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) September 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents ($ 149,068 and $ 120,224 related to consolidated construction joint ventures (“CCJVs”)) $ 462,286 $ 417,663 Short-term marketable securities 10,147 35,863 Receivables, net ($ 50,372 and $ 62,040 related to CCJVs) 733,018 598,705 Contract assets ($ 106,320 and $ 68,520 related to CCJVs) 321,653 262,987 Inventories 107,973 103,898 Equity in construction joint ventures 144,097 171,233 Other current assets ($ 5,034 and $ 5,590 related to CCJVs) 34,928 53,102 Total current assets 1,814,102 1,643,451 Property and equipment, net ($ 7,266 and $ 7,557 related to CCJVs) 719,678 662,864 Investments in affiliates 94,921 92,910 Goodwill 211,624 155,004 Intangible assets 131,579 117,322 Right of use assets 86,299 78,176 Deferred income taxes, net 4,990 8,179 Other noncurrent assets 67,732 55,634 Total assets $ 3,130,925 $ 2,813,540 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 1,099 $ 39,932 Accounts payable ($ 83,515 and $ 62,755 related to CCJVs) 509,976 408,363 Contract liabilities ($ 58,878 and $ 50,929 related to CCJVs) 292,641 243,848 Accrued expenses and other current liabilities ($ 5,033 and $ 5,426 related to CCJVs) 361,110 337,740 Total current liabilities 1,164,826 1,029,883 Long-term debt 737,458 614,781 Long-term lease liabilities 70,981 63,548 Deferred income taxes, net 3,420 3,708 Other long-term liabilities 84,561 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: 43,704,841 shares as of September 30, 2024 and 43,944,118 shares as of December 31, 2023 437 439 Additional paid-in capital 437,343 474,134 Accumulated other comprehensive income 437 881 Retained earnings 568,877 501,844 Total Granite Construction Incorporated shareholders’ equity 1,007,094 977,298 Non-controlling interests 62,585 49,668 Total equity 1,069,679 1,026,966 Total liabilities and equity $ 3,130,925 $ 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue: Construction $ 1,080,705 $ 945,698 $ 2,593,872 $ 2,198,527 Materials 194,805 171,122 436,399 376,913 Total revenue 1,275,510 1,116,820 3,030,271 2,575,440 Cost of revenue: Construction 910,020 808,536 2,230,987 1,945,506 Materials 162,541 141,641 377,339 327,846 Total cost of revenue 1,072,561 950,177 2,608,326 2,273,352 Gross profit 202,949 166,643 421,945 302,088 Selling, general and administrative expenses 91,650 74,794 249,695 212,479 Other costs, net 8,543 19,843 29,778 37,973 Gain on sales of property and equipment, net ( 1,542 ) ( 1,812 ) ( 4,347 ) ( 7,793 ) Operating income 104,298 73,818 146,819 59,429 Other (income) expense: (Gain) loss on debt extinguishment ( 272 ) — 27,552 51,052 Interest income ( 7,513 ) ( 4,293 ) ( 17,815 ) ( 11,287 ) Interest expense 7,905 4,877 21,325 11,899 Equity in income of affiliates, net ( 4,394 ) ( 7,147 ) ( 12,921 ) ( 19,378 ) Other (income) expense, net ( 874 ) 462 ( 1,350 ) ( 2,713 ) Total other (income) expense, net ( 5,148 ) ( 6,101 ) 16,791 29,573 Income before income taxes 109,446 79,919 130,028 29,856 Provision for income taxes 25,469 22,423 36,636 21,978 Net income 83,977 57,496 93,392 7,878 Amount attributable to non-controlling interests ( 5,026 ) 128 ( 8,529 ) 9,723 Net income attributable to Granite Construction Incorporated $ 78,951 $ 57,624 $ 84,863 $ 17,601 Net income per share attributable to common shareholders (see Note 15): Basic $ 1.81 $ 1.31 $ 1.93 $ 0.40 Diluted $ 1.57 $ 1.13 $ 1.79 $ 0.40 Weighted average shares outstanding: Basic 43,696 43,924 43,914 43,861 Diluted 52,366 53,612 52,585 44,447 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 (Unaudited - in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 83,977 $ 57,496 $ 93,392 $ 7,878 Other comprehensive income (loss), net of tax Net unrealized gain (loss) on cash flow hedges, net of tax $ ( 547 ) $ 883 $ ( 693 ) $ 325 Less: reclassification for net gains (losses) included in interest expense, net of tax 436 ( 362 ) 518 ( 250 ) Net change $ ( 111 ) $ 521 $ ( 175 ) $ 75 Foreign currency translation adjustments, net 278 ( 422 ) ( 269 ) 31 Other comprehensive income (loss), net of tax $ 167 $ 99 $ ( 444 ) $ 106 Comprehensive income, net of tax $ 84,144 $ 57,595 $ 92,948 $ 7,984 Non-controlling interests in comprehensive (income) loss, net of tax ( 5,026 ) 128 ( 8,529 ) 9,723 Comprehensive income attributable to Granite Construction Incorporated, net of tax $ 79,118 $ 57,723 $ 84,419 $ 17,707 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 Retained Earnings Total Granite Shareholders’ Equity Non-controlling Interests Total Equity Balances at June 30, 2024 43,686,508 $ 437 $ 435,271 $ 270 $ 495,679 $ 931,657 $ 55,758 $ 987,415 Net income — — — — 78,951 78,951 5,026 83,977 Other comprehensive income — — — 167 — 167 — 167 Repurchases of common stock (1) ( 3,546 ) — ( 241 ) — — ( 241 ) — ( 241 ) Restricted stock units (“RSUs”) vested 10,264 — — — — — — — Dividends on common stock ($0.13 per share) — — 73 — ( 5,753 ) ( 5,680 ) — ( 5,680 ) Common stock issued in debt redemption 11,665 0 (0) — — — — — Transactions with non-controlling interests — — — — — — 1,801 1,801 Stock-based compensation expense and other ( 50 ) — 2,240 — — 2,240 — 2,240 Balances at September 30, 2024 43,704,841 $ 437 $ 437,343 $ 437 $ 568,877 $ 1,007,094 $ 62,585 $ 1,069,679 Balances at June 30, 2023 43,918,798 $ 439 $ 470,511 $ 795 $ 429,797 $ 901,542 $ 39,908 $ 941,450 Net income (loss) — — — — 57,624 57,624 ( 128 ) 57,496 Other comprehensive income — — — 99 — 99 — 99 Repurchases of common stock (1) ( 3,334 ) — ( 134 ) — — ( 134 ) — ( 134 ) RSUs vested 11,166 — — — — — — — Dividends on common stock ($0.13 per share) — — 76 — ( 5,785 ) ( 5,709 ) — ( 5,709 ) Transactions with non-controlling interests — — — — — — 11,449 11,449 Stock-based compensation expense and other ( 54 ) — 1,926 — — 1,926 — 1,926 Balances at September 30, 2023 43,926,576 $ 439 $ 472,379 $ 894 $ 481,636 $ 955,348 $ 51,229 $ 1,006,577 (1) This amount represents employee tax withholding for RSUs vested under our equity incentive plans. 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 — — — — 84,863 84,863 8,529 93,392 Other comprehensive loss — — — ( 444 ) — ( 444 ) — ( 444 ) Repurchases of common stock (1) ( 370,113 ) ( 3 ) ( 20,877 ) — ( 505 ) ( 21,385 ) — ( 21,385 ) RSUs vested 375,704 4 ( 4 ) — — — — — Dividends on common stock ($0.13 per share per quarter) — — 225 — ( 17,325 ) ( 17,100 ) — ( 17,100 ) Capped call transactions — — ( 34,189 ) — — ( 34,189 ) — ( 34,189 ) Redemption of warrants — — 466 — — 466 — 466 Common stock issued in debt redemption 11,665 0 (0) — — — — — Exercise of bond hedge ( 260,883 ) ( 3 ) 3 — — — — — Transactions with non-controlling interests — — — — — — 4,388 4,388 Stock-based compensation expense and other 4,350 — 17,585 — — 17,585 — 17,585 Balances at September 30, 2024 43,704,841 $ 437 $ 437,343 $ 437 $ 568,877 $ 1,007,094 $ 62,585 $ 1,069,679 Balances at December 31, 2022 43,743,907 $ 437 $ 470,407 $ 788 $ 481,384 $ 953,016 $ 32,129 $ 985,145 Net income (loss) — — — — 17,601 17,601 ( 9,723 ) 7,878 Other comprehensive income — — — 106 — 106 — 106 Repurchases of common stock (1) ( 96,936 ) (1) ( 3,900 ) — — ( 3,901 ) — ( 3,901 ) RSUs vested 272,528 3 ( 3 ) — — — — — Dividends on common stock ($0.13 per share per quarter) — — 226 — ( 17,349 ) ( 17,123 ) — ( 17,123 ) Capped call transactions — — ( 39,379 ) — — ( 39,379 ) — ( 39,379 ) Redemption of warrants — — ( 13,201 ) — — ( 13,201 ) — ( 13,201 ) Common stock issued in 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 — — — — — — 28,823 28,823 Stock-based compensation expense and other 7,093 — 8,894 — — 8,894 — 8,894 Balances at September 30, 2023 43,926,576 $ 439 $ 472,379 $ 894 $ 481,636 $ 955,348 $ 51,229 $ 1,006,577 (1) This amount represents employee tax withholding for RSUs vested under our equity incentive plans in 2024 and 2023 and stock repurchased in 2024 under the Board approved repurchase plan. During the nine months ended September 30, 2024 and 2023, there were 145,113 shares and 96,936 shares, respectively, withheld related to employee taxes for RSUs. During the nine months ended September 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 ) Nine Months Ended September 30, 2024 2023 Operating activities: Net income $ 93,392 $ 7,878 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 92,283 65,298 Amortization related to long-term debt 3,400 1,689 Loss on debt extinguishment 27,552 51,052 Gain on sales of property and equipment, net ( 4,347 ) ( 7,793 ) Deferred income taxes — 1,542 Stock-based compensation 17,325 8,630 Equity in net (income) loss from unconsolidated construction joint ventures 651 ( 4,535 ) Net income from affiliates ( 12,921 ) ( 19,378 ) Other non-cash adjustments ( 165 ) 5,659 Changes in assets and liabilities: Receivables ( 115,321 ) ( 286,262 ) Contract assets, net ( 11,799 ) 8,315 Inventories ( 1,367 ) ( 3,421 ) Contributions to unconsolidated construction joint ventures ( 3,218 ) ( 18,310 ) Distributions from unconsolidated construction joint ventures and affiliates 28,792 8,903 Other assets, net 14,779 ( 6,705 ) Accounts payable 104,477 144,721 Accrued expenses and other liabilities, net 50,036 76,915 Net cash provided by operating activities $ 283,549 $ 34,198 Investing activities: Purchases of marketable securities ( 6,977 ) ( 9,740 ) Maturities of marketable securities 31,500 40,000 