GRANITE CONSTRUCTION INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report") and the unaudited condensed consolidated financial statements and the accompanying notes thereto included herein. Forward-Looking Disclosure From time to time, Granite makes certain comments and disclosures in reports and statements, including in this Quarterly Report on Form 10-Q, or statements made by its officers or directors, that are not based on historical facts, including statements regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, results and strategic actions, that may 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. In addition, other written or oral statements that constitute forward-looking statements have been made and may in the future be made by or on behalf of Granite. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, strategy, activities, performance, outlook, outcomes, guidance, capital expenditures, committed and awarded projects, results, and strategic actions. 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 more specifically described in our Annual Report under “Item 1A. Risk Factors.” 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 Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason . Overview We deliver infrastructure solutions for public and private clients primarily in the United States. We are one of the largest diversified construction and construction materials companies in the United States. Within the public sector, we primarily concentrate on infrastructure projects, including the construction of streets, roads, highways, mass transit facilities, airport infrastructure, bridges, dams, power-related facilities, utilities, tunnels, water well drilling and other infrastructure-related projects. Within the private sector, we perform various services such as site preparation, mining services and infrastructure services for commercial and industrial sites, railways, residential development, energy development, as well as provide construction management professional services. The five primary economic drivers of our business are (i) the overall health of the U.S. economy including access to resources (labor, supplies and subcontractors); (ii) federal, state and local public funding levels; (iii) population growth resulting in public and private development; (iv) the need to build, replace or repair aging infrastructure; and (v) the pricing of certain commodity related products. Changes in these drivers can either reduce our revenues and/or gross profit margins or provide opportunities for revenue growth and gross profit margin improvement. 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. Current Economic Environment and Outlook Funding for our public work projects, which account for approximately 80% of our portfolio, is dependent on federal, state, regional and local revenues. At the federal level, the continued rollout of the $1.2 trillion Infrastructure Investment and Jobs Act (“IIJA”) has increased federal highway, bridge and transit funding to its highest level in more than six decades with $550 billion in incremental funding over five years. The increased multi-year spending commitment has improved the programming visibility for state and local governments and has driven an increase in project lettings starting in 2023 that is continuing in 2024 and we believe will carry into 2025 and beyond. 27 Table of Contents At state, regional and local levels, voter-approved state and local transportation measures continue to support infrastructure spending. While each market is unique, we see a strong funding environment at the state and local levels aided by the IIJA. In California, our top revenue-generating state, despite overall budgetary concerns, a significant part of the state infrastructure spend is funded through Senate Bill 1 (SB-1), the Road Repair and Accountability Act of 2017, a 10-year, $54.2 billion program, which may only be used for transportation-related purposes, without any sunset provisions. Over the recent years, inflation, supply chain and labor constraints have had a significant impact on the global economy including the construction industry in the United States. While it is impossible to fully eliminate the impact of these factors, we have applied proactive measures such as fixed forward purchase contracts of oil related inputs, energy surcharges, and adjustment of project schedules for constraints related to construction materials such as concrete. While we actively work to mitigate the impacts of oil price inflation, further price increases may adversely impact us in the future. Our Committed and Awarded Projects (“CAP”) balance continues to be strong at $5.6 billion at the end of the second quarter of 2024. Our CAP is supported by a positive public funding environment and resilient private market which we believe will provide further opportunities for continued CAP growth. Acquisitions As previously disclosed, we completed two acquisitions during 2023. The results of operations of these businesses are included in our consolidated financial statements from the dates of acquisition, which impacts comparability to the applicable prior periods. 