Q1 2022 Tutor Perini Corp Earnings Call
Q at Marine Corps base.
<unk> and we are all just been awarded an 85 million U S Coast Guard family housing project in Alaska.
We also anticipate soon booking three new building projects in California for Rudolph and sletten totaling nearly $300 million.
So it is evident that even ahead of our bidding some larger projects spring we continue to be successful in.
In capturing our share of smaller and midsized projects. We also have two other pending commitments in the gaming area totaling.
Over $500 million, we hope to be awarded in the next 60 days.
Demand for our services is continuing to increase meaningfully beginning later this year when the funding from the federal infrastructure Bill begins to flow.
As I have said previously that funding as anticipated the allocated over the next five years and spent over the next 10 years.
Consequently, we continue to believe this substantial sustained funding will favorably impact our.
Our current projects as well as those prospective opportunities over the next five to 10 years.
Ahead of even the benefits of the infrastructure Bill we've talked repeatedly about tracking.
Tens of billions of dollars of prospective projects that are expected to bid and be awarded over the next couple of years I'll move onto those projects in the next I will discuss.
These projects will be bidding this month and over the remainder of 2022.
And the period of time.
May 15.
Two.
January excuse me June 1st.
We will be submitting bids for two major highway jobs in <unk> III programs in Maryland.
Two projects of which <unk>.
Exceed $3 billion.
Call, the Maryland Express lanes.
We anticipate team selection shortly thereafter, and a contract award for whoever that apparent low bidder is by the fourth quarter of 2022.
Also in that two week time period, we are bidding the $350 million Raritan River bridge replacement in New Jersey.
With an award to the publicly bid and open project shortly follow.
Then on May 26, we will be bidding the $2 5 billion Newark Airtrain replacement project.
And anticipate team's selection with a contract to follow shortly thereafter.
As you can see may will be an incredibly busy month of bidding.
And the three major projects of before only have one other better.
Other significant projects bidding this year or the one $6 billion Brooklyn jail.
The $2 5 billion Navy dry dock job in Hawaii.
$800 million JFK roadways, and ground transportation in New York City.
The $1 billion each San Fernando Light rail project for the Los Angeles, MTA, and a $700 million Inglewood people mover in Los Angeles.
Before I hand things over to Gary to discuss the details of our financial results.
I want to be clear that we were we are confident we will deliver improved financial performance over the rest of this year.
Therefore, despite the negative first quarter and its impact on earnings we are maintaining our guidance for <unk> for 2022.
And the range of the same dollars 15 to $1 16.
As I said previously we would also add we believe our operating cash will continue to increase and be strong through throughout the whole year of 2022.
Thank you and with that I turn the call over to Mr. Small.
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 followed by some commentary on our balance sheet and our 2022 guidance assumptions.
Revenue for the first quarter of 2022 was $1 billion down from $1 2 billion for the same quarter of last year.
Civil segment revenue for the first quarter was $391 million compared to $476 million for the comparable prior year quarter.
Building segment revenue was $331 million compared to $407 million for the first quarter of last year.
Specialty contractors revenue was $231 million compared to $325 million.
The lower revenue in the current quarter reflects reduced project execution activities.
On a completed building segment technology project and are nearly complete civil segment mass Transit project, both in California.
As well as the impact of the adverse legal ruling that Ron mentioned earlier.
In addition, we experienced reduced activities on various civil and specialty contractors segment projects in the northeast as many of them are now complete are winding down.
Certain projects in California, and the Midwest. However are in their earlier stages and are partially offsetting the revenue reductions I've mentioned.
As these and other new projects accelerate and contribute more meaningfully we expect more substantially backfill the revenue declines associated with our late stage or completing projects.
And with continued robust bidding activity that Ron mentioned, we still expect to win our fair share of prospective projects and therefore should see revenue growth towards the end of the year and for next year.
We reported a loss from construction operations of $10 million for the first quarter of 2022 compared to income from construction operations of $50 million for the same quarter of last year.
