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Edited Transcript of TPC earnings conference call or presentation 3-May-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Tutor Perini Corp Earnings Call

SYLMAR May 6, 2017 (Thomson StreetEvents) -- Edited Transcript of Tutor Perini Corp earnings conference call or presentation Wednesday, May 3, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gary G. Smalley

Tutor Perini Corporation - CFO, Principal Accounting Officer and EVP

* Jorge Casado

Tutor Perini Corporation - VP of IR & Corporate Communications

* Ronald N. Tutor

Tutor Perini Corporation - Chairman and CEO

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Conference Call Participants

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* Alexander John Rygiel

FBR Capital Markets & Co., Research Division - Co-Head of Diversified Industrials in Equity Research

* Brent Edward Thielman

D.A. Davidson & Co., Research Division - VP and Senior Research Analyst

* Robert F. Norfleet

Alembic Global Advisors - MD and Senior Analyst

* Robert Joseph Burleson

Canaccord Genuity Limited, Research Division - MD and Analyst

* Ryan Curtis Cassil

Seaport Global Securities LLC, Research Division - Director of Flow Control and Engineering and Construction and Senior Industrials Analyst

* Sean D. Eastman

KeyBanc Capital Markets Inc., Research Division - Associate

* Steven Fisher

UBS Investment Bank, Research Division - Executive Director and Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation First Quarter 2017 Earnings Conference Call. My name is Darren, and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. (Operator Instructions)

I will now turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

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Jorge Casado, Tutor Perini Corporation - VP of IR & Corporate Communications [2]

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Good afternoon, everyone, and thank you for joining us. With us on the call are Ronald Tutor, Chairman and CEO; and Gary Smalley, Executive Vice President and CFO.

Before we discuss our results, I will remind everyone that during today's call, we will be making forward-looking statements, which reflect our current assessment of existing trends and information.

There is an inherent risk that our actual results could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences, in our annual report on Form 10-K, which was filed on February 23, 2017.

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 turn the call over to our Chairman and CEO, Ronald Tutor.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [3]

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Thank you. Good afternoon, everyone, and thank you for joining us. We had a good first quarter, overall, with financial results that came in as expected. Gary will go over the financial details later in the call. We booked $2.1 billion of new awards and contract adjustments in the backlog, primarily the result of the $1.4 billion Los Angeles MTA Purple Line project that I spoke about in February. And in addition, as I also mentioned, we were awarded 3 mechanical contracts worth $104 million for WDF, our New York mechanical, and an $80 million contract for PMSI for a military facility in Saudi Arabia. At $2.1 billion, it was the highest level of new awards we have had in any quarter in almost 4 years, and nearly 3/4 of that amount was booked into our higher-margin Civil segment.

Furthermore, in April, we booked or were informed that we would be awarded contracts for 4 new Civil segments, totaling $774 million. Those include London construction's low bid on the I-74 Steel Twin Arch Bridge replacement in Iowa, the CQ33 East Side Access contract in New York City at $291 million, the Henry Hudson Bridge design-build in New York city at $82 million and the Maryland MD 4 Interchange at $78 million. If that were not enough, our good fortune continues to earlier in the week, we were a low bidder on 3 contracts in New York and New Jersey, that total to an additional $142 million.

Moving on, beyond all the anticipation about the Trump infrastructure plan and the passage last November of approximately $200 billion of new voter-approved funding, there has been another favorable recent development. In early April, the California legislature passed SB1 or the Road Repair and Accountability Act of 2017. This bill is expected to raise $52.4 billion over 10 years for critical road repairs and other important transportation projects by increasing the gas tax and adjusting it annually for inflation.

Prior to SB1, California state gas tax has not been raised in nearly 20 years. Governor Brown is expected to soon sign this bill into law, and we expect it will result in a number of new civil opportunities beginning in 2018 over the next decade. In March, Bloomberg published an interesting article titled The States Aren't Waiting for Trump to Seek Funds For Infrastructure. The article noted that 19 states in the District of Columbia have increased their gas taxes since 2013, and at least 15 other states are currently considering raising their own. The widespread interest in transportation revenue at the state levels through fuel tax and vehicle fee increases signals rather than waiting for the federal government to act, they are moving on their own to begin to rebuild the state's roads.

As an aside, I'm also optimistic that President Trump's recently announced plan to lower taxes could have a meaningful positive impact on our businesses since we currently have a very high federal tax effective rate.

