Q3 2021 Tutor Perini Corp Earnings Call
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Good day, ladies and gentlemen, and welcome to the tutor Perini Corporation third quarter of 2021 earnings Conference call. My name is Kyle and I will be our coordinator for today at this time all participants are in a listen only mode. Following management's prepared remarks, you'll be opening the call for a question and answer 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, a vice president of Investor Relations. Please proceed.
Hello, everyone and thank you for your interest and participation with us on today's call, our Ronald tutor, Chairman and C E O and Gary Smalley Executive Vice President and CFO before.
Before we discuss our results I will remind everyone that during this 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 are actual results could differ materially you could find our disclosures about risk factors that could potentially contribute to such differences in our Form 10-K, which was filed on February <unk>.
24th 2021, and and the Form 10-Q that were 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, Alright, good afternoon, and thank you for joining us.
As anticipated we had a strong third quarter of New award bookings, which totaled $2.1 billion and drove at 12% quarter over quarter increase in our backlog to a very solid level at 8.4 billion.
Major New awards included the Cedars Shining Cedar Sinai.
Marina del Rey replacement Hospital, Los Angeles County for Rudolph and Slaton, the $471 million.
Airport Metro connector.
For the Los Angeles Metropolitan Subway District.
The 220 million dollar I 70, Missouri River Bridge for London construction.
122 million dollar military firing range project in Guam, and a 98 million dollar military housing project in Guam for Black construction.
And of course, our $71 million share of the Frank Kern Canal project in California.
Customer demand customer demand for our construction services remains very strong.
As evidenced by the extraordinary sustained pipeline of large projects that we have been bidding recently and we will continue to bid over the next several quarters.
Currently we are awaiting decisions and subsequent awards.
Over several projects bid in the last 45 days those projects being the $3 billion plus JFK terminal one project.
And the two plus billion dollar, Maryland Purple line.
<unk> excuse me light rail project and the two plus billion dollar Metro North Penn station access project in New York City.
In addition, we are optimistic that the substantial incremental funding expected to eventually fro flow from the proposed federal infrastructure Bill will result in significantly extended duration of even greater demand with a large number of high margins civil <unk>.
<unk> that we will be able to pursue as well as free up resolves of ongoing projects as almost every one of our agencies will receive further funds.
Until recently the COVID-19 pandemic has had an adverse effect on both the volume and timing of New awards with New awards and bid projects.
Basically frozen for the last 18 months until the last 60 to 90 days.
In other words that go of it not occurred.
<unk>, our backlog would be substantially higher today because of the frozen period of 18 months, where very little work was awarded.
Our third revenue our third quarter revenue as a result thereof came in below budget.
Partly as a result of these impacts but also due to lower than anticipated contributions from certain building projects in California, and the cough coast that were delayed.
Compared to last year's third quarter, which was particularly strong revenue wise, we experienced reduced activity.
And this year's third quarter on various building segment projects in California, and Oklahoma and have recently completed or will complete very shortly.
However, now that our backlog has started growing again and we anticipate further increases significantly.
As we win are expected share we believe our revenue should begin to stabilize and eventually grow again.
As it did last year.
With more substantial growth starting in the first quarter.
As anticipated when these construction phases hit.
Our backlog.
Are strong civil segment operating margin of 11.9% through the first nine months.
Of 2021 continues to reflect a favorable mix shift toward higher margin projects.
This margin is up 100 basis points compared to the first nine months of 2020.
A certain lower margins civil projects wind down that were previously awarded years ago.
That work is being replaced by newer high margin projects in California, and Guam and with a surge of work in New York, Hopefully New York.
Major projects contributed to our third quarter revenue included California High speed rail.
Purple line sections, two and three for La Metro and Division 20 portal widening project in Los Angeles again for Los Angeles Metro.
The San Francisco Central Subway project as it nears completion.
But my neck, Minneapolis southwest Light rail project.
And the new Newark Airport terminal one.
Our earnings per share for the third quarter also came in below budget largely due to certain project write downs that we recorded in the special contractors.