As Ron mentioned, our first quarter earnings this year.
Our significantly reduced by the impact of the adverse legal ruling in New York.
And the temporary impact to earnings associated with the approval of a significant amount of change orders on a mass transit projects in California.
I'd like to explain why the successful negotiation of significant change orders on the California project resulted in a negative accounting impact for the first quarter.
The new work approved was of a lower risk and therefore carried a lower margin percentage than the project's overall project margin.
As a result, even though the total profit in dollars that will ultimately.
<unk> be recognized for the project increased with the approval of the change orders the cumulative margin percentage for the project declined slightly.
Also <unk>.
Since much of the additional work that was negotiated has not yet been performed there was a small reduction in the projects percentage of completion.
The combination of the slight decline in the project's overall profit margin percentage and the small decrease in the project percentage of completion resulted in a $17 $6 million decrease.
And the profit recognized for the project in the first quarter.
So in summary, we had a successful negotiation of significant change orders that increased the overall profit of the project, but the accounting treatment for the change orders resulted in a negative cumulative correction to earnings in the first quarter.
Most importantly, the first quarter reduction of earnings is only temporary since it will reverse itself and be recognized in profit over the remaining life of the project.
Collectively the two factors mentioned negatively impacted the civil segment by $43 million and as a result of civil segment had a loss from construction operations of $1 million for the first quarter of 2022 compared to income from construction operations of $50 million for the comparable quarter last year.
Building segment income from construction operations was $9 million compared to $11 million for the first quarter of 2021 with the reduction primarily due to the segment's lower revenue volume in the current quarter.
The building segment's operating margin for the first quarter of 2022 came in at a healthy two 9% essentially level compared to two 8%.
For the first quarter of last year.
Especially contractor segment had a loss from construction operations of $4 million in the first quarter of 2022 compared to income.
Income from construction operations of $1 million in the same quarter last year with the decrease primarily due to lower profitability and reduced project execution activities in the northeast, including the electrical and mechanical components of a transportation project that is nearing completion.
Other income for the first quarter of 2022 was $4 million compared to nearly zero for the first quarter of 'twenty two excuse me compared to the first quarter of 2021 with the increase primarily driven by interest earned on federal income tax receivable balances.
Corporate G&A expense for the first quarter of 2022 was $15 million compared to $13 million for the same period last year with the increase largely driven by higher compensation related expenses.
Interest expense for the first quarter of 2022 was $60 million.
Compared to $18 million for the first quarter of 2021. The decrease was principally due to the absence of amortization of discount and debt issuance costs on our convertible notes that we repaid last year.
Income tax benefit for the first quarter of 2022 was $4 million compared to income tax expense.
$7 million for the prior year first quarter and a corresponding effective tax rate was 17, 1% for the first quarter of this year compared to 21, 7% for the comparable quarter last year.
The lower effective income tax rate for the first quarter of 2022.
It was primarily due to non controlling interest making up a higher percentage of our earnings for 2022 based on annual projections as.
As well as share based compensation adjustments in the current year period.
Net loss attributable to tutor perini for the first quarter of 2022 was $22 million or loss of <unk> 42 per share compared to net income attributable to tutor perini of 60 million or <unk> 31.
Of earnings per share for the same quarter of last year.
The substantial decline was principally due to the two factors I mentioned earlier that negatively impacted our operating income this quarter. They had a cumulative negative EPS impact of <unk> 63.
In fact, our first quarter EPS would have been ahead of budget had it not been for those two negative impacts.
Now, let's switch the discussion to cash flow, which was certainly the major highlight of our first quarter results.
Due to the seasonality of our business, namely weather challenges in some of the markets. We serve our first quarter operating cash is nearly always negative as Ron had indicated earlier.
Last year's first quarter operating cash usage of $47 million is right at the average for the operating cash performance that we typically see in the first quarter.
However, this year is different and much improved.
