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Edited Transcript of TPC earnings conference call or presentation 23-Feb-17 10:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Tutor Perini Corp Earnings Call

SYLMAR Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Tutor Perini Corp earnings conference call or presentation Thursday, February 23, 2017 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jorge Casado

Tutor Perini Corporation - VP, IR & Corporation Communications

* Ronald Tutor

Tutor Perini Corporation - Chairman, CEO

* Gary Smalley

Tutor Perini Corporation - EVP, CFO

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Conference Call Participants

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* Steven Fisher

UBS - Analyst

* Alex Rygiel

FBR & Co. - Analyst

* Sean Eastman

KeyBanc Capital Markets - Analyst

* Rob Norfleet

Alembic Global Advisors - Analyst

* Brent Thielman

D.A. Davidson - Analyst

* Cleve Rueckert

UBS - 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 Fourth Quarter and Fiscal Year 2016 Earnings Conference Call. My name is Manny, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will be opening the call for a question-and-answer session.

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, IR & Corporation Communications [2]

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Good afternoon, everyone, and thank you for joining us today. With us on the call are Ronald Tutor, Chairman and CEO; and Gary Smalley, Executive Vice President and CFO. Before we discuss our results, I will remind everyone that during today's call we will be making forward-looking statements which reflect our current analysis 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 is being filed today, 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 required by law.

With that, I will turn the call over to our Chairman and CEO, Ronald Tutor.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [3]

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Thank you, Jorge. Good afternoon, and thank you for joining us. We had a good year operationally in 2016, and certainly better than 2015 where various factors negatively impacted our results across most of our segments.

By comparison, 2016 was a more normalized year with no significant project write-downs, and a return to more consistent profitability in both our Civil and Building segments, as well as improvement in our Specialty Contractors segment. Our results for 2016 were as expected, and our earnings per share results were within our original guidance at the beginning of the year.

In addition, we continue to focus intensely on reducing our unbilled costs, and of course the ensuing cash collections, and have generated the strongest operating cash in the last eight years. We believe that 2017 will again significantly reduce our unbilled costs, which of course will generate the cash flow that follows. Gary will provide more details on our financial reports to follow.

We're already off to a great start in 2017, the most significant aspect of which is the $1.4 billion Los Angeles MTA Purple Line Section 2 Extension. Los Angeles MTA award is very significant for us. It represents the latest high-profile project for our Civil segment, and a major return to the LA subway system that we previously dominated for many years. We expect there will be continuing significant civil project awards to follow in the next several months, based on our bid opportunities and proposals currently with owners awaiting a decision.

In the Los Angeles MTA award, in addition we have been awarded over $104 million for our New York mechanical subsidiary, WDF; and an $80 million US Air Force contract for PMSI in Saudi Arabia. In addition, we have two $500 million proposals in the last stages of presentation with a decision coming in the next 30 days. And if that were not enough, we were low bidder on a $293 million subway job for the New York City Transit, right in the middle of where we're currently building DS179, CM06, and CM07 in the middle of East Side Access in New York City.

Over the past year, there has been a great deal of discussion for the critical need for significant infrastructure investment. And I would leave it that that critical need is obvious to all. And judging by the current amount of work we're bidding, it seems to be a flow unlike any I've seen. I've heard talk about deferring some of the new commitments. The only comment we can make is we bid two $500 million jobs today. We're waiting on answers on two other $500 million jobs from December. And there isn't a week goes by we're not bidding a major civil project somewhere in the United States.

So if our President and our Congress are going to significantly increase civil infrastructure, I really don't know what the answer is. Because right now over the last few months, we're operating at about the level of capacity that we have; capacity meaning estimating, of course, not awards. So clearly there is significant support for this spend. And given my previous statement, we are seeing an unprecedented volume of new civil opportunities that we are continuing to bid on literally at an accelerated pace across the country.

Our Civil segment made favorable progress during the fourth quarter on many large projects, including the East Side Access in New York, SR99 in Seattle, high-speed rail in California, and various and a sundry of other major projects. High-speed rail continues to make significant progress. Last year and this year we are ramped up to even significantly more revenue looking for a 2019 completion. SR99 in Seattle has experienced great progress in 2016, and we're pleased to confirm that we expect to hole through in the tunnel in March, which is a significant milestone for that project, with our concrete operations for the double-deck highway maintaining pace behind the tunnel-boring machine, which we expect concrete in the tunnel to be completed in October of 2017, with the completion of the project including commissioning taking place in the early part of 2018.