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 Columbia, Canada operating on Malahat First Nation land. On November 30, 2023, we acquired Lehman-Roberts Company and Memphis Stone & Gravel Company (collectively, "LRC/MSG"). LRC/MSG operates strategically located asphalt plants and sand and gravel mines serving the greater Memphis area and northern Mississippi. See Note 3 of “Notes to the Condensed Consolidated Financial Statements” for further information. 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. Results of Operations Our operations are typically affected more by inclement 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 of a given quarter are not indicative of the results to be expected for the full year. The following table presents a financial summary for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Total revenue $ 1,082,486 $ 898,552 $ 1,754,761 $ 1,458,620 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 Operating income (loss) $ 85,821 $ 28,860 $ 42,521 $ (14,389) Total other expense, net $ 26,271 $ 43,682 $ 21,939 $ 35,674 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) 28 Table of Contents Revenue Total Revenue by Segment Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Construction $ 917,954 84.8 % $ 749,413 83.4 % $ 1,513,167 86.2 % $ 1,252,829 85.9 % Materials 164,532 15.2 149,139 16.6 241,594 13.8 205,791 14.1 Total $ 1,082,486 100.0 % $ 898,552 100.0 % $ 1,754,761 100.0 % $ 1,458,620 100.0 % Construction Revenue Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Public $ 696,710 75.9 % $ 505,460 67.4 % $ 1,116,527 73.8 % $ 838,552 66.9 % Private 221,244 24.1 243,953 32.6 396,640 26.2 % 414,277 33.1 % Total 917,954 100.0 % 749,413 100.0 % 1,513,167 100.0 % 1,252,829 100.0 % Construction revenue for the three and six months ended June 30, 2024 increased by $168.5 million and $260.3 million, or 22.5% and 20.8%, respectively, when compared to 2023. These increases were primarily driven by operations in California, Nevada and Alaska due to more favorable weather conditions in 2024 and higher levels of CAP going into the first and second quarters of this year compared to the prior year. Additionally, our acquired businesses contributed $29.7 million and $35.6 million of construction revenue during the three and six months ended June 30, 2024, respectively. Materials Revenue Materials revenue for the three and six months ended June 30, 2024 increased by $15.4 million and $35.8 million, or 10.3% and 17.4%, respectively, when compared to 2023. These increases were primarily driven by increases in revenue from newly acquired businesses of $15.7 million and $26.1 million in the three and six months ended June 30, 2024, respectively. In addition, higher asphalt and aggregate sales prices were partially offset by lower sales volumes. Committed and Awarded Projects CAP consists of two components: (1) unearned revenue and (2) other awards. Unearned revenue includes the revenue we expect to record in the future on executed contracts, including 100% of our consolidated joint venture contracts and our proportionate share of unconsolidated joint venture contracts. We generally include a project in unearned revenue at the time a contract is awarded, the contract has been executed and to the extent we believe funding is probable. Contract options and task orders are included in unearned revenue when exercised or issued, respectively. Certain government contracts where funding is appropriated on a periodic basis are included in unearned revenue at the time of the award when it is probable the contract value will be funded and executed. Other awards include the general construction portion of construction management/general contractor (“CM/GC”) contracts and awarded contracts with unexercised contract options or unissued task orders. The general construction portion of CM/GC contracts are included in other awards to the extent contract execution and funding is probable. Contracts with unexercised contract options or unissued task orders are included in other awards to the extent option exercise or task order issuance is probable. All CAP is in the Construction segment. (dollars in thousands) June 30, 2024 March 31, 2024 December 31, 2023 Unearned revenue $ 3,867,178 69.4 % $ 3,606,704 65.6 % $ 3,596,676 64.9 % Other awards 1,709,041 30.6 1,892,425 34.4 1,949,078 35.1 Total $ 5,576,219 100.0 % $ 5,499,129 100.0 % $ 5,545,754 100.0 % (dollars in thousands) June 30, 2024 March 31, 2024 December 31, 2023 Customer type: Public $ 4,343,218 77.9 % $ 4,397,792 80.0 % $ 4,368,904 78.8 % Private 1,233,001 22.1 1,101,337 20.0 1,176,850 21.2 Total $ 5,576,219 100.0 % $ 5,499,129 100.0 % $ 5,545,754 — 100.0 % 29 Table of Contents CAP of $5.6 billion at