Q4 2019 Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the tutor Perini Corporation fourth quarter 2019 earnings Conference call. My name is over and I will be your coordinator for today.
This time, all participants are any listen only mode. Following management's prepared remarks, we will be opening of the call for a question answer session.
As a reminder, this conference call is being recorded for replay purposes.
If anyone should require operator systems during the conference. Please press star zero in your telephone keypad I will now turn the conference over to your host for today Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.
Hello, everyone and thank you for your participation today, joining us on the call our Ronald tutor, Chairman and CEO and Gary Smalley Executive Vice President and CFO before we discuss our results I'll remind everyone that during today's call will be making forward looking statements, which are based on management's current assessment of existing trends of information there is an inherent risk.
Actual results could differ materially you can find our disclosures about risk factors that could potentially contribute to such differences in our form 10-K, which is being filed today February 26, 2020. The company assumes no obligation to update forward looking statements, whether as a result of new information future events or otherwise other than as required by law in.
In addition, during today's call, we will be discussing certain non-GAAP financial measures the appropriate GAAP financial reconciliations can be found in our earnings release and form 10-K, and also in our unaudited investors report all of which are posted in the Investor Relations section of our website with that said I will turn the call over to Ronald tutor.
Thanks, Jorge good afternoon, and thank you for joining us.
As you read in our earnings release, our fourth quarter results were negatively impacted by the substantial ESRD 99 charge that we took in December.
As a result of the adverse jury verdict, while we are appealing that decision and are optimistic we will eventually prevail. The charge we were required to take nonetheless significantly reduced our earnings for the quarter.
Back they really eliminated our earnings.
In addition, the specialty contractors group again experienced project charges on certain electrical mechanical projects in a fourth quarter, particularly the mechanical group.
And.
Provided us substantial operating losses that again affected our fourth quarter results.
To say, the least time dissatisfied with the performance of the entire specialty group.
Specifically more so than mechanical however, we continue to make improvements in changes that should result in a better performance in 2020.
On a brighter side, our backlog increased in the fourth quarter to 11.2 billion the growth of 21% year over year would start with strong double digit growth across all our segments.
Our backlog growth was driven driven by 1.5 billion of New awards and adjustments in the fourth quarter and 6.4 billion for the full year of 2019.
Significant fourth quarter Awards included the 432 million dollar Division 20 portal widening project for the LMCA in Los Angeles.
Over 375 million of various electrical mechanical projects.
The $263 million Miami Dade County Court Sbthree project.
For which we received a notice to proceed.
Of 79 million dollar apex technology and life Science building in the 79 million dollar East Bay Library.
In addition, our Lunda subsidiary received a $50 million 10th Avenue Bridge rehab project in Minnesota.
We expect our backlog will continue to grow later this year.
And into next year, driven by not only strong customer demand.
But one major in significant billion dollars plus after another with the continued limited competition.
I have spoken to for the last two years.
Our operating cash was another positive of the fourth quarter and it was also strong for the year with 25.2 million generated in the quarter and 136.5 million generated in 2019, the second half of 2009.
Team was particularly strong with 248 million of operating cash generated during that period.
That was in line with our expectations for the year and Im satisfied with our results and confident that in 2020, we will once again have another solid year with strong cash generation.
In addition to collections from our projects generating cash we expect to continue to make the projects that the excuse me. The progress previously previously discussed in resolving our claims under billings and unapproved change orders to collect a substantial cash.
Presently owed to us.
With regard to the California high speed rail in our Purple line, two and three stations and Purple line, three tunnels, whose by the way aggregate value exceed $5 billion.
The jobs continue to progress very well high speed rail is finally preparing to be in full production by June of this year with our extending the completion date from the end of 22 excuse me the end of 21.
The first quarter of 23 once again, we're in discussions with the owner to resolve payment for that further delay. However, it seems certain that given all of the results and resolves over the last 90 days that that should be the final end date for high speed.
Rail.
I would also remind everyone that contract is more than doubled during that time in which the contract has been extended.
Purple lines, two and three including the separate Purple line three tunnel contract have all started per blind to his assembling the two total machines and preparing to turn under and begin the mine in April and both stations will sure.