The Building segment experienced its tenth consecutive quarter of double-digit revenue growth, much of it coming from numerous projects in California, which continues to grow. Top revenue contributors in the fourth quarter, including that large we-all-know-who technology facility in Northern California, the Pechanga Resort and Casino in Southern California, the Panorama Tower in Miami, and various other major building facilities.

Significant progress has been made on the Panorama Tower in Miami, which we expect to top out the 82nd floor by the end of March, with an estimated November 2017 completion. Work on the platform at Hudson Yards continues to go well, with a completion scheduled at the end of 2017, and Tower D also at Hudson Yards scheduled for completion in early 2019.

The Specialty Contractors segment was busy with various projects in the fourth quarter. Major revenue contributors included Five Star Electric's work on the CS179 East Side Access Project, and the South Ferry Terminal Project, and Fisk Electric's work on the Transbay Transit Center in San Francisco. Demand remains extremely strong for our specialty electrical, mechanical, and shotcrete services; with particular emphasis on the explosive amount of work and demands in New York City.

During 2016, we received approximately $3.7 million of new awards and adjustments to existing contracts, mostly in the Civil and Building segments. These segments are expected to continue contributing the major share of our new awards in 2017. Our backlog at the end of 2016 was $6.2 billion, with more than two thirds of the backlog represented by higher-margin civil and specialty work. Beyond our existing backlog, the volume of prospective work and bidding activities continues at an unprecedented level, all of which supports our long-term outlook for continuing growth and increased profitability.

In the fourth quarter, the Civil segment had new awards and adjustments totaling $281 million, and ended with a 2016 backlog of $2.7 billion. Significant new awards included a $97 million airport terminal project at Guam International Airport, and $88 million for various bridge projects in the Midwest. We anticipate booking Frontier Kemper's share of a joint venture award set for March on a $145 million sanitary sewer tunnel in St. Louis, Missouri. This is in addition to the $1.4 billion Purple Line already awarded in January, and more than $1 billion of submitted bids, as I said earlier, ending decisions shortly including the South Capitol Street Bridge, the Canarsie Tunnel, and the Henry Hudson Bridge. I believe I stated earlier we were low bidder at $293 million on CQ33, a major project for New York City Transit, part of the East Side Access, where we already hold the a billion dollars in existing contracts with New York MTA.

The Civil segment's significant bidding prospects, as we go forward, would be the next phase of the Purple Line, on approximately $1.8 billion stations and tunnel job that should bid in the latter part of this year; the $1.5 billion Long Island Railroad third rail project in New York, which should bid this year; the $1 billion Baltimore and Potomac Tunnel Replacement Project; and the Portal Bridge Replacement in New Jersey.

The Building segment had new awards and adjustments totaling $289 million in the fourth quarter, and ended the year with a backlog of $2 billion. New awards and adjustments included $163 million for three Rudolph and Sletten projects in California; and $72 million for Metropica Tower 1 in Sunrise, Florida; the first of eight residential towers that are expected to be awarded as a part of that package.

The Building segment's significant bidding prospects include approximately $7 billion of opportunities in California, $3 billion more in South Florida, and several large projects in Las Vegas, Nevada, including two $1 billion hospitality and gaming projects, namely the Elan and Wynn Hotels; and the $1 billion Raider's Stadium project, as well as $1 billion-plus convention center and expansion.

The Specialty Contractors segment had new awards and adjustments totaling $207 million, and ended 2016 with a backlog of $1.6 billion. The Specialty Contractors' bidding opportunities continue to consist of various electrical, mechanical opportunities, mainly in New York and California, as they follow our increased growth as a part of our bid teams, as well as keeping up the existing work with our other customers.

We anticipate strong revenue growth in 2017, with particular emphasis on the Civil group that should have a favorable impact on our operating profit and margin in 2017. Based on our current backlog, including the significant new awards booked to date together with the volume of prospective opportunities we see, we look to 2017 as a very strong year, which is reflected in our 2017 guidance. Revenue is expected to be in excess of $5.5 billion, and diluted earnings per share is expected to be in the range of $2.10 to $2.40. Gary Smalley will provide the details regarding the assumption in our guidance, and with that, I turn the call over to Gary.

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Gary Smalley, Tutor Perini Corporation - EVP, CFO [4]

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Thank you, Ron. Good afternoon, everyone. I will start by discussing our results for the year, after which I will touch on the fourth quarter. I will then provide some comments on our balance sheet, cash flow, refinancing plans, and our 2017 guidance assumptions as Ron just mentioned.

