Tutor Perini Corp (TPC) 2005 Q1 法說會逐字稿

My name is Tammy and I will be your conference facilitator. At this time I would like to welcome everyone to the Perini first-quarter 2005 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Mr. Coulson, you may begin your conference.

Thanks a lot, Tammy. Good morning. Sorry good afternoon everyone. Thanks for joining us on Perini's first-quarter 2005 conference call. With us today on the call are Perini's President, Bob Band; the Company's Chief Financial Officer, Mike Ciskey; and Dick Rizzo who is the Chairman of Perini Building Company, which is the largest business unit of the Company.

Our agenda for today will follow the usual format. Bob Band is going to discuss the highlights of the first quarter, some new contract wins and other successes, and after that Mike Ciskey will review the Company's first-quarter financial results in greater detail, and then Bob is going to come back and make some closing remarks at which point we are going to open up the call to your questions.

But before we start I would like to remind our listeners that comments today will contain forward-looking statements. Management may make some additional forward-looking statements in response to your questions. These types of written and oral disclosures are made pursuant to the Safe Harbor provision that is contained in the Private Securities Litigation Reform Act of 1995. So investors are cautioned that such forward-looking statements do involve risks and uncertainties that could cause actual results to differ materially from anticipated results. The Company cautions that any such forward-looking statements are based upon assumptions that the Company believes are reasonable but that are subject to wide risks and a wide range of risks and actual results may differ materially. These types of statements and underlying factors related to statements are listed and filed information with the SEC, including Perini's annual report on form 10-K for the fiscal year ended December are 31, 2004, as well as in today's news release.

Our statements on this call are made as of today May 4, 2005 and the Company undertakes no obligation to update any of these forward-looking statements contained in the call, whether as a result of new information, future events, changes in expectations or otherwise. Well with those formalities out of the way it is now my pleasure to turn the call over to Bob Band.

Thanks, Crocker. Good afternoon everyone. After the fantastic financial results in 2004 we said in February this year that 2005 was going to be off to a slower start, and the recent backlog was down and we announced that the U.S. Government had put 150 million or so of our contracts in Iraq on hold. We also said that we thought the slowdown was largely driven by the timing of awards and the financing of projects in our pipeline rather than any fundamental change in our business outlook.

Well fast forward three months and the visibility as to our future flow award is very much improved. I am pleased to report that we now have a high degree of confidence about meeting our financial goals for 2005. And we are seeing new projects and opportunities that will help set up Perini's building segment for continued strong performance in the latter half of 2005 and on into 2006 and beyond. New contracts signed in the quarter have boosted backlog from 1.15 billion at the end of December 2004 to 1.75 billion at March 31, 2005. The status of our contracts in Iraq is substantially resolved, and we see good prospects to continue to win additional work supporting the U.S. Government there and in Afghanistan, as well as other parts of the region.

While we will take another quarter for the contracts recently added to backlog to result in higher revenues, we are expecting a good second half performance as these projects and others that we are working on ramp up. Of the 10 design build task orders for electrical distribution facilities in Iraq, which were on stop work order in January of 2005, we have negotiated approval to proceed and are fully underway on five task orders. The remaining five task orders were canceled and proposals for final costs and fees submitted to the PCO, a unit of the U.S. Department of State.

Backlog in Iraq at March 31, 2005 is approximately 110 million, and will be completed in about a year. However, substantial opportunities continue to present themselves in the region. Looking at the first quarter itself, revenues were 372 million compared with 480 million for the same quarter last year. This reflects mainly two things. First, a slower build of backlog in the second half of 2004 in the building segment has resulted in lower revenues in the first quarter of 2005. The building segment including James A. Cummings had revenues of 241 million in 2005's first-quarter compared with 291 million for the same quarter a year ago.

Second, revenues from management services segment are being compared to a quarter last year in which we were still working full blast on the initial round of power generation and transmission projects in Iraq. Management services revenues for the first quarter of 2005 were $80 million compared to 161 million in the same quarter last year.

