Q4 2020 Tutor Perini Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the tutor Perini Corp fourth quarter 2020 earnings Conference call. My name is Alex and I will be your coordinator for today at this time all participants are in a listen only mode. Following management's prepared remarks, we'll be opening the call for a question and answer session. As a reminder, this conference call is being recorded for replay per.
If anyone should require operator, our technical assistance during the conference. Please press star zero on your telephone keypad at this time I will 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 joining us today with us on the call are Ronald tutor, Chairman and CEO, and Gary Smalley Executive Vice President and CFO.
Before discussing our results I'll remind everyone that joined today's call, we will be making forward looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that our 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 we are filing.
Today.
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 addition, during today's call we will be discussing certain non-GAAP financial measures the appropriate GAAP financial reconciliations are incorporated in our earnings release, which we issued earlier today.
And filed with the SEC and which is also posted in the Investor Relations section of our website with that said I'll turn the call over to Ronald tutor.
Thank you our hey, good afternoon, and thank you all for your participation.
We had a very strong year in 2020 are.
Our project teams navigated well through the challenges presented by COVID-19, and we worked effectively throughout the year, both at our job sites as well as our offices and in the case of home offices or work from home setting.
Our financial results for 2020.
Were highlighted by $2.12 of earnings per share, which exceeded our guidance.
And we delivered record operating income and record operating cash flow, both of which were higher than in any year since the merger of tutor, so labor and burden in 2008.
Most impressively we achieve these great results despite significant negative impact of Covid COVID-19 that for many projects resulted from a lack of available manpower a reduction in field labor productivity other labor productivity inefficiencies and essentially day.
Delays to project schedule and deferral of work because at times are projects, we're short as many as 20% to 30% of their workforce.
Gary will detail our financial results relating to Covid.
Later, however, the incremental costs were estimated to be in excess of $50 million much of which we're seeking to recover from our owners as recoverable costs.
Our revenue grew 20% year after year over year in 2020 with double digit growth across all segments, and particularly strong growth in excess of 20% in both civil and specialty.
The growth was the growth was driven by substantial work we progressed on several large civil projects, including Minneapolis Southwest light rail.
The Los Angeles, MTA Purple line section, two and three as well as division 20 in Purple line three tunnels for contracts of which total virtually $4 billion.
And the Newark Airport terminal one for the Port Authority in New Jersey, as well as one large building projects such as the Choctaw Casino and resort in Oklahoma.
Another large unnamed hospitality and gaming project in California.
A large technology building project also in California.
All of our existing projects are continuing to advance well and we remain cautiously optimistic that in 2021. The worst of COVID-19 is hopefully behind us, especially now that significant vaccinations are occurring and they are approved.
With widespread programs to scale up at an accelerating pace.
We are hopeful that by the second half of this year, we will start getting back to a greater sense of normalcy, both in the workplace and at work available a bit.
Operating income of $262 million was another highlight of our 2020 results as I mentioned it was the highest result of any year since our merger and up significantly compared to last year.
Increase was the result again.
Continued progress on the same aforementioned higher margin civil projects as well as a favorable arbitration ruling that led to a settlement or a major dispute in 2020.
Also recall that our results for 2019 were severely impacted by a goodwill impairment charge as well as the charge we were required to take on the adverse SRO 99 jury verdict.
We generated a record $173 million of operating cash in 2020.
Which I also mentioned was the highest amount of any years since the merger.
The strong cash flow was driven by solid cash collecting.
<unk> with increased revenue on large infrastructure project and was consistent with our expectations for the year.
We believe we will continue to produce healthy cash flow results in 2021 and beyond.
Driven by the same continued progress on large project as well as the anticipated resumption of a more normalized dispute resolution environment too aggressive to address collections of disputed costs.
Our backlog was $8 3 billion at the end of 2020 compared to $9 2 billion at the end of the third quarter of 2020.
At the end of the third quarter, Okay, I get I'm, sorry, it was down our backlog provides us with revenue stability over the next seven years as it includes those very same large projects such as the for projects referred to earlier with the Los Angeles MTA.
The California high speed rail and certainly the Minneapolis light rail.