Segment.
Next I will update you on the status of some of the major projects that we have recently bid and are preparing to bid over the coming months.
Team selections and contract awards for the aforementioned JFK terminal one in Maryland Purple line projects are imminent.
Earlier this week on November 1st we submitted our bid for the Metro North Railroad Penn station access project.
In addition, we expect debate several other large projects in the first quarter of 2020 do including the 1 billion first phase of the Maryland Express lanes.
Or accelerate Maryland partners.
As well as the $700 million Inglewood automated people mover in Los Angeles, and 600 million dollar government facility in Northern California for Sonoma County.
The $1.4 billion Newark are trained replacement will bid in April of 2022 with that award decision expected by the third quarter.
The Laguardia Airtrain has been put on hold pending a new governmental assessment of the project.
Finally, black construction or Guam subsidiary is still awaiting the outcome of recent bids for major military projects exceeding $550 million as we continue to bid one and two military projects every month and go on.
Based on our results to date through the third quarter and our outlook for the remainder of the year, we have determined to adjust our EPS guidance for 2021 to a range of $1.72 and all dollars 85.
Thank you and with that I will turn the call over to Gary to present, the details of our financial results.
Thank you Ron good afternoon, everyone.
As usual I will begin with a discussion of our results for the third quarter, including cash flow followed.
Followed by some commentary on our balance sheet and then some updates regarding assumptions in our adjusted 2021 guidance.
Revenue for the third quarter of 2021 was 1.2 billion.
Compared to $1.4 billion for the same quarter last year.
The decrease was largely driven by reduce project execution activities in the building segment.
As various projects have completed or are nearing completion, while newer projects that have been recently awarded are yet to contribute to revenue.
The COVID-19 pandemic reduced revenue in the third quarter of both 2020 and 2021.
With the current your impact predominantly associated with pandemic induced delays on the wording of new projects and prior periods that Ron mentioned.
Civil segment revenue for the third quarter was $546 million compared to $612 million for the third quarter of 2020.
The decrease was primarily due to reduced project execution activities on various projects in the northeast that are also completed or are nearing completion.
Building segment revenue was $361 million compared to $508 million for the third quarter of last year with.
But the decrease due to the aforementioned reduced project activity and delayed timing of contributions from newer projects.
Specialty contractor segment revenue was $271 million compared to $322 million for the third quarter of last year, but.
With a <unk> with the reduction mostly driven by a net decrease in project execution activities on certain mechanical and electrical projects in the northeast and in California.
As Ron indicated we booked several significant new awards in the third quarter and are waiting imminent decisions and potential contract awards for some very large projects that we've recently bid.
As a recent new awards and other new <unk> large projects if awarded to us start to contribute significantly.
The revenue from the new projects should eventually more than offset declining revenue contributions from projects that are completing.
And nearing completion.
So I'd emphasize again that we do believe that revenue growth is on the horizon. It's simply remains a matter of timing as to when the new projects are awarded and start to contribute more meaningfully to our results in counterbalanced the declining revenue of the projects that are concluding.
Income from construction operations for the third quarter of 2021 was $52 million compared to $83 million for the same quarter of last year.
The decrease was largely due to the net impact of incrementally larger unfavorable adjustments on certain electrical projects in the northeast.
In our specialty contractor segment in the third quarter of 2021 compared to the third quarter of last year as well as the absence of the current year third quarter.
Of the net impact of of 19.6 million dollar prior year gain from a favorable arbitration decision.
And a 15.2 million prior year charged due to an unfavourable legal ruling pertaining to a mechanical project in California.
To a lesser extent the decrease was also due to lower contributions from certain civil segment projects in the northeast.
And reduced contributions and all segments related to the COVID-19 impact on revenue due to delays in new awards and prior periods.
Civil segment operating income for the third quarter of 2021 was $63 million compared to $70 million for the same quarter of last year with a decrease in line with the volume reduction.