Revenue for 2016 was $5 billion, up modestly compared to last year, and our highest annual revenue since 2009. The Civil segment's revenue was $1.7 billion, down 12% compared to last year, mainly due to prior year work completed on the JFK runway project and reduced activity in 2016 on the Hudson Yards platform. The decrease was partially offset by increased activity on various projects, including the SR99 project in Seattle and the California high-speed rail project.

Building segment revenue was $2.1 billion, up 15% compared to 2015. The increase was driven by increased activity on various commercial office, technology, health care, retail, and hospitality and gaming building projects in California. The Specialty Contractors segment revenue was $1.2 billion, and increased slightly compared to the prior year.

G&A for the year was $255 million, up 2% compared to 2015. The slight increase in 2016 was due to increased compensation expense attributable to improved financial results and the hiring of some key executives, partially offset by lower legal fees.

Our income from construction operations was $202 million, nearly double the $105 million reported last year, due to improved operating results in all segments. The prior year, as you may recall, was significantly impacted by adverse charges recorded in each segment. As Ron mentioned, we had no significant project write-downs in 2016.

Civil segment income from construction operations was $173 million, up 19% compared to 2015. Recall that in 2015 the segment recorded the Brightwater joint venture non-cash charge of about $24 million related to litigation that we inherited with an acquisition several years ago. Excluding that charge from 2015 results, the segment's 2016 income from construction operations was still up modestly compared to last year, in spite of the lower revenue in 2016. The Civil segment's operating margin was 10.3% in 2016, compared to 7.7% in 2015, reflecting its improved performance.

Building segment income from construction operations was $52 million, compared to a slight loss in 2015. The segment performed very well, and returned to normal profitability in 2016, following the 2015 loss that resulted from charges related to the completion of concrete placement work on the Tower C Project in New York. Building segment operating margin was 2.5% in 2016, compared to a slightly negative margin in 2015, also reflecting this segment's significantly better 2016 performance.

Specialty Contractors segment income from construction operations was $38 million, more than double the $16 million reported in 2015. This segment's 2015 operating income was hit hard by charges recorded for various Five Star Electric projects. The segment's operating margin was 3.1% in 2016, compared to 1.3% the year prior.

Other income for the year was $7 million, compared to $14 million in the prior year. Other income in 2015 included adjustments to decrease contingent earn-out liabilities related to business acquisitions in prior years.

Interest expense for the year was $60 million, compared to $45 million in 2015. About $9 million, or nearly two thirds of this increase was non-cash, which was primarily due to amortization associated with convertible notes that we issued in mid-2016, and two credit facility amendments in early 2016. Most of the rest of the year-over-year increase in interest expense was a result of higher borrowing costs from the first of two amendments to the credit facility in the early part of the year.

Our net income for 2016 was $96 million, more than double the $45 million reported in 2015. In addition, the impact of improved operating performance across all segments discussed earlier, we had a lower than expected tax rate for the year. The largest drivers of the lower tax rate were rate changes associated with the shift in revenue mix between states, deferred tax adjustments related to depreciation, and some return to the provision adjustments.

Our 2016 diluted earnings per share was $1.92 compared to $0.91 a year ago, and with the range of original guidance that we announced a year ago, as Ron mentioned earlier. The EPS impact of the tax benefit that I just mentioned was offset by expenses related to financing activities, including the two credit facility amendments that I just mentioned.

Now for the fourth quarter results, revenue for the quarter was $1.2 billion, up 4% compared to the fourth quarter of 2015. Civil segment revenue was $409 million, down 7% compared to the prior year fourth quarter, due mainly to reduced activity on the CM06 East Side Access Project, which is nearing completion. The follow-on contract CM07, which we were awarded in early 2016 is in initial stages and is expected to ramp up in 2017, which should backfill the continued CM06 reduction.

Building segment revenue was $536 million, up 12% compared to the same quarter last year, predominantly due to the increased activity mentioned earlier on various building projects in California. Specialty Contractors segment revenue was $302 million, up 7% compared to the fourth quarter of 2015, mostly due to increased activity on various electrical projects in New York.

Our fourth quarter G&A was $66 million, up 28% compared to the prior year fourth quarter. The increased G&A expense in 2016 was due to higher performance-based compensation expense related to improved results for the year.

