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Tutor Perini (TPC) Q2 2019 Earnings Call Transcript

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Tutor Perini (NYSE: TPC)
Q2 2019 Earnings Call
Aug 08, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation second-quarter 2019 earnings conference call. My name is Doug, and I'll be your coordinator for today. [Operator instructions] As a reminder, this conference call is being recorded for replay purposes. [Operator instructions] I would now like to turn the conference over to your host for today, Mr.

Jorge Casado, vice president of investor relations. Please proceed.

Jorge Casado -- Vice President of Investor Relations

Hello, everyone, and thank you for your participation today. Joining us on the call are Ronald Tutor, chairman and CEO; and Gary Smalley, executive vice president and CFO. Before we discuss our results, I'll remind everyone that during today's call, we will be making forward-looking statements, which reflect 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 most recent 10-K, which was filed on February 27, 2019. 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. In addition, during today's call, we will be discussing certain non-GAAP financial measures. The appropriate GAAP financial reconciliations are incorporated in our earnings release, which we issued earlier today and filed with the SEC, and which is also posted in the Investor Relations section of our website.


With that said, I will turn the call over to Ronald Tutor.

Ronald Tutor -- Chairman and Chief Executive Officer

Thanks, Jorge. Good afternoon, and thank you for joining us. As you saw in our earnings release, we were required to take a non-cash goodwill impairment charge in the second quarter triggered by sustained decrease in our stock price that has occurred since our first-quarter earnings release in May of this year. While the impairment is significant in size, it is not the result of our contract execution or in any way indicative of our business outlook.

I don't like having to deal with the impairment charge, but I'm as positive about the future of our business as I have ever been. We remain in an advantageous competitive position with the same strong market demand for our services as reflected in our significant new awards over the past year, our new record backlog and the extraordinary number of new project opportunities. I would reiterate that goodwill impairment charge was strictly driven by the dramatic downturn in our stock price. That impairment charge once again has no effect on our cash flows, our financial strength or our ability to execute our existing working backlog or compete for future opportunities.

Excluding the impairment job, our second-quarter results were negatively impacted by significant delays on certain projects, specifically those major one being owner-driven delays continuing on California High-Speed Rail and significant weather impacts, rain and wind, on the Newark Airport Terminal One in New Jersey, which have shifted the timing of revenue and profit contributions forward into the fourth quarter this year and into 2020. Despite various commitments rendered by high-speed rail over the last three years, our project has been severely delayed by the inability to deliver the right-of-way properties committed under the contract. Through negotiations, however, in the first six months of this year, we have been committed and been a part of discussions that now has the basic balance of right-of-ways turned over by the fourth quarter of 2019. Unfortunately, this defers approximately $250 million of revenue from 2019 to 2020 and '21.

The only positive associated with this development as we have just reached a very significant and equitable settlement of all our costs associated with these delays with an executed change order and the money to be paid shortly in the month of August. The Newark airport, although going very well, has experienced significant weather delays, which have delayed completion and current work by over three months over the last six months. Rain and winds have been significantly beyond the norm. Despite these issues, our overall execution in the civil and building groups remained strong and long-term outlook very positive.

Second-quarter results were also unfavorably impacted by very poor performance in our specialty contractors group. We expect significant improved contributions during the second half of this year and throughout next year given certain of the writedowns we took in the second quarter in specialty this year. As disclosed earlier this week, we are replacing the current president of our building group with Jean Abiassi, the former president and chief operating officer of Zachry Construction Corporation headquartered in San Antonio, Texas. Jean's early career was spent at Brown & Root followed by 16 years at the Kiewit Corporation, where he served in various senior management positions on major projects throughout the East Coast.

He left in 2002 to go to work for Zachry Corporation in Texas, rising to be its president and chief operating officer until -- in 2010 until his retirement this year. I got to know Jean in his role as a 25% partner on high-speed rail, believed him to be extraordinary. And upon his retirement from Zachry, we have come to terms with him taking over as president and CEO of both the specialty group and the building group. In taking over those two new -- those two groups, excuse me, Jean's initial focus will, of course, be on specialty contractors -- our specialty contractors to set about the beginning of improving their results and operations in a more consistent manner than the past has shown us.

