Q1 2020 Earnings Call
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Good day, ladies and gentlemen, a welcome to two degrees Corporation first quarter 2020 earnings Conference call. My name is Devon and that would be a coordinator for today.
This call all participants are placed in listen only mode.
Following management's prepared remarks, we'll be opening the call for question answer session. As reminder, this conference call is being recorded for replay purposes spending which require operators just during the conference. Please press star zero on your telephone keypad I would now let's turn the conference over to your host for today, So Jorge Posada Vice President.
Sure Relations. Please go ahead.
Hello, everyone and thank you for your participation with us today on the call or Ronald tutor, Chairman and CEO, and Gary Smalley Executive Vice President and CFO.
Well, we just go so results I remind everyone that during today's call. He will be making forward looking statements, which are based on management's current assessment of existing trends and information. There was an inherent risks that our actual results could differ materially you can find our disclosures about risk factors that could potentially contribute to such differences in our most recent form 10-K, which was filed.
On February 26, 2020, and in the form 10-Q that we were filing today.
The company assumes no obligation to update forward looking statement, whether as a result of new information future events or otherwise other than as required by law with that said I will turn the call over to Ronald tutor.
Thanks, Jorge and good afternoon, everyone. Thanks for joining us.
Our first quarter results were nothing short of outstanding and well ahead of our own expectations.
We delivered double digit revenue growth across all our segments with particularly strong growth generated by the civil the excuse me civil and specialty contractors groups.
And as usual by the large infrastructure projects that continue to accelerate as anticipated.
These include Newark Airport terminal, one Minneapolis southwest West Light rail.
Purple line sections, two and three contracts as well as section three donalds.
California High speed rail and the significant work on the east side access in New York City, namely the projects being CQ 33, and C. S 179.
Our operating income in the quarter more than doubled our expectations compared to last year's first quarter due again to the broad based revenue growth across all our segments.
Well, it's improved performance in our New York City in particular specialty contractors business units.
Gary will provide the details of our financial results in a moment, but the highlight we didnt delivered the.
Strongest first quarter revenue growth in the past eight years.
And the highest first quarter E. P. S. In the past 10 years.
As everyone understands and I believe the first quarter has been traditionally are always our weakest quarter in revenue earnings and cash flow because of the severe impacts of the winner on our east coast and Midwest operations.
Which is or what makes this quarter so gratifying.
So suffice it to say, we're enjoying an excellent start to the year and confident that the rest of the here, we'll continue to show progress and improve performance compared to last year.
And interesting it's inspite of the impacts of Cove at 19 today.
[noise] I'll go on to say, we're fortunate that Cove at 19 pandemic did not have much of an impact on our ability to generate these results.
While we have experienced some temporary project issues, particularly in New York City and secondarily on newer terminal in New Jersey.
The vast majority of or projects have been deemed essential services, which has allowed us to continue our project activities, while trying to maintain the social distancing and hygiene requirements of our agency.
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Since our higher margin projects if continued to operate.
And had very little impact of the Cove at 19 to date.
We currently do not anticipate.
That the pet.
Clearly affect our results for 2020.
So we must caution that there is a circle uncertainty about whether it could re occur and in fact accelerate.
Even though we don't believe that will be the case.
Our backlog stood at 10.6 billion at the end of the first quarter.
Certainly a very healthy level that we believe we'll continue to fuel solid revenue growth and higher profits.
Compared to last year's first quarter, which featured a record 3.2 billion of New awards and contract adjustments.
And ended up in the largest backlog in our history. This year's first quarter included a modest 587 million of New awards and adjustments.
This highlights how our backlog can and sometimes does fluctuate.
Comparing different periods due to the timing of large awards I.
I might add that serve the jobs that we anticipated bidding in the first and second quarter, thanks to the Cove and.
Prices have been push back from 60 to 90 days. So the one area. It has had impact is the bidding of work and the second area has been the ability to meet at unresolved issues.
We continue to be encouraged in extremely busy managing the bidding opportunities that we're constantly presented.
