Q1 2021 Tutor Perini Corp Earnings Call
And that's from session.
As a reminder, this conference call is being recorded for replay purposes.
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. Thank you for your interest and participation 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 during 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 was.
Cloud on February 24, 2021, and in our form 10-Q that we're 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 with that I will now turn the call over to Ronald tutor.
Thanks, Jorge and good afternoon, and and thank you for joining US we're off to a good start this year, having delivered solid first quarter results that were ahead of expectations.
The COVID-19 pandemic had a limited impact on our results and the first quarter, although we still continue to incur pandemic related additional costs most of which we are seeking to recover from our customers as allowed by the contractual terms.
It is certainly positive and the vaccination coverage has been rapidly increasing across the United States.
And I am hopeful of the Pandemics worst effects are continuing to diminish so that a robust economic recovery.
May continue over the coming months.
Gary Smalley, our CFO will provide we will provide you with the details of our financial results for the quarter a bit later, but overall I am pleased that our revenue and earnings per share came in ahead of budget and remain confident and our business outlook.
And as such we continue to affirm our earnings per share guidance for 2021.
Notably despite a slight revenue.
Decline compared to the first quarter of last year, our operating income actually grew 5% as a result of.
A favorable shift toward higher margin civil projects.
We had anticipated this mix.
Shift because certain large civil projects in the northeast are now completing.
Whereas certain significant.
Higher margin civil projects in California, and Guam are advancing largely offsetting the declining revenue and more than offsetting.
Concluded work and and they're declining profit contributions.
In fact, our civil segment operating margin for the first quarter increased to 100 basis points.
Year over year to 10, 5% certainly a strong result from what is typically a lower margin quarter.
Some of the major projects that contributed to our first quarter revenue included California High speed rail San Francisco Central subway Purple lines, two and three and.
As well as the purple line three tunnels.
The division 20 portal widening projects all in Los Angeles from.
Minneapolis Southwest light rail the Newark Airport terminal one and.
And the Andersen Air Force base housing project, and Guam, and search as well as certain other large projects and both the building and specialty contractors segments.
We ended the first quarter with a backlog of $8 1 billion down slightly compared to $8 3 billion at the end of 2020.
And as a result of revenue that outpaced the volume of New awards and the quarter.
I will note that we're expecting to book into backlog and the second quarter, our newest project from Los Angeles MTA, The previously announced $478 million Lax Airport Metro connector.
Our backlog remains solid and provides us with good revenue stability over the next several years as it includes certain very large projects such as the Los Angeles Purple line subway work that are expected to continue their progress for another three to four years.
As I mentioned last quarter, the COVID-19.
And then Mac has had a substantial impact on our new awards and our backlog and 2020.
And as a result could continue to cause significant impacts to our cause.
And customers.
Revenue sources, which in turn has created temporary funding uncertainties.
These are all the obvious delays that were occasion by the lack of funding, which took projects that were ready to bid and took them off.
And put them back on the shelf. We are now seeing those projects come out on a very significant scale and some money becomes made available.
As such the COVID-19 impacts are diminishing government funding is increasing and of course this doesn't even take into consideration.
And the infrastructure build a divide and administration is pushing.
We remain very optimistic that our backlog growth will resume by the second half of this year and should be significant by the second quarter next year.
We booked $1 billion of New awards and contract adjustments and the first quarter of 2021 and.
Including a $269 million government building facility.
And Phil, California, with Rudolph and Sletten.
And more than $220 million and in various civil projects from London construction and the Midwest.
And an additional $120 million of additional funding.
For the mass transit project in San Francisco.
And as I have alluded to previously there is a seemingly endless list of major projects that we are preparing to bid this year and next.
And may we will be submitting our preliminary proposal for the $4 billion JFK terminal one project.
And expect selection of the general contractor.
By September of this year.
Other bids and.
And the northeast this year include the $1 5 billion.
Portal Bridge project in New Jersey, which is a design bid build expecting the bid and the third quarter with an award towards the end of 2021.
In addition, we are working on a proposal for the one point.
$5 billion, Maryland Purple line project due in July.
And Maryland.