Now let me talk about some projects that have kept our segments busy during the first quarter. Our Civil group was busy on various East Side Access projects in New York City. Work on these projects continue to grow for us as the CM007 and CS179 projects are ramping up, while others such as CM006 are winding down. The CM007, which is the completion of the Grand Central caverns and the CS179, which constitutes all new electrical and signal systems in the East Side Access tunnels are particularly large and in the early stages. And as previously mentioned, we were awarded in the second quarter the 291 CQ33 project, our latest East Side Access addition, and that project will start this year as well. On SR99 in Seattle, following more than a year of successful tunneling, we broke through in early April to complete the tunneling portion of the project, and we are currently breaking down the tunnel machine for its removal from the site.

We now only have the completion of the double-deck concrete highway work to complete within the tunnel, which we expect to finish by January of 2018 and other ancillary work to complete the tunnel portals and systems, with an ultimate completion and commissioning anticipated to occur in the third quarter 2018. The California High-Speed project also continues to contribute significantly as that project continues to grow very well for us. Working on the platform at Hudson Yard continues to go well with a projected completion in the fourth quarter.

The Building segment experienced revenue growth this quarter due to increased work in various projects in California and Florida. Our technology project in Northern California, Pechanga Resort, Panorama Tower in Miami and various in the sundry other projects on the eastern seaboard. Our work on the large technology facility in Northern California is expected to continue through the end of 2017, although it will begin to ramp down in the third quarter. The Panorama Tower in Miami topped out at 83 stories in April and it's expected to be completed in November as the tallest building in Florida.

Major revenue contributors in the first quarter for the Specialty Contractors segment included: Five Star Electric's work on the CS179 East Side Access project; Hudson Yards platform and Tower A electrical subcontracts; and our work on the South Ferry terminal complex are all in New York City; Fisk, of course, significant work has taken place on the Transbay Transit Center in San Francisco. Overall, revenue and income from the Specialty Contractors segment grew year-over-year, and operating performance at Five Star and WDF, in particular, improved considerably. The segment's overall operating margin was stronger and is now approaching the 5% to 7% target range, consistent with our expectation. Demand remains strong for our Specialty Contractors' work as were further reflected by the segment's revenue growth this quarter. Our total backlog at the end of the quarter was $7.2 billion, an increase of $1 billion compared with the prior quarter backlog as a result of $2.1 billion of new awards. The backlog composition at the end of the first quarter was 54% Civil, 24% Building and 22% Specialty. The 54% for Civil represents the highest percentage of Civil backlog we have ever recorded, and we expect that this percentage will further increase due to continuing new Civil awards that we have brought. The volume of perfected work and the bidding activity on Civil work continues at an extraordinary level. This volume, together with our solid backlog, should report our continued long-term outlook for growth and profitability.

The Civil segment booked new awards and adjustments totaling $1.5 billion in the first quarter and ended with a backlog of $3.9 billion. We're still awaiting a decision on the South Capitol Street project in Washington, D.C. and the Civil segment's current bidding products which includes several large endeavors, such as the $1.8 billion next section of the L.A. Metro Rail section 3, the $1.5 billion Long Island Railroad third track, the $1 billion Newark Airport Terminal A redevelopment, the $1 billion Baltimore and Potomac tunnel replacement, a $900 million Minnesota Light Rail project bidding this month and other significant civil jobs too numerous to continue to speak to.

The Building segment had new awards and adjustments totaling $266 million in the first quarter and ended with a backlog of $1.8 billion. The segment's most significant new award was the previously mentioned $80 million military facility in Saudi Arabia. And early in the second quarter, a joint venture led by disaster recovery company, IEM, was awarded a contract under the Restore Louisiana program for flood recovery construction services. Roy Anderson Corporation, one of our subsidiaries, is our equal partner on this team for the anticipated construction to be performed. The contract will be administered under the $1.3 billion federal flood recovery program for owners in the State of Louisiana.

The Building segment's large projects include approximately $7 billion of opportunities across California, including about $1.5 billion in the Greater Metropolitan region and $3 billion more in Las Vegas, focused on the convention center and the Wynn potential gaming project as well as others.

The Specialty Contractors segment booked new awards and adjustments that totaled $296 million in the quarter and ended with a backlog of $1.6 billion. There still remains a substantial amount of bidding opportunities for various electrical and mechanical projects, predominantly in New York, Texas, California and Florida, with those opportunities only increasing. Based on our current backlog, the recent and expected new awards in the second quarter and the marketable volume of opportunities, we're affirming our original guidance for 2017 with revenue of $5.5 billion and diluted earnings per share to be in the range of $2.10 to $2.40.

I will now turn the call over to Gary Smalley to review the details of our results.