Some of the significant New awards Big book this quarter were to military projects by our P.M.S. I unit. It can't believe June in North Carolina, and one at Cape Canaveral in Florida totaling $133 million.
In addition frontier Kemper.
Our double subsidiary book to $64 million Blue Creek mining project in Alabama.
As a reminder of the limited competition, we're seeing for many of our large civil project pursuits.
We are only one of three teams shortlist compete for the 1.2 billion dollar Metro North Penn station access project in New York.
We expect the bread that project later this year or early next year.
Today, we are submitting our qualifications for the 600 million dollar link Union station Phase one project in Los Angeles with awarded that project anticipated in the fourth quarter.
In addition, we will be offering a proposal on the $7 billion, some Paul but a transit corridor project for the Los Angeles M.T.A. in the month of July.
Excuse me make that June it its June not July the project will be executed under a design support general contractor framework, where in design support and preliminary design.
Should ultimately need to a negotiated general contract at the end of the design and approval process.
Our bid for the 400 million dollar L.A.M.T. a metro connector project is expected.
To be on the street in the summer with an award expected in the fourth quarter.
Our notable upcoming bids include the 1.5 billion dollar holiday Honolulu rail transit be three project.
Which will now bid in July.
And should be awarded by the fourth quarter this year.
The 2 billion dollar base rapid transit tunnel project.
San Jose, which bids in the second quarter of next year with award expected in the third quarter.
And on the East Coast. We also expect the bid the one and a half a billion dollar Newark Airtrain with selection and award expected in the first quarter of 2021.
And the billion and a half dollar JFK Airport landside roadway development with selection and War award anticipated by the end of 2020.
Even more sizable civil bids that are further out into the horizon include the 4 billion dollar West Santa Ana Transit corridor, and a 1.5 billion dollar East San Fernando corridor, both for the Los Angeles, M.T.A. and the three and a half billion dollars Port terminal in man at.
And in New York for the Port Authority of New York.
In addition, the two and a half a billion dollar done Barton bridge rail quarter in Northern California, as well as the 2 billion dollar Laguardia Air drain and a 1.4 billion dollar portal bridge replacement in New Jersey.
I could go on and on that but that gives you an indication of the sheer size and specific projects within our geographical inflows.
Our building groups larger prospective opportunities include the 500 million dollar Burbank Airport terminal replacement. The 350 million dollar Harbor, you see a law outpatient support facility, a 350 million dollar hospital vitality and gaming project.
New Orleans.
The 300 million dollar Hudson County Courthouse in New Jersey.
And various and sundry other large building work.
Our specialty contractors group continues to experience strong demand driven by the volume of large civil work and building project.
Opportunities.
The majority of which would be as an exclusive subcontractor to tutor perini core.
You reiterate what I was the what I've said before the newer worked up the specialty group has booked over the past two to three years at elevated margins.
Beginning to offset the weaker marson margins associated with the older legacy process projects that we're in stages of completion.
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In terms, our effort to reduce our unbilled receivables and improve cash generation.
We are definitely making strides.
The only issue has been a number of settlement meetings that were set for March and April have now been postponed at June and July.
With the an ability to meet.
We have had.
Three litigations, where they were supposed to start in the litigation the court house literally.
Closed until further notice. So my guess is that we'll set those back three months and we've had a number of Mediations that we believe will result in settlements that work tentatively set up for February and March and they've now been set for June and July So there's a very significant number of.
A large.
Confrontational Unbilled receivables were in given.
The ability to meet and mediate we think will resolve itself prior to the end of this year.
Finally, we anticipate continued strong revenue growth across all our segments in 2020.
With increasing in improved margin performance.
Across all.
Our operating segments.
The only group that has not been affected positively by the lack of competition.
It's been the building group.
Which is still a victim of the low fees associated with C. M work.
In a building industry that has plenty of competition and lots of large contractors.
While our first quarter results were well ahead of expectations and we're not significantly impacted by Cove at 19.
We are clearly mindful of the uncertainties around that situation and its ppas potential they have some impact on our business going forward.