With this contract award expected to be and the late fall of 2021.
The $1 2 billion dollar Metro North Penn station access in New York will bid and the fourth quarter with an award anticipated by January of 2022.
The $1 5 billion Newport excuse me Newark Airport Airtrain is expected to bid and the third quarter of this year with an award anticipated by the end of 2021.
And the $2 billion Laguardia Airtrain from the Port Authority of New York bidding and the fourth quarter of this year with an award first quarter next year.
That were not enough and the list continues and northern California, the $4 billion, Santa Clara Valley Transportation Authority Bart.
Phase III Tunneled station systems and buildings are also expected to commence bidding incrementally beginning in the third quarter of this year with the first major award being the tunnels and anticipated in the fourth quarter.
We have great qualified for the tunnels and our and the process for all of the other prime contracts that are contemplated within that $4 billion package.
In addition, and southern California.
We are prequalified for the $700 million of Inglewood elevated <unk>.
People over which is supposed to bid and the fourth quarter. This year.
And Hawaii as we've discussed previously.
The Honolulu rail project is expected to go to proceed with construction.
Total.
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Being communicated.
And that should take place by the fourth quarter of this year.
Finally, black construction, our Guam subsidiary content and use.
To be overwhelmed by all of the projects and Guam.
Two of which we are bidding on the island Athenian and another on the island and <unk>.
Wow.
And they're all in the range of $150 million to $200 million each.
Other bids on the horizon include the $1 $4 billion JFK landside roadway development, the $4 billion West Santa Ana Transit corridor, and frankly, I could read on and on but it's beginning to even for me.
There is just a tremendous level of infrastructure.
Again, I am encouraged by the buyer and administration stopped strong focus.
On interest.
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And expect them to go ahead independent of the infrastructure Bill.
Clearly as we stated before and as obvious to anyone knowledgeable of our industry, we're extremely well positioned to reap. These benefits as we continue to be one of only a handful of bidders.
Either qualifier for photos on these major projects.
Lending based on our results through the first quarter and our outlook for the remainder of the year.
We are very confident and affirming our earnings per share guidance for 2021, and the range of $1 80 to $2 20.
As a reminder, our earnings and 2021 as it's always been are expected to be weighted more heavily in the second half two and the typical business seasonality.
As well as the timing previously discussed.
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 and good afternoon, everyone.
As usual I'll start with a discussion of our results for the first quarter, including cash flow.
By some commentary on our balance sheet, and then our 2021 guidance assumptions.
Revenue for the first quarter of 2021 was $1 billion to $1 billion down slightly compared to 125 billion for the same quarter of last year.
Civil segment revenue for the first quarter was $476 million compared to $487 million for the first quarter of 2020.
As Ron mentioned increased activities on certain projects in California, and Guam, mostly offset a revenue decline associated with certain projects and the northeast that are completed or progressing toward completion. This year.
Building segment revenue was $407 million compared to $482 million for the first quarter of last year.
The decrease was primarily due to reduced project execution activities on hospitality and gaming project and southeast.
And airport facility project that was recently completed.
Also in the southeast and a project and the northeast that is nearing completion.
Especially contractor segment revenue was $325 million up 15% compared to $282 million for the first quarter of last year with the growth, mostly driven by increased electrical and mechanical project execution activities on a project and the northeast.
Income from construction operations for the first quarter of 2021 was $50 million.
Up 5% compared to $47 million for the same quarter of last year.
As Ron indicated earlier.
The higher operating income was driven by a favorable project mix, including strong contributions from certain higher margin civil projects in California and Guam.
Segment operating income was $50 million for civil up.
Up 9% year over year.
And for building more than Triple the result of the first quarter of last year and $1 million for specialty contractors compared to $8 million for the same quarter of 2020.
And the significant increase in operating income from the for the building segment was largely due to the absence of and immaterial prior year unfavorable project closeout adjustment as.
And as well as lower operating costs associated with these segments lower revenue and the first quarter of this year.
The reduced operating income for the specialty contractor segment was principally due to unfavorable immaterial adjustments for settlement and two mechanical projects.
Operating margins by segment for the first quarter of 2021 were 10, 5% for civil.