We booked $116 million of new awards in the second quarter, and finished the quarter with a backlog of $11.4 billion, up 31% year over year and still at near-record levels, down only slightly compared to last quarter. Significant awards included subcontracts for Fisk Electric, Desert Mechanical, and Becho on our Purple Line three contract, whose subcontract awards amounted to $244 million on our $1.4 million contract. A technology campus tenant improvement project in Northern California for Rudolph and Sletten valued at more than $200 million and a wastewater treatment plant in Guam for Black Construction worth $122 million. Approximately 75% of our total backlog remains comprised of higher-margin specialty and civil work.

Strong market demand for our construction services continues as reflected by the significant number of large project opportunities across all segments. Accordingly, we believe our backlog should continue to grow this year as we pursue various large projects in it. Our backlog will generate continued strong revenue growth, improved operating margins particularly in specialty, and just generally increased earnings over the next years. I'm most encouraged that Black Construction is record -- is currently at a record backlog of $454 million.

This is the highest backlog they've had since I purchased them in 1995, and is almost twice their previously recorded high. The U.S. government, as we all know, has constantly committed sizable funds to Guam and is currently bidding over $1 billion per year in lump-sum opportunities in each of the next five years. All of which are scheduled or in the marketplace.

If that were not enough, as we continue to bid major work for the U.S. government, we have record backlog of work on the island of Diego Garcia in the Indian Ocean, where we are the only contractor of consequence. Overall, Black continues to experience a very strong growing volume of bid opportunities, all of which, with very strong margins and we believe will significantly increase their profitability starting this year into the years to come. At the end of this month, our civil group will be bidding the $400 million 8th Avenue Communications-Based Train Control project in New York City.

A project with a similar scope but large in value than the Culver line project we booked for the New York City Transit Authority in the first quarter. Other sizable upcoming civil bids include the $400 million Division 20 Portal Widening and Turnback project of the Los Angeles MTA, which bids in approximately 60 days. Three large projects for the L.A. including the $4-plus billion West Santa Ana Branch Transit Corridor; the $1.5 billion East San Fernando Valley Corridor, which both should bid in the first quarter of next year; and the Turnback Facility project.

In addition, we will be bidding the $3.5 billion Port Authority of New York Bus Depot, the $2 billion Brooklyn-Queens Expressway Triple Cantilever, and a $400 million Amtrak Tunnel phase 3, all in New York, as well as the $1.4 billion portal swing bridge replacement, and $450 million Raritan River Lift bridge both in New Jersey bidding in 2020. Last week, the building group submitted the pricing for a large P3 courthouse project in Miami with selection and award for that anticipated in October. The larger opportunities for Building Group includes three large healthcare projects in California with combined values totaling over $1.2 billion: Northstate University Hospital; Harbor-UCLA, Torrance; and Kaiser Roseville. The $350 million Los Angeles Civic Center Project in P3.

And finally, the $200 million government renovation building in New Jersey, bidding in September. Our specialty contractors group continues to experience strong demand amid limited industry capacity as they have been bidding and winning new projects at excellent margins as we speak. The specialty group has in their pipeline over $700 million worth of mechanical and electrical projects in New York, Texas, California and Florida over the balance of 2019. Next, I will discuss certain major projects that contributed to our second-quarter results.

In Los Angeles, work continues to progress very well on $1.4 billion Purple Line section two extension, as we advance the construction of the launch pit and the tunnel shaft in Century City. We expect to begin assembling the tunnel boring machines as they are two in number in November, anticipate tunneling starting in January. In Beverly Hills, we are continuing with the final utility relocations and preparing for start of station construction later this year, probably in September. British Columbia, Frontier-Kemper's work on the $273 million Kemano tunnel project continues to progress well.

In the Midwest, Lunda Construction is now under way with significant work on the $800 million Minneapolis Southwest Light Rail project, as well as continued progress on the $337 million I-74 bridge in Iowa. In the Northeast, our most active projects include the $190 million Canton Viaduct in Maryland; the $665 million CM07 project for New York City Transit; the $660 million CS79; and $380 million CQ33, again, for the New York Transit Authority as a part of the East Side access projects in New York City. And of course, the $1.4 billion Newark Airport Terminal in New Jersey. As I have highlighted previously, the Newark project is a typical example of the type of large complex projects that Tutor Perini is uniquely qualified to build as we are able to leverage and orchestrate resources from all three of our business segments, namely the building group, who manages the project; the civil group, who is to perform the earthwork, removal of concrete and demolition; and last, but not least, the specialty group, which holds the electrical contract, the $270 million, the mechanical contract at $92 million.