COVID-19 pandemic once again had a substantial impact on our new awards and backlog.
As it resulted in and continues to cause significant impacts to our customers' revenue sources, which in turn has created temporary funding uncertainty.
A whole array of major work I'll speak to lately later was simply taken from 2019 and push.
Our 2020 and was pushed to the end of 2021, which caused our inability to maintain our backlog growth.
We expect.
That the backlog could continue to decline through the first half of 2021 as delays in those solicitations and awards may continue.
But we are seeing many of those major projects, we were tracking the bid in 2020 now coming back on the street, which I will speak to later, which should.
Significantly increase the potential for backlog in the second half of this year.
We booked $2 4 billion of New awards and contract adjustments in 2020 day.
These included approximately $732 million for various mass transit projects.
$650 million per building projects.
$286 million for various electrical projects in Texas, California, and Florida.
271 million in several domestic federal government facilities and another 100.
[laughter] excuse me and $58 million for various electrical projects.
[laughter].
In New York.
Recently, we have submitted several proposals for new projects and multi award government contracts that are pending customer decisions and contract awards.
Additionally, we anticipate bidding and proposing on various other substantial projects this year.
For example in March we will be finally bidding the $450 million Lax Airport Metro connector for the Metropolitan Transit Authority in Los Angeles, which has been delayed a number of times.
Construction, our subsidiary in Guam, which has the largest backlog in its history by a 100% over any previous high.
He is bidding two large projects for the military and warm in the northern Mariana Islands, the values of which will exceed $800 million.
We are also pursuing the $3 $5 million JFK terminal one project.
Which we believe will be bid and awarded in the third quarter of 2021.
We are strongly positioned in well qualified for that project given our successful experience working with the Port authority on the $1 $4 billion Newark Airport terminal one.
Furthermore of the $1.5 billion portal Bridge project in New Jersey, finally appears to be moving forward as it's received funding and we anticipate bidding that project sometime in the third quarter of this year.
In southern California for $1 billion Englewood elevated automated people mover is expected to propose in the third quarter also that two and a half billion dollar Honolulu.
Rail project that we proposed non last year and for which we had been on the announced low bidder is being repackaged by the owner due to budgetary reasons for a rebid expected to occur later this year.
In addition, we are in the midst of qualifications on a number of contracts for the Santa Clara Valley Transportation Authority that total $4 billion led by a very large tunnel segment that will be approximately 2 billion of the for.
Billions of dollars.
In addition, we're in the process of qualifying for the $1 $2 billion, Maryland Purple line project as a new opportunity following the departure of the former contractor on that project.
That proposal will go in later this summer.
Finally, we are in the process of bidding a $700 million military.
Based project in Florida in the second half of the year.
That were not enough other large bids on the horizon include the $2 billion Newport Newark Airport Airtrain, which is now advancing recently, having entered a 30 day comment period under draft Environmental Assessment report.
The $1 4 billion JFK Airport landside roadway development project.
The $1 $2 billion Metro North Penn station access project in New York.
The same for billion dollar West Santa Ana Transit corridor, and a $1 billion East San.
Fernando Valley Light rail project.
All for the La MTA.
The Port Authority bus terminal in New York, which is valued in excess of three and a half billion. The two and a half billion dollar done Barton Bridge rail corridor in Northern California, and the $2 billion Laguardia Airtrain fraud.
One other key elements of all of these projects coming at once is we feel that the $1 nine trillion dollar federal bailout will go a long ways to refinancing these major agencies and their revenue shortfall and our sources are saying that wants that.
Is concluded.
The majorities of these will go out to bid this year and irregardless of significant number of these are funded and still going for.
And all we're currently tracking approximately 35 billion of near term project opportunities.
25 billion of which is in civil projects over the next nine to 18 months and 10 billion of building projects over the next six months.
Of course with that much work to pursue for our general contracting divisions. It provides great opportunities for our specialty project.
I will reiterate what I have said repeatedly in the past, namely the customer demand as reflected by the volume of prospective projects remains at an unprecedented level. Despite the funding challenges and resulting delays in bidding and awards that COVID-19.
Has presented.
Our powerful our pipeline of large civil opportunities is likely to grow even further once the federal government approved the long awaited infrastructure investment program, that's been talked about for for years under the.
