Tutor Perini Corporation (NYSE:TPC) Q1 2024 Earnings Call Transcript

Tutor Perini Corporation (NYSE:TPC) Q1 2024 Earnings Call Transcript April 25, 2024

Tutor Perini Corporation beats earnings expectations. Reported EPS is $0.3, expectations were $-0.17. Tutor Perini Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation First Quarter 2024 Earnings Conference Call. My name is Maria, and I'll 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] I will now turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Jorge Casado: Hello, everyone. And thank you for your interest and participation. With us today are Ronald Tutor, Chairman and CEO; Gary Smalley, President; and Ryan Soroka, Senior 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 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-K, which we filed on February 28, 2024, and in the Form 10-Q that we are filing today. 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: Thanks, Jorge. Good day and thank you for joining us. We delivered a very good first quarter result that exceeded our expectations and demonstrates that we are on track for double-digit revenue growth and a return to profitability in 2024, just as we had indicated on our earnings call last quarter. Our first quarter results featured 35% consolidated revenue growth, strong profitability with operating margins of 15% and 3.9% for our Civil and Building segments, respectively, and $0.30 of diluted earnings per share, which was especially strong given the typical seasonality of our business. Backlog grew 26% year-over-year and continues to be very healthy at $10 billion and, perhaps most impressively, very strong operating cash flow of $98 million for the quarter, the second highest operating cash flow result of any first quarter since the 2008 merger between Tutor-Saliba and Perini Corp.

Ryan will discuss all the financial details a bit later. Importantly, as previously announced, we recently completed a successful debt refinancing, which strengthened our balance sheet and will extend our debt maturities. We issued $400 million of new senior notes due in 2029, which, combined with $100 million of available cash on hand to reduce the prior note, they will be used to redeem the $500 million of senior notes due in 2025. In conjunction with our refinancing, we also amended our credit agreement, which will become effective upon the redemption of our existing senior notes, extending the maturity of our revolving credit facility by approximately two years. After we redeem our existing senior notes next week, we will have reduced our total debt by nearly $200 million since the end of last year and even more including the fourth quarter of 2023.

The continued reduction of debt will be our focus with the strong cash flow expected during the rest of 2024 and even 2025. We continue to make good progress on resolving various disputed matters in the first quarter, which contributed about half of the outstanding operating cash that we generated. We still expect to resolve most of the remaining legacy disputes and collect substantial amounts of associated cash this year, with a lesser amount of resolves expected to be finalized in 2025. The dispute resolution activity is expected to help drive operating cash flow for both 2024 and 2025, and we expect them to be as strong as 2023's record cash performance. As I mentioned, our first quarter backlog was $10 billion, up a solid 26% year-over-year.

The most significant new awards and contract adjustments in the first quarter include a $243 million healthcare project in California, the $73 million project -- Titan Hangar 3 project in Florida, $66 million of additional funding for several healthcare projects in California, $55 million for three U.S. Navy projects in Diego Garcia for Black Construction, and $52 million of additional funding for three mass transit projects in California. We still anticipate that our backlog will grow significantly later this year and in 2025, as we bid and win our share of the major volume of available project opportunities we have discussed in recent quarters, which are supported by the bipartisan infrastructure bill, as well as strong state and local funding.

Our most significant near-term prospects include the $550 million Raritan Bridge we were low bidder on previously, which is now rebidding in the next 60 days; the $6 billion dry dock project, the naval shipyard in the State of Washington, which I believe is going to be broken up into four to six projects less in magnitude, but able to be bid on separately; the multibillion dollar Manhattan jail facility; the $2 billion Honolulu rail transit project, for which we had bid again previously the low bidder to be rejected over lack of funding; the $1.8 billion South Jersey light rail Camden line in New Jersey; the $1.5 billion Newark AirTrain Replacement Project, again, another project we were previously low bidder that the owner was unable to award due to budget constraints.

That project is now bidding in August. The $1.2 billion Inglewood Transit connector project in Southern California bidding in June. The $800 million Kensico east view connection tunnel in New York, which is expected to bid by the end of June and the $500 million and $750 million Palisades and Manhattan tunnels in New Jersey and New York bidding this summer. We anticipate positive earnings for 2024, again, with significantly stronger earnings expected in 2025 and 2026. Based on our results to date this year, our assessment of the current market and business outlook, and to maintain adequate contingency in the event of unforeseen events, we are affirming our 2024 EPS guidance and still expect EPS to be in the range of $0.85 to $1.10. As in prior years, our earnings are expected to be weighted more heavily in the second half of the year due to the anticipated timing of large project activities as well as typical seasonality.

Thank you. And with that, I'll turn the call over to Ryan to view the financial results.

Ryan Soroka: Thank you, Ron. Good afternoon everyone. As Ron mentioned, we're off to a great start in 2024 with excellent first quarter results that exceeded our expectations. Our ongoing focus on dispute resolutions and cash generation helped us to achieve very strong operating cash flow of $98.3 million in the first quarter, the second highest first quarter result we have had since 2008. Approximately $50 million of this cash was associated with collections related to settlements and other dispute resolutions, and these resolutions collectively resulted in essentially no impact to earnings in the first quarter. We expect strong cash flows will continue to be enhanced this year and next year by the anticipated resolutions of various remaining disputes, and beyond that, our cash generation should remain solid, driven by increased project execution activities.

An aerial view of a cityscape showing a newly constructed bridge connecting two districts.