As Ron noted up 100 basis points year over year.
Two 8% for building up 210 basis points year over year.
And 4% for specialty contractors.
Down compared to the same quarter of last year.
We continue to be satisfied with the margin performance, we're seeing from the civil and building segments.
So there are still some challenges to work through and the specialty contractor segment, mostly related to legacy projects.
And to enable us to eventually deliver the improved consistent profitability, we aim to achieve from that group.
Corporate G&A expense for the first quarter was $13 million compared to 11 million for the same quarter of 2020.
With the increase mostly due to higher compensation related expenses.
Interest expense for the first quarter of 2021 was $18 million.
Honestly higher compared to $16 million for the same quarter of last year.
The increase was primarily due to a higher average debt balance as a result of our new term loan b, partially offset by lower noncash interest expense associated with the reduction and the balance of the convertible notes.
Income tax expense for the first quarter was $7 million compared to $5 million for the first quarter of 2020.
With the increase due to a higher effective tax rate for the current year period.
Recall that the passage of the cares Act in late March of last year resulted in a significantly reduced effective tax rate of 16, 4% for the first quarter of 2020 compared to the 21, 7% tax rate for the current year quarter.
Net income attributable to tutor perini for the first quarter of 2021 was $16 million 31 per diluted share compared to $17 million or <unk> 34 per diluted share 34 per diluted share for the first quarter of last year.
The modest reduction was driven entirely by the higher effective tax rate that I just mentioned.
Now, let's shift gears and discuss operating cash.
We used $47 million of operating cash from the first quarter of 2020.
The result that was actually a little better than our expectations.
As you May know the first quarter of each year, almost always tends to be a cash usage period for us and this quarter's result was slightly better than our prior five year first quarter average.
As a reminder, our goal is to generate annual operating cash and excess of net income.
We have achieved we have achieved this goal and for the last five years and we still anticipate that we will do so again.
And this year.
Turning now to our balance sheet, our total debt as of March 31, 2021 was $1 billion.
That compared to the end of 2020.
Our credit facility had a zero balance at the end of the first quarter of this year as it did at the end of 2020.
As a reminder, 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.
So that will help to reduce our debt in the second quarter of this year we.
We are well within our debt covenant compliance limits anticipate that will remain the case.
And as Ron mentioned earlier, we are affirming our 2021 EPS guidance from a range of $1 82, 'twenty based on our assessment of current market conditions and our outlook for the remainder of the year.
Finally, all the assumptions factoring into our 2021 guidance remain unchanged from what we provided during our last earnings call February 24th of this year.
And with that Ron and I will turn the call back over to you.
Thanks, Gary.
And with first quarter results that were ahead of expectations.
I'll deal with what the key issues are and the key objectives.
That is to meet or exceed all of our earnings expectations, but equally as important and reduce our under billings and collect the cash for rightfully do.
We settled a number of claims and the first quarter.
We continue to settle claims and as I've said time and again I believe this year and 2022, we will force many of our largest claims to the forefront.
As owners cannot hide behind court dates and the future. The court dates are upon us.
We expect that to support collections and we expect significant cash flow over this year and next not only from those collections, but from the earnings we see.
I've said, so many times I will repeat it again, the extraordinary number of major jobs.
And that are in front of me as we speak that we're both proposing on qualifying for and getting ready to approach is truly a phenomenon of the times there has never been a marketplace like this.
And I am very excited about the role we can play and major infrastructure going forward without belaboring. It any further I will turn the call over to the operator for questions.
Thank you Sir.
At this time, we will be to invest more and more question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad.
And so on will that and just take your line is simple question Hugh.
I'll start Sue if you would like to remove your question from the queue for participants using speaker equipment and mobile net so the pick up your handset before pressing the star one moment tools when we pull for questions.
Our first question from Steven Fisher of UBS. Please proceed.
Thanks, and good afternoon guys.
And just wanted to.
Guys just wanted to start off on the specialty margins, David just to clarify.
In the quarter was at legacy projects that are still going on or was that charge offs to charges to write off claims from projects that were already completed and the past.
It was four or five projects that had been completed for many years.