Building segment income from construction operations was $11 million compared to $16 million for the third quarter of 2020.
With decrease also primarily due to the volume reduction.
The specialty contractor segment had a $5 million loss from construction operations in the third quarter of 2021.
Compared to $10 million of income from construction operations for the same quarter of 2020.
The decrease was primarily due to larger net unfavorable adjustments on certain projects and the current year quarter compared to the prior year period.
Operating margins by segment for the third quarter of 2021 or 11.5% for civil.
3% for building.
And a negative 2% for specialty.
As Ron also indicated earlier are strong year to date Civil segment operating margin of 11.9% is up 100 basis points compared to the same period last year and reflects a favorable project mix shift, including strong contributions from certain higher margin projects.
Corporate G&A expense for the third quarter was $16 million compared to $30 million for the same quarter of 2020 the.
The increase was primarily driven by higher compensation and travel related expenses.
Interest expense for the third quarter of 2021 was $17 million compared to $26 million for the same quarter of last year with him 9 million dollar reduction largely due to the absence of debt extinguishment cost recognized in.
The third quarter of 2020 related to balance sheet refinancing.
Income tax expense for the third quarter was $9 million compared to essentially zero tax expense for the third quarter of last year.
In 2020, we had favorable tax benefits related to a net operating loss carry back as a result of the cares Act.
Net income attributable to to to pretty for the third quarter of 2021 was $15 million compared to $37 million for the same quarter of last year diluted EPS for the third quarter was 30 cents compared to 72 cents for the third quarter of 2020.
The decreases were mostly driven by the factors I mentioned earlier that resulted in reduced income from construction operations.
Now, let's talk about operating cash, which was once again lower than anticipated for the quarter.
We used $21 million in operating cash in the third quarter, primarily due to continued growth and our cost an estimated earnings in excess of billings, but what we've referred to commonly Sci E. R Unbilled costs.
Similar to last quarter's for Cie increase was largely driven by lingering COVID-19 impact does have continued to cause delays and the resolution of certain claims.
Excuse me, an unapproved change orders.
Most notably Covid has constrained some of our customers revenue and funding sources.
Thereby limiting their ability and budgetary discretion to pay is timely for certain scope work as well as some out of scope work that we have performed at their direction.
As a result, we have had to temporarily fund certain project costs that would normally be more promptly negotiated feel too and collected from these customers, which is negative negatively impacted our operating cash flow and largely contributed to the increase in cie for the quarter and for the year.
The majority of the CIA build up this quarter again occurred on several projects in the northeast.
We are continuing our discussions with these and other customers to negotiate amounts we are owed on the various projects.
And anticipate that we will resolve and collect much of the cash we are owed over the next few quarters.
Now, let's turn to our balance sheet.
Our total debt as of September 30th 2021 was $968 million down 6% compared to the end of 2020.
Our credit facility once again had a zero balance at the end of the third quarter.
We remained well within our that covenant compliance limits and anticipate that we will continue to be.
This will continue to be the case in the foreseeable future.
As Ron mentioned earlier, we are adjusting our 2021 EPS guidance to arrange a $1.70 to $1.85 per share based on our results to date and our assessment of current market conditions in the outlook for the remainder of the year.
As you can tell by a revised guidance, we expect that our fourth quarter results will be notably stronger than the third quarter results.
Finally, let me update you on some of the assumptions factoring into a revised 2021 guidance Genie.
<unk> expense for 2021 is now expected to be between $245 million and $255 billion, which is another $5 million less than previously anticipated.
Are effective income tax rate for this year is now expected to be between 22 and 24%.
Improved by another 1% in both the top and bottom ends of the range.
Lastly, capital expenditures are now anticipated to be approximately $35 million of which $7 million will be owner funded and project specific.
All other assumptions remain unchanged from what we'd last provided.
Thank you and with that Ron I'll turn the call back over to you.
Thanks, Gary in summary.
I was pleased with the increased towards in the third quarter the drove our backlog up to 8.4 billion.
And that was without the benefit of any of the major proposals. We've recently turned in.