Beverly and we'll show and excuse me century city have commenced excavation and support.
Purple line three stations in design with a potential construction start at the end of 2020.
Purple line three tunnels of $420 million project is the engineering is nearing completion equipment has been ordered and site preparation.
He is underway all of the above contracts continue to meet budget.
And although we have suffered compensable delays on high speed rail are progressing very well toward completion and I might add significantly with no claims and no under buildings.
As I've said before few contractors apart from us and a handful have the capabilities.
Financial and physical resources successfully compete for and execute the extraordinarily large civil projects being put into the marketplace by government in the United States.
Accordingly, we remain in a very positive position was significantly increasing market demand.
Against a backdrop of less than competition for these very large projects.
To give you a sense of the size and number of major jobs.
I would add for example, we just recently learned we are one of three teams shortlisted to compete for the 1.2 billion dollar Metro North Penn station access job in New York.
That bids later this year further we have been pre qualified to offer a construction management proposal on the six to 7 billion dollar so Paul but a transit quarter project in Los Angeles.
That award will be made in April or May of this year.
The project is a design support that go shaded general calm contract, culminating on a notice to proceed with the construction within 36 to 42 month.
That were not enough we are pre qualified for the Newark Air Tray, which is a 2 billion dollar air trade that runs right across the front of our newer terminal.
In addition, we are in the process of bidding the 1.5 billion dollar Honolulu Rail Transit project.
Which will bid in the second quarter more than likely may and be awarded by the fourth quarter and we are one of only two bidders.
As well I've had meetings and expect to be pre qualified for the two and a half billion dollar Bay area rapid transit or Silicon Valley extension, which bids in the second quarter of next year with an award in the third quarter.
Continuing on on the East Coast. We also have a 2 billion dollar JFK land side roadway development and of course, the Laguardia Eritrea.
Hi, good go on and on and I have another paragraph in front of me, but what it really boils down to is there and enormity of many of the a billion dollars plus jobs and the only limit is our physical capacity, which we do have a capacity restrained.
For our building group larger new project opportunities include two healthcare projects in California, totaling 1.2 billion. The you see Davis replacement hospital in the harbor towards outpatient Hospital. In addition, there is a 500 million dollar Burbank Airport terminal.
Replacement.
In a number of odds and ends buildings that that equate to the 300 to 500 rangy.
Our specialty contractors group continues to be extremely driven by volume presented but also challenged by the struggles weve add maintaining profitability and in commitment.
I believe the newer work that we have one is that significantly elevated margins and the changes in staff in management should deliver better results than we've been burden with for the last few years.
Over the next five years, the New York City Transit, although not one of our better owners is putting $52 billion, who are the trends at work out on the marketplace that all falls within our expertise both tutor perini civil and.
Five star electric.
With the absolute limited competition never as an owner deserved higher prices.
We anticipate strong revenue growth across all segments in 2020.
With improved margin performance.
And we are projecting guidance for 2020 at a range of a $1.80 to two debt with that I turn it over to Gary small.
Thank you Ron good afternoon, everyone.
I will start by discussing our results for the year after which I'll review the fourth quarter.
Ill then provide.
Some comments on our cash flow and balance sheet in our 2020 guidance assumptions.
Okay.
As a reminder, we have provided in our earnings release and 10-K, a reconciliation of certain non-GAAP financial measures to most nearly comparable GAAP measures.
The non-GAAP measures exclude the impact of the goodwill impairment charge that we took in the second quarter of 2019 as well as a tax benefit associated with that charge.
Accordingly for the full year of 2019 I'll be discussing our adjusted income or loss from construction operations adjusted net income.
And adjusted EPS on a pre impairment basis to enable users of our financials to better understand our operating results.
Revenue for 2019 was $4.5 billion consistent with the revenue reported last year.
However, it is important to note that the MSR 99 charge, which Ron mentioned earlier.
Reduced our revenue for 2019 as wells for the fourth quarter of 2019 by approximately.
$124 million.
With this revenue reduction our civil segment revenue for the year was $1.8 billion still up 12% year over year, driven by increased activities on certain mass transit projects in California, and Minnesota.
That our early in their project lifecycle as well as increased activity on the Newark Airport project.