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Gary G. Smalley, Tutor Perini Corporation - CFO, Principal Accounting Officer and EVP [4]

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Thank you, Ron, and good afternoon, everyone. As Ron mentioned, our first quarter results were good, in line with our expectations. I will detail the results shortly, and after that, I will provide some color on the recently financing we successfully completed a couple of weeks ago.

Revenue for the quarter was $1.1 billion, up 3% compared to the first quarter of 2016. Civil segment revenue was $305 million, down 9% compared to the prior year first quarter, due mainly to reduced activity on the CM006 project in New York and the platform and Amtrak tunnel projects at Hudson Yards in New York that are all nearing completion as well as various bridge projects in the Midwest that are also nearing completion or are substantially complete. Increased activity on other projects in New York, such as CM007 and CS179 that Ron just were mentioned ramping up as well as the California High-Speed Rail project and the SR99 project on the West Coast helped to offset the revenue decline for the segment. Building segment revenue was $497 million, up 6% compared to the same quarter last year, predominantly driven by increased activity on certain commercial office and hospitality and gaming projects, partially offset by the impact of decreased activity on the biotechnology project and the courthouse project, all in California. The Specialty Contractors segment revenue was $316 million, up 12% compared to the first quarter of 2016, mostly due to increased activity on various mechanical projects in New York and various electrical projects in New York, California and Texas.

Our first quarter G&A expense was $66 million, essentially level when compared to the prior year first quarter. First quarter operating income was $37 million compared to $40 million in the same quarter in 2016. Higher-than-expected rainfall in California during this year's first quarter slowed the progress on certain Civil and Building segment projects, resulting in a negative impact to operating income of approximately $4 million for the quarter, which we expect will be made up later in the year. First quarter segment operating margins were 10.5% for Civil, 1.1% for Building and 4.7% for the Specialty Contractors segment. Civil segment margin was 50 basis points higher than last year's first quarter margin due to overall strong project execution. Building segment margin was lower this quarter compared to the first quarter of 2016 due primarily to favorable closeout adjustments in the first quarter of last year on 2 projects in New York. The Specialty Contractors segment margin increased significantly compared to the first quarter of last year, due primarily to improved performance of Five Star and WDF in New York and increased activity at Fisk and certain electrical projects in California and Texas. We are pleased to see Specialty's operating margin approach the 5% to 7% range that we expect.

Other income in the first quarter was about $400,000 compared to $700,000 in the prior year first quarter. Interest expense for the first quarter was $16 million, of which $4 million was noncash, compared to $14 million of which less than $2 million was noncash for the same quarter last year. So the increase this year's first quarter was entirely noncash and related to the convertible notes offering in June of last year. Net income for the first quarter was $14 million compared to $15 million for the first quarter of 2016. This reduction was due to the relative impact of certain Civil and Building projects in New York and in the Midwest that are nearing completion or are substantially complete and the timing of new projects that are now ramping up. The decrease was partially offset by increased activity on certain Civil projects on the West Coast and the impact of a more favorable effective tax rate in the first quarter of 2017. The favorable tax rate this quarter primarily resulted from share-based compensation tax benefit associated with the recently adopted accounting standard and depreciation of our share price from the time of grant until vesting. Our first quarter diluted EPS was $0.27 compared to $0.31 in the first quarter of last year. The rainy weather in California that I mentioned earlier negatively impacted net income by about $2.5 million and EPS by approximately $0.05.

Let's shift gears and discuss our balance sheet and operating cash. Our project working capital grew 7% sequentially in the first quarter of 2017, primarily due to a decrease in accounts payables and also a decrease in billings in excess of cost that resulted from reduced subcontractor payables related to the timing of when payments were due and decreases in over-billings related to multiple projects, mainly in New York. Our unbilled cost increased slightly in the first quarter. The progress that we made during the quarter in resolving some of the unbilled cost issues was offset by increases on a handful of the previously existing unbilled cost positions, as additional costs were spent as the projects moved to completion. There were no new unbilled cost positions in the first quarter. We expect continued progress toward reducing our total unbilled cost this year, and we remain on track to achieve our goal of reducing unbilled cost by at least $200 million in 2017 as other claims and unapproved change orders are also getting closer to resolution.