Ron noted we generated a first quarter record operating cash of nearly $121 million. This year. This was by far our best first quarter operating cash results since the merger in 2008 and it was also our third highest operating cash of any quarter.
Consistent with what we expected and discussed on our last earnings call back in February .
We experienced strong cash generation this quarter that was primarily driven by an improved cash collection cycle, including collections associated with the recent resolution of certain amounts that were previously disputed and that had previously required a use of cash.
We anticipate continued strong operating cash generation for the remainder of 2022 based on projected cash collections, both from project execution activities and the resolution of various other outstanding claims and change orders.
We also still expect that operating cash for 2022.
We will be well in excess of our consolidated net income.
Now, let's briefly turn to our balance sheet, our net debt as of March 31, 2022 was $687 million down 13% compared to $791 million.
As of December 31, 2021.
We remain well within our debt covenant compliance limits and anticipate that this will continue to be the case in the foreseeable future.
Our cost and estimated earnings in excess of billings or what we refer to as Cie declined very slightly during the quarter. We actually made good progress in reducing Cie for many projects, but these reductions we're nearly entirely offset by continued growth in unapproved change orders in the northeast, where we continue to work with our owners to resolve.
The open issues.
As Ron mentioned earlier, we are maintaining our EPS guidance of $1 15 to $1 60 per share.
We are optimistic that we will be able to claw back much of the first quarter first quarter earnings under performance from increased project execution activities and the resolution of various disputed balances later this year.
Assets Oliver 2022, EPS guidance assumptions also remain unchanged from what we provided during the earnings call in February .
Thank you and with that Ron I'll turn the call back over to you. Thanks, Gary to recap we're off to a strong start this year from a cash perspective and expect to continue generating very strong operating cash throughout the balance of this year.
And if anything even stronger next year.
As we discussed time and again all of our disputes are finally coming to fruition with trial dates arbitration dates are owned or Mediations.
And of the arguments is this year and next year.
Disappointing EPS was primarily the result of the loss generated.
By a bad decision that we spoke of previously and it contributed to the biggest part of our loss as well as the.
The difficulty of settling over $100 million of subcontract or changes at lower margins.
Where we had to take a large loss in the quarter.
What was really a gain in profitability that will return over the next.
Three years of performance.
Our backlog is still provides us with good visibility over the next few years.
As I described earlier in the call the sheer enormity of all the work we're bidding.
$6 billion in the next three weeks and probably an additional $10 billion by the end of the year.
We expect and hope to grow that backlog substantially.
We already have a substantial volume of projects being pursued.
And we expect to continue to increase significantly as the funding from the infrastructure build finds its way to our public agencies.
Lastly, as discussed earlier, we believe our financial performance will improve.
And be able to absorb a poor fourth quarter and still deliver the operating results we stipulated earlier.
Thank you and with that I'll turn the call over to the operator for any questions.
Yes.
Thank you.
Ladies and gentlemen, we will now be conducting a question and answer session.
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Moment, please when we pull for questions.
Our first question is from Alex Rygiel with B Riley. Please proceed.
Hey, gentlemen, Ron.
I suspect that you didn't anticipate these two items.
And so given that you're reiterating 2022 guidance.
By default significantly raising guidance for the remainder of the year. So my question here is what's changed to give you that confidence.
Well first of all.
To be blunt, we added significant.
Reserves set up for 2022 with so many hundreds of millions of dollars in claims being litigated and negotiated we'd set up a significant reserve.
We think everything is going very well on all of the other major projects and given our projections.
Although it's unnerving, particularly the legal loss, which.
That's the problem with trials most of the time you get the result, you should periodically you get a case like this where the truth dividends, we rewarded the job they stopped construction, we never pursued they redesigned the bridge in totality.
Reviews to sit down with us and discuss the added costs and at the end of the job in so many words told us to sue them.