Revenue was down modestly for the building the specialty contractor segments compared to 2018.
For the building segment. The decrease was primarily due to reduced activities on healthcare projects in California, and hospitality and gaming projects in various states, partially offset by increased activities on the Newark Airport project.
And in industrial revitalization project in Mississippi.
For the specialty contractor segment. The decrease resulted mostly from the timing of revenue burn as newer work is expected to drive revenue growth for the segment.
DNA for the year was $227 million down 14.
In the 14% compared to last year with the reduction mainly due to a onetime gain of $38 million related to our acquisition of an additional 25% interest in a civil segment joint venture.
Note that the billings and cash collections associated with this gain will be reflected in our cash flow mostly during 2020 in 2021.
Adjusted income from construction operations for 2019, Nonconsolidated basis was $15 million down significantly compared to last year, primarily due to the 167 million dollar MSR 99 charge, which mostly impacted the civil segment.
Consequently, despite income contributions associated with the strong civil segment revenue growth adjusted income from construction operations for the civil segment.
It was $59 million.
Building segment adjusted income from construction operations was $37 million down 15% compared to 2018, mainly due to the absence of a couple of prior year immaterial favorable project closeout adjustments, partially offset by increased contributions in 2019.
From other projects, including the Newark Airport.
The specialty contractor segment experienced an adjusted loss from construction operations of $16 million for the year.
Mostly as a result of net net unfavorable adjustments that totaled $41.5 million on certain electrical and mechanical projects in New York, none of which were individually material.
Other income in 2019 was $7 million compared to $4 million in 2018.
The increase was due to a net gain on the sale of property and equipment in in 2019 interest expense and 2019 was 67 million compared to 64 million in the prior year with increased due to higher average balance on our revolver.
The goodwill impairment NSR 99 charges. We took in 2019 resulted in a tax benefit of 66 million for the year compared to tax expense of $35 million in 2018.
Adjusted net loss attributable to tutor Perini for 2019 was $57.2 million or $1.14.
Per diluted share compared to net income attributable to tune for any of $83.4 million or $1.66 per diluted share for 2018.
Again, our net income and earnings results in 2019 were primarily impacted by the significant after tax that's our 99 charge of 119.4 million or $2.30 per diluted share.
I'll also note here that the net unfavorable adjustments and specialty segment equated to a 60 cent impact to the earnings for the year.
60 cents per share impact.
Now for the fourth quarter results.
Revenue for the fourth quarter was 1.2 billion level with the revenue for the same quarter last year.
Even though as I mentioned earlier, the fourth quarter of 2019 was negatively impacted by the 124 million dollar revenue adjustment associated with FSR 99 chart.
Civil segment.
Revenue for the quarter was 448 million down about $41 million compared to the fourth quarter of 2018, but again adversely affected by the MSR 99 charge.
Several of our large silver projects, including California High speed rail the Purple line projects Newark Airport and the Minneapolis light rail will be contributing to the substantial revenue growth that we expect for both the segment and company in 2020.
Revenue for the building segment was $465 million essentially level compared to the fourth quarter of 2018.
Several new we're building segment projects many of which are in the early stages.
Our expected to generate significant revenue in 2020 as construction activities advance.
Specialty contractor segment revenue was $265 million up a strong 18% year over year.
Primarily due to the increased activity on several electrical mechanical projects in New York, New Jersey in California that are contributing significantly to the group's results.
We anticipate even larger revenue contributions in 2020 from various projects in the specialty segment better in the early stages and are accelerating this year.
Loss.
From construction operations for the fourth quarter was $94 million compared to 91 million of income from construction operations for the same quarter last year. The significant decrease was mostly due to the EPS our 99 charge.
For the Civil segment. They are 99 charge was the primary reason Thats a segment reported a loss from construction operations was $79 million for the segment in the fourth quarter compared to $75 million of income from construction operations for the same quarter last year.
We expect to return to normalized profitability in higher margins for civil and 2020 with operating margins near or even above the upper end of our historical 8% to 12% Civil segment range profitability.
Several of the group's larger projects contribute even more substantially to our results over the coming quarters.
We also still expect that our higher margin Civil group will continue to lead the Companys overall earnings growth in 2020 beyond.
