the net income per diluted share attributable to common shareholders by $0.11. The increase was due to changes in the estimated transaction price related to unresolved contract modifications resulting from revisions to project work plans, permitting and schedule. 12 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) During the six months ended June 30, 2023, there was one project with an increase from revisions in estimates which had an impact to gross profit of $6.9 million and a reduction of net loss of $5.2 million, with $2.7 million of that amount attributable to non-controlling interests. The revision decreased the net loss per diluted share by $0.06. The increase was due to decreases in estimated costs from mitigated risks. The projects with decreases from revisions in estimates, which individually had an impact of $ 5.0 million or more on gross profit, are summarized as follows (dollars in millions, except per share data): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Number of projects with downward estimate changes 2 1 3 2 Range of reduction in gross profit from each project, net $ 5.3 - 10.1 $ 20.7 $ 5.9 - 17.8 $ 5.9 - 32.1 Decrease to project profitability, net $ 15.5 $ 20.7 $ 30.2 $ 38.0 Decrease to net income/increase to net loss $ 11.9 $ 15.8 $ 23.2 $ 29.0 Amounts attributable to non-controlling interests $ 2.7 $ 10.4 $ 3.2 $ 16.0 Decrease to net income/increase to net loss attributable to Granite Construction Incorporated $ 9.2 $ 5.4 $ 19.9 $ 13.0 Decrease to net income/increase to net loss per diluted share attributable to common shareholders $ 0.17 $ 0.12 $ 0.45 $ 0.30 The decreases during the three and six months ended June 30, 2024 were due to additional costs related to changes in project duration, lower productivity than originally anticipated and increased labor and materials costs. The decreases during the three and six months ended June 30, 2023 were due to additional costs related to changes in project duration and increased labor and materials costs. 5.   Disaggregation of Revenue As discussed in Note 1, during the first quarter of 2024, we reorganized our operational structure to more closely align with our two reportable segments, Construction and Materials. Previously, leaders within our three former operating groups of California, Central and Mountain managed both Construction and Materials operations within each group. As a result of the reorganization, we will no longer disclose financial information by operating group and we have updated our presentation of disaggregated revenue. The prior year disaggregation of revenue amounts have been recast to conform with current period presentation. Revenue is disaggregated by reportable segment (see Note 18) and customer type, which we believe best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Customer Type Customers in our Construction segment are predominantly in the public sector which includes certain federal agencies, state departments of transportation, local transit authorities, county and city public works departments and school districts. Our private sector customers include, but are not limited to, developers, utilities and private owners of industrial, commercial and residential sites. Customers of our Materials segment include internal usage by our own construction projects, as well as third-party customers. Based on the nature of the Materials business, it is not meaningful to disaggregate revenue by customer type. 13 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The following table presents our revenue disaggregated by reportable segment and by customer type for the Construction segment: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Construction segment revenue: Public $ 696,710 $ 505,460 $ 1,116,527 $ 838,552 Private 221,244 243,953 396,640 414,277 Total Construction segment revenue 917,954 749,413 1,513,167 1,252,829 Materials segment revenue 164,532 149,139 241,594 205,791 Total revenue $ 1,082,486 $ 898,552 $ 1,754,761 $ 1,458,620 6.   Unearned Revenue The following table presents our unearned revenue disaggregated by customer type as of the respective periods: (in thousands) June 30, 2024 December 31, 2023 Public $ 3,067,302 $ 2,892,255 Private 799,876 704,421 Total $ 3,867,178 $ 3,596,676 All unearned revenue is in the Construction segment. Approximately $ 2.7 billion of the June 30, 2024 unearned revenue is expected to be recognized within the next twelve months and the remaining amount will be recognized thereafter. 7.   Contract Assets and Liabilities As a result of changes in contract transaction price related to performance obligations that were satisfied or partially satisfied prior to the end of the periods, we recognized revenue of $ 93.1 million and $ 177.4 million during the three and six months ended June 30, 2024 and $ 45.5 million and $ 89.7 million during the three and six months ended June 30, 2023. The changes in contract transaction price for the three and six months ended June 30, 2024 and 2023 were from items such as executed or estimated change orders and unresolved contract modifications and claims. As of June 30, 2024 and December 31, 2023, the aggregate claim recovery estimates included in contract asset and liability balances were $ 70.4 million and $ 77.9 million, respectively. The components of the contract asset balances as of the respective dates were as follows: (in thousands) June 30, 2024 December 31, 2023 Costs in excess of billings and estimated earnings $ 135,326 $ 100,106 Contract retention 174,050 162,881 Total contract assets $ 309,376 $ 262,987 As of June 30, 2024 and December 31, 2023, contract retention receivable from Brightline Trains Florida LLC represented 9.4 % and 11.1 %, respectively, of total contract assets. No other contract retention receivable individually exceeded 10% of total contract assets at any of the presented dates. The majority of the contract retention balance is expected to be collected within one year. As work is performed, revenue is recognized and the corresponding contract liabilities are reduced. We recognized revenue of $ 55.0 million and $ 253.3 million during the three and six months ended June 30, 2024, respectively, and $ 48.1 million and $ 171.1 million during the three and six months ended June 30, 2023, respectively, that was included in the contract liability balances at December 31, 2023 and 2022, respectively. 