Trump administration is now at the forefront of the by the administration.
So the tutor perini is once again very well positioned to benefit from the combination of strong pent up customer demand and the increased likelihood of the infrastructure Bill funding from the federal government.
COVID-19 pandemic continues to be a fluid situation that presents uncertainties and as such we are currently unable to accurately predict its future impact on our business.
If anything we underestimated in the third quarter those impacts.
And we more accurately realized in our fourth quarter year end.
We anticipate.
You bet continued revenue growth from our existing backlog of large multi year civil infrastructure projects on the West coast.
And with particular emphasis on the unparalleled growth in Guam, where the government has published a list of bids for 2021 that total over $1 billion, which is incredible given the size of the island.
Where the military boom is just remarkable.
Offsetting this growth. However is the fact that certain of our very large civil projects such as the Newark terminal, one and CMO seven.
We are completing or nearing completion over 2021.
As mentioned earlier, we have pursued pursuing several large prospective projects on the west coast northeast and in Guam.
Expect it to be bid and awarded in 2021 and 'twenty two.
However, the timing and magnitude of those incremental revenue increases may not be sufficient to offset the expected revenue reductions associated with completing project in other words, we need work to get back out in the marketplace. So we can continue to dominate the main.
<unk> works.
For these reasons, we are taking a cautious for practical approach this year and estimating our financial performance for 2021.
Accordingly based on our current market assessment and business outlook, we are establishing our initial EPS guidance for 2021 at a range of $1 80 to $2 20.
As in previous years, our earnings in 2021 are expected to be weighted more heavily in the second half of the year.
Due to the anticipated timing of large project activities as well as typical business seasonality.
Thank you and with that I'll turn the call over to Gary Smalley to present, the details of our financial results.
Thank you Ron good afternoon, everyone I will start by discussing our results for the year after which I will review the fourth quarter other.
Then provide some comments on our cash flow and balance sheet as well as our 2021 guidance assumptions.
As a reminder, we have provided in our earnings release and 10-K, a reconciliation of certain non-GAAP financial measures to the most nearly comparable GAAP measures. These.
These non-GAAP measures apply only to our results for 2019 and exclude the impact for the goodwill impairment charge that we took that year.
As well as a tax benefit associated with that charge.
Accordingly, any reference for comparison to our 2019 results.
We will be discussing adjusted income or loss from construction operations adjusted net income and adjusted EPS on a pre impairment basis for the applicable 2019 period. So the comparisons of our 2020 operating results to 2019 are more meaningful.
Revenue for 2020 was $5 $3 billion up 20% compared to $4 5 billion in 2019.
Despite significant impacts of COVID-19 during the year.
Civil segment revenue grew 24% year over year to $2 $2 billion per.
Primarily due to overall increased project execution activities on various mass transit projects.
Including.
For flying projects in L. A the light rail project that Ron had mentioned as well as others.
Building segment revenue increased 14% to $2 billion, principally due to increased project execution activities on the hotel and casino projects in Oklahoma and California.
As well as various other projects in California.
Specialty segment revenue grew 22 per cent to $1 $1 billion.
With the growth driven by increased electrical and mechanical projects execution activities in the northeast and California.
Income from construction operations for 2020 was $262 million.
As Ron noted a record high amount.
Since the merger in 2008 and up substantially compared to adjusted income from construction operations of $15 million for 2019.
The increase was driven by contributions from the large infrastructure projects that both Ron and I mentioned as.
As well as the absence of the prior year $167 million pre tax charge related to the adverse jury verdict debt. We are appealing for us are 99, the completed the Seattle Tunnel project.
Civil segment income from construction operations for 2020 was $246 million.
With a corresponding operating margin of 11, 2% a strong result for 2020, despite COVID-19.
And driven by increased volume on certain higher margin infrastructure projects that are progressing.
Building segment income from construction operations was $53 million. Despite the COVID-19 impact with a healthy corresponding operating margin of two 7% in line with our expectations and also driven by increased volume on certain higher margin projects.
Specialty contractor's income from construction operations was $17 million with an operating margin of one 5% both substantially better than in <unk>.