Purchases of property and equipment ( 108,167 ) ( 108,963 ) Proceeds from sales of property and equipment 6,739 14,613 Acquisitions of businesses, net of cash acquired (See Note 3) ( 122,448 ) ( 26,933 ) Cash paid for purchase price adjustments on business acquisition (See Note 3) ( 13,183 ) — Proceeds from company owned life insurance — 1,545 Return of investment in affiliates 1,429 — Collection of notes receivable — 208 Net cash used in investing activities $ ( 211,107 ) $ ( 89,270 ) 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 ( 310,226 ) ( 304,851 ) Capped call transactions ( 46,046 ) ( 53,035 ) Redemption of warrants ( 497 ) ( 13,201 ) Debt issuance costs ( 10,053 ) ( 10,024 ) Cash dividends paid ( 17,131 ) ( 17,101 ) Repurchases of common stock ( 21,384 ) ( 3,900 ) Contributions from non-controlling partners 20,500 35,400 Distributions to non-controlling partners ( 18,072 ) ( 9,100 ) Other financing activities, net 1,340 267 Net cash provided by (used in) financing activities $ ( 27,819 ) $ 53,205 Net increase (decrease) in cash and cash equivalents 44,623 ( 1,867 ) Cash and cash equivalents at beginning of period 417,663 293,991 Cash and cash equivalents at end of period $ 462,286 $ 292,124 8 Table of Contents Supplementary Information: Right of use assets obtained in exchange for lease obligations $ 23,146 $ 28,546 Cash paid during the period for: Operating lease liabilities $ 17,532 $ 16,461 Interest $ 12,686 $ 6,473 Income taxes $ 9,762 $ 7,324 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 $ 20,309 $ 11,447 Dividends declared but not paid $ 5,682 $ 5,710 Contributions from non-controlling partners $ 1,959 $ 2,523 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 September 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 nine months ended September 30, 2024, we repurchased 225,000 shares under this authorization. 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 September 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 nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year. 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 nine months ended September 30, 2024 that had or are expected to have a material impact on our financial statements. 3.   Acquisitions Dickerson & Bowen, Inc. On August 9, 2024, we completed the acquisition of Dickerson & Bowen, Inc. ("D&B") for an estimated purchase price of $124.2 million in cash, subject to customary closing adjustments. D&B is an aggregates, asphalt and highway construction company serving central and southern Mississippi which expands our footprint in that region. The buyer of D&B, Granite Southeast Company ("Granite Southeast"), is a wholly-owned subsidiary of Granite and D&B's results have been included in the Construction and Materials segments since the acquisition date. D&B’s customers are in both the public and private 10 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) sectors. We have accounted for this transaction in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations (“ASC 805”). 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 August 9, 2024. These estimates are subject to revision, which may result in adjustments to the values presented below. There are certain provisional estimates that are subject to finalization. As we continue to integrate the acquired business, we may obtain additional information which may result in revisions to preliminary valuation assumptions, estimates and the resulting fair values presented herein. We expect to finalize these amounts within 12 months from the acquisition date. Based on our preliminary purchase price allocation, the net tangible and intangible assets acquired were $31.7 million and $27.7 million, respectively, resulting in acquired goodwill of $64.8 million, none of which is tax deductible. Of the acquired goodwill, $44.0 million is in the Materials segment and $20.8 million is in the Construction segment. The factors that contributed to the recognition of goodwill from the acquisition include strengthening and expanding our vertically integrated southeast home market. The most significant assets acquired were $38.1 million of property and equipment and $18.2 million of customer relationships. Pro Forma Financial Information The unaudited pro forma financial information in the table below summarizes the combined results of operations of Granite and D&B as though the companies had been combined as of January 1, 2023. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2023, nor does it intend to be a projection of future results. Three Months Ended September 30, Nine Months Ended September 30, (unaudited, in thousands, except per share amounts) 2024 2023 2024 2023 Revenue $ 1,285,341 $ 1,150,402 $ 3,085,489 $ 2,657,316 Net income attributable to Granite Construction Incorporated $ 80,657 $ 63,352 $ 93,770 $ 28,535 Basic net income per share attributable to common shareholders $ 1.85 $ 1.44 $ 2.14 $ 0.65 Diluted net income per share attributable to common shareholders $ 1.54 $ 1.18 $ 1.78 $ 0.64 These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of D&B to reflect the additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and equipment and intangible assets had been applied starting on January 1, 2023. Acquisition and integration expenses related to D&B that were incurred during the nine months ended September 30, 2024 are reflected in the nine months ended September 30, 2023 due to the assumed timing of the transaction. The statutory tax rate of 26% was used for both 2024 and 2023 for the pro forma adjustments. During the nine months ended September 30, 2024, we incurred $2.3 million of acquisition and integration expenses associated with the D&B acquisition which were primarily related to professional services. LRC/MSG On November 30, 2023, Granite Southeast 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 first half of 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. 11 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) LRC/MSG's 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. Revenue attributable to LRC/MSG for the three and nine months ended September 30, 2024 was $ 45.5 million and $ 105.0 million, respectively. Gross profit attributable to LRC/MSG for the three and nine months ended September 30, 2024 was $ 5.7 million and $ 5.0 million, respectively. 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. 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 nine months ended September 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 nine months ended September 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. There were no material measurement period adjustments during the three months ended September 30, 2024. As of September 30, 2024, we have finalized the purchase price accounting. The following table presents the 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 Purchase price $ 293,416 12 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Coast Mountain Resources 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. Granite Canada results are reported in the Materials segment. This acquisition did not have a material impact on our financial statements. 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 nine months ended September 30, 2024 and 2023, we did not identify any material amounts that should have been recorded in a prior period. The projects with increases 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Number of projects with upward estimate changes 2 1 2 1 Range of increase in gross profit from each project, net $ 5.4 - 5.7 $ 8.6 $ 5.2 - 6.2 $ 8.1 Increase to project profitability, net $ 11.1 $ 8.6 $ 11.4 $ 8.1 Increase to net income $ 8.5 $ 6.5 $ 8.7 $ 6.1 Amounts attributable to non-controlling interests $ — $ — $ — $ 3.3 Increase to net income attributable to Granite Construction Incorporated $ 8.5 $ 6.5 $ 8.7 $ 2.8 Increase to net income per diluted share attributable to common shareholders $ 0.16 $ 0.12 $ 0.17 $ 0.06 The increases during the three months ended September 30, 2024 and September 30, 2023 were due to changes in the estimated amount of probable recovery on outstanding claims. In the three months ended September 30, 2024, decreases in estimated costs from mitigated risks also contributed to the increase. The increases during the nine months ended September 30, 2024 were due to changes in the estimated amount of probable recovery on outstanding claims and changes in the estimated transaction price related to unresolved contract modifications resulting from revisions to project work plans, permitting and scheduling. The increase during the nine months ended September 30, 2023 was due to decreases in estimated costs from mitigated risks. 13 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Number of projects with downward estimate changes — 1 4 3 Range of reduction in gross profit from each project, net $ — $ 8.4 $ 5.3 - 22.0 $ 5.3 - 40.5 Decrease to project profitability, net $ — $ 8.4 $ 44.2 $ 51.1 Decrease to net income $ — $ 6.3 $ 33.8 $ 38.3 Amounts attributable to non-controlling interests $ — $ 4.2 $ 5.4 $ 20.2 Decrease to net income attributable to Granite Construction Incorporated $ — $ 2.1 $ 28.5 $ 18.1 Decrease to net income per diluted share attributable to common shareholders $ — $ 0.04 $ 0.54 $ 0.41 The decreases during the nine months ended September 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 nine months ended September 30, 2023 were due to additional costs related to changes in project durations, lower productivity than originally anticipated and increased labor and materials cost. 