I'm pleased with our recently completed debt refinancing, which strengthened our balance sheet and will extend our debt maturities by enabling us to redeem $500 million of existing senior notes due in 2025 and replace them with $400 million of new senior notes due in 2029, and $100 million of cash that we've been accumulating. We also amended our credit agreement. And upon the upcoming redemption of our existing senior notes next week, the maturity of our revolving credit facility will be extended to 2027. It's also worth noting our new senior notes have two years of call protection. As Ron indicated, our near term focus will remain on reducing debt by paying down and eventually paying off our term loan B, which we are not restricted to prepaying.

Now let's discuss our P&L results. Revenue for the first quarter of 2024 was $1.05 billion, up 35% compared to $776 million for the same quarter last year. The strong growth was primarily driven by increased activities on the California High-Speed Rail project, the Brooklyn Jail project in New York and the LAX Airport Metro Connector Project in California. Civil segment revenue for the first quarter of 2024 was $472 million, up 35% compared to the first quarter last year, primarily due to some of the factors I just mentioned, as well as increased activities on Frontier-Kemper's Eagle Mountain gas pipeline project in British Columbia. Building segment revenue was $412 million, up 79% year-over-year, also driven by certain aforementioned factors and increased activities on a healthcare project in California.

The strong growth we had in the Civil and Building segment was partially offset by a 16% decline in the Specialty Contractors segment, with the specialty segment reporting revenue of $165 million for the first quarter of 2024. The segment's revenue decline was mainly due to reduced activities on an industrial facility project in Arizona and the electrical and mechanical components of a completed transportation project in the northeast. Income from construction operations was $49 million for the first quarter of 2024 compared to an $82 million loss for the same quarter last year. The significant improvement was largely due to the absence of certain prior-year unfavorable adjustments, as well as contributions related to the increased activities I mentioned on certain Civil and Building segment projects.

We had a couple of product adjustments that largely offset each other in the first quarter of 2024, but impacted margins for the Civil and Specialty Contractors segment, a favorable adjustment of $10 million on a Civil segment mass transit project in California related to a dispute resolution and associated expected cost savings, and an unfavorable adjustment of $12 million on a completed Specialty Contractors segment project in New York due to an arbitration ruling that provided us with only a partial award. Civil segment income from construction operations for the first quarter of 2024 was $71 million, up substantially compared to $18 million in the first quarter of last year. The Civil segment's corresponding operating margin was 15% for the first quarter of 2024, higher than our target margin range for that segment.

Building segment income from construction operations was $16 million, a significant improvement compared to the substantial loss of $70 million we recorded in the first quarter last year that had been largely attributable to an adverse legal ruling that quarter on a completed mixed use project in New York. Building segment operating margin was 3.9% in the first quarter of 2024, also nicely ahead of our target margin range for the segment. The Specialty Contractors segment posted a loss from construction operations of $18 million in the first quarter of 2024 compared to a loss of $12 million for the first quarter of last year, mostly due to the $12 million charge I mentioned this quarter, as well as an immaterial, unfavorable adjustment due to a settlement on a completed mass transit project in California.

We expect improved performance from the Specialty Contractors segment over the rest of this year and are optimistic that the segment will be profitable by the end of 2024. Corporate G&A expense was $20 million in the first quarter of 2024 compared to $16 million last year, with the increase primarily due to higher compensation related expenses, mainly attributable to higher share-based compensation expense on liability classified awards resulting from the impact of the notable increase in our stock price in the first quarter of 2024. Other income was $5 million compared to $6 million last year. Interest expense for the first quarter was $19 million this year compared to $22 million last year, with the decrease driven by the absence of borrowings on our revolver and a lower balance on our term loan B, primarily resulting from the $91 million prepayment we made in February.

Income tax expense was $7 million in the first quarter of 2024, with a corresponding effective tax rate of 21% compared to an income tax benefit of $48 million with an effective tax rate of 49.6% for the same quarter last year. As a reminder, the net operating losses we generated in 2022 and 2023 will help reduce our cash outlays for income taxes in 2024 and in future years. Net income attributable to Tutor Perini for the first quarter of 2024 was $16 million or $0.30 of diluted earnings per share compared to a net loss of $49 million or a loss of $0.95 per share in the first quarter of 2023. As Ron mentioned, we still anticipate double-digit revenue growth and a return to positive earnings in 2024, with substantially stronger earnings expected in 2025 and 2026.

Now I'll address the balance sheet. Our total debt as of March 31, 2024 was $801 million, down $99 million or 11% compared to $900 million as of December 31, 2023. Our total debt will come down by another $100 million next week with the redemption of our existing senior notes. As of March 31, 2024, we were in compliance with the covenants under our credit agreement and expect to continue to be in compliance in the future. And finally, as Ron mentioned, we are maintaining our 2024 EPS guidance in the range of $0.85 to $1.10. Despite our strong first quarter results, we want to maintain adequate contingency in our guidance to cover potential unforeseen events that could impact us this year. Accordingly, all the assumptions regarding our guidance that we provided last quarter remain unchanged.

Thank you. And with that, I'll turn the call back over to Ron.

Ronald Tutor: Thanks, Ryan. And at the risk of being repetitive, I'll recap our first quarter highlights, in that we delivered strong revenue growth and profitability, particularly in our Civil business, and secondarily our building segments again reporting $0.30 a share of earnings and $98 million of strong operating cash flow. We continue to expect our operating cash flow will be strong in 2024 and 2025 as we continue to resolve the remainder of our remaining legacy disputes and collect the substantial associated cash. We are on track to deliver double-digit revenue growth and return to positive full year earnings in 2024 and anticipate significantly higher in 2025 and 2026. Our backlog should grow significantly this year and next as we continue to bid and win our share of the large volume of major near term opportunities, with extremely limited competition in the megaproject arena.

Lastly, as expected, we successfully completed our debt refinancing earlier. And with that, I'll turn the call over to the operator for questions.

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