I would also note in July, we received a notice to proceed for the Purple Line two -- excuse me, the Purple Line three, $1.4 billion project, and we anticipate immediate and significant contributions from both Purple Line projects over the remainder of this year and, particularly, next year as project work increases. We still foresee a significant acceleration of activities over the remainder of this year into next year as many of our larger projects, which have been delayed in design of right-of-way procurement, finally get going those being Purple Line two and three; California High-Speed Rail in Newark as previously discussed; Minneapolis Light-Rail; and, of course, the $450 million Choctaw Casino & Resort in Oklahoma, which recently broke ground and immediately started significant construction. However, taking into consideration the second-quarter earnings shortfall, we have now determined that our full-year 2019 earnings per share, excluding, of course, the impact of the goodwill impairment, will be lower than we previously anticipated. So accordingly, we are revising our 2019 adjusted earnings per share guidance to a range of $1.60 to $1.80.

We have been watching with interest in near disbelief as our stock prices continue to tumble. It is abundantly clear to us that our investors may have lost some confidence in the company's ability to collect disputed amounts that are due us. So today, I'm going to provide more detailed insight than we have done before as to the progress we are making in resolving many of these items by summarizing anticipated dollars, timing in collections, including claims, open change orders, as well as overdue accounts receivables, many of which are tied up in the resolve of the unbilled receivables. Hopefully, this will reassure you, as our investors, that we are in fact making excellent strides in resolving many of these issues.

To start, in the last 45 days, we have settled five significant cases, which has enabled us or will enable us to reduce receivables, billed or unbilled, by in excess of $90 million and will result in collections of $125 million, most of which is in the third quarter. We are also in serious negotiations on nine individual issues totaling $257 million. We expect these negotiations to be concluded one at a time before the end of the first quarter in 2020, but we'll keep you informed of any significant results as they occur. With the negotiations there, of course, no certainty that the amounts offered will ultimately satisfy us.

However, I must state that in all nine cases, our entitlement to receive major additional amounts have been agreed to as a part of our willingness to negotiate and we are discussing money as owed. We remain confident that we must move that confidence to reality. We are also currently in arbitration or litigation at eight individual claims with booked amounts totaling $75 million, all of which will be concluded in trial or arbitration prior to March 31, 2020. Besides these cases, other cases with booked amounts totaling $543 million are expected to arbitrate or litigate to absolute completion between April 1, and December 31, 2020, with still other arbitrator litigating in 2021 and '22.

I might add just because we are in arbitration or litigation, does not mean we don't continue to talk to our owners, and hope they see the light of futility of their opposition. Over the last 20 years, by our account and review, we have gone to trial 41 times, meaning prepared for the start of trial with the trial date. Some of the cases settled on the courthouse steps, but of the many others that actually litigated, we won all, but two. These are the facts.

Our shareholders should understand this, but more importantly, our adversary should be aware of our record of litigation. As such, we remain confident that we will collect the moneys due us. In the meantime, we will continue to focus on the growth ahead of us that becomes more obvious by the day while, at the same time, never losing sight of the criticality of our unbilled collections. With that, I will turn the call over to Gary Smalley to present the details of our financial results.

Gary Smalley -- Executive Vice President and Chief Financial Officer

Thank you, Ron. Good afternoon, everyone. I will begin with a discussion of our results for the second quarter followed by some commentary on our balance sheet, cash flow and revised guidance assumptions. As Ron mentioned, and ironically, when you consider our near-record backlog level and the very strong demand for our services, we took a noncash goodwill impairment charge in the second quarter that was largely due to the drop in our stock price during the quarter.

Accordingly, I will discuss adjusted income or loss from construction operations, adjusted net income and adjusted EPS on a pre-impairment basis so users of our financials would be able to better compare the normal operating results of each segment between the two periods. As Jorge mentioned earlier, a reconciliation of these non-GAAP financial measures to the most nearly comparable GAAP measures is provided in the press release we issued today. Revenue for the second quarter was $1.1 billion, up slightly compared to revenue reported for the second quarter of last year, but negatively impacted, as Ron mentioned, by the delays we experienced on the California High-Speed Rail and Newark Airport projects. Civil segment revenue for the second quarter was $474 million, up 18% year over year, reflecting favorable impacts from several newer projects that are advancing and contributing meaningfully.