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 the 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. The following table presents our revenue disaggregated by reportable segment and by customer type for the Construction segment: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Construction segment revenue: Public $ 828,268 $ 674,494 $ 1,944,795 $ 1,513,046 Private 252,437 271,204 649,077 685,481 Total Construction segment revenue 1,080,705 945,698 2,593,872 2,198,527 Materials segment revenue 194,805 171,122 436,399 376,913 Total revenue $ 1,275,510 $ 1,116,820 $ 3,030,271 $ 2,575,440 14 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 6.   Unearned Revenue The following table presents our unearned revenue disaggregated by customer type as of the respective periods: (in thousands) September 30, 2024 December 31, 2023 Public $ 3,071,044 $ 2,892,255 Private 813,102 704,421 Total $ 3,884,146 $ 3,596,676 All unearned revenue is in the Construction segment. Approximately $ 2.7 billion of the September 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 $ 43.3 million and $ 220.7 million during the three and nine months ended September 30, 2024 and $ 41.6 million and $ 131.3 million during the three and nine months ended September 30, 2023. The changes in contract transaction price for the three and nine months ended September 30, 2024 and 2023 were from items such as executed or estimated change orders and unresolved contract modifications and claims. As of September 30, 2024 and December 31, 2023, the aggregate claim recovery estimates included in contract asset and liability balances were $ 88.0 million and $ 77.9 million, respectively. The components of the contract asset balances as of the respective dates were as follows: (in thousands) September 30, 2024 December 31, 2023 Costs in excess of billings and estimated earnings $ 143,739 $ 100,106 Contract retention 177,914 162,881 Total contract assets $ 321,653 $ 262,987 As of September 30, 2024 and December 31, 2023, contract retention receivable from Brightline Trains Florida LLC represented 9.1 % 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 $ 16.7 million and $ 270.0 million during the three and nine months ended September 30, 2024, respectively, and $ 17.5 million and $ 188.6 million during the three and nine months ended September 30, 2023, respectively, that was included in the contract liability balances at December 31, 2023 and 2022, respectively. The components of the contract liability balances as of the respective dates were as follows: (in thousands) September 30, 2024 December 31, 2023 Billings in excess of costs and estimated earnings, net of retention $ 279,566 $ 227,913 Provisions for losses 13,075 15,935 Total contract liabilities $ 292,641 $ 243,848 15 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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) September 30, 2024 December 31, 2023 Contracts completed and in progress: Billed $ 367,272 $ 343,190 Unbilled 213,555 119,170 Total contracts completed and in progress 580,827 462,360 Materials sales 73,047 61,808 Other 80,087 76,084 Total gross receivables 733,961 600,252 Less: allowance for credit losses 943 1,547 Total net receivables $ 733,018 $ 598,705 Included in other receivables at September 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 September 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 September 30, 2024 or December 31, 2023. 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 September 30, 2024 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 56,314 $ — $ — $ 56,314 Total assets $ 56,314 $ — $ — $ 56,314 Accrued and other current liabilities: Crude oil swaps $ — $ 363 $ — $ 363 Heating oil swaps — 801 — 801 Diesel collars — 267 — 267 Total liabilities $ — $ 1,431 $ — $ 1,431 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 16 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 nine months ended September 30, 2024 and 2023 was immaterial . In April 2024 and December 2022, we entered into commodity swaps designated as cash flow hedges to reduce our price exposure on crude oil with a notional amount of $ 1.8 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 nine months ended September 30, 2024 and 2023 was immaterial . 