Now under normal circumstances, you would get paid all of the costs of the redesign some out in New York. The courts found we didnt give them timely and adequate notice to the most obvious issues and.
And we lost.
We still have one more course of action.
Under our delight claims which are a substantial part of it.
However, I chose to write it off.
And take and although we are still appealing and moving forward with.
We've chosen to write it off.
The other one was particularly unusual because we settled over $100 million of subcontractor changes.
The majority of which only carry a 5% markup by contract.
It's a large civil job, where we typically perform the majority of the work and we're not only allowed significantly more margin.
Typically make significantly more margin, but this was limited to subcontractor work. So although there is nothing negative.
And we achieved additional profit for the job.
When you understand.
Timing and percentage of completion.
Positive change order actually caused a $17 million loss for the first quarter and it really is a paper loss, we made money on that change, even though it had or if again Pat.
So that was the crux of the quarter.
And we believe we have enough remaining that's positive that will offset it.
And then could you talk a bit about competition, where do we stand today or there are more competitors less competitors. I know you mentioned that you were one of two bidders on a number of projects, but in totality, where do we stand because it feels like margins are still somewhat constrained and that would be in theory.
The competitive environment.
But would love your color on them well there is no competitive environment, we have.
Three major jobs in the billion and a half to two 5 billion. We're bidding in the next two weeks.
Two of them were bidding against a Spanish and Italian joint venture.
The third one we're bidding against one other bidder to American companies.
The $3 billion $5 plus jobs, we were bidding at one other bidder each.
There is no more competition today than there was a year ago six months ago.
And as I've said previously we know every major player in the U S. As well as every major foreign player that wants to come in the U S.
It's not going to be much more competition at least in the next 12 months.
Because in order to compete on these mega projects you have to have a major presence here.
You can't fly in from Spain, or Germany.
And compete on a $2 billion job in land with 200 engineers and.
$50 million worth of equipment.
So it still remains very seldom more than two bidders on everything we bid.
The marketplace is up significantly and to put it bluntly we've raised our.
Margins significantly.
The one other bidders we face dealt.
We will address it but we are in a mode that believe that those few of us left should get more reasonable and sensible margins and we remain committed to it Alex if I could just add this.
To go on top of what Brian was saying a lot of what Youre seeing is really timing related.
As the new projects come in and we expect those to be higher margins. So some of the results that you see still reflect the older projects that where we haven't been able to to get those higher margins.
Jack.
We haven't really signed up a major project in the last two years right. All of what we're talking about is work that is very profitable, but from three and four years ago. Since this lack of competition, which is primarily in the very large work lets call it $1 billion and above.
There's only been two or three bit in the fourth quarter last year.
And the whole world froze with Covid. So now it's opening back up and candidly, we raised our prices and it appears our peers did.
The next few weeks will tell a story with these three major projects and the balance of the year will tell a story whether or not we're at.
The only one raising our costs.
As opposed to our few peers that are left but it still remains theres very seldom more than two bidders on any major project.
And I can tell you about owners shocking news about projects, where they're carefully may not get any bidders.
That's helpful. Thank you very much.
Our next question is from Brent Thielman with D. A Davidson. Please proceed.
Hey, great. Thank you.
Ron is it fair to say that any kind of new work you pick up from here. It's more of that 2023 revenue opportunity or is there still some things you can.
Grabbing it.
So in the back half.
It may it may hit in the fourth quarter. If we were fortunate enough for example to be awarded one of these four major projects bidding in May I think we'd probably see an impact in the fourth quarter, but no earlier.
Okay and are you expecting sort of claw back some or all of that $17 6 million for that mass transit project over the course of this year or is that start out in the course of the next few years.
Okay.
This year in the next two years that followed because again it added to our margin, but because it was a $100 million of work at a significantly lower margin than the job was earning it created this paper loss, which will all feedback and it goes in the final analysis, we made more money on on the <unk>.
<unk>, we didn't lose.