Sadly I'm closing them and collecting the cash we took a number of write downs and none of which were significant on the specific project, but in accumulation had that level of impact.
Okay. So then what was the amount of that and what would the margins have been excluding that because it sounds like there were still and Gary mentioned the <unk>.
And don't worry you want them to be.
That's still the case, even after you add back whatever this was led.
Led by area and served at the answers yet and we still aren't where we need to be even exclusive of that.
And I'll just say this Steve the new margins on the new work are in the range that we've been.
And that we've been communicating to you that where we want to be in that 6% to 8% range. After segment overhead we feel really good about the margins on the new work is just still.
Closing out some of the old work and and settling out on some of the old work we call. It. Some work that was added and finished for three four and five years various stages of litigation and.
And it just made no sense to continue to litigate.
And God bless our owners, they saw and life and waiver will close out a number of and continue to put that pressure to bear.
Through this year and next and candidly most of these under billings will conclude one way or the other by the end of next year very few will go into 'twenty three.
Okay. So when do you think you'd start to see that 6% to 8% actually be visible and the reporting so that some time later in 'twenty, two or could it be sooner than that.
I'd say mid year 'twenty, two I think youll begin to see it.
Okay.
And then you mentioned and Rami settled claims, but it looks like the claim balance went up a little bit from the year and to the end of the first quarter. So what is actually driving the increased and the claim balance.
Yes, Steve this is just.
More than anything is just a normal progression.
Progression of unapproved change orders going to claims and the.
The difficulty that we've had and getting the resolutions as timely as we thought we would pre COVID-19. So that's starting to pick up now and I think we're at a point where.
Similar to where we were pre COVID-19, where that balance even though it did go up slightly I think we're going to see that start to fall.
And as we settled $40 million and claims but between litigation costs and claims growth.
And it just it just seem to absorb which I was disappointed and as you are but it is what it is.
What it requires to put a dent in it are some of these <unk> and <unk> and hundreds that are all coming due between.
Fourth quarter this year and the end of next year, we will have probably a dozen of those dealt with before and the next year.
And then.
There was I think $50 million and electronic collected related to COVID-19 is that all part of this or is that a separate discussion.
That's a separate discussion and most of those are in various stages of negotiations and <unk>.
Fairness to our owners.
Most of them are agreeing they owe it some or are using the excuse there waiting to be reimbursed from the federal government, but these are pandemics theyre not force majeure.
And some have already paid as summer contemplate some are wringing their hands.
We expect to collect the better part of that $50 million.
Got it and then just lastly here.
Curious on the building side of the business have you seen anything any particular change and in recent months from.
And the private sector and developers anything and getting more active on the.
And the bidding and awarding front there it seems like things are starting to terminals and more confidence and the economy.
People traveling Walmart he curious if youre seeing anything come through your business.
We're seeing a big influx and believe it or not thank goodness of Indian casinos, and we were just awarded one and given a letter of intent on another.
But I can honestly say, we're that close to the developer market.
My understanding of New York, and and Miami as they're beginning to go again.
But we and I'm, just very reluctant to do business with developers and we haven't had a good history with collecting money.
Yes.
It's an area of private work and developers.
Let's just say, we're not and aggressive participant leave and at that.
Okay terrific. Thanks, a lot.
Sure.
Thank you. Our next question is from Alex <unk> from B Riley. Please proceed.
Hey, Ron I know you don't give revenue guidance.
But given where your backlog is today coupled with feeds.
Bids outstanding and upcoming obviously, you and peer that revenue will probably be down a little bit and 2021, but how do you think about 2022.
Well, let's put it this way I think it will go up I think that the amount of work we're going to get by the end of next year will go through the roof I think our backlog will be it new records that will far surpass our old records.
The only issue with that is you got to remember on some of these enormous design build projects were awarded a $4 billion job.
And we do about $200 million and where the work. The first 12 months and design site clearance mobilization and before you see anything significant and revenue and cost and earnings usually takes a year.
It's not a year nine months, so thats, the only lag with and explosive.
Number of new contract awards and the huge.
Backlog.