We used $33 million of operating cash in the first quarter of 2017 compared to $16 million of operating cash generated in the same quarter last year. The variance reflects the timing of the payment of certain payables and also incentive compensation, partially offset by improved cash collections in the first quarter of 2017. We expect to generate strong operating cash throughout the remainder of 2017 and still anticipate that operating cash will exceed net income for the year. We remain highly focused on reducing our unbilled cost and collecting cash. In fact, we disclosed in our recently filed proxy statement that we've added and operating cash performance metric to be used with other metrics for their measurement of our annual bonuses beginning this year. This new metric was implemented to better align management's incentives with performance drivers of the company and the importance of the company and the board -- and importance that the company and the board place on cash generation. Our total debt as of March 31, 2017, was $781 million compared to $760 million as of December 31, 2016. Our leverage ratio for the first quarter of 2016 calculated over a trailing 12-month period was 2.81, well below the current bank covenant requirements of 4 under our new credit facility. You may recall that during our last earnings call in February, we spoke of our intent to complete a comprehensive refinancing of our senior notes, term loan and revolving credit facility. We closed on our new refinancing 2 weeks ago when issued $500 million of senior notes due in 2025, with a coupon of 6 7/8%. And concurrent with the issuance of the new senior notes, we formed a new bank group and entered into a new $350 million revolving credit facility. We used proceeds of the combined transaction to repurchase and redeem our previous senior notes totaling $300 million to pay off a term loan, pay off the balance on our previous $300 million revolving credit facility and, of course, to pay transaction-related fees and expenses. The previous $300 million of senior notes had a coupon of 7 5/8% and were repayable in November of 2018, so we were able to extend the maturity of the debt and secure additional capital on more favorable terms due to strong market demand on improved operating results over the past year or so and our positive growth outlook.

The new revolver also affords us more favorable terms than our former credit facility, including modestly lower interest rates and availability of up to an additional $150 million of capacity in the form of the expanded revolver or the establishment in one or more term loans if needed and if we so desire. Increased liquidity that resulted from the refinancing will help fund any working capital needs for the significant number of project opportunities that we see over the next several years, especially in Civil segment. We expect an interest rate improvement of approximately 25 to 50 basis points on balances under our new revolver compared to the rates we are paying under our previous revolver.

Finally, I want to update you as to changes in our guidance-related assumptions since our last earnings call in February. As a result of our recent refinancing, interest expense for 2017 is now expected to be $62 million. Of the $62 million projected, $18 million will be noncash. Refinancing should result in the interest expense reduction of approximately $9 million beginning in 2018. And lastly, now that Bertha has completed the tunnel drive for the SR99 project up in Seattle, we have updated our forecast for depreciation and amortization expense, which is now projected to be $50 million for 2017.

With that, Ron, I'll turn the call back over to you.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [5]

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Thanks, Gary. While this quarter's results were good, I expect that we will deliver even better results as we progress through the remainder of the year. Considering our strong current backlog, the pace and volume of bids, low bids and awards, our expectations are substantially increased, given the long-term funding that has been delivered that our company's future, particularly in the area of Civil work, is positive in the strength of where we go from here. I believe all of these factors will deliver the kind of results that our customers and the shareholders will appreciate.

With that, I'll turn the call over to the operator for the usual questions and answers. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Alex Rygiel with FBR.

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Alexander John Rygiel, FBR Capital Markets & Co., Research Division - Co-Head of Diversified Industrials in Equity Research [2]

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Ron, you had very, very strong new awards in the first quarter as well, that's continued into April. Relative to that, what is your relative comfort in guidance? And can you talk about some of the variables that influence results at the high end of your guidance versus the low end?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [3]

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Boy, that is a tough question. Well, unfortunately, there are so many variables. Right now, evidenced by the call, I'm very strong on our guidance, I feel very confident as we continue to be awarded job after job. It's a remarkable time in our industry. I got called, and I think it was either Monday or Tuesday of this week, and we were a low bidder on a $108 million job in New Jersey and 2 cost-plus time and material mechanical jobs of $21 million each, right on the heels of the week earlier $323 Million bridge in Iowa, and we're just buried in work to bid. I'm very optimistic, but our business is such I've gotten used to not counting my chickens before they hatch. So let's say we are as confident as we can be. However, I'll have a much better handle on it by the end of the second quarter. There's a number of very large jobs bidding and pending right now as we speak. Over just the next 60 to 90 days that could have an impact on this year, and as we ramp up our really big work like high-speed rail and we complete the tunnel in Seattle, all of that could play into it, and I feel like we'll have a much better handle and look at the guidance again after second quarter results.

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Alexander John Rygiel, FBR Capital Markets & Co., Research Division - Co-Head of Diversified Industrials in Equity Research [4]

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And as it relates to some of the opportunities in Las Vegas, what does the time line of those opportunities look like?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [5]

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I'd say the biggest part of what we're looking at that could have an impact on this year would probably be in place by the end of July. There's 2 or 3 very significant jobs and happenstances. There's even a major change order pending in one of the subsidiaries. I'd say the next 3 months to 3.5 months, we'll get arms around it. Anything much beyond that will have an impact, but it'll be more in 2018 and beyond.