But if you understand percentage of completion accounting it actually have that dramatic an impact on the quarter. So brand, it's going to be on a pro rata basis really over as the based on volume. So it's not really based on time, but it will be over as Ron says the rest of this year in the next couple of years as the volume on that project.
<unk> continues to be recognized in earnings.
Yep Yep Okay.
And then on the cash flow side, I mean, great to see the progress and you sound really confident about the rest of the year I guess looking for any context, I think you said second quarter should be even better from an operating cash perspective, I mean, what.
What could we potentially see play out here for the rest of the year.
Any particular large ticket resolutions that sort of drive that confidence.
Talked about a number of very large ticket resolutions, but it's hard to pinpoint the second quarter versus the third quarter, we've got large arbitrations and litigations and Mediations and negotiations.
Probably eight or 10 of them that amount to a very significant amount of money and I hate to isolate and by quarter, but it's through the balance of the year.
We just think.
<unk> said it since last year, we think 2022 and 'twenty three we will have a sect significant impact on reducing our costs in excess account and the collection of all of our cash other people currently hold.
And one other thing related to that Brent is we have a little bit of visibility into the second quarter already because we're five weeks into the quarter and some of the resolutions that we had.
Agreed to previously.
Actually the cash has come in already in the first quarter excuse me, the second quarter or will be coming in because its scheduled so.
Well, Ron saying is true we could have significant additional cash amounts maybe second quarter third fourth quarter, but we do see some things that have already manifested themselves in the second quarter and are scheduled for the second quarter.
Yes got it answered my next question I appreciate that just last one any update on the plans for the cash Gen.
<unk> expect to generate year over.
Of course of the year.
When we when we accumulate $5 million to $600 million of cash through resolved, we will discuss it with our board, but there is no.
No commitment as to what we're going to do.
Obviously, we'll reduce debt with some part of it that there is no question of.
I am not supportive of a stock repurchase however, we've discussed dividends at some point, but our primary focus is this intense commitment to resolve all of these disputes and get our Cie that account from $1 billion down to where it ought to be in the three to 500.
<unk> million dollars collect that cash and then Thats a decision we will have to make it then as we continue to earn as well as collect that cash will obviously reduce debt as we paid off our convertible bonds will reduce our debt.
And then last but of some discussion has been potential dividends.
But thats a good year away before we finalize anything.
If I could just add this on stock buybacks right now the question might be why in the world. When you buy back stock at the at the low price that it is but when we collect these hundreds of millions of dollars that we're talking about the stock price better not be where it currently is and we would expect the stock price to rise substantially and then.
Buyback makes even less sense, then well not only that we are undergoing what we think is going to be a huge surge in new work and new contracts and I don't want to spend the money, although it might be advantageous to buy it back at these ridiculous prices I think the money is best committed.
Major new program with a significant increase in backlog and lead to reserve the money for the performance of the work.
Because we're looking at billions of dollars worth of work to bid.
And it would not be inconceivable to almost double our backlog by the end of the year and that that will require that cash to be utilized.
So.
That's kind of where we are with cash we just like to see it accumulate for awhile tasted feel it let it hang around before it goes back out the door.
Okay very good appreciate it very helpful.
Our next question is from Steven Fisher with UBS. Please proceed.
Thanks, Good afternoon, and congratulations on the cash collections.
So since sure.
Since you it sounds like you do assume.
In your full year guidance was <unk> 42 loss it looks like you're assuming about $1 eight years, so at the midpoint.
For Q2 to Q4 can you just maybe help us with.
What's the cadence of that is that sort of now normal seasonality or are there different kind of reserves that you talked about that might be coming in.
We're out at different times in normal construction seasonality.
Steve as we would normally see the seasonality.
It does have an impact on us and so we would be as the year progresses building earnings. So I think youll see strength as the as year progresses with with the.
The back end of the year more heavily weighted.
Okay, but with the end with the fourth quarter, then be a bit lower than that.