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: September 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 $ 10,147 $ 10,119 $ 35,863 $ 35,357 Liabilities (including current maturities): 3.25 % Convertible Notes (2) Level 2 $ 373,750 $ 458,074 $ — $ — 3.75 % Convertible Notes (2) Level 2 $ 373,750 $ 674,301 $ 373,750 $ 475,601 2.75 % Convertible Notes (2) Level 2 $ — $ — $ 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 September 30, 2024 and December 31, 2023. (2) The fair values of our our 3.25 % convertible senior notes due 2030 (the " 3.25 % Convertible Notes"), our 3.75 % convertible senior notes due 2028 (the " 3.75 % Convertible Notes") and our 2.75 % convertible senior notes due 2024 (the " 2.75 % 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 our convertible notes and the Credit Agreement. During the nine months ended September 30, 2024 and 2023, we had no material nonfinancial asset or 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 nine months ended September 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 17 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 September 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 nine months ended September 30, 2024 and 2023, total revenue from CCJVs was $ 101.3 million, $ 265.1 million, $ 91.2 million, and $ 223.3 million, respectively. During the nine months ended September 30, 2024 and 2023, CCJVs provided $ 33.0 million and used $ 36.8 million of operating cash flows, respectively. As of September 30, 2024, our share of revenue remaining to be recognized on these CCJVs was $ 375.8 million and ranged from $ 1.3 million to $ 140.1 million by project. Unconsolidated Construction Joint Ventures As of September 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 September 30, 2024, our share of the revenue remaining to be recognized on these unconsolidated construction joint ventures was $ 31.4 million and ranged from $ 0.7 million to $ 24.6 million by project. The following is summary financial information related to unconsolidated construction joint ventures: (in thousands) September 30, 2024 December 31, 2023 Assets: Cash, cash equivalents and marketable securities $ 113,587 $ 117,962 Other current assets (1) 599,976 666,536 Noncurrent assets 37,036 52,580 Less: partners’ interest 520,025 574,723 Granite’s interest (1),(2) $ 230,574 $ 262,355 Liabilities: Current liabilities $ 152,481 $ 191,175 Less: partners’ interest and adjustments (3) 61,493 85,131 Granite’s interest $ 90,988 $ 106,044 Equity in construction joint ventures (4) $ 139,586 $ 156,311 (1) Included in this balance and in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 was $ 57.8 million related to performance guarantees (see Note 13). (2) Included in this balance as of September 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 September 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 $ 4.5 million and $ 14.9 million as of September 30, 2024 and December 31, 2023, respectively, related to deficits in unconsolidated construction joint ventures, which includes provisions for losses. 18 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Revenue: Total $ 15,996 $ ( 18,391 ) $ 46,361 $ 44,994 Less: partners’ interest and adjustments (1) 8,206 ( 34,395 ) 21,148 4,625 Granite’s interest $ 7,790 $ 16,004 $ 25,213 $ 40,369 Cost of revenue: Total $ 23,462 $ ( 10,607 ) $ 69,559 $ 74,328 Less: partners’ interest and adjustments (1) 13,756 ( 18,143 ) 42,132 38,173 Granite’s interest $ 9,706 $ 7,536 $ 27,427 $ 36,155 Granite’s interest in gross profit (loss) $ ( 1,916 ) $ 8,468 $ ( 2,214 ) $ 4,214 Net Income (Loss): Total $ ( 5,667 ) $ ( 7,514 ) $ ( 17,766 ) $ ( 27,742 ) Less: partners’ interest and adjustments (1) ( 4,264 ) ( 16,054 ) ( 17,115 ) ( 32,277 ) Granite’s interest in net income (loss) (2) $ ( 1,403 ) $ 8,540 $ ( 651 ) $ 4,535 (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. 11.   Investments in Affiliates Our investments in affiliates balance consists of equity method investments in the following types of entities: (in thousands) September 30, 2024 December 31, 2023 Foreign $ 72,790 $ 68,407 Real estate 4,522 7,136 Asphalt terminal 17,609 17,367 Total investments in affiliates $ 94,921 $ 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) September 30, 2024 December 31, 2023 Current assets $ 205,698 $ 204,897 Noncurrent assets 131,912 159,694 Total assets $ 337,610 $ 364,591 Current liabilities $ 74,533 $ 81,899 Long-term liabilities (1) 45,156 54,591 Total liabilities $ 119,689 $ 136,490 Net assets $ 217,921 $ 228,101 Granite’s share of net assets $ 94,921 $ 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 $ 337.6 million of total affiliate assets as of September 30, 2024, we had investments in two real estate entities with total assets of $ 34.1 million, our foreign affiliates had total assets of $ 262.1 million and the