Therefore based on results to date their current forecast a market assessment, we're maintaining our 2020 EPS guidance in the range of $1.80 to two debt.
We will reassess our progress and performance as well as the impacts of Cove at 19 and any other relevant factors later this year.
But we should certainly have an excellent handle on what if any impacts come forward by the reporting of the second quarter with that I will turn the call over to Gary to present, the details of our financial results.
Thanks, Ron good afternoon, everyone.
I will start by discussing our results for the quarter, followed by some commentary on our balance sheet cash flow and then the 2020 guidance assumptions.
Revenue for the first quarter was $1.3 billion up approximately $300 million or 30% compared to revenue of about $1 billion for the same quarter of last year.
This outstanding revenue performance was broad based with all three segments producing double digit year over year improvement, marking the best first quarter revenue growth for the company in the last eight years as Ron noted.
Civil segment revenue for the quarter was $487 million up a strong 46% compared to the first quarter of last year due to increased activities on various large projects, including the Newark Airport. The purple line projects in L.A., California high speed rail.
Minneapolis Southwest light rail as he CQ 33, which is one of the projects. So that Ron mentioned early as earlier as part of East side access in New York.
Revenue for the building segment was 482 million.
Up 11% compared to the first quarter of 2019.
Predominantly due to the ramp up of the chalked up casino and resort project in Oklahoma.
Specialty contractor segment revenue was 282 million up a robust 47% year over year, primarily due to increased activities on the Newark Airport project and also certain electrical and mechanical projects in New York.
Income from construction operations for the first quarter was $47 million more than double the $23 million reported for the same quarter of last year.
A significant increase was mostly due to contributions associated with the significant volume growth we experienced across all segments. This quarter that I just mentioned.
Well significantly improved performance compared to the prior year period on various five star electric and Wtf mechanical projects in New York.
Civil segment income from construction operations was $46 million compared to $42 million for the same quarter last year.
The segment's income grew 10% year over year less than the rate of revenue growth, primarily because of the absence.
Have a prior year immaterial favorable adjustment on a project in California, but also due to the impact of approximately $5 million of incremental noncash amortization expense in the first quarter of the current year related to the increased equity interest in new joint venture that we acquired in the fourth quarter of 2019.
Civil segment's operating margin was 9.5% for the first quarter of 2020 compared to 12.5%.
The same quarter of last year.
The higher margin for the first quarter last year was largely attributable to the favorable adjustment that I just mentioned.
Over the years, we've typically seen the civil segments annual operating margin in the 10% to 12% range.
For this year, we expect to be at the upper end of that range, particularly when adding back the incremental noncash amortization expense related to the increased equity interest in the date JV that I just mentioned.
Building segment income from construction operations was $4 million.
Up 12% compared to 3 million for last year's first quarter consistent with the revenue growth.
The building segment's operating margin was 0.7% level with the 0.7% also reported for the same quarter of 2019.
Both first quarters were negatively impacted by immaterial adjustments on a couple of projects that were winding down and are now complete.
Building segment operating margin for the full year of 2020 is expected to be in the 2% to 3% range.
Specialty contractors income from construction operations was $8 million compared to a loss from construction operations, a $7 million for the same quarter of last year.
The notable turnaround was principally due to the improved performance I mentioned earlier at five Star Electric and Wtf in New York.
Especially segments operating margin was 2.9%.
Solid improvement compared to the negative 3.9% margin reported for the same quarter of last year, but still below our profitability expectations for the group of 5% to 7%.
We believe the lower end of this range is achievable as 2020 progressive given our ongoing focus on driving improvements in the group.
Interest expense for the first quarter of 2020 was $16 million level with the same quarter of last year.
Tax expense for the first quarter of 2020 was $5 million with an effective tax rate of 16.4%.
Compared to tax expense of $2 million and effective tax rate of 31.7% for the fourth quarter of 2019.
The lower tax rate. This year was driven by the recently enacted cares Act, which provides for the beneficial treatment of our 2019 net operating loss or anywhere else.