In the third quarter, so build in the second and third and then down a bit in the fourth or you think you could build sequentially.
We're thinking.
Look.
The fourth quarter should be up but if you look at us historically, sometimes the fourth quarter is down a little bit from the third quarter, sometimes it's the other way around so almost a coin flip out we'll be but we're looking this year for the fourth quarter to be stronger than the third quarter.
Okay, and Gary I think you made a comment about timing of revenue growth.
Turn to it could you repeat which quarter you think that will occur and what has to happen for that to happen at that time.
Yes, what I was saying is by the end of the year. So look at the fourth quarter and then on into next year I think for it to happen. This year will need to get some of the work. The large work that Ron has spoken of earlier.
We will say the Mega work. There is also a lot of other projects that are not in the $1 billion range that will support that and a lot of those projects were very well positioned for and some of those are quicker burning so.
It's really getting our fair share of the work getting it quickly and that should.
The sooner we get it the sooner we're going to see that materialize. So I would say no earlier than the fourth quarter, but certainly in 2023, we should see it.
Okay, I guess, maybe just to follow up on Alex's question.
Are you still are you need some of these big bookings that you have bid now to hit the guidance for this year or you think you have pretty much all of that in.
In backlog already.
Maybe plus or minus some smaller work here and there.
Not all in backlog in fact win in our industry. When we when all of this put together our plans there is a certain amount of let's call it stretch that.
Stretched with respect to earnings that occurs based on bookings during the year. So there is as we are in the beginning part of the year.
There is a greater chance that things that we we would record in this part of the year, we will have an impact on the year.
So there is an element of that but it's not a disproportionate element it's.
It's an amount based on history that we think is achievable.
Okay, and then just lastly, yeah. It does thanks, and then just lastly.
In terms of.
How to think about segment margins may be focused on specialty and.
And civil how should we think about those for the rest of the year.
Civil will continue to be strong.
I expect civil will continue to hold its margins at the high levels, we have been.
Building business will be consistent at those same two and a half two and three quarter percent margins.
We obviously have struggled struggles in our New York specialty business.
Our western electrical and mechanicals or not a problem, but we have had.
Continuing issues in New York with both WDM mechanical and five Star electric.
And there is no short term solution.
We're in hopes or I'm in hopes.
There'll be turned around but I don't know that this year, we will turn them around.
So they continue to struggle, they're a drag on earnings not significant where they where we should be making $30 million a year in that specialty group were making 10.
And there is no more changes that I can make other than for them to execute.
And they've been hurt substantially by material Escalations.
And supply line deliveries much more so than us as a general contractor.
But there is still no excuse for the failure to perform.
And I just continue to have hopes that they'll turn it around and get back to where they should be in the same marketplace of limited competition. They have those same benefits. So they haven't had that opportunity as we have in the last two years have been bread and butter smaller.
Work, but they will also participate in these huge civil jobs with us and hopefully their share will deliver for them as ours will for us, but they obviously continue to be a struggle and there is no two ways about it.
Yes, I mean just go.
Go ahead, Gerry Steve I was just going to say on.
Civil margins just one added note there.
Two projects that we've talked about the adverse legal decision and then also the successful negotiated change order.
Situations those two projects are both civil and if you normalize the results in other words, if you ignore the impact on the quarter, we actually had improved margins slightly improved margins in the first quarter of this year. Then we had the first quarter of last year. So that's a good trend and we would expect to build on that.
Margin margin percentage as the year progresses, as we did last year.
Okay, Yeah, I was thinking about 30 basis points better year over year are you expecting a loss in.
Should we be modeling a loss in specialty in the second quarter.
We hope not.
Yes, that's not what that's not what we have in the budget now.
Okay. Thanks very much.
No.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Mr. Ronald tutor for any closing remarks.
Thank you everyone. Once again, our quarterly call has done we look forward to the next one.
Okay.
Yes.
Thank you. This concludes today's conference. Thank you for your participation participation you may now disconnect.