In addition, our year to date Civil segment continues to support.
The fact that our margins are up significantly and continue to grow.
While our third corps quarter results were disappointing and lower than expected.
I believe that we will close out 2021 with a strong fourth quarter as we continue to execute effectively on our major civil projects.
As mentioned earlier, there's no question in my mind that over the next two quarters, we will significantly add to our already strong backlog primarily in the civil sector, given the tremendous bid opportunities.
I spoke to earlier, which are likely to continue to be expanded.
Given the fact that the federal infrastructure Bill remains day to day.
In its passage.
We can't we continue to anticipate the same limited competition.
<unk> the projects I spoke to had no more than three competitors in predominantly excuse me not three competitors no more than a total of three bidders and in most cases too.
Which should continue to lead the strong operating margins and growth for our civil segment.
Thank you and with that I'll turn the call over to the operator for questions.
At this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing this darkies one moment, please while we pull for <unk>.
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Our first question is from Alex Regal with be Riley. Please proceed with your question.
Thank you good evening gentlemen.
Hi, Alex.
Iran, and Gary just jumping straight at the.
Unbilled receivables line item.
What are some of the things we should be watching for that could suggest that your customers will be or are in a better position to start to pay.
Pay up on the the monies that.
[laughter].
Passage of the infrastructure Bill.
For example, we actually settled a very large claim.
And rather than delay the settlement, we agreed to lend the owner back $28 million that he could pay is on a large public works project and paying 6% interest and gave them over a year to pay us back that's a kind of madness, we're dealing with another one of our receivables as a $53 million <unk>.
<unk> settled with an unnamed owner last February and it's already November and we still haven't got the final executed change orders. So the week in Berlin, Although we've done all the work. So this this COVID-19 is added devastating impact on all our public agencies.
And unfortunately with all our cash flow shortfalls, it's fall upon us so the moment that infrastructure Bill passes and there is money fed to all of these major public agencies in New York, California et cetera.
Which of course, New York and California are the primary beneficiaries of the Bill I think we'll see cash will begin to ease up.
As they get tired of people Deli me. They all me, but they don't have the money to pay you are going to have to wait.
Yeah, when when does it clearly is not a.
Go ahead Carrie.
Sorry, Alex we also have various arbitration in litigation dates that are coming up over the next several months and that should also resolve some of these.
Cost in excess well as I've said time and again 2022 is an enormous year for us because we probably have trial dates on 12 or 15 major cases that our beloved owners have stalled for 810 and 12 years.
But the day of reckoning is finally here.
So 2022, we believe will be an extremely positive year for collections and not the least of which will Samuel roundness infrastructure Bill funding all of our owners.
In addition, our owners are beginning to understand there's only us and two or three other contractors in the United States that can build their large projects and as I continue to remind them you have to pay us if we're going to continue to do business with you.
So it's an interesting turn but it's been very unpleasant this year as we deal with the fallout of Covid and in fact, it all our agencies don't have the working capital and they seem to think that we should help them carry the bird.
Guerrier ran is there any way to maybe quantify.
The sort of possibly the cash receipts that you probably should collapsed in the next 12 to 18 months to sort of get to a more kind of balanced or level playing field here.
Well, we have that of course, and and we go over that with our board regularly.
And the only thing I can tell you a G norm us, but I don't think unless we talked to council that we can speak to that publicly.
Otherwise I'd love to be able to tell you candidly Alex.
Look we do this Ron sometimes it'll be.
Free weekend he'll look at it for some period of time and and rehash. It and then we talked about it we know what the targets are and they are significant as Ron mentioned, but.
So much is dependent upon court dates that can get frozen or get moved in and we have a lot of coordinates as Ron said, where it looks like they're not going to move, but who knows we would hate to commit to a number as we've done before and then disappoint. So we'll just say, it's a very big number and it's on the horizon.
Fair enough and then lastly, Gary clear.
Clearly you mentioned that there could be a.