Cares Act allows us to carry back the 2019 in a well for up to five years, whereas prior to the cares Act, we could only carry forward the NFL and them out we could carry forward for any one year was limited to 80% of taxable income for that year.
As a result, the cares act will allow us to accelerate the refund associated with an oil into the current year than we otherwise would have received in future years.
Net income attributable to tutor perini for the first quarter of 2020 was $17.4 million or 34 cents per diluted share.
Compared to a slight net loss attributable to tutor perini.
$400000 or a penny loss per diluted share.
For the first quarter of last year.
A substantial increase in net income and EPS in this year's first quarter was due to the factors I mentioned that drove the increases in revenue and income from construction operations.
As well as the lower tax rate.
34 cents.
Per share was well ahead of our budget as Ron noted and the best first quarter EPS performance for the company in 10 years.
Next let's discuss our operating cash.
As Rob noted and as a reminder, due to adverse winter weather conditions in the northeast in Midwest, Our first quarter operating results each year a seasonally weak.
As a result, our first quarter cash generation is usually considerably lower than any of the other quarters of the year.
We kicked off the year with the use of operating cash of $34 million in the first quarter.
Which though not as strong as we expect for the next three quarters was actually ahead of budget and exceeded our expectations.
Our first quarter operating cash generation was $91 million better.
And the first quarter of last year in nearly $40 million better than the first quarter of 2018.
To be clear, we expect strong operating cash generation over the remainder of the year, but the goal of generating operating cash that will exceed net income for 2020.
Driven by a project execution activities and from collection in settlement activities.
Operating cash generation for the remainder of 2020 will also be positively impacted by the cares Act.
I previously mentioned the acceleration of the refund of the 2019 net operating loss, which under the cares Act, we will now be able to carry back up to five years.
And received in 2020.
We estimate that the 2020 operating cash benefit of being able to carry back this loss will be approximately $15 million.
We will also benefit from the deferral of the employer portion of FICA payments for the last three quarters of 2020, which are expected to total approximately $30 million with half of this amount payable at the end of 2021 and the other half payable at the end of 2022.
Our total debt as of March 30, Onest 2020 was $910 million compared to 834 million at the end of 2019.
With the increase largely attributable to the timing of certain cash collections.
In other words, we had a far more than normal amount of deposits in transit.
Well to pay down the revolver prior to quarter close although those.
Although the cash generated from those deposits and transit we're of course part of our results for the quarter.
As many of you are well aware our credit facility includes the spring forward maturity provision whereby it will mature on December 17.
2020, if our convertible notes are still a standing at that time.
We still intend to seek to repurchase the convertible notes prior to triggering the spring forward maturity provision using using cash generated during the year and available liquidity.
The positive cash that we expect to generate from operations beginning the second quarter to be enhanced by cash collections from the resolutions disputes as well as the collection of some sizable retention balances.
Our cash generation in available liquidity is also expected to get a boost from certain provisions of the cares Act as I just outlined.
Also keep in mind that subject to certain limitations, we are permitted to utilize available credit capacity from our revolver to repurchase the convertible notes.
The bottom line is we're confident that we will have adequate liquidity to repurchase the converts this year and we will avoid triggering the spring forward provision that otherwise would cause the credit facility to mature in December 2020.
We continue to be well within the limits of in compliance with our debt covenants at the end of the first quarter and we anticipate that we will continue to be comfortably within our covenant limits going forward.
Earlier, Ron mentioned that we are maintaining our EPS guidance for 2020 at $1.80 $2.10. After our are much better than expected first quarter.
We believe that our guidance appropriately considers the inherent uncertainties that are common in our business such as unanticipated delays in project Awards and project execution.
And unfavorable adjustments to our estimates to complete projects that can occur from time to time.
Our decision to affirm guidance also assumes that the vast majority of our projects will continue to operate during the balance of the Coca 19 Pandemics.
Now, let me revisit some of the assumptions associated with our guidance.
<unk> expense for 2020 is still expected to be approximately $270 million to $280 million.
