Tutor Perini Corporation (NYSE:TPC) Q3 2023 Earnings Call Transcript
Tutor Perini Corporation (NYSE:TPC) Q3 2023 Earnings Call Transcript November 10, 2023
Operator: Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation Third Quarter 2023 Earnings Conference Call. My name is John, and I will be your coordinator for today. All participants are currently 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] And I will now turn the conference over to your host for today Mr. Jorge Casado, Vice President of Investor Relations. Thank you. Please proceed.
Jorge Casado: Hello, everyone, and thank you for joining us today. With us 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 this call we will be making forward-looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. You can find our disclosures about risk factors that could potentially contribute to such differences in our Form 10-Q, which we will be filing today, and in our most recent Form 10-K, which we filed on March 15, 2023. The company assumes no obligation to update forward-looking statements whether due to new information, future events or otherwise other than as required by law. Thank you and I will now turn the call over to Ronald Tutor.
Ronald Tutor: Thank you, Jorge, and thank you all for joining us. We delivered mixed results for the third quarter of 2023, with very strong cash generation and year-over-year backlog growth, but with challenged earnings due to a number of write-downs that resulted from the resolution of various disputed matters. We generated $103 million of operating cash in the quarter, bringing our year-to-date operating cash flow to $181 million, which is just $26 million short of the full-year record of $207 million that we achieved last year. Both our third quarter and year-to-date operating cash flows were the second-highest result for each respective period of any year since the 2008 merger between Tudor-Saliba and Perini Corporation.
Our consolidated revenue was level compared to the same quarter last year, with increased contributions from the building and civil segments offset by lower revenue in the specialty contractors segment due to certain projects in the Northeast that have been completed or are very nearly complete. We expect revenue growth in the fourth quarter compared to the fourth quarter of last year, with better revenue growth next year and even stronger growth in 2025, as we should be entering the construction phase of multiple large projects starting in 2024. We have made continuing and significant progress on various claims and dispute settlements and expect to continue resolving the balance of long-standing disputes, and collecting significant amounts of related cash over the next 12 months.
We expect there to be a very limited number of outstanding disputes at the end of 2024, all of which should be resolved in the first two quarters of 2025. Considering our near-record cash flow through the third quarter, as well as very strong collections thus far in the fourth quarter related to the resolution of disputed items, we are confident that our cash flow for 2023 will significantly exceed the record $207 million we generated last year. We are also optimistic that 2024 will even be a stronger year than 2023 in the resolve and generation of cash. We plan to use the excess cash generated between now and next spring to de-lever our balance sheet as part of a planned refinancing early next year. For the past several months, we have been closely monitoring the markets and discussing various strategic refinancing alternatives with our advisors and have developed a plan that we will soon embark upon and that we expect will result in a timely refinancing of our debt in light of the springing maturities.
We believe that the market concerns regarding those maturities and our ability to refinance have been a significant headwind in the valuations of both our equity and debt, so we look forward to concluding that refinancing to eliminate that valuation impediment. Our third quarter backlog was $10.6 billion steady compared to the second quarter of '23 and up 28% compared to the $8.4 billion for the same quarter last year. The strong year-over-year backlog growth was largely driven by our second quarter award of the $2.95 billion Brooklyn Jail progressive design-build project. The most significant other new awards and contract adjustments in the third quarter of 2023 include $115 million of additional funding for a health care project in California, $95 million and $81 million of additional funding for two different mass transit projects in California, the $47 million New Everglades National Park Visitor Center project in Florida, and a $42 million mining project in Virginia, as well as the Central District Wastewater Treatment Plant electrical in Florida, valued at more than $40 million.
From an earnings perspective, good contributions in the third quarter from our civil segment were offset by continuing challenges predominantly in our specialty contractors segment in New York. Gary will discuss these in a moment. Overall, we reported a consolidated pre-tax loss of $26 million and ended the third quarter with a loss of $0.71 per diluted share after adjusting for non-controlling interest. Our bidding pipeline continues to be very active and filled with various large project opportunities. We have been and will continue to be highly selective as to which owners and projects we pursue and execute as well as under what contractual terms. Our most significant opportunities include the pending Queens Jail facility, a progressive design-build project similar to Brooklyn, estimated to be in excess of $3 billion, for which we have already submitted our initial proposal and are awaiting an owner selection decision most probably in January.