Thank the 2022 will be better than 'twenty, one, but let me day I think 'twenty three will go through the roof. Because then all of the new work, we see that should be signed up by the summer of 'twenty. Two we will then begin to generate serious revenue and costs and 23.
Hey, Alex if I may and it's also Alex just on the revenue side Youre right, we don't give.
Revenue guidance, but we were $43 million.
Roughly last $40 $43 million less and we were.
Year over year for the first quarter of last year and I wouldn't write off.
'twenty, one as being a lower revenue year than 2020 at this point it depends on some of the work how fast we look at but we could exceed that revenue for 2020 and 2021.
That's helpful and how long is your win rates on awards over the last year and and you feel like you're gaining share and what does that say about the competitive environment out there.
Let me say.
The last.
The last five major contracts and Los Angeles MTA bid, we got all five of them.
Majority of them, we had only one other bidder.
So we're back where we used to be dominating southern California.
And.
As we speak we have one other proposer on the <unk>.
J F K airport at three $5 billion to $4 billion.
We are bidding the billion and a half dollar Maryland.
Highway project or excuse me light rail project.
<unk> from the termination of Fluor, and there's really two other four and bidders.
And at all.
Cut off my comments, we don't have much competition right now all you got to do is look at the size of the projects and who we compete with.
And our win rate, particularly on the West coast.
And I hate to say, we've been batting a thousand but we have on the east coast a little more difficult.
I'd still say that we will get a significant percentage of that which we bid.
And lastly, probably about a year ago, you were talking about a.
Changing.
Contracting within the state of New York and risk profile of certain projects.
How does how does that and market stands today.
It's a very difficult market to work and <unk>.
Constantly talking to our major owners, who we do business with and their principles and reminding them.
And they can't continue to ratchet the risk profile up and.
And right onerous contracts or will stop bidding and if it gets too outrageous will close the office or will use the office to bid elsewhere, but New York and since we're one of only two major players in the entire state.
They better think about it and think about if they're going to build their own work from now on.
Because new York has always been a difficult place to work.
And even our good owners and New York I would tell them very clearly you got to be reasonable if anything make your contract less difficult make it more contractor friendly than less or you're going to find yourself without any competition. The classic example of that is when we were the only bidder.
And the project at Newark Terminal a billion five dollar jobs and nobody else bid.
So I don't very helpful. Thanks, everybody and New York I don't see this state and New York are the city of New York and any position to dictate onerous terms, we simply don't tolerate it and the only other better of consequences Skanska and I don't believe they'll tolerate and so the diamonds come for.
For them to pull back and start being rational and fair.
Thank you.
Thanks, Alex.
Okay.
Next question is from Zane Karimi.
Davidson. Please proceed.
Hey, good afternoon gentlemen.
Good afternoon Hello.
So first off here.
Civil margins and how those have been developing when do you expect them to pick up from here.
Moving through the rest of the year similar to 2020.
We thank all our civil margins will continue to trend up as we add more and more new work at higher margins and some of the old legacy projects begin to drop off I don't see anything but positive trends and the civil work.
And then any thoughts from the initial proposals for federal infrastructure plans and where.
To your cash fit in with that.
Well, we're as big of infrastructure contract or is in the United States as we speak.
So all the work that I gave you earlier, some $30 billion to $40 billion worth of design build projects that are coming out over the next 12 months are already funded so the only thing I can say and as I believe this infrastructure Bill will just for more money and to a mark.
And what place that is already well funded and the industries such as it is will be and not and dated with opportunities and as I've said before our only issue is at some point, we run out of the engineering talent to build it.
If there were 30 major projects and we were the only bidder on all of them. We couldnt build all 30, we'd have to decide what our physical capacity was and our financial restraints and that would be what would stop is it certainly wouldn't be margins or the numbers of jobs because.
And there just isn't that much competition, and now and overwhelming array of jobs and it's an interesting situation.
Okay. Appreciate the color there.
And then.
And gentlemen, this concludes our question and answer session and I would like to turn the call back to Ronald tutor for closing remarks.
Nothing more to add thank you everyone for our quarterly call hopefully and shed some light.
Until we see you again at CIT for tutor Perini.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.