Interest expense is still estimated to be approximately 71 million for the year inline with expectation that we will collect cash and reduce debt, but it also includes additional noncash interest associated with addressing our convertible notes this year.
About $20 million of the 71 million will be noncash interest expense, including amount for expected debt extinguishment costs.
Depreciation and amortization for 2020 is still expected to be approximately $109 million of which 28 million represents intangible asset amortization associated with our increased joint venture interest on the civil segment project that I noted earlier.
Our effective tax rate for 2020 is now expected to be 24% to 26%, what's the 2% reduction in our range due to the Eno L. carry back features of the cares Act that I discussed earlier.
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 capital expenditures in 2020 are now expected to be approximately $40 million of which $30 million will still be for owner funded project specific equipment.
With that Ron I'll turn the call back over to you. Thanks Gary.
To summarize we have executed well thus far in 2020.
Delivering excellent first quarter results highlighted by the revenue growth.
We discussed in the highest earnings per share that we've produced in the last 10 year.
As stated previously and at the risk of being redundant. Our large backlog includes various high margin multi year projects with provide us with not only the visibility, but a solid foundation to maintain our profitability over a significant peer.
Creative years, given that long term backlog.
In addition, we expect that generate very significant operating cash this year and next.
As we execute our large civil projects.
While resolving we believe significant levels of cash associated with large claims and changes.
With the limited competition available today in our industry for those large infrastructure projects and our focus on that same work.
I will continue to repeat we believe we are extremely well positioned.
Whether any impacts of Cove at 19, as well as continued to drive collection of monies and increased revenues and profits.
With that I will turn the call over to the operator Friday questions and thank you.
Thank you I think Tom will be conducting a question and answer session. If you will act as question. Please press star one on your telephone keypad.
Confirmation somewhat indicate your line is in the question Q.
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Participants using speaker Quinn and maybe not seem to pickup ahead what question the Starkey.
Our first question comes on line of I haven't seen with B. Riley. Please state your question.
Good evening gentlemen, great quarter. Thank you thanks, Alex.
He ran in the past you've talked a little bit about backlog mix in backlog the mix shifting sort of away from the east coast towards the West Coast, where you've got some better relationships some more predictable.
Project margins less litigation.
How does that mix look today compared to say three months ago.
Well the.
As we pointed out we did achieve any very large awards three months ago, but when you realize the largest projects in the company other than the new work terminal, which has been going very well and in the workout in New Jersey.
All our work in New York City, the largest contract is in the range of 700 million.
And it's CMO seven it's virtually 90% on C. S 179, which was 600 million is 80, 590% done all our largest work and in problems in New York are nearing their conclusion and there's no question that market has been challenging to everybody that live.
Isn't it however, when you get to California.
And you look at what constitutes a major work we have the San Francisco M.T.A.
Contract, which is approximately 900 million, which is 95% and we'll conclude by the end of the year and hopefully we will resolve every issue during the next few months, but more importantly, we have high speed rail, which is sitting now at $2 billion. We've got.
Two more years to go and probably $800 million worth of revenue to earn.
A very successful job with no claims as we speak.
We have the purple line, two and three stations as well as the third project the purple line tunnels.
Those total about three plus billion dollars and we have started to work two years ago, we are well into it we don't have any claims pay has been extremely good.
Everything is operating quite well.
Say that we have far less issues in our work in California, then New York would be absolutely accurate. So I. Appreciate the fact, you picked up on it.
And the majority of our backlog in civil rest in California, as we go forward in those jobs that I mentioned.
Hey, Ron broadly speaking you've been through plenty of cycles in your career clearly the public sector customers right now are spending on greatly on co bid remediation. How do you have this could impact their spending on infrastructure in say two or three years and what are your thoughts on the federal.
Permit moving forward on some sort of infrastructure bill.
Well I think what's going to happen and of course I'm constantly talking to our owners with this cove at 19 destruction of our economy, even if it's over three to six months, it's at a devastating effect on the economy taxes collected sales tax revenue, so I'm hearing from our own.