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Operator [6]

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Our next question comes from Steven Fisher of UBS.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [7]

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Congratulations on the refinancing. I know it's going to be in the Q, but can you just give us a breakdown of the $840 million of cost in excess of billings, just so we can see what the moving parts were there from quarter-to-quarter?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [8]

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Sure. Yes, Steven. It is in the Q, as you mentioned, it's going to be at footnote 4. And the claims portion of it declined to $464 million, unproved change orders are $250 million and the other unbilled costs and profits are at $126 million.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [9]

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Okay. How do you expect the -- thanks, Gary. How do you expect the cash flow and the $200 million, at least $200 million in cost and excess reductions to ramp over the course of the year? I mean, is this going to be very back-end-weighted or kind of spread across the next few quarters? What do you think is going to drive it?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [10]

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Well, we just settled in April, a $20 million litigation with the federal government. We settled another one for $9 million back in the Central Artery. So we continue to settle. We settled a New York transit authority claim. Every month, we settle, and we've got a couple of big litigations to try in June and July, and typically, our owners who have always the courage to deny us but never the courage to try the case. Typically, those would seem to resolve themselves either early in the process or on the courthouse steps. Either way, those should adjudicate, and circumstances will drive the majority of that $200 million this year. And we believe that, that balance of it will be just ongoing discussions. God bless us. We hope our owners see the light. That, in a concerted effort to reduce this theory that our owners write us directives to do extra work for them, assure us payment, but it really comes down to when they get good and ready to pay us. And sometimes, that lag is 1 year to 15 months. It's just unacceptable. We're literally doing everything within our power to force that time frame down because we don't think we're a bank designed to carry the debts of our public agencies or our private owners. So it's having an effect, but it's just a slow and difficult road. I still feel we'll get to that $200 million this year, but it's more backloaded because it's all tied to the resolve of either litigations or the litigations and their trial dates forcing a conclusion.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [11]

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That's helpful, Ron. And then just trying to understand the trend in receivables and payable outside of the cost in excess of billings. I mean, it seems like for the last several quarters, we've seen the receivables go up and the payables go down. And I'm wondering, is that a function of just the conditions that we have in the marketplace today for the terms and conditions that need to be baked into contracts? Or what's -- why is that trend continuing?

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Gary G. Smalley, Tutor Perini Corporation - CFO, Principal Accounting Officer and EVP [12]

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Yes. So Steven, on that, the receivables for this quarter were pretty much flat. But what we've seen, over time, with the receivables is just normal billing activity, but also there's a component of retention in there. So, for example, as I mentioned, the receivables were flat for the quarter compared to the end of last year, but at the same time, we had -- our retention receivables went up about $25 million. So those are also in the normal course in receivables that you collect toward the end of the project as you get to a substantial completion or other milestones. So there's nothing unusual in the receivables and payables. It's just a fluctuation of timing. Sometimes, the payables, the due dates fall such that we have to pay before the end of the quarter, and other, times it's right after the end of the quarter, so sometimes you see some fluctuation there, but nothing unusual in either one of those line items.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [13]

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Okay. And then, in terms of the actual business, just curious what your expectation is for revenues and profits in the billing business this year on a year-over-year basis. It's still growing in the first quarter, although the 6% was a bit of a slowdown, and the backlog was down significantly. Is the Building business -- have you baked into your expectations Building business growing revenues and profits this year? Or is that going to be down and more than made up for with the strength of the Civil business.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [14]

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No, we've baked in a flat year from last year in the Building business into our projections. I think that we will equal last year, but it will be dependent on some of the very large jobs that we're currently proposing on and whether or not we're successful. I've always said, the Building business is a part of who we are. We continue to take a large role in it, but it will always be what it is: very limited profitability, never be a significant part of our profit and all we can hope to do is maintain some level of growth in both earnings and revenue and try to make it pay for itself so I don't look in the mirror and ask myself why we're in the Building business.