The acquisition of Cherry Hill, a civil construction company headquartered in Jessup, Maryland was completed in the first quarter of 2005 and their prospects remain very strong. First quarter net profits for the whole of Perini Corporation were 5.6 million compared to 11.2 million last year in the first quarter. Diluted -- fully diluted earnings per share was $0.20 per share compared to $0.44 per share in last year's first quarter, or more comparably $0.28 per share if you pro forma 2004 to a more normal 37.5% effective income tax rate.

Mike Ciskey will cover the financials in more detail shortly. I would like to look forward from this quarter because we have really now built a base for the rest of the year. I said in February that we were working hard especially in the building segment on a very large volume of new work potential and that the backlog at that time did not really reflect what was actually happening in our markets or the pipeline of contract prospects. At that point we felt many contracts were very close but not quite signed, and as you know we take a conservative approach when it comes to putting work into backlog.

Well I can now point to a number of key contract wins, first we were awarded a $430 million contract by Station Casinos for the Red Rock Spa Casino for a complex with 850 hotel rooms, 94,000 square feet of meeting and convention space and over 2800 slot machines and the 35,000 square foot spa. This project is already well underway, and the topping off ceremony took place in March. It added 170 million to our backlog during the quarter.

We are also awarded a $350 million contract to build the Gaylord National Resort and Convention Center in Maryland, the Gaylord Hotels a unit of Gaylord Entertainment Co. This project is over 1500 hotel rooms and over 400,000 square feet of convention space and should be complete in early 2008. Our 60% share of this joint venture project has added 210 million to our backlog.

We are also awarded $154 million contract for One Queensridge Place, and this is the first phase of a development which sees Perini building two luxury 18-story condominium towers. We also won the Phase I of the Westgate Town center project in Glendale, Arizona. This phase includes heavily famed retail space in both low-rise and high-rise buildings plus park and water feature. This is a $62 million project for Perini.

On the civil side the New York State Department for Highways awarded us $123 million contract for the rehabilitation of part of the Brooklyn Queens Expressway that will see Perini replacing or rehabbing 11 bridges and building new highway ramps and noise walls. Our 80% share of this joint venture project will add about 99 million to our backlog.

Now this list alone added 695 million to our backlog during the first quarter. These wins illustrate the breadth of opportunities that we are seeing in our building segment. And some early signs of success in getting our civil settlement back on track. Again at this time we continue to believe that substantial project opportunities currently in the preconstruction and contract negotiation phases will result in further major awards in 2005.

The big picture remains very favorable for us, and we think further contract wins are there in our pipeline and that will come to contract in the coming weeks and months. Although these things can slip from the point of view of both timing and details you must know that we have two projects in the 350 to $400 million size range that could sign within the next two quarters, and a further hotel condominium project of around $1 billion that could sign as early as the third quarter. So there are some substantial projects out there getting very close to signing up.

Longer-term than that the hotel and gaming picture looks to be as robust as we have ever seen it. The cycle of expansion and renovation in the Las Vegas market continues at full gallop. Although Native American gaming has paused to catch its breath after a fantastic year in 2004, which saw us substantially complete major projects in California like the San Manuel Casino, the Pjanga (ph) Resort expansion and Morongo Casino resort, we expect this market to continue to be a strong driver in the future and are in discussions on several potential new projects in various parts of the country.

In management services the uncertainty I discussed last quarter has now substantially been resolved. On five of our task orders under the PCO contract Perini is confirmed as the contractor and is progressing full speed ahead with over $100 million of work which is now back on track. For the moment the Department of State's Project Construction Office, PCO, is showing a clear preference to award reconstruction work in Iraq to local contractors there. However, we have a presence in theater of operations and will continue to monitor that situation. We have every indication that the contracting authorities remain pleased by Perini's very strong record of performance in the theater and timely completion on the projects we have been awarded there. Meanwhile, our work outside the PCO continues. We are still actively bidding and proposing on task orders under the 1.5 billion, five-year IDIQ contract that we received from the Corpse of Engineers in January of 2004 known as CENTCOM 2. In fact we are only in the first of four option years under that contract.