Building segment income from construction operations was $17 million up modestly compared to last year's fourth quarter, even with the flat year over year revenue for the quarter.
The building segment's fourth quarter operating margin was 3.6% compared to 3.4% for the same quarter of 2018, we anticipate that the building segment will deliver a higher full year margin in 2020 in the mid 2% range as several the groups newer higher margin projects continue to advance.
This compares to the 2.1% full year margin they produced in 2019.
Specialty contractors loss from construction operations for the fourth quarter was 13 million compared to 70 million of income from construction operations in the same quarter of last year.
Substantial decrease was principally due to the impact of approximately $15 million of net net unfavorable adjustments in the fourth quarter on certain electrical manic mechanical projects in New York as well as the impact of $11 million.
Of the 167 million FSR 99 charge.
We expect that the specialty segment will deliver better operating performance in 2020, given our focus on driving improvements in the group.
Interest expense for the fourth quarter of 2019 was $16 million level with the same quarter last year.
Yes, our 99 charge resulted in a tax benefit for the fourth quarter of $30 million.
Which compared to a tax expense of $20 million in the fourth quarter of 2018.
Net loss attributable to tutor perini for the fourth quarter of 2019 was 86.1 billion or $1.71 per diluted share compared to net income attributable to two to printing a 49.4 million or 98 cents per diluted share for the fourth quarter of last year.
The substantial reduction in net income in the EPS in this year's fourth quarter was again, mostly due to the MSR 99 chart.
Before shifting gears and discussing our operating cash and balance sheet, just a clarification. The EPS impact of the MSR 99 charge was $2.38 I think I may have said $2 in 30 cents per diluted share previously.
And operating cash.
We generated $25 million of operating cash in the fourth quarter and 136.5 million as Ron noted for the full year of of 2019, including 248 million that was generated during the second half of the year.
As Ron mentioned this was a strong result in aligned with our expectations for the year and certainly an improvement compared to the 20 month $1 million, we generated for 2018.
We continue to expect healthy operating cash generation in excess of net income for 2020 from collection settlement activities as well as regular project execution activities.
Our total debt as of December 30, Onest 2019 was 834 million compared to our debt at the end of the third quarter.
Excuse me comparable to our debt at the end of the third quarter.
As you May know our credit facility includes a spring forward maturity provision whereby it will mature on December 17th 2020 of our convertible notes are still outstanding at that time.
Our goal is to take out the convertible notes from cash generation during the year.
However, we are discussing all options and various backup plans with our lenders we will determine the financing alternatives alternatives that is best suited to our needs and provides the most favorable terms.
And because of the spring forward maturity of our credit facility our borrowings under the facility are included in current debt on a variance on our balance sheet at the end of 2019. This has no impact at all on our operations.
I will note that we are well within the limits.
And in compliance with our debt covenants for the fourth quarter and we expect that we will continue to be comfortably within our covenant limits as we go forward.
Earlier, Ron mentioned, our initial EPS guidance range for 2020 of $1.80 to $2.10 per diluted share. We acknowledge that this guidance ranges below the streets 2020 consensus expectations.
In the past our ability to achieve guidance has been consistently challenge for various reasons reasons, including.
Delays as to when projects are awarded.
Delays as two on project startup after they are awarded and project execution activities falling short of expectations are owners actions that impact the project schedule.
The uncertainties of our industry are not going away. So we need to do a better job of anticipating more of the surprises that have frequently impacted our ability to consistently meet or exceed guidance.
We believe that our guidance range takes appropriate account of the inherent uncertainties in our business.
Now, let me provide some assumptions associated with our guidance.
DNA expense for 2020 is expected to be approximately in the range of $270 million to $280 million.
Interest expense is budgeted at approximately 71 billion for the year inline with our expectation that we will collect cash can reduce debt, but it also factors in additional noncash interest associated with addressing our convertible notes this year.
About $20 million of the 71 million.
Of interest expense will be noncash interest expense.
Depreciation and amortization were 2020 is anticipated to be approximately 109 million of which $28 million represents amortization of intangible asset established as a result of our increased joint venture interest on a civil segment project.