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Operator [15]

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Our next question comes from Brent Thielman of D. A. Davidson.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - VP and Senior Research Analyst [16]

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On the Specialty contracting, really nice jump in margin, proper contribution this quarter. Does that have anything to do with mix and pricing or kind of your own internal initiatives? And can you build on these levels through the rest of the year?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [17]

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I think we continue -- as I discussed pricing of everything we did in all our subsidiaries, I think there's really an increase in margin in virtually everything, even our Building business. It may sound trivial, but we pushed margins up 0.5%. And in our Civil business, significantly because we never bid anything where there's a lot of competition. So oftentimes, we're bidding against ourselves and we simply have raised the margins. The Specialty business, without a question, we've significantly raised the margins because of all the obvious issues where more margin as well as restrictions and controls are the answer. So there's no question. There is a balanced increase in margins across all our units, and we've raised everything and continue to hold and raise.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - VP and Senior Research Analyst [18]

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Okay. And on the Building side, Ron, I heard you mentioned some of the prospect out there in California and Las Vegas. Just curious if you're seeing any meaningful bid opportunities in the New York market.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [19]

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Well, we're not actively pursuing anything in the New York market right now. We are one of the 3 shortlisted for the Newark terminal. It's a design build, low-bid type opportunity. Once again, it's 3 of us, just like there was on LaGuardia, and it's $1 billion design build. We think that falls right into our comfort zone, and it's hard [money] , which is what we like in the Building business and very rarely get. So that is going to be bidding, I think, in the third quarter, and we look forward to that as an opportunity, and it's the Newark Airport literally across the bridge from New York City. That's only -- that's the only project we're currently pursuing in New York State or thereabouts in the Building business. Most of our focus is out West or in South Florida.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - VP and Senior Research Analyst [20]

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Okay. And then just lastly, you guys have finalized your debt offerings kind of right around the same time as California transportation legislation got approved. Question is, with what you've done here in April, with the refinancing and given the optimism about all the workout there, does that still give you the flexibility you want to go out and participate in those projects that come from that legislation as well?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [21]

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Absolutely. I was very supportive of increasing our bond line from $300 million to $500 million and extending it out 8 years because I think the next 5 to 8 years are going to be the strongest this industry has ever dreamt, and we wanted to be in a position to take full advantage. And that meant increasing our working capital, having less reliance on our banks even though we had a very strong bank group reform for $350 million revolver, we like the way this refinancing positioned us because we think we're going to be looking at growth, and we think the industry will virtually demand that we grow, and we wanted our financial ducks in a row before it took place.

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Gary G. Smalley, Tutor Perini Corporation - CFO, Principal Accounting Officer and EVP [22]

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And keep in mind also that we're going to be collecting cash on these on builds, and that going to only add to liquidity going forward.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [23]

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Correct.

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Operator [24]

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(Operator Instructions) Our next question comes from Ryan Cassil with Seaport Global.

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Ryan Curtis Cassil, Seaport Global Securities LLC, Research Division - Director of Flow Control and Engineering and Construction and Senior Industrials Analyst [25]

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I was wondering if talking about the SB 1 bill, the incremental $54 billion opportunity over 10 years, I was wondering if you've sort of taken a look at what that opportunity or tried to quantify that $54 billion, how much of that is applicable to Tutor Perini? I get the sense that a lot of that is geared towards road and repair works, specifically smaller project jobs. So I just wondered what your take is on that, or if you guys are trying to quantify it in any way.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [26]

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I think my take is only a fraction of it will be applicable to what we like, if I had to hazard a guess, maybe 10% to 20%. The rest of it will be repaving, road repair, bridge repairs, the kinds of things we won't pursue. But it's business into the industry, and it all absorbs capacity. And there will always be a few major projects involved in it. We think it's good for the industry, but we don't see it having a big impact on us unlike Proposition M, which we think will have a huge impact on us.

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Ryan Curtis Cassil, Seaport Global Securities LLC, Research Division - Director of Flow Control and Engineering and Construction and Senior Industrials Analyst [27]

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Okay, great. That's helpful. And you touched on sort of the award cadence a little bit, but I wanted to flesh it out a little further. You've seen a lot of larger awards early this year, sort of similar to last year. And then just due to timing, things sort of flattened out a little bit. Do you expect that could happen here in the second quarter? Or is this a better environment where you might see more steady potential award flow on some of these larger opportunities?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [28]

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Well, I'm wearing down bidding work. We have just an incredible array of bids going on every day. No sooner that we ink the $323 million Iowa Bridge, London is right back in here with a review on a $900 million light rail job in Minneapolis, we get $1.5 billion light rail in New York to Long Island, there is just a constant stream of major work that's guiding our estimatings group nationally, working 6, 7 days a week. So there's no shortage of major work bidding all the way through the end of the year. It will be just, frankly, how big a share of it we can get. And so far, this year, as you can see, we've been blessed with yet more than our share. Whether we can continue at this rate, I don't know.