In Afghanistan we are working on the third and fourth military bases that we have constructed for use by the new Afghan national army under contract with the U.S. Army Corps of Engineers, each of which of these last two bases are valued at about 65 million a piece and include barracks, power plant, utilities and all services. We are currently proposing on a fifth such facility, and we see excellent potential and support the Corps of Engineers on other infrastructure projects in the region.

Our civil business now with the addition of Cherry Hill continues to provide an important third leg to Perini's multi-market strategy. As states and municipalities begin to invest in infrastructure projects, we are seeing a gradual improvement in suitable bidding opportunities. We expect that we will be able to show some good measured progress over the course of 2005 and rebuilding our backlog on the civil side with the potential for more meaningful contributions to revenues and operating income as we move into 2006.

In summary, the first quarter was a somewhat soft quarter for Perini when compared to last year, due primarily to timing on new contract awards in our building segment and the slower pace of Iraq based work. However, in the past few months our outlook has become much more clear as these issues were resolved and new building work awarded. We believe that the macro-environment in our markets is excellent and that Perini's positioning as the builder of choice is stronger than ever. We expect to continue to see lumpiness on a quarterly basis both in work awarded and revenue generation due to the scale of projects we work on.

But over the long-term we believe our consistent performance on complex large-scale projects, both at home and abroad, is what positions Perini to grow our business and sustain our margins over time. The recent contract wins that we have reported on provide us with visibility for a solid second half of 2005 and position us extremely well to build on that performance in 2006. We therefore feel comfortable reaffirming our guidance for the year of revenues in the range of 1.5 billion to 1.8 billion and earnings per share in the range of $0.95 to $1.15.

Now let me turn the discussion over to Mike Ciskey who will give you the financial details of the quarter.

One second, please. Thank you, Bob and excuse me folks but I had gotten called out for a second. I will begin by discussing our first-quarter revenue results. First-quarter revenues were 372 million, a decline of 23% from the 480 million reported in the first quarter of 2004. On a reportable segment basis revenues from our building segment were 241 million, a decrease of 17% from 291 million in the first quarter of 2004. This decrease reflects the completion in late 2004 of several hospitality and gaming market projects.

Management services revenue was 80 million, down 51% from 161 million a year ago. This decrease is the result of a decrease in volume of work in Iraq. However I should note that the first quarter of 2004 was the second of two exceptionally high-volume quarters we experienced during the initial rebuilding effort in Iraq. Compared to the fourth quarter of 2004, revenues and management services were fairly consistent.

Revenues from our civil segment were 51 million, an increase of 85% from the 27 million reported in the first quarter of 2004. Almost all of that increase is due to the addition of Cherry Hill Construction to our consolidated results effective January 2005. Our gross margin percentage for the quarter increased to 6.1% as compared to 4.9% a year ago. Although our total gross profit fell by 3% to 22.7 million from 23.5 million in the first quarter of 2004, reflecting the decrease in revenues that I just covered.

The increase in overall gross margin percentage reflects the improved performance from our civil segment versus the first quarter of last year. General and administrative expenses were 13.3 million or 3.6% of revenues in the quarter compared to 9.7 million or 2% of revenues in the first quarter of 2004, primarily due to the addition of 2.1 million in general and administrative expenses for Cherry Hill Construction and $800,000 in compensation expense recognized in conjunction with the granting of certain restricted stock awards during the latter half of 2004.

Income from construction operations was 9.4 million in the quarter, a decrease of 32% from the 13.8 million reported in the first quarter of 2004. Operating margin was 2.5% in the quarter compared to 2.9% a year ago. Despite an increase in gross profit margin from the operating units, the operating margin declined as a result of the increase in general and administrative expenses that we just went over.