Our effective tax rate for 2020 is expected to be in the range of 26% to 28%.
Net income attributable to non controlling interest for 2020 is anticipated to be approximately $41 million.
Our weighted average shares outstanding for the year should be approximately $51.5 million. Finally cap capital expenditures in 2020 are expected to be approximately $56 million of which 30 million who will be for owner funded project specific.
Equipment with that Ron I'll turn the call back over to you.
Make no bones about at 2019 was an extremely disappointing year.
Starting with the jury verdict that was hard to fathom given knowledge of the facts.
And the continued issues with our specialty group.
Having so stated we did achieve very strong operating cash results and back log growth continues to expand in the higher margin positive work we've discussed.
I might add just as a point of clarity.
The five newest projects in California.
Starting with high speed rail.
And for projects for the Los Angeles Metropolitan Transit districts, the five of which totaled $5.4 billion.
Our well under construction without a single under billing or claim.
Which is where this company will be driven to no matter what a dates.
I have further expect another strong year of cash generation as we continue to make progress and resolving the day to day issues of dispute resolution with our owner.
Adoption of Unbilled receivables and simply collecting the cash we are wrote.
I continue to be optimistic if for no. Other reason this significant an overwhelming amount of work.
That is out in the industry to bid with to be very nice very limited competition.
And margins that are particularly positive.
We believe we will capture our share of all of that work and as long as we continue to successfully execute those mega projects that will support the long period of growth and increased properly profitably.
Realty that I foresee for the company with that I turn it over the call to the operator for questions. Thank you.
At this time, we will be conducting a question answer session. If you'd like to ask your question. Please press star one under telephone keypad, a confirmation home when the key your line is in the question Q You May Press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, and maybe that's hard to pick up your handset before freshness turkeys one moment, please while we pull for questions.
Our first question is from.
And Gilman da Davidson. Please proceed with your question.
Okay, great. Thanks, good afternoon.
Great Ron could you give us an update maybe on the magnitude as the collection and any timing and we can think about here for this year that you're after.
It's slow, but but we're in the process of resolving the San Francisco Mtpa project. They have come forward with another 30 million to resolve other issues, they're fully committing to taking that unbilled receivable down we think it will be eliminated by June it should have been.
Done by January but it always seems there's a reason why we can't do it today, but we'll do it tomorrow, there's no turning back to Dave admitted in writing all the entitlements, they're doing the best they can I'm convinced the integrity is in place and we continue to see.
Settle all of the issues such that I expect San Francisco Mtpa to be cleaned up by the second quarter.
We continue to negotiate or in a process on a number of projects.
The.
Five star versus the United Nations and their builder that arbitration and that we will be waiting for results in the next 60 days.
We had a litigation for breach of fiduciary against a former executive or one of our subsidiaries for a significant amount of money that litigation is over and we're awaiting the results.
We've got litigation over waving the results to date back to March last year. So the price is slower than I could have ever imagine, but we don't go away and.
Setting aside the incredible verdict on MSR 99.
We expect to resolve most of these in our favor if not all.
Okay, and I guess since you mentioned that can you kind of remind us the timing at the appeals process and what we can kind of look toward for that regarding that I'd say I think it's typically a two year revealed process.
In this case, the jury and frankly in my opinion the judge.
So violated what was appropriate.
All that all the appellate court I would hope would do is look at the original record.
And say the jury overall rules and disputes review board.
That ruled unanimously we were entitled to the money.
And ignore the definition of a different site conditions in our contract, which again would have said they owed us the money.
Just said it regardless of the fact youre not old the money. It's as has incredible is this may seem as as angry as I may Sam It's all the way. It is however, this is America. This is our court system My guess it'll take two years and then.
What we would hope would happen, but are certainly not guarantees it would be remanded for a new trial, which would probably extended another two years. So all it means is if we win our appeal, we re try that case.
Okay and that the asset then HCA has been a good story I guess in this regard I mean, it had an election you getting collection here it sounds like will cease in cash than here in the first quarter from them or at least first half year margin to add what first adequate adapt and went flat overall I mean potentially to collect from.
Not owner.
Theres, probably 60 million still to collect and we hope to get a significant amount of it before if not all of it before June which would be the second quarter.