asphalt terminal entity had total assets of $ 41.4 million. As of September 30, 2024 and December 31, 2023, all of the investments in real estate affiliates were in residential real estate in Texas. As of September 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 19 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) affiliates ranged from 25 % to 50 % as of September 30, 2024. Our percent ownership in the asphalt terminal entity was 50 % as of September 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) September 30, 2024 December 31, 2023 Equipment and vehicles $ 1,203,487 $ 1,140,195 Quarry property 253,864 251,922 Land and land improvements 129,047 105,872 Buildings and leasehold improvements 114,019 102,676 Office furniture and equipment 74,841 72,098 Property and equipment $ 1,775,258 $ 1,672,763 Less: accumulated depreciation and depletion 1,055,580 1,009,899 Property and equipment, net $ 719,678 $ 662,864 13.   Accrued Expenses and Other Current Liabilities (in thousands) September 30, 2024 December 31, 2023 Accrued insurance $ 89,252 $ 81,936 Deficits in unconsolidated construction joint ventures 4,511 14,921 Payroll and related employee benefits 116,143 105,418 Performance guarantees 57,849 57,849 Short-term lease liabilities 18,612 16,826 Other 74,743 60,790 Total $ 361,110 $ 337,740 Other includes dividends payable, warranty reserves, asset retirement obligations, remediation reserves 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) September 30, 2024 December 31, 2023 3.25 % Convertible Notes $ 373,750 $ — 3.75 % Convertible Notes 373,750 373,750 2.75 % Convertible Notes — 31,338 Credit Agreement - Term Loan — 150,000 Credit Agreement - Revolver — 100,000 Debt issuance costs and other ( 8,943 ) ( 375 ) Total debt $ 738,557 $ 654,713 Less: current maturities 1,099 39,932 Total long-term debt $ 737,458 $ 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 20 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 us to exchange our 2.75 % Convertible Notes for cash and shares of our 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. The Term Loan was fully repaid with the net proceeds from our 3.25 % Convertible Notes in the second quarter of 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 September 30, 2024, the total unused availability under the Credit Agreement was $ 333.5 million, resulting from $ 16.5 million in issued and outstanding letters of credit and nothing drawn under the Revolver. The letters of credit had expiration dates between November 2024 and December 2027. 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 our 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 our 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 21 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 our common stock upon any conversion of the 3.25 % Convertible Notes and/or offset any cash payments we are 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 our common stock, as measured under the terms of the 2024 capped call transactions, exceeds the cap price of $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 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 our 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 our common stock, subject to adjustment if certain events occur. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our 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 22 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 our common stock upon conversion of the 3.75 % Convertible Notes and/or offset any cash payments we are 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 our common stock, as measured under the terms of the 2023 capped call transactions, exceeds the cap price of $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. In June 2024, we called the 2.75 % Convertible Notes for redemption. As of September 30, 2024, no 2.75% Convertible Notes remained outstanding. 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 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 3.25 % Convertible Notes, our 3.75 % Convertible Notes or our Credit Agreement would constitute an event of default under 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 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 September 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 nine months ended September 30, 2024, we recorded $ 0.9 million and $ 3.0 million, respectively, of amortization related to debt issuance costs. We also capitalized $10.3 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 nine months ended September 30, 2023, we recorded $0.6 million and $3.0 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 $10.0 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 