I would now like to give you some results about our construction segments. Building segment income from construction operations for the quarter was 4.7 million compared to 5.5 million in the first quarter of 2004 as a result of the decline in revenues. However, operating margins improved to 2% versus 1.9% a year ago due primarily to increase in profit recognition upon the completion and closeout of several hospitality and gaming market projects.

Management services income from construction operations was 6.6 million compared to 10.5 million, again due to the fall in revenues. However, operating margins improved to 8.3% versus 6.5% a year ago due primarily to favorable profit adjustments on two major contracts as a result of favorable resolution of contract closeout items. Civil segment income from construction operations increased to 1.5 million in the first quarter of 2005 from 200,000 a year ago as a result of an increase in operating margin to 3% versus a tenth of 1% a year ago.

Last year the civil segment first-quarter results were negatively impacted due to negative profit adjustments on several projects. The improvement in profit was in part offset by higher civil construction related G&A from the acquisition of Cherry Hill. Other expenses fell to $100,000 in quarter one versus 1.8 million in the same quarter last year. This decrease was mainly due to a decreased amortization expense of $850,000 and a decrease of $700,000 in expenses related to our secondary stock offering which was completed in 2004.

The provision for income taxes was 3.3 million compared to 500,000 in the first quarter of 2004. The provision for income taxes in 2004 was favorably impacted due to utilization of net operating loss carry forwards which were totally utilized for book purposes in 2004. GAAP net income was 5.6 million in the first quarter compared to 11.2 million in the same quarter a year ago. Diluted earnings per share were $0.20 for the quarter as compared to $0.44 for the same period of 2004. On a pro forma basis adjusting our actual results for the first quarter of 2004 to reflect a more normal tax provision at a rate of 37.5%. Net income for that quarter would have been 7.3 million and diluted earnings per share would have been $0.28. We believe in some instances pro forma results may be useful to investors in comparing our performance over these periods but they are not meant to substitute for GAAP earnings.

The reconciliation of reported earnings in accordance with GAAP to pro forma earnings is contained in the press release published earlier this afternoon. Now looking at our balance sheet. At March 31, 2005 our working capital stood at 168 million compared to 178 million at December 31, 2004. This represents a current ratio of 1.41 to 1, the same as December 31, 2004. The decrease in working capital is primarily due to the $20 million acquisition of Cherry Hill Construction in January of 2005.

As of March 31, 2005 we had 86 million in cash and cash equivalents compared to the December 31, 2004 balance of 136 million. The reduction in cash was in part due to the purchase of Cherry Hill Construction for approximately $20 million and in part due to the timing of contract payments received and payment of accounts payable. During the first quarter this year cash used by operations was 26.6 million compared to 31.3 million last year. That use of cash together with the acquisition of Cherry Hill reduced our cash balance. However, that balance was still 37.8 million ahead of the 48.7 million we held during the same periods in 2004.

Long-term debt stood at 18.5 million excluding current portions. Compared to 8.6 million at December 31, 2004. The long-term debt is comprised of mortgage debt on properties and equipment financing used in our construction operations. We continue to have our $50 million revolving credit facility available to help us fund working capital requirements should the need arise.

Shareholders equity increased to 181 million compared to 174 million at December 31, 2004. And with these things covered I would now like to turn the call back over to Bob for his closing comments.

Thanks, Mike. Having been in front of you three months ago and said that we were still experiencing robust levels of inquiry bidding and preconstruction activity, that led us to believe that prospects for 2005 generally remain very good, I am pleased to report such good progress in new contract awards signed up this quarter and continued strong prospects in the gaming and hospitality markets for the balance of 2005 and 2006. I really think I can paint an optimistic picture for the business, especially with the building segment which has picked up its pace and has taken over the lead in internal growth for management services in 2004. And management services we have continued opportunities under CENTCOM 2 and the ongoing work for PCO as well as work in Afghanistan. There still a lot of business out there. We are very active in the theater with a strong presence and reputation.

And the civil segment we will build on the progress issue to make this a business that has increasing contribution of Perini's bottom line in the future. We continually look to internal growth from our businesses but armed with a strong balance sheet we are actively looking to grow by acquisition.