Owners that some of this new work unless the.
Federal government puts a build together in funds. These shortfalls, what they would have anticipated awarding over the next six to 12 months may get pushed back a year or two until they can determine how to cover those shortfalls, there seems to be a confidence that.
Once these acts of the federal government have concluded in taking care of unemployment small businesses and trying to keep the economy alive. There is an infrastructure bill that has to take place that will plug the funds into bringing those major infrastructure projects.
Back online.
I believe there will be a certain amount of these very large projects deferred but it doesn't appear that any of the current ones are slipping, but ones that were set for the summer of 2021.
And in the 22, there's talk about sliding.
So until it if the federal government puts the money back then it will sustain if not I think we're going to see some major broad projects pushed back.
Very helpful. Thank you I'll get back into queue.
Our next question comes on line or but given them with D.A. Davidson Hootsuite a question.
Hey, Thank you a great quarter as well.
Thank you.
Ron just good confirmed repair perking up a bit about public.
Then just given the loss than other revenue shortfalls in revenue I just wanted to confirm all the working or civil backlog than at this point funded is there any reason progressed into that work pressures on the.
I don't think so the way it works they really can't award the contract until they set aside the funds and I'm in contact with our work is so large I I really deal on a day to day with the heads of the agencies.
And there's no concerns about funding of the existing work. They have plans of course for all this additional work that they're concerned about because of their loss attacks base and just the economic losses during that span damage.
But they're all looking to the federal government as the next course of action if that doesn't happen I think instead of this enormous ramp up that we've been talking about they'll still be significant civil work, but it will start getting pushed back one year to year three years.
Yep.
And then kind of work you've got his has the sort of whole did at home movement. I guess act has it or could it have the potential to move up timeline in terms of the work you anticipate starting up I'm, just wondering if that might help expedite.
Well I think the federal government has is really no option, but plug funny money in the fund all these shortfalls because the one thing Dave It every economic downturn. The government. So it was put money and infrastructure because it's the one thing you can spend on where you get value it puts.
People to work and it rebuilds and infrastructure desperate for rebuilding so there's kind of underlying confidence amongst our public agencies and a belief that there will be it build an active to plug those shortfalls, but then the meanwhile, they're very there just kind of stepping back and what we thought.
It would be bidding ended this year first quarter next years been pushed back six months to a year on a wait and see what happens because remember their position is they have to what do we get awarded a 2 billion dollar job that money has to be set aside and within their grass. They can't bid this way.
Work in awarded based on what's what might come in the future.
So that to that extent, it's very positive for us.
Yep Okay.
And I know you know the whole.
Courthouse closures work from home I imagine slowed the processes with reclaim puts down from timelines I guess two part question.
Any incremental April collection to report and I guess.
Context in addressing the convert than here can you can you help us understand in terms of.
What you're waiting for what portion of cranes, you're hoping will drop through versus just generating yes.
Now I'm just trying to fill her that without without giving you a list of each and every claim we monitor all our claims nationally on each basis. So we know where for example, we have one large claim with the federal government, where they've made US an offer that was substantial we had an original.
On mediation date, because they evidence that they wanted to settle and now because of Cove at 19. It got pushed back to now we have a data mediation in the middle of do.
We had two very loud large claims in New York that we had a final settlement conference.
He thought we would settle wouldn't both that was set for March God Bless Cove at 19, they've been pushed back the July.
We've got an arbitration. We just ended in March that we expect an answer from the sole arbitrator in June ease written back and don't ask me Hal covert 19 affects im working from all but now he's going to be in August. So we remain confident with what we can control.
And there's no doubt in my mind, we will generate the money from with in the pay off the converts.
Okay. Thank you I'll get back yeah.
No no further questions left in the queue I would like to turn the floor micrograms Toronto for any closing remarks.
Well. Thank you everyone that was an eventful Q and a however, as you know we had a great first quarter, we hope to continue and thank you for your time.
This concludes todays teleconference. You may now disconnect your lines at the time. Thank you for your participation have a wonderful day.
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