Last week, we bid the $500 million RFK bridge retrofit and rehabilitation project in New York, and between now and the end of this year, we will bid four other projects, namely the billion-dollar Frederick Douglass Tunneling Project in Maryland, the $800 million Amtrak East River Tunnel Rehab Project in New York, a $200 million Long Slip Canal Rail Enhancement Project in New Jersey, and the $225 million MD4 at Suitland Park Interchange in Maryland. We expect decisions on these by the end of the year or in early '24. We are also anticipating a decision by either the end of this year or the first quarter next year on Frontier-Kemper's bid for the $500 million Great Lakes Tunnel Project. In addition, we are currently preparing to bid with ONG Industries, our Connecticut partner, the $500 million Amtrak Connecticut River Bridge replacement in January next year.
Other large near-term opportunities include the $1.5 billion Inglewood Automated People Mover Project in Southern California, the $2 billion Honolulu Rail Transit Project, which is still expected to bid in the spring of 2024. And as a reminder, we had originally bid in the low bidder back in 2020. And two sections of the Hudson River Tunnel Project, the $750 million Manhattan Tunnel in New York and the $500 million Palisades Tunnel in New Jersey. Finally, in the spring of 2024, we plan to propose on the $2.6 billion DTX Transbay Transit Center Project in San Francisco. Then in December, the $1.5 billion newer Air Train Design Build Project, which we were originally low bidder last year and was rejected as being over budget. And later next year, the $1.6 billion Amtrak Sawtooth Bridges replacement project in New Jersey.
As competition, as I've said time and again, has diminished, we're confident that we win our share of these projects and continue to grow our backlog substantially over the next 12 to 18 months. As you can tell from this bidding pipeline, there continues to be very strong demand for our services and we expect that demand to increase as incremental funding from the bipartisan infrastructure law continues to flow to our public owners over the next several years. We expect improved performance in the fourth quarter of 2023 and next year. We are still not providing new guidance for 2023, '24.
Gary Smalley: '23. For this year, we haven't provided.
Ronald Tutor: Oh, we are still not, excuse me, providing new guidance for 2023, but plan to provide our initial EPS for 2024 when we issue fourth quarter and full 2023 results. With that, I'll turn the call over to Gary Smalley to review the financial results.
Gary Smalley: Thank you, Ron, and good afternoon, everyone. I will begin with the discussion of results for the third quarter, including cash flow, followed by some commentary on our balance sheet, then some modeling assumptions. As Ron indicated, we generated a very strong $103 million of operating cash in the third quarter of 2023, and $181 million for the first nine months of 2023, both of which were the second best result for each respective period of any year since the 2008 merger and only trailing last year's operating cash performance for the equivalent periods. Our strong operating cash flow has been driven by overall solid collection activities, including collections related to various settlements, and dispute resolutions that we concluded earlier in the year.
Because of the favorable outlook for continued strong cash generation over the next several quarters, as Ron mentioned, much of it associated with expected further settlements, and dispute resolutions, we are confident that we will conclude this year, with significantly stronger operating cash flow, compared to the record $207 million that we reported last year, and we intend to use excess cash generated over the next several months, to leverage our balance sheet as part of a successful refinancing. In fact, our continued strong operating cash flow in the first part of the fourth quarter has allowed us to begin accumulating cash that we are earmarking for refinancing. We have, to date, set aside more than $70 million for this purpose, again, just from fourth quarter collections.
And we clear, this is incremental to any required annual excess cash flow prepayment related to our Term Loan B. We are focused on our debt maturities, and have been taking a holistic approach that considers a broad range of alternatives, leveraging both our management's and Board of Directors' experience in evaluating, our refinancing options. Soon we will begin the actual refinancing process. Revenue for the third quarter of 2023, was $1.06 billion level, compared to the same period in 2022. Civil segment revenue was $520 million, up modestly, compared to the third quarter of last year. Building segment revenue was $365 million, up 15%, primarily due to increased project execution activities on various projects in California with substantial scope of work remaining.
And Specialty Contractors' revenue segment revenue was $175 million, down 31% year-over-year, due in part to decreased activities on the electrical and mechanical components of a transportation project in the Northeast that is nearing completion. Overall, we reported a loss from construction operations of $13 million for the third quarter of 2023, compared to a $7 million loss from construction operations for the same quarter of last year. Our results for both periods were negatively impacted by net unfavorable adjustments on various projects, primarily due to changes in estimates resulting from negotiations, settlements, and legal judgments on certain disputed claims and unapproved change orders. The more recent negotiations and settlements have resulted, and will continue to result in additional operating cash in the fourth quarter, and future periods.