June 30, 2024 was $77.1 million or 1.4% higher than at March 31, 2024. Significant additions to CAP during the three months ended June 30, 2024 included $183 million for four highway projects in California, $114 million for a bridge project in Michigan, an $89 million airport project in Texas, a $65 million highway project in Utah and a $48 million fish passage project in Washington. All significant additions listed are for customers in the public sector except the airport project in Texas in which we were awarded a subcontract by a private entity. Non-controlling partners’ share of CAP as of June 30, 2024, March 31, 2024 and December 31, 2023 was $351.6 million, $219.4 million and $243.8 million, respectively. At June 30, 2024, five contracts with remaining CAP of $10 million or more per project had total forecasted losses with remaining revenue of $145.1 million, or 2.6%, of total CAP. Gross Profit The following table presents gross profit by reportable segment for the respective periods: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Construction $ 135,372 $ 79,154 $ 192,200 $ 115,859 Percent of segment revenue 14.7 % 10.6 % 12.7 % 9.2 % Materials 29,339 23,932 26,796 19,586 Percent of segment revenue 17.8 % 16.0 % 11.1 % 9.5 % Total gross profit $ 164,711 $ 103,086 $ 218,996 $ 135,445 Percent of total revenue 15.2 % 11.5 % 12.5 % 9.3 % Construction gross profit for the three and six months ended June 30, 2024 increased by $56.2 million and $76.3 million, or 71.0% and 65.9%, respectively, when compared to 2023 primarily due to higher revenue and less negative net impacts from revisions in estimates in the current period. For further discussion of projects with revisions in estimates which individually had an impact of $5.0 million or more on gross profit, see Note 4 of "Notes to the Condensed Consolidated Financial Statements." Acquired businesses recognized gross profit of $3.5 million for the three months ended June 30, 2024 and gross loss of $1.3 million for six months ended June 30, 2024, which include purchase accounting related depreciation and intangible asset amortization of $2.8 million and $7.1 million, respectively. See Note 3 of "Notes to the Condensed Consolidated Financial Statements" for further information about acquisitions. Materials gross profit for the three and six months ended June 30, 2024 increased by $5.4 million and $7.2 million, respectively, when compared to 2023. The increased gross profit was primarily due to the inclusion of the results of acquired businesses and higher sales prices. Acquired businesses recognized gross profit of $4.4 million and $1.0 million for the three and six months ended June 30, 2024. 30 Table of Contents Selling, General and Administrative Expenses The following table presents the components of selling, general and administrative expenses for the respective periods: Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2024 2023 2024 2023 Selling Salaries and related expenses $ 13,350 $ 13,894 $ 30,824 $ 30,256 Stock-based compensation 221 243 814 1,072 Other selling expenses 2,353 — 1,797 — 3,849 — 3,236 Total selling 15,924 15,934 35,487 34,564 General and administrative Salaries and related expenses 26,631 25,460 55,206 51,825 Stock-based compensation 1,532 1,255 13,290 5,968 Other general and administrative expenses 25,965 21,914 54,062 45,328 Total general and administrative 54,128 48,629 122,558 103,121 Total selling, general and administrative $ 70,052 $ 64,563 $ 158,045 $ 137,685 Percent of revenue 6.5 % 7.2 % 9.0 % 9.4 % Selling Expenses Selling expenses include the costs for estimating and bidding including offsetting customer reimbursements for portions of our selling/bid submission expenses (i.e., stipends), business development and materials facility permits. Selling expenses can vary depending on the volume of projects in process and the number of employees assigned to estimating and bidding activities. As projects are completed or the volume of work slows down, we temporarily redeploy project employees to bid on new projects, moving their salaries and related costs from cost of revenue to selling expenses. Selling expenses for the three and six months ended June 30, 2024 were relatively flat when compared to 2023. General and Administrative Expenses General and administrative expenses include costs related to our operational offices that are not allocated to direct contract costs and expenses related to our corporate functions. Other general and administrative expenses include travel and entertainment, outside services, information technology, depreciation, occupancy, training, office supplies, incentive compensation, changes in the fair market value of our Non-Qualified Deferred Compensation plan liability and other miscellaneous expenses. Total general and administrative expenses for the three and six months ended June 30, 2024 increased by $5.5 million and $19.4 million, or 11.3% and 18.8% when compared to the same