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Gary G. Smalley, Tutor Perini Corporation - CFO, Principal Accounting Officer and EVP [29]

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Brian, also keep in mind that in Ron's comments, you talked about the $774 million that we've already been awarded or been identified as a low bidder in the second quarter, so that's on top of the very solid first quarter. And then Ron just mentioned the $108 million and the $221 million mechanical project. So if there's a slowdown coming, we don't really see it. It's definitely not going to happen in the second quarter.

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Operator [30]

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Our next question comes from Sean Eastman of KeyBanc Capital Markets.

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Sean D. Eastman, KeyBanc Capital Markets Inc., Research Division - Associate [31]

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So most of my questions have been answered, but another one I had was just, you guys are talking about having -- being at full capacity with your cost estimating on the Civil side. Things seem to be coming along really well. I'm just wondering kind of what you're seeing on the pricing side. Have you guys started to change the way you bid, increasing your margins? Any kind of thoughts on pricing and competition here would be helpful.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [32]

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I don't think there's any question on the Civil side. We've increased our margins over, let's say, last year. I think everybody in the industry that can add 1 plus 1 and get to 2 has figured out there's going to be more work than they're going to be able to handle, and I think it's reflected in the gradual increasing of margin. We also are looking at the type of work, and where and what we bid. So it's very -- it's like any other marketplace. When the demand exceeds the supply, it's a pricing delight, and that's where the Civil market is right now, so it's very strong and will continue to be for some time unless we all witness some dramatic turnaround from what we're being lead to believe. And forget about what we're being led to believe, the actual fact is America is inundated with infrastructure bidding right now as we speak before any of the new administration's work even hit us.

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Sean D. Eastman, KeyBanc Capital Markets Inc., Research Division - Associate [33]

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Yes. I guess, along those lines, what would you say is already reflected in the market, and what is yet to hit? Obviously, we've had the FAST Act. We've had the L.A. bill, we've had, I guess, Washington, several notable funding measures passed. Are those all kind of reflected in the work you're bidding now? Or is there some sort of acceleration still left over from what's already been legislated?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [34]

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Well, so you understand that Prop M of $120 billion tied to the increase of sales tax here. Same thing at Sound Transit in Seattle. That only happened the last fourth quarter of 2016. None of that work has hit the market, none of it will and probably until the fourth quarter this year or first quarter next year. Everything we're talking about has got nothing to do with any of these latest developments. That's just what's in the existing ramped-up pipeline. When those hit, just Prop M in L.A. County, which is our headquarters, I think will bury as in work before the U.S. government even gets around their trillion dollars of new work.

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Sean D. Eastman, KeyBanc Capital Markets Inc., Research Division - Associate [35]

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Fair enough. Good answer. And then lastly for me, just guess more near-term looking at this year, I guess we're expecting the Civil segment revenues to start to approach kind of flattish, closer to flattish this quarter. I recall you guys saying that you're looking for double-digit revenue growth in Civil for this year to hit guidance. So if you could just discuss maybe how the trajectory is going to look for Civil over the next few quarters and maybe what are the real key projects that are going to be ramping up and helping you guys inflect during the year.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [36]

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I think we did that in our presentation earlier, but I'll give you the ones I -- our High-Speed Rail will ramp up dramatically in revenue cost and margin this year because first quarter rained most of the first quarter, and we were unable to build what we expected. Our CM007, which is a $670 million transit job, the completion against central just ramped up, and it's underground and beginning to peak as we speak. The platform job is in the final stages on an accelerated completion this year, so that will produce significant revenues. I think we'll see it. And then every time we're a low bidder and add another civil job as we have, all of that, particularly in the first and second quarter, will go into this year's revenues. So I think we'll meet our expectations in Civil revenue growth and margin. And I think we're well on our way there. How much more will depend on the low bids and awards over the next 90 to 120 days.

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Operator [37]

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Our next question comes from Bobby Burleson of Canaccord.

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Robert Joseph Burleson, Canaccord Genuity Limited, Research Division - MD and Analyst [38]

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So just curious if -- it sounds like, obviously, everything is firing on all cylinders right now in terms of bidding activity. Is there a time when you think that Tutor needs to get more selective in what it bids on, in terms of how, maybe your capacity -- your contract capacity fills up, what's that level, so you're not maybe too tied up as pricing continues to go up for the industry, and you're talking about an unprecedented kind of upcycle that we're in here.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [39]

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That's actually a very, very astute question. It's something we talk about constantly. It's like keeping some of your powder dry as margins just continue to ramp up. And as I've said, we're one of the very few that can bid and deliver these multibillion-dollar design-build Civil jobs. I think that we're a number of projects away from reaching that point to where we may have the physical and financial capacity, but not the engineering and management to take on anymore. But I'd like to think we'll be smart enough to always hold something in reserve for that one very special project we're waiting on that has extraordinary opportunity. That and the fact we've got a number of solid partners that we can reciprocate, reverse management, let them take the lead with our support. So there's ways of dealing with it. However, you could not be more accurate in saying that if this business continues to ramp up, we do have our capacity constraints in people and management. And depending on what happens for the balance of the year, it'd be a nice place to be in by year-end.