Well, we look forward to reporting further progress on all fronts next quarter with hopefully some news on new projects as they occur during the quarter. That ends our prepared remarks. Mike Ciskey, Dick Rizzo and I are happy to take your questions at this time. Thank you.

(OPERATOR INSTRUCTIONS) Ben Warmen (ph) with Bishop Rosen.

I am very pleased with the report. It is pretty much what you expected. I have two questions. Number one, I have asked you this numerous times. The settlement with the preferred stockholders for some reason or other has not been completed yet. Any news on that?

Well, the schedule is advanced. We are -- we will be sending a notice in May to the holders. It is just a very slow pace. We compete in the courtroom with the agenda of the judge who is very, very busy here in Massachusetts. So as fast as we can get that notice out now and continue the process it should close up in hopefully the third quarter of '05.

The other question I have is the construction of the stadium on the west side of Manhattan, do you have a shot at getting some of that work?

Dick, I don't think we are in the running for that.

No, I don't think we have the resources to be able to look at it and feel that we can make a contribution there.

And we look at that area would be very competitive, a lot of competitive pressures on fees. So I think we are looking at our resources and allocating them into this gaming market, gaming and hospitality market which is just booming for us, Ben.

The reason I asked is because I know you did a terrific job out in the Phoenix Stadium.

Right, Banc One Ballpark, absolutely.

This is what I suppose you know how to do.

Bob Band We do but again we are going to focus on the margin opportunities. Thanks, Ben.

Okay. Thank you.

John Rogers with D.A. Davidson.

Good afternoon. A couple of just first housekeeping items. Mike, do you have the sector backlogs or backlog by market segment?

I do if you will hold on a second, John.

Okay, and also depreciation, if you have it.

Backlog by segment first.

Yes.

Building is $1,018 billion.

Okay.

Civil is 442 million, and management services 285 million.

Okay.

And depreciation expense 2 million 660.

2 million 660? Okay, and that is I assume with Cherry Hill that is a good sort of run rate now?

Yes, it should be for 2005 a fairly good run rate.

Okay, and then Bob, you referred to a couple of big projects that you felt you were in the running for. Sounds like 100, 200 million dollar projects, I think I have this right next quarter or two. And then a potentially $1 billion project?

Yes. And if we could disclose the projects we would but at the present time since we are very close on a number of projects, it's an analogous situation to where we were right before we announced this last batch of awards, so we are quite close on a number of projects and just as soon as the owners -- in one case approve a press release and another case in other cases we get to approve contract terms -- we will release those. But at the present time we will just leave it at what we said.

Can you say though are these all building segment projects?

Yes, most of -- yes all of what I referred to in my discussion relate to the building segment.

Okay, and then I guess with the strength in your backlog and your bookings activity both in the quarter and what sounds like may be out there, and I think better results than you expect in terms of bookings for the first quarter you are still somewhat -- you still have a pretty big range for the year. And I realize this is a volatile business but maybe just your thoughts on what has to happen to hit the high-end versus the low-rent, anything beyond there.

A lot of it -- first of all this work came late in the quarter, and depending on when the next batch of awards come, the earlier they come the better. The earlier the new work comes, the higher range becomes easier to attain. But again because of the lumpiness I hesitate to get more finite at this time of the year. A lot of this depends as Dick would tell you how fast you get in the ground with these jobs.

Is it a question of just starting up the projects or is it a question of the profitability of the projects?

It's not the profitability -- it is how fast can we start them.

Yes, exactly. They are all subject to schedule, that's all.

In the case of Redrock which was announced you might note that in March we actually had the topping out, so we were actually working on Redrock before we could put the major piece of it in the backlog, before we had finished up all of the negotiations. It is simply the way these jobs go. Even on Westgate the owner was funding us to do some limited work right, Dick.

Yes, until the financing got in place.

That's right. So John, I would say stay tuned. There will be -- I'm sure there'll be some good announcements this quarter, and by the end of the second-quarter results I think we will have a little more finite view on the ranges.