Revenue for the Building and specialty contractors segments was $428 million and $223 million, respectively, both lower compared to the second quarter of 2018 due to the timing of revenue burned for newer work. We anticipate larger, favorable project contributions for various projects that are in the early stages and are accelerating over the remainder of this year or next. Gross profit for the second quarter of 2019 was $101 million, down 15% compared to the second quarter of last year, with a corresponding gross margin of 9%. Our current-quarter results were unfavorably impacted by unfavorable performance in the specialty contractors segment and the delays on the High-Speed Rail and Newark Airport projects.

G&A for the quarter was $63 million, down slightly compared to last year, mainly due to lower compensation-related expenses. Our adjusted income from construction operations for the second quarter was $38 million, down 30%, compared to $55 million for the same quarter of last year. Civil segment adjusted income from construction operations for the second quarter was $46 million, down slightly compared to the same quarter of last year, principally due to a prior-year favorable adjustment for highway project, but partially offset by current-quarter contributions associated with revenue from various projects that are early in their life cycle. The segment's adjusted operating margin was just under 10% for the quarter, compared to 12.3% for the second quarter of last year.

We anticipate even stronger performance in the second half of this year and into next year as many of our newer, larger projects contribute more to the bottom line. Building segment adjusted income from construction operations was $10 million, compared to $13 million in last year's second quarter, mainly due to the absence of prior-year favorable closeout adjustments on certain projects in California and Texas, partially offset by increased volume on new projects in the current year. The Building segment's second-quarter adjusted operating margin was a respectable 2.3%, down 50 basis points compared to the second quarter of 2018. There are several large new building projects that were recently awarded, which we anticipate will contribute more favorably to our results and improve our adjusted operating margin over the rest of the year and in 2020.

Specialty contractors reported the second-quarter adjusted loss of $4 million from construction operations, compared to $7 million of operating income in the same quarter of last year. The loss was mainly driven by unfavorable adjustments on certain electrical and mechanical projects in New York that are nearing completion, none of which were individually material. We are not satisfied with the performance of the specialty contractors group this year, and we are focused on implementing the necessary changes and corrective measures that should lead to significant improvement. The addition of Jean Abiassi as the president and CEO of the specialty and building segments should help to stabilize and improve the inconsistent and disappointing performance that we have experienced with this group.

We still anticipate stronger contributions from the Specialty segment later this year and in 2020 as Five Star Electric and WDF increase activity on various new higher-margin projects in New York City. Despite the segment's recent underperformance, we are still targeting a longer-term operating margin range of 5% to 7% for the specialty contractors segment with a goal of achieving the lower end of this range in the second half of 2019. Interest expense for the second quarter of 2019 was $18 million, compared to $16 million in the same quarter of last year. The increase was primarily because of the higher-average revolver balance in interest rate during this year's second quarter compared to the prior-year period.

Excluding a one-time $50 million tax benefit on the impairment charge, our adjusted effective tax rate for the second quarter was 34.7%, compared to 30% for the same period of 2018. The higher rate in this year's second quarter primarily reflects the unfavorable impact of expired stock options for which the share-based compensation expense recognized in prior periods will not be deductible for income taxes. Adjusted net income attributable to Tutor Perini for the second quarter of 2019 was $9 million or $0.18 per diluted share, compared to $24.9 million or $0.49 per diluted share for the second quarter of last year. Next, I'll shift gears and discuss our balance sheet and operating cash.

We reduced our project working capital slightly in the second quarter compared to the first quarter, primarily because of an increase in accounts payable due to timing the vendor payments and an increase in billings in excess of costs or overbilling as we have been successful in continuing to advance bill our fixed-price projects. But the big story with respect to the balance sheet was a reduction in our cost in excess of billings or as we sometimes refer to as unbilled costs or unbilled receivables. Although the change was small, this is the first time in three years that we have had a quarterly decline in the unbilled. This trend is consistent with what Ron and I have been communicating in recent quarters, and that is we are at or near the apex in terms of the levels of unbilled cost.