Fourth quarter operating income was $52 million, compared to $15 million for the same quarter in 2015, which resulted in consolidated operating margin of 4.2% for the quarter compared to 1.3% for the fourth quarter of 2015.

Fourth quarter segment operating margins were 10.7%, 2.3%, and 4% for the Civil, Building, and Specialty Contractors segments, respectively, each significantly higher than the respective prior-year fourth quarter margins. Other income in the fourth quarter was $2 million compared to $7 million in the prior year fourth quarter.

Interest expense for the fourth quarter was $15 million, $4 million of which was non-cash, compared to $11 million for the same quarter last year. Most of this increase was non-cash and due to the 2016 refinancing efforts that I mentioned previously.

Net income for the fourth quarter was $30 million compared to $9 million for the fourth quarter of 2015, due to improved operating performance in all segments, and the favorable tax benefit mentioned earlier. Our fourth quarter diluted EPS was $0.60 compared to $0.18 a year ago.

Let's shift gears now, and talk about our balance sheet and operating cash. Our project working capital grew 8% in 2016, primarily due to an increase in accounts receivable, resulting from normal billing activities including an expected increase in client retention. We reduced our unbilled costs, the costs in estimated earnings and excess billings on our balance sheet, by $73 million or 8% during the year, making good progress but not quite achieving our 2016 goal. However, it was the first time since 2010 that our unbilled costs declined year over year. We expect to make further progress in reducing our unbilled costs in the current year, as certain claims and unapproved change orders are getting closer to resolution. Our unbilled costs reduction target for 2017 is $200 million.

We generated $113 million of operating cash in 2016, our strongest operating cash since 2008, as Ron indicated earlier. Operating cash exceeded net income for the year, and we expect this will be the case again in 2017, as we remain highly focused on reducing our unbilled costs and collecting the cash that's owed to us.

Our total debt, as of December 31, 2016 was $760 million, compared to $818 million at the end of 2015. Following last fall's postponement of our senior notes offering due to deteriorated market conditions prior to the Presidential Election, we have continued to monitor the capital markets and are poised to restart a pursuit of a new notes offering at an opportune time in the near future.

We also expect to form a new bank group in the near term, and refinance our bank debt. We still have plenty of time to refinance both the senior notes and credit facilities, since neither mature until 2018. But our goal is to address both within the next few months.

Our leverage ratio for the fourth quarter of 2016 calculated over a trailing 12-month period was 2.79, well below our current bank covenant requirement of 3.25, and consistent with what we communicated last quarter that it would be less than 3.0 at year end.

Finally, let me speak for a moment about some of the assumptions in our 2017 guidance. We're expecting strong revenue growth in our Civil and Building segments, with modest growth anticipated in the Specialty Contractors segment. Civil segment and Building segment operating margins should be similar to what they were in 2016, and our expectation for Specialty Contractors' operating margin is, as always, in the 5% to 7% range.

We anticipate a tax rate of 40% in 2017. But this does not consider any possible positive impact that any federal tax reform could have on it. We're also assuming 51 million diluted shares outstanding, interest expense of $57 million, and of this amount $17 million will be non-cash; capital expenditures of $15 million which excludes the potential purchase of new equipment for significant new project which would be paid for by the projects; and depreciation and amortization expense of $54 million.

Note that our projected interest expense in 2017 is down 5% from 2016, yet still includes a significant amount of non-cash amortization related to debt discounts and deferred financing fees. The planned refinancing of our bonds and credit facility should result in an interest expense reduction of approximately $10 million on an annual basis beginning in 2018.

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

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [5]

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Thanks, Gary. After delivering the positive results and operational improvement across our businesses in 2016, suffice it to say that we expect to deliver significant growth and increased profitability over the next period of years.

With all the talk of infrastructure spending and the fact we are experiencing an enormous demand for our services all over the country, we are more confident than ever that we will be able to deliver value to our customers and shareholders in 2017 and beyond. We're among the few companies with the experience, scale, resources, and capabilities to manage and deliver on these very large projects. And we expect to reap the rewards accordingly.

With that, I turn the call over to the Operator for the usual questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Steven Fisher, UBS

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Steven Fisher, UBS - Analyst [2]

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Thanks. Good afternoon. Just on the unbilled balances, you had been targeting getting that down to about $450 million by the end of 2017. Now it sounds like it's somewhere around $600 million to $650 million. What would you say is the biggest hurdle to really achieving the initial target that you had set? And how confident are we that you can achieve that additional $200 million reduction?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [3]

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Well, I'm confident in that some of our settlements have just been delayed. We have some litigations that being brought to a conclusion, because they try this summer. And most of our owners have a great deal of courage in holding our money. But when it comes down to trying the case, most of them settle on the courthouse steps. We feel that will be applicable to a significant number of them. And we just experienced some delays in frankly getting people to talk to us. But I think the $200 million that we targeted for 2017 is a number we should be able to achieve. And some of the other ones that have slid on us we're trying to put as much pressure as possible to bring them within that timeframe.