Okay.
And then just on the guidance I mean, obviously you got.
Large backlogs across all segments I mean should we assume you should see double digit growth across all these businesses in 2020.
When you say double digit growth earnings are for or.
Alright wrapped tuck in or just revenue just given the visibility you've gotten a lot of these projects that seem to be moving forward.
With all these huge projects in the enormity of our.
Of our.
Backlog it doesn't produce revenue that quickly so I'm looking for probably high single digits.
Absolutely.
Double digits for 2020 and 21.
The key element will be the significantly higher margins.
And the fact that.
Whether whether I say it or not we have introduced significant contingencies to our earnings.
Cover the continuing unforeseen issues it seemed to crop up.
Okay last one probably for Gary that the DNA down this quarter could you just talk through owns included or excluded from that.
Yes that was also the.
$30 million gain that we had on the acquired the additional interest in the joint venture that I mentioned.
Okay, Okay, great I'll patent on thank you yes.
Our next question from Alex Regal B. Riley FBR. Please proceed with your question.
Thanks, Good evening everyone.
Hi, Alex Hi, Alex Ron to kind of follow up on those previous questions in the past you provide us a nice outline of.
Anticipated cash collections over certain different.
Time periods being sort of year end 19, one Q of 2020 and.
You know late 2020 or into 2021 can you update us on those.
I wish I could I didn't think of it and I didnt update our prior projections.
You heard about the ones that adjudicated the only thing I'd have to do is take the prior ones and we'll see where there are time wise, we we have a tendency whether its negotiations are trial dates for every day on given the slip so I can't I really can't respond now.
But I suppose if I had time I could go back and get occur an update for you Alex within the next 30 days.
And Gary maybe can you give me a little bit more specific and kind of what your thought processes with regards to the timeline of settling the converts.
Yes, Weve ahead.
A lot of discussions with our banks and some other interested parties, who also have some ideas and that.
Look we're looking at probably the spring to begin in earnest as far as on specific activity, we want to give it just a little bit of time as you can appreciate Alex to see the timing of the cash collections to see.
Because that helps with the options the more cash that you have so if the pace of cash collections mimics, which we what we think it should be than that.
Certainly helps in the settlement process and the timing of it so I wouldnt expect anything before the but we'll say mid second quarter, maybe by the end of second quarter, but my guess is probably early third quarter timeframe.
And can you give us an update sort of on the first half a 2020, how cash flow looks associated with milestone payments and advances and such are we enough positive scenario there are negative scenario there.
Yes, we expect to be in a positive scenario, Alex we don't really guide on cash flow other than to say that cash flow will exceed net income we were out of the gate very slow last year with cash collections, we don't think and cash flow in the in the opening part of year, particularly the first quarter is never the strongest for us, but we don't expect to be.
As negative as we were to open last year, we see positive signs to to have it more positive.
Relatively more positive in the first quarter certainly through the first part of year, we expect to see some very good positive trends.
Very helpful. Thank you.
Hello.
Our next question is from Steven Fisher, Yes. Please proceed with your question.
Thanks, Good afternoon guys.
David.
Hi, guys. So Gary just maybe talk about the cash flow in the fourth quarter.
You mentioned the 25 million when we include the Capex. It was looked like it was around maybe 3 million of free cash flow for the quarter. It sounded like you guys are thinking of it as a stronger than that so if you could maybe help us just isolate what were the onetime payments.
If there were any in the quarter that may have weighed on cash flow relative to what the normal flow was and how was the normal slow.
Relative to whats your expectations would have been for the fourth quarter.
Theres, not really any payments onetime payments that.
Impacted.
It's really more timing issue some of it is timing on just regular execution activities as to timing of collection were some things came in in in January rather than in December then there is certain element of it on some of the collections.
The older stuff that we've been settling.
Blade, where it looked like things were going to come in November maybe December that they were extended so.
It's really not more than that.
Okay and more than anything big that was already collected in January that you can call out.
No I mean, not not anything unusual no no collections of the disputed items just.
Normal pace of of collections on.
Normal recurring type project execution activities. So nothing that we've targeted that continues to be extended as as Ron was was saying, we're a while ago.