2019, when the segment reported an adjusted loss from construction operations, but still 2020 is not in line with our expectations.
Corporate G&A expense for 2020 was $54 million, a 17% reduction compared to the prior year.
Mostly due to lower compensation related and legal expenses.
As well as reduced travel expenses due to the pandemic.
Other expense in 2020 was $12 million compared to other income of $7 million in 2019.
The net expense in 2020 was primarily the result of the unfavorable resolution of certain disputes pertaining to past business acquisitions, which were not material individually or in the aggregate while the net other income in 2019 was primarily related to a net gain on the sale of property and equipment.
Okay.
Interest expense in 2020 was $76 million up 13% compared to $67 million in 2019.
The increase was almost entirely due to noncash extinguishment costs that resulted from our debt restructuring transactions in August of 2020.
Income tax expense in 2020 was $22 million compared to an income tax benefit of $66 million in 2019.
The effective income tax rate was 12, 6% in 2020 compared to 15, 4% in 2019.
The effective income tax rate for 2020, primarily reflects the favorable tax rate differential realized on the 2019 net operating loss or NOL.
You may recall that under the cares Act for your NOL generated in 2019 may be carried back up to five years, whereas under previous NOL rules. We are only allowed to be carry such losses forward.
This allowed us to realize the benefit of the tax rate differential by carrying back the NOL to tax years. When this federal statutory tax rate was 35% rather than the current rate of 21%.
For 2019 tax benefit was due to the <unk> 99 charge.
Net income attributable to tutor Perini in 2020 was $108 million for $2.12 of earnings per diluted share, which exceeded our EPS guidance for the year.
Our highly profitable 'twenty 'twenty was a dramatic improvement compared to the 2019 adjusted net loss attributable to tutor perini of $57 million and adjusted loss of $1 14 per share.
For 2019 results included a 167 million pre tax charge with the negative EPS impact of $2 38.
Related to the December 19.
For 2019 adverse jury verdict on the ESR 99 project debt.
Polk in about a couple of times again that we are appealing.
EPS in 2020 was even more impressive when you consider that includes an unfavorable impact from COVID-19 of an estimated 41 per share.
Now for the fourth quarter results revenue for the fourth quarter was $1 $3 billion up 15% year over year.
Civil segment revenue for the fourth quarter was $532 million.
An increase of 19% compared to the same quarter of last year, but the growth mostly due to the absence of the prior year revenue reduction associated with the SRO 99 charge.
That we took in the fourth quarter of 19, but also due to increased project execution activities in 2020.
Building segment revenue was $522 million up 12% compared to the same quarter of 2019, primarily due to increased project execution activities on our large technology project and a large hospitality and gaming project both in California.
Specialty contractor segment revenue was $296 million, an increase of 11% compared to the fourth quarter of 2019, driven mostly by increased project execution activities on electrical and mechanical projects in California, and the northeast.
Yeah.
Income from construction operations for the fourth quarter of 2020 with $74 million and the breakdown by segment was $64 million for civil 16 million for building, an $11 million for specialty contractors, partially offset by a corporate G&A of $16 million for.
For the quarter.
Fourth quarter segment operating margins for civil building and specialty were 12, three one and three 6% respectively.
We are pleased with margin performance, we're seeing from the civil and building segments, but.
But we still have work to do to deliver improved consistent profitability in specialty contractors.
Segment.
As I just mentioned corporate G&A expense for the fourth quarter was $16 million, a 16% reduction compared to the same quarter of 2019, mostly due to certain lower compensation related expenses as well as other miscellaneous expenses.
Interest expense for the fourth quarter of 2020 was $18 million modestly higher compared to $16 million for the same quarter of last year with.
With the increase primarily due to a higher average debt balance as a result of our new term loan b, partially offset by lower noncash interest expense.
Income tax expense for the fourth quarter was $7 million compared to a tax benefit of $30 million for the fourth quarter of 2019.
Tax benefit.
For last year was of course, the result of the MSR 99 charge.
Net income attributable to tutor perini for the fourth quarter of 2020 was $35 million for 69 cents per diluted share.