Building segment income from construction operations was $47 million, more than double, compared to $23 million reported in the third quarter of 2022. The increase was primarily, due to the absence of a couple of prior year unfavorable adjustments, as well as an improved project mix in the current year period, including contributions from higher volume, on a mass transit project in California. In addition, during the third quarter of 2023, we reached a settlement that impacted multiple components of a different mass transit project in California, which included the resolution of certain ongoing disputes and increased the expected profit from work to be performed in the future. The settlement resulted in an unfavorable non-cash adjustment of $23 million to one component of the project that is nearing completion, partially offset by a favorable adjustment of $9 million on another component of the project that, has substantial scope of work remaining.
As a result of the settlement, the net unfavorable impact to the period from these two adjustments is expected to be more than offset by the increased profit generation from future work on the project. This settlement should have a favorable impact on cash generation in future quarters as well. The Building segment reported essentially break-even income from construction operations, for the third quarter of both 2023 and 2022. The Specialty Contractor segment posted a construction operations of $38 million for the third quarter of 2023, compared to a loss of $12 million in the same quarter of last year. The change was principally due to the impact of $17 million of unfavorable non-cash adjustments related to changes in estimates on the electrical mechanical scope of the transportation project in the Northeast, due to changes in the expected recovery on certain unapproved change orders resulting from ongoing negotiations, as well as $9 million unfavorable adjustment that resulted from ongoing negotiations and an anticipated settlement on a completed mass transit project in California.
We are certainly disappointed with continued charges, we have had in the Specialty Contractors segment, but are anticipating improved performance in the fourth quarter as well as in 2024 from both the Specialty Contractors and Building segments. Corporate G&A expense for the third quarter of 2023 was $21 million, compared to $17 million for the same quarter of last year. Other income for the third quarter of 2023, was $3 million, compared to approximately $400,000 in the third quarter of 2022. Interest expense was $20 million, compared to $17 million for the same quarter of last year with the increase driven by higher borrowing rates this year on our revolver and the term loan B. Net loss attributable to Tutor Perini for - the third quarter of 2023 was $37 million or a loss of $0.71 per share, compared to a net loss attributable to Tutor Perini of $32 million or a loss of $0.63 per share in the third quarter of last year.
The underperformance in both periods is due to the reasons I mentioned earlier. As for our balance sheet, our net debt as of September 30, 2023 was $615 million down $84 million or 12%, compared to our net debt of $699 million at December 31, 2022. As of September 30, 2023, we are in compliance with the covenants under our credit agreement and we expect to continue to be in compliance in the future. Debt reduction remains our top near-term focus for the use of cash. As mentioned earlier, we expect continued significant cash collections. Much of will be associated with anticipated resolutions of various disputes and expect to use excess cash generated over the next several months to deleverage as part of a successful refinancing. Lastly, I will provide some updated assumptions for modeling purposes.
G&A expense for 2023 is now expected to be between $250 million and $255 million. Depreciation and amortization expense is now anticipated to be approximately $46 million in 2023, with depreciation at $44 million and amortization at $2 million. Interest expense is still expected, to be approximately $84 million of, which about $4 million will be non-cash. Our effective income tax rate for 2023 is now expected, to be approximately 35% to 40%. We now expect non-controlling interest to be between $40 and $45 million. We continue to forecast $52 million weighted average diluted shares outstanding for 2023. And lastly, our capital expenditures are now expected to be approximately $56 million for 2023.
Ronald Tutor: Thank you, Gary. To summarize the quarter, we had very strong operating cash flow and year-over-year backlog growth in the third quarter. But earnings were negatively impacted by certain charges, due to the resolution of disputed matters that, goes back as long as eight and nine years ago. We anticipate that our full year operating cash flow for 2023 will significantly exceed last year's record result as we continue, to resolve and settle disputed matters, and collect the substantial cash associated with those disputes. We believe strongly that our operating cash performance in 2024, will be significantly in excess of the record in 2023 as virtually all, but a handful of issues, claims, and disputes will be resolved in 2024.
Our backlog should grow significantly next year, as we are awaiting pending decisions, on major project bids already submitted, and our bidding pipeline remains very strong, with solid end market demand for numerous major projects. We anticipate improved performance in the fourth quarter, and significantly improved EPS next year and beyond. The reality is, between the pandemic and all the disputes, all the delays with association that accumulated the level of cost in excess are being resolved by the end of next year, and some 50-odd disputes in 2021 will be down to five or less in 2025. Thank you. And with that, I will turn the call over to the operator for any questions.
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