period in 2023, primarily due to a $7.3 million increase year to date in stock-based compensation due to improved financial performance as well as $3.0 million and $7.6 million, respectively of general and administrative expenses from acquired businesses, including $1.1 million and $2.1 million, respectively of purchase accounting related depreciation and intangible asset amortization. Other Costs, net The following table presents other costs, net for the respective periods: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Other costs, net $ 10,225 $ 13,607 $ 21,235 $ 18,130 During the three and six months ended June 30, 2024, Other costs, net decreased $3.4 million and increased $3.1 million, respectively, compared to prior year. The decrease during the three months ended June 30, 2024 was due to a $12.0 million litigation charge in the prior year that did not recur in the current year, partially offset by an increase in costs associated with the defense of a former Company officer in his ongoing civil litigation with the Securities and Exchange Commission. These defense costs were the primary driver of the increase for the six months ended June 30, 2024. 31 Table of Contents Other (Income) Expense Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 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 During the three and six months ended June 30, 2024, total other expense, net decreased $17.4 million and $13.7 million, respectively, compared to the prior year. These decreases were primarily due to lower debt extinguishment costs of $23.2 million in 2024. In the second quarter of 2024, we repurchased approximately $30.2 million in aggregate principal amount of our 2.75% Convertible Notes and incurred a $27.8 million loss on debt extinguishment. Partially offsetting the decrease for the six months ended June 30, 2024, interest expense increased $6.4 million as a result of increased borrowings. See Note 14 of "Notes to the Condensed Consolidated Financial Statements" for more information. 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 % We calculate our income tax provision (benefit) at the end of each interim period by estimating our annual effective tax rate, applying that rate to our income or loss before tax and adjusting for discrete items not included in our estimate of the annual effective tax rate. The effect of changes in enacted tax laws, tax rates or tax status is recognized in the interim period in which the change occurs. See Note 16 of "Notes to the Condensed Consolidated Financial Statements" for more information. Amount Attributable to Non-controlling Interests The following table presents the amount attributable to non-controlling interests in consolidated subsidiaries for the respective periods: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Amount attributable to non-controlling interests $ (1,962) $ 6,846 $ (3,503) $ 9,595 The amount attributable to non-controlling interests represents the non-controlling owners’ share of the net (income) or loss of our consolidated construction joint ventures. The amounts for the three and six months ended June 30, 2024 decreased $8.8 million and $13.1 million, respectively, compared to the prior year primarily due to decreased losses from downward revisions in estimates in the current year on one consolidated construction joint venture (see Note 4 of “Notes to the Condensed Consolidated Financial Statements”). Liquidity and Capital Resources Our primary sources of liquidity are cash and cash equivalents, investments, available borrowing capacity under our credit facility and cash generated from operations. We may also from time-to-time issue and sell equity, debt or hybrid securities or engage in other capital markets transactions or sell one or more business units or assets. See Note 14 of the "Notes to the Condensed Consolidated Financial Statements" for information on our Credit Agreement, our 3.75% Convertible Notes, our 3.25% Convertible Notes and our 2.75% Convertible Notes. 32 Table of Contents Our material cash requirements include paying the costs and expenses associated with our operations, servicing outstanding indebtedness, making capital expenditures and paying dividends on our capital stock. We may also from time to time prepay or repurchase outstanding indebtedness, repurchase shares of our common stock or acquire assets or businesses that are complementary to our operations. See Note 1 of the "Notes to the Condensed Consolidated Financial Statements" for information on our share repurchases during the second quarter of 2024. We believe our primary sources of liquidity will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments, cash dividend payments and other liquidity requirements associated with our existing operations for the next twelve months. We also believe our primary sources of liquidity, access to debt and equity capital markets and cash expected to be generated from operations will be sufficient