Paired to the adjusted net loss attributable to tutor perini of $86 million or adjusted loss of $1 71 per share that we reported in the fourth quarter of 2019.
Again, the disappointing results from fourth quarter from 19 were driven by <unk>, 99, which negatively impacted EPS by $2.38 for that period.
Now, let's shift gears and discuss operating cash which was certainly another highlight of our 2020 results.
Our operating cash generation for the year was $173 million, which as Ron noted set a new record high since the merger in 2008.
It was up 27 per cent compared to last year is $137 million result, which was our previous annual record.
The strong cash generation was driven by increased project execution activities on various higher margin projects.
Solid collection efforts overall.
We achieved our goal of generating operating cash in excess of net income for 2020, which marked the fourth time in the last five years that we've done so and we expect to achieve this goal again in 2021 and beyond.
Turning now to our balance sheet, our net debt as of December 31, 2020 was $651 million essentially flat compared to the end of 2019.
Recall that during the third quarter of 2020, we refinanced our debt, replacing our former $350 million credit facility with a new $175 million revolver, and a $425 million term loan b.
Note that the at the end of 2020, we had no borrowings against the revolver.
We still plan to repurchase or retire the remaining outstanding balance of approximately $70 million of our convertible notes at or before the maturity date in June of this year using restricted cash that is already set aside for this purpose.
As Ron stated earlier, we are initiating our 2020 EPS guidance in the range of $1 80 to $1 20.
Based on our current market assessment and business outlook, Gary believes this range $1.82 to one.
Yes, yes, that's right salaried to 220.
Yeah.
We believe this range appropriately considers the market conditions, we are seeing at this time, including the remaining uncertainties for.
Scented by COVID-19, and the uncertain timing of anticipated federal supplemental funding for state and local customers.
So in closing let me provide you with your assumptions for our 2021 guidance G&A expense for 2021 is expected to be approximately 255 to 265 million depreciation.
Cash and amortization expense is anticipated to be approximately $110 million.
Interest expense is expected to be about $67 million of which $6 million will be noncash.
Our effective income tax rate for 2021 is anticipated to be approximately 24 to 26 per cent.
Non controlling interest is expected to be approximately $35 million to $40 million.
Weighted average diluted shares outstanding are anticipated to be approximately $52 million.
Finally capital expenditures for 2021 are expected to be approximately $20 million to $30 million.
With that Ron I'll turn the call back over to you. Thanks.
Thanks, Gary.
They're just recap at all we had a very strong 2020. Despite COVID-19, our results were underscored by strong double digit revenue growth across all segments record operating income.
With strong margins in the civil segment and of course, the record operating cash flow.
We remain optimistic that COVID-19 is beginning to abate, particularly now that widespread vaccination programs are underway.
And that the pandemic future impacts on our company companies should begin to be reduced.
In addition, as I've said, we find ourselves extremely well positioned to benefit from the strong customer demand.
Combined with the increased likelihood of substantial federal funding targeted an infrastructure that is long overdue.
Our backlog together with a numerous large prospective projects that we'll be bidding provides us with confidence once again in our long term growth and success.
Finally, I reiterate the obvious very limited competition.
For most of our very large projects that we are pursuing and the expectation that this will not change into the future.
Our marketplace that we key too is the largest and most complex infrastructure projects in the country, where we believe we have the best opportunity to succeed.
Thank you and I will turn it over to the operators for questions.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a call for.
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Our first question comes from Brent Thielman with D. A Davidson. Please proceed.
Okay, great. Thank you.
Ron in the past you've talked about some jobs within simple that you picked up debt have margins above the debt.
Kind of 10% to 12% target range and I know you've got to get to that point. Some of these projects I'm just wondering how realistic. It is day you might see some of that show up in 2021 versus what you got reflected in the guidance right now.
So you're asking me that question our own guidance.
Only thing I can respond as I listed all of our very large projects there were some five or six.
Newark terminal one will conclude by the end of 'twenty, one, but it falls into that high margin category.
And the balance of them will go on with the exception of CMO, seven which finishes up in April or may the rest of them have three and for years remaining and I would categorize them as all high double digit margins that we've talked about.
And I'll remind you all that when we talk about these 11 and 12% margins in the civil sector.