And as Ron just outlined in some specificity, we expect more substantial reductions in unbilled during the second half of this year and into 2020, as we continue to focus our efforts on negotiating, litigating and settling the various claims and change orders. Of course, as unbilled are reduced, our operating cash will improve. We saw this a little bit in the second quarter with operating cash of $13 million, which was in line with our expectations. We indicated at the beginning of the year, our expectations for a much stronger cash generation in the second half of 2019.

We still believe that this will be the case and now have even more confidence that this will happen as we have more visibility into expected events in the third and fourth quarters. Our second-half cash flow performance should be nothing short of outstanding, and will be driven not only by the reduction in collection of unbilled, but also by the timing of substantial cash generation from our civil group's project execution activities. Although we still have some ground to make up, we still expect that we will finish the year with operating cash flow in excess of net income. Our total debt as of June 30, 2019, was $956 million, compared to $762 million at the end of 2018, reflecting an increase in our revolver balance that has supported our working capital needs year to date.

I would point out that our credit agreement, like that of other companies, allows for the carve-out of any goodwill impairment charges; therefore, the goodwill impairment charge did not impact our covenant calculations. As a result, we are well within the limits of and in compliance with our debt covenants for the second quarter. Earlier, Ron mentioned our revised adjusted EPS guidance for 2019. All the previous assumptions associated with our guidance remain the same with exception of the following: Our adjusted effective income tax rate for the year, excluding the impact of the impairment charge, is now expected to be 28% to 29%.

Interest expense for the year is now estimated at $67 million. Finally, noncontrolling interests are now expected to be $28 million to $30 million for the year. With that, Ron, I'll turn the call back over to you.

Ronald Tutor -- Chairman and Chief Executive Officer

Thank you, Gary. Despite the impairment charge, owner delays at high-speed rail, weather delays at Newark and a continued challenges in our specialty group, I'm still encouraged by our new record backlog and the way we are executing in our major contract work, with a volume of new opportunities ahead only adding to it. Our results can vary at times, which is always indicative of the construction industry. An industry that although it can be volatile, can still remain over long periods of time consistent.

The anticipated significant ramp-up in activity on several of our now large projects are imminent, understanding that oftentimes our largest design-build, which incidentally are five largest projects, are all design-build are contingent upon award of right-of-way turnover and design completion, which once we are awarded, almost guarantees everyone won't start with effective generation of costs and revenue for up to a year after award. To reiterate, our long-term outlook for revenue growth and increased earnings is as positive as ever, particularly, with the vast majority of our backlog represented by higher-margin civil projects of consequence, though limited number significant in contract value. In addition, as we previously discussed, there is no question that we are making the required progress in negotiating and settling claims; change order disputes; and frankly, collecting accounts receivable, our wonderful owners always managed to throw in with a dispute, so we're not only collecting disputed unbilled, we are collecting our accounts receivable balances with them. I continue to believe that as discussed earlier, by the end of next year, we will have collected and finalized a very significant level of our unbilled and reduce them accordingly generating a very sizable amount of operating cash.

With that, I turn the call over to the operator.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from the line of Steven Fisher with UBS. Please proceed with your question.

Steven Fisher -- UBS -- Analyst

Thanks. Good afternoon.

Ronald Tutor -- Chairman and Chief Executive Officer

Good afternoon.

Steven Fisher -- UBS -- Analyst

Hey, guys. I just want to start off clarifying, were the adjusted results that you reported only adjusted for the goodwill charges? Or were they -- or are you adjusting out anything else besides that?

Gary Smalley -- Executive Vice President and Chief Financial Officer

No, Steve. We only adjusted the goodwill, so everything else is reported as we normally would in accordance with GAAP and consistent on a comparative basis to prior quarters.

Steven Fisher -- UBS -- Analyst

OK. And could you just maybe remind me, did the stock price decline trigger the writedown? Or did it trigger a review of the goodwill? And then the review revealed that there needed to be a writedown based on the projected earnings and cash flow?

Gary Smalley -- Executive Vice President and Chief Financial Officer

Yeah. So the -- we do our annual impairment test on October 1 of every year. And in the interim, you look for triggering events that may indicate that you have to take a goodwill impairment charge. And the stock price was one of a few triggering events that we documented in our 10-Q, that eventually resulted in us doing a -- a look at the goodwill and it's fair value.