Okay and then just following up on a quick question on the converts.
I think you said.
That you intend to settle it with cash collected from operations and I know you want to.
Take some extra time to.
Generate some cash from from the settlement and I guess, if we take you know $2 of earnings or so and your share count say you'd be around 100 million of cash collected I think your converts or somewhere.
Correct me, if I'm wrong on the 200 million area. So.
The expectation that you would.
Need to generate roughly another 100 million from collections.
Some of the claims to address those converts I think that that.
Math.
Works at least at a high level I think thats, a reasonable way to look at it.
Okay.
And then on the guidance.
Hi, Thanks, Ron I think you said.
Maybe towards the upper single digit revenue growth.
And use the margins that you talked about how are you didn't give specifics for the specialty group.
But I don't get down as low as the guidance range.
No Gary you mentioned something about contingencies. So are there large specific contingencies that you have baked into the guidance.
Well, we're going to already or.
I've been so disappointed in our specialty group, then I put a significant broad based contingency against their earnings they're a very key strategic part of our civil group going forward and.
To say they've been an incredible disappointment in our execution would be an understatement.
Made a lot of personnel changes I've made a lot of culture changes I've done everything, but I'm not satisfied yet we're out of the woods. So the only way I hedged against being embarrassed was that but a significant contingency against the specialty group.
And that's why you're probably seeing earnings less than you would've otherwise anticipated.
Thanks, Ron So do you assume that the in that guidance Dan are you assuming that they make money in 2020, yes.
They don't make money they better all be looking for a job.
Every last not and one of them.
And so there's been a at least a couple of tries to address as I mentioned still challenging.
What is what's really the core issue here now after the management change and does it make sense I know you said, it's a strategic part of the business does it really makes sense to keep it can you.
Still have the value added to the civil business by.
Contracting with them separately under someone else's ownership, though no unfortunately, and I'll try to give you could better picture when we acquired our two New York subsidiaries, five star and W. DFE.
2012, and Fisk electric in Texas in 2011.
We woke up in 2015.
Ill.
Cursed with the memory, we wrote off $45 million at five star and we have had significant write downs on old work now Theres Nobody that's left out of any of those companies. They've all been replaced the problem is from a period of about 2012.
2016.
Thats, what our under billings exploded in New York, primarily in that specialty group and we are still wearing them out even though there is new people they've had some execution issues over the last few years, but we think we have good people in place.
Given the kind of screws day, there now working under.
We think they will continue and we will turn it around the real problem is the reason we went into this specialty business.
Enormity of our jobs are such if we don't have an electric or for example.
In both billion $300 million la empty a stations there was 150 in $175 million electrical component.
When you have been at arm's length, with an electrical contractor over whom you have no control and they know year. There are only erode their general contractor in there you are only better you have no control over their margins you can't compete with our biggest competitor kiewit boost fully vertically.
We integrated as are we and then we've made comment the mercy of our subcontractors instead of supported by so.
Fortunately or unfortunately is the case may be commitments, we have no alternative but to maintain a large specialty presence to support our civil business. We're not for that I'd agree with you all heartedly and I'd be out of the specialty businesses fast as you could imagine.
Okay. Thanks, Ron and then just a couple last number question Gary So just the.
Fourth quarter civil margins in the right number to have in the model just a hair under 8% if you add back the.
Add back CSR 99 revenues and charges is that the way to think about it and then just cadence of 2020 or the first quarter tends to seasonally be pretty light and.
If if any for senses the right number to think about for Q4 margins and you're talking about.
Finally 12.
For the year in 2020, how do we how do we ramp up to that I just want to make sure we level set the expectation of cadence over the course of the year, Yes, Steve We had a close out type issue if you will in civil.
Legacy item that we we cleared in in the fourth quarter also that brought the margin down a little bit. So I think if you if you add back about 10 million.
To equalize your margin I think thats that gets you closer to what we expect to see out of the gate in in.
The first quarter of 22000, and so the ramp up isn't as as much as what you're thinking with eight to 12.
Okay. Thanks, a lot.
We have reached the end of the question answer session I will now turn the call back over to Ron tutor for closing remarks.
Thank you everybody.
See you next quarter.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.