Net of all other civil G&A in the office.
So that'll give you a better indication of the level of margins at the job level, we're dealing with.
Okay, and then I guess, how material can some of this work in Guam B did to earnings in 2021, I know youre. After a lot and you picked up a lot of work is that going to ramp up pretty quickly for you.
Ramping up dramatically.
<unk> has been has been just remarkable.
I own Guam from the old tutors to leave a day since 1994.
And this is now our 27th year and year in and year out we were dominant on the island doing 100 to a $120 million and probably making an average gross profit of eight to 10 minutes.
I think it's a matter of public record that in this year end.
Queen the growth of work in Diego Garcia, where we have a large operation with the government on the Indian Ocean.
And the black operation in Gram I believe our revenue exceeded $300 million and our net profit before taxes exceeded $30 million.
So Guam has virtually trebled in revenue and margin and continues to go up with this incredible.
Array of government spending if you'll remember I said that the government has published a list of over $1 billion to bid in 2021.
And that area of the World, where we've had a very strong presence, so where I would've said for five years ago, it's not big enough to impact our bottom line. It certainly has become such.
Okay.
Last question just the delays you've seen in some of this new work.
Getting to the bid table I guess any sense, whether some of this is also related just to clarity around an infrastructure bill.
Wonder if ultimately that could bring some more clarity to these agencies in terms of moving things forward well I think it's a combination since we are tracking anywhere from a dozen to 15 major civil projects and I talk to most of those owners regularly some has to do with delays and the uncertainty around the pandemic.
Some has delays and overall funding I'm discovering now as we speak a number of them are funded.
And then a number of the following believe they will be within the next 120 days from the government. So what's happening we're in non dated with qualification documents and I'm only talking to projects in excess of $1 billion, we're not talking about the routine hundreds 200 300 million dollar job and.
I hate to demean, those if theyre not big jobs. They are but these mega projects continue.
Continue to line up and we continue to put in our free <unk> and to me that means theyre funded it.
So we remain very optimistic that there's going to be.
Ager infrastructure work in that billion plus category beginning to award by the third quarter of this year.
Okay. Thank you Ron.
Yeah.
Our next question is from Steven Fisher with UBS. Please proceed.
Yeah.
Thanks, a lot.
Nice job in a very difficult year.
Just picking up on that last line of discussion just really trying to understand how you guys think.
The revenue trend could go this year in terms of the first half versus the second half of the year.
Are you thinking that in the first half of the year, where we're up year over year.
As you're still burning off.
Some of this backlog and the decline in backlog hasn't hit yet.
And then the second half of the year is down year over year.
How do we think about that and then I guess if you get in these projects that are awarded.
In the third quarter or is that should we presume that that's going to be like 2020 to work. So really just trying to see the kind of.
The progression of the year and what it depends on.
Goodbye for now I'll just hit their revenue I think the revenue part if you want round and then the last part yeah. So well see what we're looking at revenue for the first half of the year is essentially flat.
Mostly flat for the entire year, but training right now a little less than flat for the latter part of the year. I think you can probably tell from our guidance and what we noted about the uncertainties and with the uncertainties over New awards really where we're trying to be quite conservative in that projection, but.
That's where we are right now is his overall relatively flat year end for most quarters flat, but trending a little bit.
South of flat in the latter part of the year right now.
Yeah.
But Steven I'll speak to the impact.
Gary did well that we're looking at a flat you're only because I don't see any contracts proposing even turning in a price before the third quarter.
However, I know of $10 billion and for projects that I'm personally talking to the owners and engaged regularly where theyre funded they will bid in the third quarter and they will be awarded by the fourth quarter. So I think we'll begin to see and when I say third and fourth quarter, you're absolutely right we won't.
See significant cost and revenues till the latter part of the first quarter. The following year. So I think where we'll see a significant uptick in revenue and earnings accordingly will be in 2022.
Because although we have an excellent backlog of profitable work.
It's hard to grow the bottom line. If you don't continue to replace the work that you finish so I look for this year to be just that revenue.
I think our earnings will again be solid as we pointed out but the next big upswing would be next year other basis of awards this year.
Okay that is very clear I appreciate that.