14 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The components of the contract liability balances as of the respective dates were as follows: (in thousands) June 30, 2024 December 31, 2023 Billings in excess of costs and estimated earnings, net of retention $ 245,536 $ 227,913 Provisions for losses 16,662 15,935 Total contract liabilities $ 262,198 $ 243,848 8.   Receivables, net Receivables include billed and unbilled amounts for services provided to clients for which we have an unconditional right to payment as of the end of the applicable period and generally do not bear interest. The following table presents major categories of receivables: (in thousands) June 30, 2024 December 31, 2023 Contracts completed and in progress: Billed $ 304,766 $ 343,190 Unbilled 232,472 119,170 Total contracts completed and in progress 537,238 462,360 Materials sales 86,072 61,808 Other 86,889 76,084 Total gross receivables 710,199 600,252 Less: allowance for credit losses 951 1,547 Total net receivables $ 709,248 $ 598,705 Included in other receivables at June 30, 2024 and December 31, 2023 were items such as estimated recovery from back charge claims, notes receivable, fuel tax refunds and income tax refunds. Other receivables at June 30, 2024 and December 31, 2023 also included $ 25.0 million of working capital contributions in the form of a loan to a partner in one of our unconsolidated construction joint ventures, plus accrued interest. None of our customers had a receivable balance in excess of 10 % of our total net receivables as of June 30, 2024 or December 31, 2023. 15 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 9.   Fair Value Measurement The following tables summarize significant assets and liabilities measured at fair value in the condensed consolidated balance sheets on a recurring basis for each of the fair value levels (in thousands): Fair Value Measurement at Reporting Date Using June 30, 2024 Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $ 75,458 $ — $ — $ 75,458 Total assets $ 75,458 $ — $ — $ 75,458 Accrued and other current liabilities Heating oil swaps $ — $ 121 $ — $ 121 Crude oil swaps — 212 — 212 Diesel collars — 246 — 246 Total liabilities $ — $ 579 $ — $ 579 December 31, 2023 Cash equivalents Money market funds $ 101,275 $ — $ — $ 101,275 Total assets $ 101,275 $ — $ — $ 101,275 Accrued and other current liabilities Interest rate swap $ — $ 126 $ — $ 126 Heating oil swaps — 153 — 153 Diesel collars — 802 — 802 Total liabilities $ — $ 1,081 $ — $ 1,081 Interest Rate Swap In connection with entering into Amendment No. 2 to the Fourth Amended and Restated Credit Agreement, as amended (the "Credit Agreement") in November 2023, we entered into an interest rate swap designated as a cash flow hedge with an initial notional amount of $ 75.0 million and an effective date of December 2023 and a maturity date of June 2027. In conjunction with the payoff of our term loan in June 2024, the interest rate swap was terminated resulting in a gain of $1.4 million. Commodity Derivatives In 2023, we entered into collar contracts and commodity swaps to reduce our price exposure on diesel consumption and heating oil consumption, respectively. The collars and swaps were not designated as hedges and will be treated as mark-to-market derivative instruments through their maturity dates. The financial statement impact of the collar contracts and commodity swaps for the three and six months ended June 30, 2024 and 2023 was immaterial . In April 2024 and December 2022, we entered into commodity swaps designed as a cash flow hedge for crude oil with a notional amount of $ 9.2 million and $ 7.0 million, respectively, and maturity dates of October 31, 2024 and October 31, 2023, respectively. The financial statement impact of these swaps during the three and six months ended June 30, 2024 and 2023 was immaterial . 16 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Other Assets and Liabilities The carrying values and estimated fair values of financial instruments that are not required to be recorded at fair value in the condensed consolidated balance sheets were as follows: June 30, 2024 December 31, 2023 (in thousands) Fair Value Hierarchy Carrying Value Fair Value Carrying Value Fair Value Assets: Held-to-maturity marketable securities (1) Level 1 $ 10,500 $ 10,336 $ 35,863 $ 35,357 Liabilities (including current maturities): 3.25 % Convertible Notes (2) Level 2 $ 373,750 $ 388,775 $ — $ — 3.75 % Convertible Notes (2) Level 2 $ 373,750 $ 542,369 $ 373,750 $ 475,601 2.75 % Convertible Notes (2) Level 2 $ 420 $ 825 $ 31,338 $ 51,045 Credit Agreement - Term Loan (2) Level 3 $ — $ — $ 150,000 $ 153,585 Credit Agreement - Revolver (2) Level 3 $ — $ — $ 100,000 $ 102,317 (1) All marketable securities were classified as held-to-maturity and consisted of U.S. Government and agency obligations as of June 30, 2024 and December 31, 2023. (2) The fair values of our 2.75 % convertible senior notes due 2024 (the " 2.75 % Convertible Notes"), our 3.25 % convertible senior notes due 2030 (the " 3.25 % Convertible Notes") and our 3.75 % convertible senior notes due 2028 (the " 3.75 % Convertible Notes") are based on the median price of the notes in an active market. The fair value of the Credit Agreement is based on borrowing rates available to us for long-term loans with similar terms, average maturities, and credit risk. See Note 14 for more information about the 2.75 % Convertible Notes, 3.25 % Convertible Notes, 3.75 % Convertible Notes and the Credit Agreement. During the six months ended June 30, 2024 and 2023, we had no material nonfinancial asset and liability fair value adjustments. 