Okay but those other products, they really do give you visibility then out into '06 and '07?

Yes.

Definitely, yes.

Okay, great. Thank you.

At this time there are no further questions. Mr. Coulson, are there any closing remarks?

Let's give the audience one more chance to ask questions and if not, we will wrap it up. So just give it one more second.

John Rogers.

I am back in the Q. One other just quick question, the other income charge that you had, the $140,000 in the quarter, what was that?

Just bank charges and items like that for our revolving credit facility and for our ongoing bank administration fees. There was some amortization expense still in there for the new acquisition at Cherry Hill.

Okay, and why don't I just minor question in terms of that $800,000 for stock awards fee, is that a one quarter event or did that continue?

No, it continues throughout '05 but at a lesser amount. It will be about 3 to 400,000 a quarter.

And final question, Mike, cash taxes in the quarter.

No, we are still not a cash taxpayer.

Okay.

And don't really expect to be until well into '05, John.

Okay, but later this year though?

Yes.

Okay, great. Thanks a lot.

Richard Rossi with Morgan Joseph.

Just one thing on the casino area, if you could give us -- and I might have missed this because I was off-line for a few minutes -- an update on where we are going on the Native American side.

Dick, you what to cover that?

Sure. We had such a robust year last year in California particularly, it has been pretty slow for the first quarter this year, and we don't anticipate much of a change throughout the rest of the year. Many of the major tribes are still in negotiations with Schwarzenegger. So until that happens I don't think there is a great energy there to try to expand their facilities until they know the deal with the State of California. So we are not expecting great revenues remaining in '05; we are probably seeing a resurgence of the work probably in '06, '07 range.

Assuming that they get a deal in California is that likely to be more space add-ons to facilities already in place, or some new facilities?

Well, we constructed probably significant in the state, and each one of them has an expansion plan on the boards for consideration. And they are all in the $100 to $250 million range, so they are significant in size. But they are still on the drawing board waiting for confirmation of -- and there's no real rush there. Right now they have all opened up new facilities, and they are struggling to manage them probably getting overwhelmed with traffic. So they are just trying to manage them better. But I will say this, that there are probably three or four that we're aware of that are ground up startups that are in the significant size of 350 to half one million that are out there for I would say '07, '08 range.

Dick we're seeing a little interest on the East Coast as well.

Anything going on in New York? I know that is a (multiple speakers)

We have been designated on one and we've been talking to all four in the Catskills. But again, you know better than I the politics there in the sense of what really is going to happen there. We are all just waiting in the sidelines waiting for something to move. But we are looking at work in Connecticut again for both the Foxwood and the Mohegan tribes that are planning big expansions as well.

And then just one other thing. Are you looking at any work in the downtown New York area?

On the building side no.

I'm sorry I meant on the civil side, sure. Go ahead, Mike.

Absolutely. We follow all of the transit work -- state and city DOT work. So anytime there is any type of major public civil program in New York, we certainly have taken a look at it and probably 80% of those we wind up submitting a bid or proposal on.

Just a terrific completion of the Jamaica Station. That was a very strong award-winning project for us and very active in New York, New Jersey area.

Okay. All right. Thanks very much.

Jack Giovanni, private investor.

Good afternoon. I think I would be remiss if I didn't add a hearty congratulations to the entire management team from the tippety top on down to the project level for producing the kind of results that you have been producing for several years now given the extreme competitiveness in the industry that you serve. Again a very hearty congratulations.

Thanks, Jack. I really appreciate it. We all do.

(OPERATOR INSTRUCTIONS)

I think we have actually now reached the end of our planned time and certainly want to thank all the audience members for their questions today. And Bob do you have any final remarks?

I would just like to say that we appreciate your interest in following the Company, and we are eager to proceed with 2005 with some hopefully wonderful new awards yet to come. And we will keep everyone posted and look forward to the next opportunity to speak with you. Thank you very much.

This concludes today's Perini first quarter 2005 earnings conference call, and you may now disconnect.