to meet our long-term requirements and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us. As of June 30, 2024, our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions and marketable securities consisting primarily of U.S. Government and agency obligations. As of June 30, 2024, the total unused availability under our Credit Agreement was $333.4 million, resulting from $16.6 million in issued and outstanding letters of credit and nothing drawn under the Revolver. See Note 14 of “Notes to the Condensed Consolidated Financial Statements.” As of June 30, 2024, we had $29.2 million of contract retention receivables from Brightline Trains Florida LLC ("Brightline") which represented 9.4 % of total contract assets (see Note 7 of “Notes to the Condensed Consolidated Financial Statements”). Once all conditions of final completion are satisfied, the Brightline retention receivable will be due to us within 40 days; however, timing cannot be assured. Brightline has experienced delays in securing additional funding in the past, therefore the timing and probability of future payments may be affected, and our liquidity impacted if Brightline faces future funding difficulties. In evaluating our liquidity position and needs, we also consider cash and cash equivalents held by our consolidated construction joint ventures (“CCJVs”). The following table presents our cash, cash equivalents and marketable securities, including amounts from our CCJVs, as of the respective dates: (in thousands) June 30, 2024 December 31, 2023 Cash and cash equivalents excluding CCJVs $ 244,783 $ 297,439 CCJV cash and cash equivalents (1) 121,963 120,224 Total consolidated cash and cash equivalents 366,746 417,663 Short-term marketable securities (2) 10,500 35,863 Total cash, cash equivalents and marketable securities $ 377,246 $ 453,526 (1) The volume and stage of completion of contracts from our CCJVs may cause fluctuations in joint venture cash and cash equivalents between periods. The assets of each consolidated and unconsolidated construction joint venture relate solely to that joint venture. The decision to distribute joint venture assets must generally be made jointly by a majority of the members and, accordingly, these assets, including those associated with estimated cost recovery of customer affirmative claims and back charge claims, are generally not available for the working capital needs of Granite until distributed. (2) 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. Granite’s portion of CCJV cash and cash equivalents was $74.9 million and $73.1 million as of June 30, 2024 and December 31, 2023, respectively. Excluded from the table above is $36.3 million and $34.2 million as of June 30, 2024 and December 31, 2023, respectively, of Granite’s portion of unconsolidated construction joint venture cash and cash equivalents. Capital Expenditures Major capital expenditures are typically for aggregate and asphalt production facilities, aggregate reserves, construction equipment, buildings and leasehold improvements and investments in our information technology systems. The timing and amount of such expenditures can vary based on the progress of planned capital projects, the type and size of construction projects, changes in business outlook and other factors. During the six months ended June 30, 2024, we had capital expenditures of $66.9 million, compared t o $79.7 million , during the six months ended June 30, 2023. The decrease year over year is primarily due to acquisition of materials reserves in 2023. We currently anticipate 2024 capital expenditures to be approximately $130 million to $150 million, including approximately $50 million in planned strategic materials investments in land, reserves and an aggregate plant. This range also includes approximately $20 million related to a project-specific tunnel boring machine. 33 Table of Contents Cash Flows Six Months Ended June 30, (in thousands) 2024 2023 Net cash provided by (used in): Operating activities $ 22,084 $ (118,948) Investing activities $ (50,122) $ (64,378) Financing activities $ (22,879) $ 103,781 Operating activities As a large infrastructure contractor and construction materials producer, our revenue, gross profit and the resulting operating cash flows can differ significantly from period to period due to a variety of factors, including project progression toward completion, outstanding contract change orders and affirmative claims, and the payment terms of our contracts. Additionally, operating cash flows are impacted by the timing related to funding construction joint ventures and the resolution of uncertainties inherent in the complex nature of the work that we perform, including claim and back charge settlements. Our working capital assets result from both public and private sector projects. Customers in the private sector can be slower paying than those in the public sector; however, private sector projects generally have higher gross profit