10.   Construction Joint Ventures We participate in various construction joint ventures. We have determined that certain of these joint ventures are consolidated because they are variable interest entities (“VIEs”) and we are the primary beneficiary. We continually evaluate whether there are changes in the status of the VIEs or changes to the primary beneficiary designation of the VIE. Based on our assessments during the three and six months ended June 30, 2024, we determined no change was required for existing joint ventures. Due to the joint and several nature of the performance obligations under the related owner contracts, if any of our partners fail to perform, we and the remaining partners, if any, would be responsible for performance of the outstanding work (i.e., we provide a performance guarantee). We are not able to estimate amounts that may be required beyond the current remaining forecasted cost of the work to be performed. These forecasted costs could be offset by billings to the customer or by proceeds from our partners’ corporate and/or other guarantees. See Note 13 for disclosure of the performance guarantee amounts recorded in the condensed consolidated balance sheets. Consolidated Construction Joint Ventures (“CCJVs”) As of June 30, 2024, we were engaged in ten active CCJV projects. Our proportionate share of the equity in these joint ventures was between 50.0 % and 70.0 %. During the three and six months ended June 30, 2024 and 2023, total revenue from CCJVs was $ 92.2 million, $ 163.8 million, $ 70.8 million, and $ 132.1 million, respectively. During the six months ended June 30, 2024 and 2023, CCJVs provided $ 8.6 million of operating cash flows and used $ 48.3 million of operating cash flows, respectively. As of June 30, 2024, our share of revenue remaining to be recognized on these CCJVs was $ 348.0 million and ranged from $ 2.6 million to $ 105.3 million by project. Unconsolidated Construction Joint Ventures As of June 30, 2024, we were engaged in five active unconsolidated construction joint venture projects. Our proportionate share of the equity in these unconsolidated construction joint ventures ranged from 30.0 % to 50.0 %. As of June 30, 2024, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ 34.6 million and ranged from $ 0.9 million to $ 25.9 million by project. 17 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) The following is summary financial information related to unconsolidated construction joint ventures: (in thousands) June 30, 2024 December 31, 2023 Assets Cash, cash equivalents and marketable securities $ 127,513 $ 117,962 Other current assets (1) 605,779 666,536 Noncurrent assets 37,794 52,580 Less: partners’ interest 527,663 574,723 Granite’s interest (1),(2) $ 243,423 $ 262,355 Liabilities Current liabilities $ 157,580 $ 191,175 Less: partners’ interest and adjustments (3) 64,623 85,131 Granite’s interest $ 92,957 $ 106,044 Equity in construction joint ventures (4) $ 150,466 $ 156,311 (1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 was $ 57.8 million related to performance guarantees (see Note 13). (2) Included in this balance as of June 30, 2024 and December 31, 2023 was $ 68.4 million and $66.6 million, respectively, related to Granite’s share of estimated cost recovery of customer affirmative claims. In addition, this balance included $ 1.7 million related to Granite’s share of estimated recovery of back charge claims as of June 30, 2024 and December 31, 2023, respectively. (3) Partners’ interest and adjustments includes amounts to reconcile total net assets as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast differences. (4) Included in this balance and in accrued expenses and other current liabilities on our condensed consolidated balance sheets was $ 6.6 million and $ 14.9 million as of June 30, 2024 and December 31, 2023, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Revenue Total $ 21,648 $ 25,211 $ 30,365 $ 63,385 Less: partners’ interest and adjustments (1) 14,455 15,691 12,942 39,020 Granite’s interest $ 7,193 $ 9,520 $ 17,423 $ 24,365 Cost of revenue Total $ 27,346 $ 40,564 $ 46,097 $ 84,935 Less: partners’ interest and adjustments (1) 18,106 25,912 28,376 56,316 Granite’s interest $ 9,240 $ 14,652 $ 17,721 $ 28,619 Granite’s interest in gross loss $ ( 2,047 ) $ ( 5,132 ) $ ( 298 ) $ ( 4,254 ) Net Income (Loss) Total $ ( 3,950 ) $ ( 14,574 ) $ ( 12,099 ) $ ( 20,228 ) Less: partners’ interest and adjustments (1) ( 2,412 ) ( 9,658 ) ( 12,851 ) ( 16,223 ) Granite’s interest in net income (loss) (2) $ ( 1,538 ) $ ( 4,916 ) $ 752 $ ( 4,005 ) (1) Partners’ interest and adjustments includes amounts to reconcile total revenue and total cost of revenue as reported by our partners to Granite’s interest adjusted to reflect our accounting policies and estimates primarily related to contract forecast and/or actual differences. (2) These joint venture net income amounts exclude our corporate overhead required to manage the joint ventures and include taxes only to the extent the applicable states have joint venture level taxes. 18 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 11.   