I think that's a minimum level. We hope to do better. But that's something we're comfortable with right now.

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Gary Smalley, Tutor Perini Corporation - EVP, CFO [4]

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And Steve, if I could add this, the $450 million goal still hasn't changed. In fact, we'd like to even improve upon that. It's just the timeline has slid out a little bit. But we still don't expect to stop after this year.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [5]

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No.

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Steven Fisher, UBS - Analyst [6]

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Okay. I guess maybe moving on to the refinancing, I know you had set a target last quarter to have it all done before you report first quarter earnings. I know, Gary, you had said now the next few months. So I mean are you trying to add a little more flexibility into the timeframe, or is that still a target by the time we report earnings next time?

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Gary Smalley, Tutor Perini Corporation - EVP, CFO [7]

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Yes, it's still the target, Steve. But we've maintained contact with our banks and some new banks. Those meetings will pick up in earnest now that the K is public and we can talk about the results publicly. Then on the bond side, the market still looks strong. So we say the next few months we'll probably go after it pretty hard in the short term. But that gives us some flexibility if we decide to do one or not the other, and we may do both. We may split them. So we think within the next few months should be enough time to do both.

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Steven Fisher, UBS - Analyst [8]

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Okay. Maybe one last one; the $5.5 billion of revenues plus would suggest an implied burn of at least 88% of your backlog ending year versus 67% in 2016. Is that because it's the Purple Line and other major projects that aren't in the yearend backlog are going to be ramping up quickly, or how should we think about that incremental burn rate?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [9]

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The answer is yes. Not only the Purple Line, but I expect that by the end of March, we should be awarded another billion dollars' worth of civil work. And the unprecedented basis upon which we are bidding, I think by the end of the first quarter, our backlog will be through the roof, all of which will start and begin to burn by the summer of this year. So I can't tell you how many jobs I'm reviewing weekly that-- since like today we bid two jobs, one at $300 million and one at $500 million in New York. We got one and came in third on the other.

Next week we go back again. Every week there's one or two major projects with no more than three to a maximum of four bidders. And now Guam continues to ramp up. So it's just-- we are basically in a position where we think we can get such a significant amount of backlog by this summer that it will support that level this year and significantly increase again next year.

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Steven Fisher, UBS - Analyst [10]

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Okay. Thanks. I'll turn it over.

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Operator [11]

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Alex Rygiel, FBR

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Alex Rygiel, FBR & Co. - Analyst [12]

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Thanks, and congratulations on a nice year. Ron, can you talk a little bit about how Tutor Perini can participate in President Trump's $1 trillion infrastructure plan and border wall, and then also address where the California Highway bill stands right now, and how Tutor could possibly participate in that?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [13]

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Well, we're one of the three or four certainly largest infrastructure and civil works companies in the United States. So to the extent this continued major infrastructure work goes forward, we'll certainly take as large a lead as anyone. As far as California Highway work, we've always been one of the largest contractors with the California DOT. So if that work presses forward, we'll take a significant role there. But I will define it more to where we are looking to tackle the very largest, complex projects. Because in truth, that's where the largest margins are and that's where our competition is much reduced.

So to the extent the jobs are significant and large in size, we'll participate with Cal Trans, with high-speed rail, and with the Los Angeles MTA as well as the New York MTA, the Port Authority; our two big focuses of work. Because both California and New York are going through the roof. And we are major players in both areas.

We continue to bid up and down the East Coast, as well as the West Coast. But the two biggest volume players right now are New York and California, both of which we're one of the significant leaders. We still have a major operation in the Midwest, in our London subsidiary, which puts $500 million a year in place of bridge work and highway work. So we think we're situated as well as anyone to take advantage of the increased amount of work, which common sense will dictate, it will increase margins along with the amount of work available.

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Gary Smalley, Tutor Perini Corporation - EVP, CFO [14]

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And then Alex, on your California-- the highway bill-- you know, it's really anyone's guess. It does have bipartisan support. So we think that certainly increases the chances of it going through, and probably makes it probable. We're looking at perhaps midyear this year, certainly by then we think would be a good target to expect.