And that time, we determined on a reporting unit by reporting unit or segment basis that we had impairment in each of the reporting units. But you are right that the stock price itself triggers a review.

Steven Fisher -- UBS -- Analyst

OK. That's helpful. And then can you just -- I am focusing on Newark a little bit, how much did the weather impact that project? And which segments was that reflected in?

Ronald Tutor -- Chairman and Chief Executive Officer

That would be under the building and civil group because we have allocated the job 50% to the building group and 50% to the civil group under the New Rochelle office in New York. We basically deferred approximately $60 million of revenue and the associated margins from this first six months to the latter part of the year and the first quarter of next year. The rain and winds in New York have been incredible for the first six months of this year and really the last three months of last year, generating, what we have turned into the Port Authority as 93 days of excess weather delays, which means in excess of the norm, which, of course, delays revenue, delays cost and delays performance.

Gary Smalley -- Executive Vice President and Chief Financial Officer

And if I could add this, Steve, Ron and I, when we looked at the impact of the two projects, both Newark, as well as high-speed rail, just to give you a perspective of what the impact was for the quarter, we calculated an impact of about $0.24 for the quarter and about $0.37 year to date for those two projects. We don't want to get into project specifics, but just for the two, that's what the impacts are.

Steven Fisher -- UBS -- Analyst

OK. I mean is this -- as we think about Newark now, is this basically a profit adjustment going forward?

Ronald Tutor -- Chairman and Chief Executive Officer

Not at all.

Steven Fisher -- UBS -- Analyst

I think you now are going to make less money than you thought? Or is it just a timing issue?

Ronald Tutor -- Chairman and Chief Executive Officer

Just the timing. I would say that Newark is extremely profitable and remains as such. Unfortunately, with the rain, we could not perform the work and it shifted the revenue and costs as I said. The job is extremely profitable.

I personally manage it, and it just means a timing differential where work shifts forward into a future time date.

Steven Fisher -- UBS -- Analyst

OK. And then on high-speed rail, can you quantify what that settlement is going to look like?

Ronald Tutor -- Chairman and Chief Executive Officer

We just executed. I'd rather not tell you the specific dollars. All I can say is it was very significant, and you know the job is approaching $2 billion. And they have paid us all the costs of delay extending the contract to August of 2021.

Gary Smalley -- Executive Vice President and Chief Financial Officer

Yeah. Steve, the numbers that Ron covered before when he talked about the five settlements in the last 45 days, it was one of those. So...

Ronald Tutor -- Chairman and Chief Executive Officer

It was in that -- that number was 100 -- what I said earlier...

Gary Smalley -- Executive Vice President and Chief Financial Officer

Yeah. That's right. We're...

Ronald Tutor -- Chairman and Chief Executive Officer

Hold on, Steve.

Steven Fisher -- UBS -- Analyst

$90 million, $125 million mostly in Q3.

Ronald Tutor -- Chairman and Chief Executive Officer

Yeah. The $125 million, I alluded to, was the settled cash. And a significant part of that was our share. Remember, we're only a 50% partner.

But 50% of the settlement was in that $125 million and was a significant part of it.

Steven Fisher -- UBS -- Analyst

OK. Just my last question for turnovers. You need $1.53 to hit the midpoint. How much of that is in your backlog already? And what are the biggest things that have to happen to achieve it? And how Q4 weighted is it?

Ronald Tutor -- Chairman and Chief Executive Officer

It's slightly more weighted in Q4 than Q3; however, it's all in the backlog, none of it anticipates any new awards. And the only thing that could affect it as we go forward would be very severe weather, which traditionally we don't get until the latter part of December. So we believe that's an achievable level. And that's why when we reduced the earnings, we felt comfortable at this level.

Steven Fisher -- UBS -- Analyst

OK. Thanks a lot.

Operator

Our next question comes from the line of Bill Newby with D.A. Davidson. Please proceed with your quesiton.

Bill Newby -- D.A. Davidson -- Analyst

Good morning, guys. Thanks for taking my questions. Afternoon, I guess. Sorry.