Investments in Affiliates Our investments in affiliates balance consists of equity method investments in the following types of entities: (in thousands) June 30, 2024 December 31, 2023 Foreign $ 72,255 $ 68,407 Real estate 5,317 7,136 Asphalt terminal 15,927 17,367 Total investments in affiliates $ 93,499 $ 92,910 The following table provides summarized balance sheet information for our affiliates accounted for under the equity method on a combined basis: (in thousands) June 30, 2024 December 31, 2023 Current assets $ 192,560 $ 204,897 Noncurrent assets 141,950 159,694 Total assets $ 334,510 $ 364,591 Current liabilities $ 70,078 $ 81,899 Long-term liabilities (1) 46,799 54,591 Total liabilities $ 116,877 $ 136,490 Net assets $ 217,633 $ 228,101 Granite’s share of net assets $ 93,499 $ 92,910 (1) This balance is primarily related to local bank debt for equipment purchases and debt associated with our real estate investments. Of the $ 334.5 million of total affiliate assets as of June 30, 2024, we had investments in two real estate entities with total assets of $ 41.7 million, our foreign affiliates had total assets of $ 254.5 million and the asphalt terminal entity had total assets of $ 38.3 million. As of June 30, 2024 and December 31, 2023, all of the investments in real estate affiliates were in residential real estate in Texas. As of June 30, 2024, our percent ownership in the real estate entities ranged from 10 % to 25 %. We have direct and indirect investments in our foreign affiliates, and our percent ownership in foreign affiliates ranged from 25 % to 50 % as of June 30, 2024. Our percent ownership in the asphalt terminal entity was 50 % as of June 30, 2024. 12.   Property and Equipment, net Balances of major classes of assets and total accumulated depreciation and depletion are included in property and equipment, net in the condensed consolidated balance sheets as follows: (in thousands) June 30, 2024 December 31, 2023 Equipment and vehicles $ 1,165,523 $ 1,140,195 Quarry property 252,633 251,922 Land and land improvements 107,230 105,872 Buildings and leasehold improvements 108,586 102,676 Office furniture and equipment 72,031 72,098 Property and equipment $ 1,706,003 $ 1,672,763 Less: accumulated depreciation and depletion 1,035,127 1,009,899 Property and equipment, net $ 670,876 $ 662,864 19 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 13.   Accrued Expenses and Other Current Liabilities (in thousands) June 30, 2024 December 31, 2023 Accrued insurance $ 95,317 $ 81,936 Deficits in unconsolidated construction joint ventures 6,604 14,921 Payroll and related employee benefits 81,082 105,418 Performance guarantees 57,849 57,849 Short-term lease liabilities 16,255 16,826 Other 44,932 60,790 Total $ 302,039 $ 337,740 Other includes dividends payable, warranty reserves, asset retirement obligations, remediation reserves, legal accruals and other miscellaneous accruals, none of which were greater than 5% of total current liabilities at any of the presented dates. At December 31, 2023, the "other" balance above included the estimated LRC/MSG tax make-whole liability (see Note 3) which was finalized and paid in June 2024. 14.   Long-Term Debt and Credit Arrangements (in thousands) June 30, 2024 December 31, 2023 3.25 % Convertible Notes $ 373,750 $ — 3.75 % Convertible Notes 373,750 373,750 2.75 % Convertible Notes 420 31,338 Credit Agreement - Term Loan — 150,000 Credit Agreement - Revolver — 100,000 Debt issuance costs and other ( 8,974 ) ( 375 ) Total debt $ 738,946 $ 654,713 Less: current maturities 1,510 39,932 Total long-term debt $ 737,436 $ 614,781 Credit Agreement In June 2022, we entered into the Credit Agreement which matures on June 2, 2027. The Credit Agreement consisted of a $ 350.0 million senior secured, five-year revolving credit facility (the “Revolver”), including an accordion feature allowing us to increase borrowings up to the greater of (a) $ 200.0 million and (b) 100 % of twelve-month trailing consolidated EBITDA, subject to lender approval. The Credit Agreement includes a $ 150.0 million sublimit for letters of credit ($ 75.0 million for financial letters of credit) and a $ 20.0 million sublimit for swingline loans. In May 2023, we entered into Amendment No. 1 to the Credit Agreement ("Amendment No. 1"). Amendment No. 1 amended the Credit Agreement to, among other things, permit the Company to exchange its 2.75 % Convertible Notes for cash and shares of its common stock and to clarify that (i) the issuance of the 3.75 % Convertible Notes was permitted under the terms of the Credit Agreement and (ii) that a Swap Contract (as defined in the Credit Agreement) does not include any Permitted Call Spread Transaction (as defined in the Credit Agreement). In November 2023, we entered into Amendment No. 2 to the Credit Agreement ("Amendment No. 2") which amended the Credit Agreement to, among other things, provide for a $ 150.0 million senior secured term loan (the “Term Loan”), which was fully drawn on closing to fund the LRC/MSG acquisition. The Term Loan was scheduled to mature on June 2, 2027 and amortize 5 % per year, payable in quarterly installments beginning in the first quarter of 2024. At March 31, 2024 there was $ 148.1 million outstanding on the Term Loan which was fully repaid with the net proceeds from our 3.25 % Convertible Notes during the three months ended June 30, 2024. We may borrow on the Revolver, at our option, at either (a) the Secured Overnight Financing Rate (“SOFR”) term rate plus a credit adjustment spread plus applicable margin ranging from 1.0 % to 2.0 %, or (b) a base rate plus an applicable margin ranging from zero to 1.0 %. The applicable margin is based on our Consolidated Leverage Ratio (as defined in our Credit Agreement), calculated quarterly. As of June 30, 2024, the total unused availability under the Credit Agreement was $ 333.4 million, resulting from $ 16.6 million in issued and outstanding letters of credit and nothing drawn under the Revolver. The letters of credit had expiration dates between July 2024 and December 2027. 