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Alex Rygiel, FBR & Co. - Analyst [15]

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Very helpful. And then as it relates to this technology facility in California, when is that project expected to be completed? When will the Purple Line Extension start construction? And then could you also address sort of the high-rise demand down in South Florida these days?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [16]

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The LA MTA job, we expect to get a notice to proceed by the end of April. It will probably start with some degree of significance by September. The large office facility in the Bay area, we think will finish by the end of the year. And Florida right now, Florida is still busy. But I believe the peak has been hit. I think we'll continue to maintain our level of revenue, which in the Florida market is in the neighborhood of $300 million a year. We have three or four significant probable projects that we're trying to get closed by the summer. But I don't believe Florida's growth will continue to sustain itself as it frankly pulls back. It's developer-driven marketplace with a limited amount of public work, predominantly private work.

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Alex Rygiel, FBR & Co. - Analyst [17]

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Thank you, again.

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Operator [18]

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Sean Eastman, KeyBanc

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Sean Eastman, KeyBanc Capital Markets - Analyst [19]

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Hi, gentlemen. Thank you for taking my questions. I think it's great to hear the momentum on the infrastructure side. I just wanted to kind of drill down on the building side more so, and get a better understanding for what level of growth you're implying in 2017 guidance, and how that relates back to where backlog is these days. Just trying to get a sense for kind of what's already in backlog that's ramping up to contribute to that growth. And I guess more importantly, what you guys are expecting to book in the near term that's going to kind of support the back half of the year.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [20]

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Well, first the building business will continue to grow, because as we've stated previously, significant opportunities, our Rudolph and Sletten subsidiary continues to grow its backlog in California as we are between Nevada and California. But the significant part of our growth is in the civil business. And I talked about what we've already turned in and awaiting results. If we just look at what we've done already-- and it's February-- we're looking at $2 billion worth of awards or pending awards, with another billion pending that could be added by the end of March.

I just can't repeat enough that if you study the New York and California markets, there's a major project bidding every two weeks. And it's the same three or four of us are the only ones able to bid. So we think civil-- the only limits on our civil operation is our physical capabilities and the limit of our engineering talent. And that's what we base our revenue predictions around. So we think we're being conservative. I'm not terribly concerned about our ability to make either the revenue or the margins.

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Sean Eastman, KeyBanc Capital Markets - Analyst [21]

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Okay. That's great. So just it's good to hear that you're so confident around Civil, because it seems like those projects are bigger. They give you some more visibility. So you guys are looking for double-digit growth this year. I was just curious, based on this unprecedented level of prospects; do you expect your top line to accelerate from that low double-digit level in 2018-2019? Any thoughts on how you're thinking about the longer term trajectory would be helpful.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [22]

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I think it will go up even more for 2018 and potentially for 2019. I think we're just tasting the ramp-up, and it's enormous already. And from everything we're seeing, just Proposition M in Los Angeles will generate $3 billion of revenue per year without matching federal or state funds. We have dominated LA civil works for 40 years. With our new partnership with the LA MTA and our issues behind us, we expect to tackle that Proposition M funding with work all over MTA of size and consequence. So we're as optimistic, as we should be, given the flow of work that we're looking at.

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Sean Eastman, KeyBanc Capital Markets - Analyst [23]

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Okay, excellent. And just lastly from me and then I'll turn it over, just around the unbilled cost reductions; in the past you guys have talked about how there's some pretty substantial claims, individual claims that are driving some of those reduction efforts. And I was just wondering if you guys can provide any color around sort of timing of when those disputes will be resolved, just to give us some sort of predictability around cash flows through the year. That would be very helpful.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [24]

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Well, I'll give you just a few. First, we have won our Westgate Planet Hollywood lawsuit two years ago. It's a $21 million judgment with interest continuing to accrue at 9%. It's been orally put before the Supreme Court. There is no chance in hell that we're not going to win. Because it's a judicial judgment based on the facts, and their appeal to the Supreme Court was just a stall. And the fact is, it's got a bond to protect us. And there is no way that we won't get that decision in 2017.

We have two litigations that try this summer. One is with our beloved bank. And the other one is the LIE, Long Island Expressway in New York that I'm intimately familiar with. We are suing the state of New York for $50 million. I scuttled to settle with them four years ago. If they try that case, they've got a lot of guts, is all I can say to them. And we have a number of others like that, that we expect to settle. Because the judge is awaiting. And typically you can deny a contractor for years on end, but by the time you get in front of judge, you better have a good explanation.