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Robert Joseph Burleson, Canaccord Genuity Limited, Research Division - MD and Analyst [40]

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Okay. But it sounds like you don't have constraints in other areas, but I wonder if you look at the industry and where labor equipment or materials constraints might crop up, does that favor Tutor in any way?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [41]

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Well, we have a very strong labor force of craft people who work for us around the country. So, so far, I haven't had any reason to have concern about our ability to get all the craft people. We're a union contractor. We work primarily East Coast, West Coast and the Midwest, and we're union in most areas other than the deep South. And the fact that remains, I'm not concerned of our ability to get the labor. We're one of the country's largest equipment owners, so that isn't a concern. My concern is primarily all of the homegrown and educated and taught engineers and supervisors that we have in our organization. As you stretch our revenue and capacity, we can't manufacture them out of a copying machine. So as we go from $5 billion to $6 billion to $7 billion, and we look at growth over the next 5 years, and the industry demands on us could demand that we grow significantly. And the only way we can do that is, by one means or another, we've got to grow more management people. That's the biggest restriction. I don't think it's the American workforce, I don't think it's the manufacturing and materials. It will be our own people. These are very large complicated jobs that we excel at. They require very bright technically competent people. There's not as many as we'd like there to be, so a big pressure on us is training, teaching, recruiting. And if we run out of gas anywhere, it'll be in the amount of talented people. If we run out of talented people, we won't bid.

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Robert Joseph Burleson, Canaccord Genuity Limited, Research Division - MD and Analyst [42]

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Okay. Do you see any technology out there emerging that's kind of a force multiplier on these people that, ultimately, you can't, you mentioned, run off (inaudible) any technology that kind of leverages their capacity or expands their capacity to work?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [43]

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Honestly, I've been doing this since I got out of college, and I won't even tell you it's too many years ago. The difference in technology and the approach to the work is so insignificant. Most of our equipment is similar. It's gotten bigger. It cycles faster. We have better equipment today but not so much as to call it innovative. I think the means and methods are very similar, whether it's our tunnels, our bridges, our highways. The equipment has gotten more sophisticated. It's gotten more computer-driven. But honestly, it still comes back to men executing the work, and I can't say that technology has had a dramatic impact on the construction operations in the field. Now compared to the 60s and '17 -- 70s when everything was on an envelope, now we have sophisticated computer systems and software that tells us every day where we stand, budget versus estimate. We have controls in place that enable management to watch the performance and costs on every job in the country on a week-to-week basis. But when it comes down to executing the work in the field, whether it's a tunnel, a bridge or a building, we're pretty much building them very similar to how we did 50 years ago.

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Operator [44]

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Our next question comes from Rob Norfleet of Alembic Global Advisers.

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Robert F. Norfleet, Alembic Global Advisors - MD and Senior Analyst [45]

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Ron, just a quick question. So given that most of the civil work, obviously, is bid, is low-bid fixed price work, how do you feel about the -- how do you feel about project execution, going forward, as the labor force gets more constrained and backlog nears capacity? And I guess, really, what I'm trying to figure out is what kind of checks and balances are in place to assure that you guys are on budget and on time, just given that we've got so much work constantly coming into the backlog at this point?

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [46]

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I think we've got to be smarter than we've ever been because it's been so rare over the last period of years, that we're so overwhelmed with work that we run out of capacity. It's usually the opposite. I think one of the keys as we talk to our major regions, namely the East Coast and the West Coast, and we talk about every major job we keep a close finger on the labor market, the key materials, namely, cement and steel, and be certain it's available to us and -- but not only do we have the management people but access to the craft and the material. When the time comes, and I've been in shortages, really, more material shortages than labor shortages, that can be a very serious problem. And even though owners will give you time relief, they don't give you cost relief. So those are the areas we just -- we just got to be intelligent about it. And if that occurs, we obviously can't build anything if we can't get the materials. We're just going to have to stay ahead, be educated and keep our fingers on the availability of materials and labor.

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Operator [47]

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Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. Ronald Tutor for closing remarks.

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Ronald N. Tutor, Tutor Perini Corporation - Chairman and CEO [48]

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Thank you very much, everyone. Once again, we finished a quarter. See you next time.

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Operator [49]

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This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.