20 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 3.25% Convertible Notes On June 11, 2024, we issued $373.8 million aggregate principal amount of our 3.25 % Convertible Notes. The 3.25 % Convertible Notes bear interest at a rate of 3.25 % per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2024. The 3.25 % Convertible Notes mature on June 15, 2030, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding December 15, 2029, the 3.25 % Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 3.25 % Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding their maturity date. The 3.25 % Convertible Notes have an initial conversion rate of 12.8398 shares of Granite’s common stock per $1,000 principal amount of the 3.25 % Convertible Notes, which is equivalent to an initial conversion price of approximately $77.88 per share of Granite’s common stock, subject to adjustment if certain events occur. Upon conversion, we will settle the principal amount of the 3.25 % Convertible Notes in cash, and any conversion premium in excess of the principal amount in cash, or a combination of cash and shares of common stock, at our election. In addition, upon the occurrence of a “fundamental change” as defined in the indenture governing the 3.25 % Convertible Notes, holders may require us to repurchase for cash all or any portion of their 3.25 % Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 3.25 % Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If certain corporate events that constitute a “make-whole fundamental change” as set forth in the indenture governing the 3.25 % Convertible Notes occur prior to the maturity date of the 3.25 % Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.25 % Convertible Notes in connection with such event or notice of redemption. We will not be able to redeem the 3.25 % Convertible Notes prior to June 21, 2027. On or after June 21, 2027, we will be able to redeem for cash all or any portion of the 3.25 % Convertible Notes, at our option, if the last reported sale price of Granite’s common stock is equal to or greater than 130% of the conversion price for a specified period of time at a redemption price equal to 100% of the principal amount of the 3.25 % Convertible Notes to be redeemed, plus accrued but unpaid interest to, but excluding, the redemption date. The indenture governing the 3.25 % Convertible Notes contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization, with respect to us or our significant subsidiaries, all outstanding 3.25 % Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25% in aggregate principal amount of the 3.25 % Convertible Notes then outstanding may declare the 3.25 % Convertible Notes due and payable immediately. The net proceeds from the sale of the 3.25 % Convertible Notes were approximately $365.0 million, after deducting the initial purchasers’ discount. We used approximately $46.0 million of the net proceeds from the 3.25 % Convertible Notes offering to pay the cost of entering into capped call transactions in connection with the 3.25 % Convertible Notes. In addition, we paid approximately $57.6 million of the net proceeds from the 3.25 % Convertible Notes offering to repurchase approximately $30.2 million in aggregate principal amount of our 2.75% Convertible Notes in separate and individually negotiated transactions entered into concurrently with the pricing of the offering; repaid amounts outstanding under our Term Loan of $ 148.1 million; repurchased $13.3 million of shares under our authorized share repurchase program; with the remainder of the net proceeds available for general corporate purposes, which may include acquisitions. 2024 Capped Call Transactions In June 2024, we entered into privately negotiated capped call transactions in connection with the offering of the 3.25 % Convertible Notes (the "2024 capped call transactions"). The 2024 capped call transactions are expected generally to reduce the potential dilution to Granite’s common stock upon any conversion of the 3.25 % Convertible Notes and/or offset any cash payments Granite is required to make in excess of the principal amount of converted 3.25 % Convertible Notes, as the case may be. If, however, the market price per share of Granite’s common stock, as measured under the terms of the 2024 capped call transactions, exceeds the cap price $119.82 of the 2024 capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the 2024 capped call transactions. 3.75 % Convertible Notes On May 11, 2023, we issued $ 373.8 million aggregate principal amount of our 3.75 % Convertible Notes. The 3.75 % Convertible Notes bear interest at a rate of 3.75 % per annum payable semiannually in arrears on May 15 and November 15 21 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) of each year, beginning on November 15, 2023 and mature on May 15, 2028, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding November 15, 2027, the 3.75 % Convertible Notes will be convertible at the option of the holders only upon the occurrence of certain events and during certain periods. Thereafter, the 3.75 % Convertible Notes will be convertible at the option of the holders at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The initial conversion rate applicable to the 3.75 % Convertible Notes is 21.6807 shares of Granite common stock per $1,000 principal amount of the 3.75 % Convertible Notes, which is equivalent to an initial conversion price of approximately $ 46.12 per share of Granite common stock, subject to adjustment if certain events occur. Upon conversion, we will pay or deliver, as the case may be, cash, shares of Granite common stock or a combination of cash and shares of Granite common stock, at our election. In addition, upon the occurrence of a “fundamental change” as defined in the indenture governing the 3.75 % Convertible Notes, holders may require us to repurchase for cash all or any portion of their 3.75 % Convertible Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 3.75 % Convertible Notes to be repurchased plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. If certain corporate events that constitute a “make-whole fundamental change” as set forth in the indenture governing the 3.75 % Convertible Notes occur prior to the maturity date of the 3.75 % Convertible Notes or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 3.75 % Convertible Notes in connection with such event or notice of redemption. We will not be able to redeem the 3.75 % Convertible Notes prior to May 20, 2026. On or after May 20, 2026, we have the option to redeem for cash all or any portion of the 3.75 % Convertible Notes if the last reported sale price of our common stock is equal to or greater than 130 % of the conversion price for a specified period of time at a redemption price equal to 100 % of the principal amount of the 3.75 % Convertible Notes to be redeemed, plus any accrued but unpaid interest to, but excluding, the redemption date. The indenture governing the 3.75 % Convertible Notes contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization, with respect to us or our significant subsidiaries, all outstanding 3.75 % Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25 % in aggregate principal amount of the 3.75 % Convertible Notes then outstanding may declare the 3.75 % Convertible Notes due and payable immediately. The net proceeds from the sale of the 3.75 % Convertible Notes were approximately $ 364.4 million, after deducting the initial purchasers’ discount. We used approximately $ 53.0 million of the net proceeds from the offering to pay the cost of the 2023 capped call transactions (as described below). In addition, we used approximately $ 198.8 million of the net proceeds and issued 1,390,500 shares of Granite common stock in exchange for approximately $ 198.7 million aggregate principal amount of our 2.75 % Convertible Notes concurrent with the offering in separate and individually negotiated transactions (the "Exchange Transaction"). In connection with the Exchange Transaction, we entered into partial unwind agreements (the "Unwind Agreements") with certain financial institutions to unwind a portion of the convertible note hedge and warrant transactions entered into in connection with the offering of the 2.75 % Convertible Notes. Pursuant to the Unwind Agreements, we received 1,390,516 shares of our common stock (and cash in lieu of any fractional shares) in respect of the unwind of the portion of the existing convertible note hedge transactions that correspond to the 2.75 % Convertible Notes that were exchanged in the Exchange Transaction described above and paid $ 13.2 million in cash in respect of the unwind of the portion of the existing warrant transactions that correspond to the 2.75 % Convertible Notes that were exchanged in the Exchange Transaction described above. 2023 Capped Call Transactions In May 2023, we entered into capped call transactions (the "2023 capped call transactions") in connection with the offering of the 3.75 % Convertible Notes. The 2023 capped call transactions are expected generally to reduce the potential dilution to Granite’s common stock upon conversion of the 3.75 % Convertible Notes and/or offset any cash payments Granite is required to make in excess of the principal amount of converted 3.75 % Convertible Notes, as the case may be. If, however, the market price per share of Granite’s common stock, as measured under the terms of the 2023 capped call transactions, exceeds the cap price $79.83 of the 2023 capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the 2023 capped call transactions. 2.75 % Convertible Notes The 2.75 % Convertible Notes were issued in November 2019 in an aggregate principal amount of $ 230.0 million, with an interest rate of 2.75 % and a maturity date of November 1, 2024, unless earlier converted, redeemed or repurchased. 22 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) In June 2024, we called the 2.75 % Convertible Notes for redemption and will redeem all outstanding aggregate principal amount of the 2.75 % Convertible Notes on August 19, 2024. The redemption price per $1,000 principal amount of the 2.75 % Convertible Notes is equal to $1,000 plus accrued and unpaid interest, if any, to, but excluding the redemption date. The 2.75 % Convertible Notes may be converted, at the election of the holder of such notes, at any time before the close of business on August 15, 2024. The conversion rate for the 2.75 % Convertible Notes is 31.7915 shares of Granite common stock per $1,000 principal amount of notes (which includes 0.0139 additional shares to which converting holders are entitled). With respect any 2.75 % Convertible Note that is properly surrendered for conversion from and after the date of the redemption notice until the close of business on August 15, 2024, we have elected to settle such conversion by delivering cash of $1,000 per $1,000 principal amount of the 2.75 % Convertible Notes and shares of our common stock in respect of the remainder of our conversion obligation in excess of the cash payment. The indenture governing the 2.75 % Convertible Notes contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization, with respect to us or our significant subsidiaries, all outstanding 2.75 % Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25 % in aggregate principal amount of the 2.75 % Convertible Notes then outstanding may declare the notes due and payable immediately. At June 30, 2024, $ 0.4 million remained outstanding of our 2.75 % Convertible Notes. Covenants and Events of Default Our Credit Agreement requires us to comply with various affirmative, restrictive and financial covenants, including the financial covenants described below. Our failure to comply with these covenants would constitute an event of default under the Credit Agreement. Additionally, the 2.75 % Convertible Notes, 3.25 % Convertible Notes and 3.75 % Convertible Notes are governed by the terms and conditions of their respective indentures. Our failure to pay principal, interest or other amounts when due or within the relevant grace period on our 2.75 % Convertible Notes, our 3.25 % Convertible Notes, our 3.75 % Convertible Notes or our Credit Agreement would constitute an event of default under the 2.75 % Convertible Notes indenture, the 3.25 % Convertible Notes indenture, the 3.75 % Convertible Notes indenture or the Credit Agreement. A default under our Credit Agreement could result in (i) us no longer being entitled to borrow under such facility; (ii) termination of such facility; (iii) the requirement that any letters of credit under such facility be cash collateralized; (iv) acceleration of amounts owed under the Credit Agreement; and/or (v) foreclosure on any collateral securing the obligations under such facility. A default under the 2.75 % Convertible Notes indenture, the 3.25 % Convertible Notes indenture or the 3.75 % Convertible Notes indenture could result in acceleration of the maturity of the notes. The most significant financial covenants under the terms of our Credit Agreement require the maintenance of a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio. As of June 30, 2024, we were in compliance with all covenants contained in the Credit Agreement. We are not aware of any non-compliance by any of our unconsolidated real estate entities with the covenants contained in their debt agreements. Debt Issuance Costs During the three and six months ended June 30, 2024, we recorded $ 1.5 million and $ 2.1 million, respectively, of amortization related to debt issuance costs. We also capitalized $9.7 million in third party offering costs related to the issuance of the 3.25 % Convertible Notes. These debt issuance costs will be amortized over the expected life of the 3.25 % Convertible Notes. During the three and six months ended June 30, 2023, we recorded $2.1 million and $2.4 million, respectively, of amortization related to debt issuance costs. This included $1.7 million of accelerated amortization of debt issuance costs associated with the 2.75 % Convertible Notes that were repaid and are included in the loss on debt extinguishment. We also capitalized $9.8 million in third party offering costs related to the issuance of the 3.75 % Convertible Notes. These debt issuance costs will be amortized over the expected life of the 3.75 % Convertible Notes. 23 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 15.   Weighted Average Shares Outstanding and Net Income (Loss) Per Share The following table presents a reconciliation of the weighted average shares of common stock used in calculating basic and diluted net income (loss) per share as well as the calculation of basic and diluted net income (loss) per share: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2024 2023 2024 2023 Numerator Net income (loss) attributable to common shareholders for basic earnings per share $ 36,895 $ ( 17,000 ) $ 5,912 $ ( 40,023 ) Add: Interest expense related to Convertible Notes (1) 3,074 — — — Net income (loss) attributable to common shareholders for diluted earnings per share $ 39,969 $ ( 17,000 ) $ 5,912 $ ( 40,023 ) Denominator Weighted average common shares outstanding, basic 44,060 43,892 44,024 43,829 Add: Dilutive effect of RSUs 564 — 569 — Add: Dilutive effect of Convertible Notes (1) 8,103 — — — Weighted average common shares outstanding, diluted 52,727 43,892 44,593 43,829 Net income (loss) per share, basic $ 0.84 $ ( 0.39 ) $ 0.13 $ ( 0.91 ) Net income (loss) per share, diluted $ 0.76 $ ( 0.39 ) $ 0.13 $ ( 0.91 ) (1) The dilutive effect of the convertible notes was determined using the if-converted method. As the 2.75 % Convertible Notes and 3.75 % Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election, the 2.75 % Convertible Notes and 3.75 % Convertible Notes are assumed to be converted into common stock at the beginning of the reporting period, and the resulting shares are included in the denominator of the calculation. In addition, interest charges, net of any income tax effects are added back to the numerator of the calculation. For the 3.25 % Convertible Notes, we are required to settle the principal amount in cash and any conversion premium in excess of the principal amount in cash, shares of common stock, or a combination of cash and shares of common stock, at our election. As such, the 3.25 % Convertible Notes only have an impact on diluted earnings per share when the average share price of our common stock exceeds the conversion price. For the three months ended June 30, 2024, an immaterial amount of interest expense related to the 2.75 % Convertible Notes and the potential dilution from those notes converting into 35,000 shares of common stock have been excluded from the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive. For the six months ended June 30, 2024, $6.6 million of interest expense related to 2.75 % Convertible Notes and 3.75 % Convertible Notes combined and the potential dilution from those convertible notes converting into 8,138,000 shares of common stock have been excluded from the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive. Due to net losses for the three and six months ended June 30, 2023, both the unvested RSUs representing 586,000 and 584,000 shares, respectively, and the potential dilution from the 2.75 % Convertible Notes and 3.75 % Convertible Notes converting into 10,095,000 shares of common stock have been excluded from the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive. In connection with the issuance of the 3.25 % Convertible Notes and 3.75 % Convertible Notes, we entered into the 2024 capped call transactions and 2023 capped call transactions, respectively, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive. 24 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 16.   