Those are the major reasons why we think we'll be able to close many of those big unbilled, in particular, claims this year. That plus the fact we're putting tremendous pressure on our New York subsidiaries from which much of that upswing came up, and their respective owners. And we have been making inroads in our subcontracting subsidiaries and telling their owners and their general contractors we're no longer going to finance their change order work. If we don't get agreements on methods of payments, we won't go forward.

Out of the $200 million the Port Authority owed us on the World Trade Center, we've collected over $125 million. We expect to collect the balance. There's a number of others of those like that, where we're just taking the position that my dictates are you don't pay timely, we have to wait; we don't do business with you. We put a line through their name as an owner or as another contractor.

So we think these steps will generate the cash, and the worst case scenario is whatever we don't collect this year, we'll collect in 2018. Keeping mind that with our size, there's always going to be an unbilled receivable balance that's typical of our size. If nothing else, change orders in process and in progress is always going to be $150 million to $200 million even if they're entitled and we're asked to proceed with collections to follow. So it's just the nature of the beast. Ours got out of control with some specific lack of controls that have been implemented. And it's up to us to pull it back down to a reasonable range.

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Gary Smalley, Tutor Perini Corporation - EVP, CFO [25]

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Yes, just one note to add, Sean, some of-- Ron was mentioning some of the larger positions. Not every one of them are necessarily are costs in excess or unbilled costs, like Bank of America, the lawsuit that Ron mentioned there. There is no-- any exposure at all on the Company, and it's not an unbilled cost amount. But those are all, obviously, large cash items that could flow through 2017, as Ron was saying.

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Sean Eastman, KeyBanc Capital Markets - Analyst [26]

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Got it. Thanks for the detailed responses, guys; really appreciate it.

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Operator [27]

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Rob Norfleet, Alembic Global Advisors

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Rob Norfleet, Alembic Global Advisors - Analyst [28]

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Good afternoon, and again, congrats on a nice year. Just a quick questions initially for Gary. When you guys put out your guidance for 2017, the range of $2.10 to $2.40, I mean clearly the revenue number for the year seems pretty firm at $5.5 billion plus. So clearly to get the low end versus the high end, certainly would be some variation in margin. Can you just kind of give us some thoughts as to what the low end versus the high end looks like? Is it due to a project closeout in the civil area, or is it due to mix? Or just help me kind of understand the variation there.

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Gary Smalley, Tutor Perini Corporation - EVP, CFO [29]

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Yes. Really it depends on the success that we have with the new award activity or the proposal activity that Ron had mentioned, and how quickly we can book some of the awards, and then the success that we have in some of the pursuits that Ron had mentioned.

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Rob Norfleet, Alembic Global Advisors - Analyst [30]

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Okay. That's helpful. And I guess, Ron, one question I have-- I mean given the unprecedented activity that you're seeing, at what point do you guys become somewhat capacity constrained when you look at your labor pool, procurement, raw materials; whatever it may be? I mean at what point do you kind of hit some ceiling relative to the amount of work that you can actually put into backlog and feel comfortable that you can complete in a timely fashion?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [31]

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I think our backlog hits $10 billion, we've got to be very selective, and really limit our pursuits to the kind of work we have the specific people. Right now we've got a lot of capacity. I think our backlog currently is closing in on $8 billion. It hits $10 billion, which god willing and the market continuing to support it, then we're going to have to look very carefully at how much more we take, the margins, the locations, and the people we have available. Because I think up until that point, we're well in a position to manage and equip. And then we've just got to be more selective and measure risk and everything associated with it. In other words, we start to run out of gas, a little.

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Rob Norfleet, Alembic Global Advisors - Analyst [32]

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Great. That's helpful. And my last question just gets to the margins in Civil. Clearly we've been seeing an improvement there. If I go back over the last 5 to 8 years, I mean there have been some times when Civil margins have been in that kind of 12-13% range. And I know that's probably been aided by some project closeouts. But just in thinking structurally about as you guys continue to likely see record backlog growth and see the top line growing; is it fair to conclude that we could see margins back in those ranges? Or is there something structurally different today than there was 5 to 7 years ago?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [33]

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Well, I'll restate what I said earlier. With the extremely limited number of major contractors able to do billion-dollar-plus civil jobs, and now they're beginning to go a billion and a half and $2 billion almost as a routine. The pressure on margin is going nowhere but up. We all have limited capacities. So margin pressure is directly upward. I don't think there's any question that the entire industry is seeing such an enormity of work presented to it, whether it's a $100 million job, or a billion-dollar job; margins are up. And I think you'll see margins sustained at or higher than that 13% level that we made a couple of years ago.