Ron, on the -- you mentioned the -- you expect the right-of-ways to be completely handed over on the high-speed rail in December. I guess how confident are you that this is the last time you may have to push this project to the right? And Gary, how much...

Ronald Tutor -- Chairman and Chief Executive Officer

Well, Bill, what I said was September. And I spent all day on high-speed rail about three weeks ago, where they called a meeting and there were literally 40-plus of us there, half a dozen of our managers, including myself, our project executive, the principals of high-speed rail, the right-of-way attorneys, and they produced metrics of, if I remember, 51 individual delays that for the first time they put on paper. And we stopped bickering, and each one of those delays was analyzed and the responsibilities put on the paper. My memory serves me correctly, 48 of them were the responsibly of high-speed rail and they tried to say, three of them were ours, but I think we successfully argued that was nonsense.

Be that as it may, we agreed on time lines on each of those, and those timelines which for the life of me, I can't see how they could fail again, will start up on a major way by the end of September. And once that start-up goes full bore, we should get the job by Thanksgiving. Keeping in mind this is a contract that started at just under a $1 billion and currently is sitting, I believe, at over $1.6 billion with $500 million to $600 million more in current changes to resolve in various stages of negotiation as we speak. However, if you ask about all those changes, I put a policy into place, we do not start a change order without an agreed price, an entitled change order at an assurance of bank, the days of going forward with extra work and assuming we'll get paid when the contract permits is over.

In this case, it applies to all major work. And to high-speed rail's credit, they have agreed, we are negotiating these changes to conclusion and will not start the work until they are executed with the agreed amounts. So high-speed rail will be a successful contract. It will probably double in size from the initial award, but it will be delayed until the end of 2021, and has some potential for delays beyond that.

However, the magnitude of our contract has so accelerated, it should all be positive if we can just get to work as discussed a few weeks ago in September and October this year

Bill Newby -- D.A. Davidson -- Analyst

I appreciate the color, Ron. And then I guess on the specialty group, any more color on kind of what the difficulties are that business has encountered and changes you expect to be made by the new executive you put in place?

Ronald Tutor -- Chairman and Chief Executive Officer

Well, the new executive starts September 1, so the poor guy inherits the problems, but I don't think he will be able to accomplish anything. My take is it will take him three months, with me on his side, to understand every aspect of what's happening. And I believe that we've instituted what it takes to, shall we say, stabilize the specialty group. There's just no question that requires more management and potentially management changes within the group before we can get it to where we expect it to be.

Obviously, going where they should have earned $10 million in the quarter to losing what they did, they single-handedly wrecked our quarter. And all we can do is take them as they are and turn them around with whatever changes are necessary both above the group and within the group.

Bill Newby -- D.A. Davidson -- Analyst

Does the guy that -- build-in any contributions from that group for the remainder of the year? I guess what are the margin expectations for the rest of 2019?

Ronald Tutor -- Chairman and Chief Executive Officer

Limited. Limited.

Bill Newby -- D.A. Davidson -- Analyst

I appreciate the color, guys. I'll jump back in queue.

Operator

There are no further questions in the queue. I'd like to hand the call back over to Ron Tutor for closing remarks.

Ronald Tutor -- Chairman and Chief Executive Officer

Thank you. I really haven't got anything to add other than we're extremely disappointed in our stock performance. We have tried to outline why we remain confident in the collection of our receivables. I think the significant collections in the last 45 days with the cash hitting our coffers in the third quarter is just the beginning.

All of our issues that have emanated from five and six years ago, whether be it negotiation or flat litigation and trial dates are coming to the forefront. We just concluded a major negotiation with one of our most, shall we say, impacted owners in the Bay Area on a very large project, where the trends have completely reversed. We expect to get a major change, reducing the underbilling significantly. And all I can tell you in addition to the specifics I gave you today is, whether you accept it or not, the next nine months will significantly reduce our underbillings and significantly increase our cash.

Other than that, thank you for your patience.

Gary Smalley -- Executive Vice President and Chief Financial Officer

We'll talk to you next quarter. Thank you.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Jorge Casado -- Vice President of Investor Relations

Ronald Tutor -- Chairman and Chief Executive Officer

Gary Smalley -- Executive Vice President and Chief Financial Officer

Steven Fisher -- UBS -- Analyst

Bill Newby -- D.A. Davidson -- Analyst

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