Income Taxes The following table presents the provision for (benefit from) income taxes for the respective periods: Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Provision for (benefit from) income taxes $ 20,693 $ 9,024 $ 11,167 $ ( 445 ) Effective tax rate 34.7 % ( 60.9 %) 54.3 % 0.9 % Our effective tax rate for the three and six months ended June 30, 2024 is higher than the prior year primarily due to non-deductible debt extinguishment costs and the related year over year variance in these costs. 17.   Contingencies - Legal Proceedings Liabilities relating to legal proceedings and government inquiries, to the extent that we have concluded such liabilities are probable and the amounts of such liabilities are reasonably estimable, are recorded in the consolidated balance sheets. Disclosure is required when a material loss is probable but not reasonably estimable, a material loss is reasonably possible but not probable, or when it is reasonably possible that the amount of a loss will exceed the amount recorded. The total liabilities recorded in our condensed consolidated balance sheets for legal proceedings and government inquiries were immaterial as of June 30, 2024 and December 31, 2023. It is possible that future developments in our legal proceedings and inquiries could require us to (i) adjust or reverse existing accruals, or (ii) record new accruals that we did not originally believe to be probable or that could not be reasonably estimated. Such changes could be material to our financial condition, results of operations and/or cash flows in any particular reporting period. Ordinary Course Legal Proceedings In the ordinary course of business, we and our affiliates are involved in various legal proceedings alleging, among other things, liability issues or breach of contract or tortious conduct in connection with the performance of services and/or materials provided, the various outcomes of which often cannot be predicted with certainty. For information on our accounting policies regarding affirmative claims and back charges that we are party to in the ordinary course of business, see Note 1 of our Annual Report. We and our affiliates are also subject to government inquiries in the ordinary course of business seeking information concerning our compliance with government construction contracting requirements and various laws and regulations, the outcomes which often cannot be predicted with certainty. Some of the matters in which we or our joint ventures and affiliates are involved may involve compensatory, punitive, or other claims or sanctions that, if granted, could require us to pay damages or make other expenditures in amounts that are not probable to be incurred or cannot currently be reasonably estimated. In addition, in some circumstances our government contracts could be terminated, we could be suspended, debarred or incur other administrative penalties or sanctions, or payment of our costs could be disallowed. While any of our pending legal proceedings may be subject to early resolution as a result of our ongoing efforts to resolve the proceedings, whether or when any legal proceeding will be resolved is neither predictable nor guaranteed. 18.   Reportable Segment Information Our reportable segments are the same as our operating segments and correspond with how our chief operating decision maker, or decision-making group (our “CODM”), regularly reviews financial information to allocate resources and assess performance. We identified our CODM as our Chief Executive Officer and our Chief Operating Officer. Our reportable segments are: Construction and Materials. 25 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Summarized segment information is as follows (in thousands): Three months ended June 30, Construction Materials Total 2024 Total revenue from reportable segments $ 917,954 $ 239,468 $ 1,157,422 Elimination of intersegment revenue — ( 74,936 ) ( 74,936 ) Revenue from external customers $ 917,954 $ 164,532 $ 1,082,486 Gross profit $ 135,372 $ 29,339 $ 164,711 Depreciation, depletion and amortization $ 13,501 $ 10,917 $ 24,418 2023 Total revenue from reportable segments $ 749,413 $ 206,832 $ 956,245 Elimination of intersegment revenue — ( 57,693 ) ( 57,693 ) Revenue from external customers $ 749,413 $ 149,139 $ 898,552 Gross profit $ 79,154 $ 23,932 $ 103,086 Depreciation, depletion and amortization $ 10,238 $ 7,090 $ 17,328 Six Months Ended June 30, Construction Materials Total 2024 Total revenue from reportable segments $ 1,513,167 $ 328,172 $ 1,841,339 Elimination of intersegment revenue — ( 86,578 ) ( 86,578 ) Revenue from external customers $ 1,513,167 $ 241,594 $ 1,754,761 Gross profit $ 192,200 $ 26,796 $ 218,996 Depreciation, depletion and amortization $ 27,204 $ 21,394 $ 48,598 Segment assets as of period end $ 565,222 $ 570,908 $ 1,136,130 2023 Total revenue from reportable segments $ 1,252,829 $ 278,752 $ 1,531,581 Elimination of intersegment revenue — ( 72,961 ) ( 72,961 ) Revenue from external customers $ 1,252,829 $ 205,791 $ 1,458,620 Gross profit $ 115,859 $ 19,586 $ 135,445 Depreciation, depletion and amortization $ 19,993 $ 13,213 $ 33,206 Segment assets as of period end $ 443,112 $ 414,858 $ 857,970 A reconciliation of segment gross profit to consolidated income (loss) before income taxes is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Total gross profit from reportable segments $ 164,711 $ 103,086 $ 218,996 $ 135,445 Selling, general and administrative expenses 70,052 64,563 158,045 137,685 Other costs, net 10,225 13,607 21,235 18,130 Gain on sales of property and equipment, net ( 1,387 ) ( 3,944 ) ( 2,805 ) ( 5,981 ) Total other expense, net 26,271 43,682 21,939 35,674 Income (loss) before income taxes $ 59,550 $ ( 14,822 ) $ 20,582 $ ( 50,063 ) 26 Table of Contents