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Rob Norfleet, Alembic Global Advisors - Analyst [34]

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Great. That's very helpful. Thank you.

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Operator [35]

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Brent Thielman, D.A. Davidson

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Brent Thielman, D.A. Davidson - Analyst [36]

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Yes. Thank you. Ron, we've been talking about this civil market for a while, and it sounds like things are starting to move along pretty quickly here since the end of the quarter. I guess I'm just curious what's triggered these agencies to speed up the decision-making process, and get these projects moving forward to award. Anything in particular?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [37]

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You know, I wish somebody would tell me. Because all we've been doing is complaining. We had to bid a $300 million and a $500 million job in New York, one at 2:00 and one at 2:30. And all we've been asking is, can you put a week between them. Can you put a day between them? And then we move right on to the next one. We probably have 50 people in civil work estimating, and I'm reviewing every major estimate, and all our heads are spinning.

So for whatever reason, there's no question in New York and California they're funded. They have the money and they're putting the work out. Particularly in New York, the pressure is so great on that subway system to build and extend. It seems that every day we turn around, there's a major project we're bidding.

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Brent Thielman, D.A. Davidson - Analyst [38]

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And are you seeing that [FastTech] money kind of showing up or is this different from that?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [39]

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I haven't seen it yet, not even.

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Brent Thielman, D.A. Davidson - Analyst [40]

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Okay. And then in terms of the revenue guidance, I mean it sounds like the civil business will be a big part of that 10% plus increase this year.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [41]

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Correct.

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Brent Thielman, D.A. Davidson - Analyst [42]

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Is getting to something well in excess of that $5.5 billion more dependent on when you're able to book and execute new buildings work, or more on how quickly you can kind of move this new civil work forward?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [43]

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It's really more on how quickly these civil awards can get into revenue. That's why I think that the $5.5 billion is reasonable for 2017. And if we continue to add to the backlog this year, where you'll see the big surge will be 2017 when it's all going full bore. And remember, there are all three and four-year jobs. The backlog builds up. 2018 will be bigger than 2017, and 2019 should be bigger than 2018. Because they're billion-dollar plus contracts with four-year durations. And they usually peak in revenue in years two and three, and tail off in year four. So that's the beauty of these very large mega projects, that and the fact limited competition.

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Brent Thielman, D.A. Davidson - Analyst [44]

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Okay, and then maybe just to tack onto that-- I mean just kind of given where you're picking up the work, I think in the past you've talked about LA. You sort of can work year round, and your New York, you're doing underground work. You can kind of work throughout the year. I mean are you picking up those sorts of jobs where you don't necessarily see that seasonality? Is that fair?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [45]

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That's very fair, particularly in New York, where we've got $2 billion of New York Subway work. And you start out on the ground, but all the work is under the streets, in the tunnels, in the stations. Like CM07 is a $650 million job, 200 feet below the street. So it can be snowing up top. We're working down below.

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Brent Thielman, D.A. Davidson - Analyst [46]

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Okay. That's great. Well, best of luck. Thank you.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [47]

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And LA used to be 12 months out of the year until it just started raining.

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Brent Thielman, D.A. Davidson - Analyst [48]

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Well, hopefully it will stop for you.

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Operator [49]

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Cleve Rueckert, UBS

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Cleve Rueckert, UBS - Analyst [50]

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Hey, guys. Thanks for getting me on. I know you said earnings would be back-end weighted. But the first quarter has sometimes been a source of volatility. I'm wondering if you can just give us a little bit of help. Do you expect Q1 earnings to be up year over year?

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [51]

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No. Q1 is winter. And it isn't very predictable.

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Gary Smalley, Tutor Perini Corporation - EVP, CFO [52]

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And keep in mind, we had a really strong Q1 last year, too, Cleve.

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Cleve Rueckert, UBS - Analyst [53]

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Right, yes. Okay, fair enough. Thank you very much.

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Operator [54]

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Thank you. I would now like to turn the conference back over to management for any closing remarks.

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Ronald Tutor, Tutor Perini Corporation - Chairman, CEO [55]

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We haven't got much more to add. Thank you, everyone, for your participation.

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Operator [56]

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Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.