And I guess.
In terms of just the it's the cash flow.
What's the calendar look like of.
Adjudication that you had this year and how we should think about that might.
That might play out.
You will be aware of certain various significant settlements that are in the final stages as we speak that I've chosen not to speak to where all the obvious reasons until they're finally settled and executed by our owners.
But we have had a significant number of settlements that will continue to contribute to the significant cash flow and I see no reason that 2020, due or excuse me 2021 will not exceed 2020.
I look for this to be a very strong cash flow year with collections are leading the way.
Okay, Great and then lastly, you mentioned.
So having some work to do on the specialty side to what extent do you think now that you've kind of turned the corner there and what still has to be done to get those margins up another couple of hundred basis points.
We really believe in the margin.
The appropriate margin guide, 6% to 7% and of course, we haven't been making it but what is happening is we continue to settle old claims that literally go back down in 12 years ago, and then settling in cleaning those up they have impacted the earnings.
As we review all of the existing contracts that have been acquired in the last four to five years.
They haven't been problems with the high margin, it's cleaning up the past closing out old claims and old collections.
Ending litigations that has caused the write down that has affected it so as to muddy the picture of what they're really making on the new work, which.
But against what it has caused us to clean up their own problems.
This year should be very much near the end of that in the specialty group. So I think you'll get an uptick this year and the specialty group and I'm in hopes that a significant number of those old negative claims will be cleaned up this year whatever day.
Terrific. Thanks, a lot.
Our final question is from Alex Rygiel with B Riley FBR. Please proceed.
Thank you Ron you mentioned competition.
Could you dig a little bit deeper into that clearly it appears to be.
More limited today than a few years back, especially last cycle.
But in light of the potential for big Federal stimulus dollars being available how should we think about competition sort of in calendar 'twenty, one and 'twenty. Two do you think they all come rushing back in immediately where do you think they're sort of.
Late to the party and don't really come back and compete with you until 2022 or 2023.
Let me speak to this is I have a number of times and then I think you'll have a better understanding there's no one to come leaping back in as you say.
Skanska was a major player everybody's aware of the tremendous losses. They took I'm a firm believer they will come back in again once they've digested those losses and seen the marketplace. They will come back and they have the size and capacity and they will come back in that I believe.
Those issues will impact their ability to drive low prices and I think they will be a competitor I think he would.
Still the largest in our industry and they will be a player.
After ourselves kiewit and Skanska I can't think of anyone left in the U S. Certainly I don't expect to see Fluor back in in my lifetime, given the losses, they've taken in the shakeup in their organization.
And at the risk of.
Others being angry I don't see backfill playing a role they haven't and I don't care. If there's one bid I don't see them, taking a significant role.
Europeans have all been here for 10 years their results are transparent and they are taking less and less of a role.
Because you got to remember in this business.
Gotta be low bidder and then you've got to take these billion dollar projects and produce them at the cost you estimate.
Isn't a cost plus marketplace, it's hard money and you have to have the organization and the technical ability to deliver these projects I don't care how much money you have if you don't have the talent and the people you cannot compete.
And that's what makes it so difficult.
Not care, if we're the only bidder there in the world today, you can't count on one hand, the potential competitors for a major trillion dollar infrastructure program.
My peers not may not liked to hear me say it but the fact of the fat.
And to expand upon that a little bit more do you feel as if over the next two years contract for risk Teu and pricing can continue to improve.
Quite the contrary, we don't take the risk we used to take.
Yes, your downright stupid why should I take it imposed owner risk two things take place in all our discussions with the owners.
Either make the risk acceptable or we don't bid is option one.
Or if the job is particularly desirable and they won't budge other shifting risk to us we price the risk gets such a level, it's no longer a risk.
The day of an intelligent contractor, assuming the risks for the owner R O.
These contracts have to be fair and equitable to both parties or are we simply price it or we don't bid.
Very helpful. Thank you.
Ladies and gentlemen, we have reached the end up for question and answer session I would like to turn the call back to management for closing comments. Thank.
Thank you all for indulging us it was a great call and we enjoyed being the bearer of good news until the next golf. Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Okay.
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Yes.
Sure.
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