Per Share The following table presents a reconciliation of the weighted average shares of common stock used in calculating basic and diluted net income per share as well as the calculation of basic and diluted net income per share: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share amounts) 2024 2023 2024 2023 Numerator Net income attributable to common shareholders for basic earnings per share $ 78,951 $ 57,624 $ 84,863 $ 17,601 Add: Interest expense related to Convertible Notes (1) 3,064 3,209 9,196 — Net income attributable to common shareholders for diluted earnings per share $ 82,015 $ 60,833 $ 94,059 $ 17,601 Denominator Weighted average common shares outstanding, basic 43,696 43,924 43,914 43,861 Add: Dilutive effect of RSUs 567 589 568 586 Add: Dilutive effect of Convertible Notes (1) 8,103 9,099 8,103 — Weighted average common shares outstanding, diluted 52,366 53,612 52,585 44,447 Net income per share, basic $ 1.81 $ 1.31 $ 1.93 $ 0.40 Net income per share, diluted $ 1.57 $ 1.13 $ 1.79 $ 0.40 (1) The dilutive effect of the convertible notes was determined using the if-converted method. As the 3.75 % Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election, the 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 nine months ended September 30, 2023, interest expense related to convertible notes of $6.9 million and the potential dilution from the convertible notes converting into 9.1 million 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. 16.   Income Taxes The following table presents the provision for income taxes for the respective periods: Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2024 2023 2024 2023 Provision for income taxes $ 25,469 $ 22,423 $ 36,636 $ 21,978 Effective tax rate 23.3 % 28.1 % 28.2 % 73.6 % Our effective tax rate for the three months ended September 30, 2024 is lower than the prior year due to tax expense recognized in the third quarter of 2023 associated with recording a non-deductible goodwill impairment and valuation allowances on certain foreign net operating losses. Our effective rate for the nine months ended September 30, 2024 is lower than the prior year primarily due to incurring less nondeductible debt extinguishment costs in 2024 than 2023 as well as the tax expense associated with the goodwill impairment and valuation allowances recorded in the third quarter of 2023. 24 Table of Contents GRANITE CONSTRUCTION INCORPORATED NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 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 September 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 September 30, Construction Materials Total 2024 Total revenue from reportable segments $ 1,080,705 $ 297,398 $ 1,378,103 Elimination of intersegment revenue — ( 102,593 ) ( 102,593 ) Revenue from external customers $ 1,080,705 $ 194,805 $ 1,275,510 Gross profit $ 170,685 $ 32,264 $ 202,949 Depreciation, depletion and amortization $ 16,979 $ 11,685 $ 28,664 2023 Total revenue from reportable segments $ 945,698 $ 245,060 $ 1,190,758 Elimination of intersegment revenue — ( 73,938 ) ( 73,938 ) Revenue from external customers $ 945,698 $ 171,122 $ 1,116,820 Gross profit $ 137,162 $ 29,481 $ 166,643 Depreciation, depletion and amortization $ 11,239 $ 7,431 $ 18,670 Nine Months Ended September 30, Construction Materials Total 2024 Total revenue from reportable segments $ 2,593,872 $ 625,570 $ 3,219,442 Elimination of intersegment revenue — ( 189,171 ) ( 189,171 ) Revenue from external customers $ 2,593,872 $ 436,399 $ 3,030,271 Gross profit $ 362,885 $ 59,060 $ 421,945 Depreciation, depletion and amortization $ 44,183 $ 33,079 $ 77,262 Segment assets as of period end $ 604,257 $ 646,654 $ 1,250,911 2023 Total revenue from reportable segments $ 2,198,527 $ 523,813 $ 2,722,340 Elimination of intersegment revenue — ( 146,900 ) ( 146,900 ) Revenue from external customers $ 2,198,527 $ 376,913 $ 2,575,440 Gross profit $ 253,021 $ 49,067 $ 302,088 Depreciation, depletion and amortization $ 31,232 $ 20,644 $ 51,876 Segment assets as of period end $ 449,354 $ 421,766 $ 871,120 A reconciliation of segment gross profit to consolidated income before income taxes is as follows: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Total gross profit from reportable segments $ 202,949 $ 166,643 $ 421,945 $ 302,088 Selling, general and administrative expenses 91,650 74,794 249,695 212,479 Other costs, net 8,543 19,843 29,778 37,973 Gain on sales of property and equipment, net ( 1,542 ) ( 1,812 ) ( 4,347 ) ( 7,793 ) Total other (income) expense, net ( 5,148 ) ( 6,101 ) 16,791 29,573 Income before income taxes $ 109,446 $ 79,919 $ 130,028 $ 29,856 26 Table of Contents