Gap in revenue from projects nearing completion versus projects that you're expected to be awarded up shortly.
Is that get more of a fourth quarter gap or is that gap more of a sort of a first quarter or second quarter gap next year.
Yeah, I think it's more of a fourth quarter gap at least that's what we're looking at right now now I'll keep in mind that first quarter. There was always the seasonal gap. If you will so we would expect that first quarter to be be down but down to the extent that it normally is and I think we're looking at fourth quarter to be.
Really where the.
Shortfall is at least compared to let's say prior year, but we hope to start building momentum in the fourth quarter.
Yeah, well, thank you very much.
Welcome.
Our next question is from Steven Fisher with UBS. Please proceed with your question.
Oh, great. Thanks can you hear me guys yeah.
Yes, we can see.
Okay great.
Just maybe following up there any help you can give us on the distribution of margins that.
Are implied in that in the fourth quarter guidance, just a little bit of color by segment, what we should expect for margin Q4.
Where do you see that our margins continue to grow in the civil sector.
And we have certain civil jobs that I won't get specific on that or even significantly increased from the 11% we are talking about.
I don't want to get into the individual jobs, but there is there will continue to be growth in the civil sector margins as we report because as we pointed out the older jobs as they finish and drop off their replaced with only the newer jobs at much higher margins, which are <unk>.
Genuine to make those margins and as the lower Marge lower margins 789 year old jobs, particularly in New York drop off the backlog that growth will continue.
And what about.
Specialty and that was the first.
<unk> I think.
Maybe six.
Yeah make quarter, but so what what can.
Can you just give it away with what's going on there.
Predominantly in New York.
We struggle with both our electrical some city and arm mechanical subsidiary uncertain major projects, where they have had to take write downs that.
Just simply were appropriate.
And they continue to struggle we cut.
Cut back their revenues, we've reduced many of their operations do they work for us and only certain selected.
Other builders or owners and we continue to try and control that hopefully the two worst jobs that they have will finish at the end of the year January and it'll be a new horizon.
But.
I can't say that they haven't plagued us for years in New York City with their problems. They may be strategically very positive, but operationally continually it challenge mmm, Steve more specifically to the fourth quarter, we are definitely not forecasting another loss from specialty in the fourth.
Quarter.
Whether we get to the 5% to 7% segment margin range that that is our target I wouldn't.
Go that far but it should be positive.
Okay and.
Nice to see the backlog growth.
Water when do you think you could actually start to see the revenues grow on a year over year basis again sometime later in 2022.
Could that be sooner than that.
Well, let's say that I think California high speed rail should go back to work in the first quarter, which was has been a significant reduction and revenue because of the continuing delays there I've met with our principles. It appears there overcoming the delays and we can finally get that.
At work going again at the rate in which it should for the lines two and three are beginning to grow in revenue because we're coming out of the ground.
Tunnels I think most of the existing work will ramp up dramatically and the key element will be of these these three jobs, we bid which totaled seven and a half billion dollars.
What if any of them will be awarded will we get all three one out of three we got to wait and see and then Fortunately there is more right behind it so it's hard.
Hard to be specific but my assumption is by next summer.
We will have achieved such a significant backlog beyond anything we ever drempt of.
That as that catches up our revenue will increase accordingly, and with it the profit.
But we got the worst Gotta get released garbage Gotta get put behind us and these government fundings after the App.
Okay, and then just lastly portal.
Portal bridge.
And we can learn about the nature of the competition.
There Oh there was one other there was one other bidder and it was skanska and they're very good company. They beat US $200 million on up we were over a billion seven and they were in the billion five range and.
Obviously, they were satisfied with a lesser price than we were so it's all a matter of.
What you want to do.
We're completely satisfied that the price we bid I bit it the same way tomorrow.
And we are determined to raise the prices in our industry.
Terrific. Thanks, guys.
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We have reached the end of the question and answer session and I will now turn the call over to Ronald tutor for closing remarks.
Thank you everybody for joining us and.
Till the next quarter and year end.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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