as a percentage of revenue. While we typically invoice our customers on a monthly basis, our construction contracts frequently provide for retention that is a specified percentage withheld from each payment by our customers until the contract is completed and the work accepted by the customer. Cash provided by operating activities of $22.1 million for the six months ended June 30, 2024 represents a $141.0 million increase in cash provided by operating activities when compared to the same period of 2023. The change was primarily attributable to a $64.3 million increase in net income after adjusting for non-cash items and a $54.5 million decrease in cash used by working capital, which includes receivables, net contract assets, inventories, other assets, accounts payable and accrued expenses and other liabilities. Additionally, distributions from, net of contributions to, unconsolidated construction joint ventures and affiliates increased $22.3 million when compared to the same period of 2023. Investing activities Cash used in investing activities of $50.1 million for the six months ended June 30, 2024 represents a $14.3 million decrease in cash used in investing activities when compared to the same period of 2023. The change was due to $13.8 million less cash used related to business acquisitions (see Note 3 of “Notes to the Condensed Consolidated Financial Statements”) and $12.8 million less cash used for purchases of property and equipment. This was partially offset by a $6.3 million decrease in proceeds from sales of property and equipment and a $5.0 million decrease in maturities of marketable securities. Financing activities Cash used in financing activities of $22.9 million for the six months ended June 30, 2024 represents a $126.7 million increase in cash used in financing activities when compared to the same period of 2023. The change was primarily due to a decrease in proceeds from debt issuances, net of debt repayments and related charges of $94.3 million. See Note 14 of the “Notes to the Condensed Consolidated Financial Statements” for further information. The year over year increase in cash used in financing activities was also due to a $17.4 million increase in repurchases of common stock as well as a decrease in contributions from non-controlling partners, net of distributions, of $14.9 million. Derivatives We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value using Level 2 inputs. See Note 9 to “Notes to the Condensed Consolidated Financial Statements” for further information. Surety Bonds and Real Estate Mortgages We are generally required to provide various types of surety bonds that provide an additional measure of security under certain public and private sector contracts. At June 30, 2024, approximately $3.6 billion of our $5.6 billion CAP was bonded. Performance bonds do not have stated expiration dates; rather, we are generally released from the bonds after the owner accepts the work performed under contract. The ability to maintain bonding capacity to support our current and future level of contracting requires that we maintain cash and working capital balances satisfactory to our sureties. Our investments in real estate affiliates are subject to mortgage indebtedness. This indebtedness is non-recourse to Granite but is recourse to the real estate entities. The terms of this indebtedness are typically renegotiated to reflect the evolving nature of the real estate projects as they progress through acquisition, entitlement and development. Modification of these terms may include changes in loan-to-value ratios requiring the real estate entity to repay portions of the debt. Our 34 Table of Contents unconsolidated investments in our foreign affiliates are subject to local bank debt primarily for equipment purchases and working capital. This debt is non-recourse to Granite, but it is recourse to the affiliates. The debt associated with our unconsolidated non-construction entities is included in Note 10 of “Notes to the Condensed Consolidated Financial Statements.” 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 Note 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 the covenants in the Credit Agreement. 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 (the “2022 authorization”). During the three and six months ended June 30, 2024, we repurchased 225,000 shares under the 2022 authorization and $218.2 million remained available under the 2022 authorization as of June 30, 2024. The specific timing and amount of any future repurchases will vary based on market conditions, securities law limitations and other factors. Website Access Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated into, and is not part of, this report. These reports, and any amendments to them, are also available at the website of the SEC, www.sec.gov. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in our exposure to market risk from what was previously disclosed in our Annual Report.