Tutor Perini Corp (TPC) 2007 Q1 法說會逐字稿

Good day, everyone. Welcome to the Perini Corporation first-quarter earnings conference call, hosted by CCG Investor Relations Perini. Today's conference is being recorded.

For opening remarks and introductions, I would now like to turn the call over to Mr. Crocker Coulson. Please go ahead, sir.

Thanks a lot. Good afternoon everyone, and thanks for joining us on Perini's first-quarter 2007 earnings conference call. With us today are Perini's President, Robert Band; the Company's Chief Financial Officer, Mike Ciskey; and Dick Rizzo, who is Vice Chairman of Perini Building Company, the largest business unit of the Company.

Our agenda for today follows our usual format. Bob is going to discuss the highlights of the first quarter, some new contract wins and other successes as well as provide some guidance. After that, Mike Ciskey will review the Company's first-quarter financial results in detail. Then, Bob is going to come back and make some closing remarks. And at that point, we're going to open up the call to your questions.

But before we start, I would like to remind our listeners that our comments today will contain forward-looking statements. And 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 provisions contained in the Private Securities Litigation Reform Act of 1995.

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 a wide range of risks and actual results may differ materially. These types of statements and underlying factors related to the statements are listed in filed information with the SEC, including Perini's Annual Report on Form 10-K for the year ended December 31, 2006 as well as in today's news release.

Our statements on the call are made as of today, May 8, 2007. 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.

With those formalities now out of the way, it's my pleasure to turn the call over to Bob Band.

Good afternoon everyone, and thank you for joining us on the call today. Perini got off to a strong start in 2007, generating revenues of $987 million in the first quarter, up 61% from last year. Net income was $22.7 million, up 180% from $8.1 million last year. Backlog stood at 8.6 billion, near its all-time record level and up slightly from year-end.

As expected, our results this quarter were due to a strong performance by our Building segment, which continued to convert our substantial backlog of work into revenues and profit. Management Services made an exceptionally strong contribution to our operating results this quarter, and our Civil segment was also profitable. Mike Ciskey will review our financial results in more detail later in the call.

Although the residential construction market has slowed in 2007, each of the building markets that Perini operates in, particularly the gaming and hospitality, healthcare, and education markets, remain strong. During the first quarter, we successfully converted $987 million of our backlog into revenues. New contract awards totaled $1.1 billion, which were slightly more than the revenues recognized during the quarter. At March 31, 2007, our backlog totaled $8.6 billion.

New contract awards and adjustments to contracts in process added to backlog in the first quarter included $580 million of additional work in the hospitality and gaming market in Las Vegas, $435 million in various new work awards at Rudolph and Sletten including work on healthcare, high tech, and office building projects and $72 million in work at J.A. Cummings including work on a new parking structure at a shopping mall in southern Florida.

Perini has established itself as the builder of choice in our industry, especially in the Las Vegas market, where we currently have several large projects under construction. Each quarter, we provide an update on the progress we have made on our major building projects. And it's a testament to the dedication and hard work of our staff that we're able to execute these complex, large-scale jobs on time and on budget.

The largest of these projects is the MGM CityCenter. During the quarter, we received an additional $553 million of new work on this project, bringing the total value of the contract to $4.8 billion. Set on a 66-acre site, CityCenter includes 2700 private residences, two 400-room non-gaming boutique hotels, a 4000-room resort/casino and a 470,000-square foot retail and entertainment district.

Work on each of the main structures of this massive project is moving forward right on schedule. We are currently up to the 14th floor in our construction of the 60-story resort/casino, up to the fifth floor on the VDara Condo Hotel and expected to pour the third level of the Mandarin Oriental Tower this week. We have begun pouring the first elevated deck of the West Veer Tower with similar work on the East Veer Tower soon to follow.

We are laying the foundation at the [Harmon] Hotel and expect to begin setting up cranes and structural steel at the retail and entertainment district this month. Our work on the $365 million Trump International Hotel & Tower, also in Las Vegas, is right on track. We're nearing completion on the 1200-unit condominium hotel tower and expect concrete to be topped out within the next two weeks. We are continuing our work on the 36,000-square foot recreation deck and pool and on the five-story parking garage.

Despite a difficult excavation, our work on the $1.6 billion Cosmopolitan Resort & Casino in Las Vegas remains on schedule. Steel erection has now started below grade. This project is scheduled for completion in mid 2009.

We are also making good progress on our two large-scale hospitality and gaming projects outside of Las Vegas. In March, we topped out the tower structure at the $500 billion expansion of the Foxwoods Resort Casino in southeastern Connecticut. We are currently working on the interior and on track for completion in March of 2008.

At the $683 million joint venture contract for the Gaylord National Resort & Convention Center in Prince George's County Maryland, all structures have been topped out. And two main tresses have been set in the 1-acre main atrium area, which we expect to complete by mid-June. Despite the compressed schedule, we still anticipate completing the project on time in April 2008.

Rudolph and Sletten continued to perform well from both a profitability standpoint and in terms of winning new business. The market for healthcare, high tech and office projects remain strong. And in this quarter, Rudolph and Sletten added $435 million in new work awards to our backlog. Of particular note is $140 million worth of work at the Moffett Park Towers in Sunnyvale, California. Located in the Silicon Valley, this 23-acre site will feature seven distinctive eight-story towers with 1.8 million square feet of Class A office space.

Rudolph and Sletten is actively proposing a new business in the native American gaming market. We see a lot of opportunities in this area, particularly in Southern California, where legislation is pending that would approve gaming compacts, allowing five of the state's largest tribes to expand their Casino gambling operations. This legislation has already passed the State Senate, and the State Assembly is expected to vote on it sometime in June.

Our Civil division generated an operating profit during the quarter. Although this was negatively impacted by some continuing loss adjustments on roadway projects in Maryland and Florida at Cherry Hill Construction, the general trend in civil construction has been increasing difficulty in obtaining contract adjustments from public agencies. We are actively seeking new work, but are selectively bidding on larger-scale projects in the civil markets that meet our margin requirements. The market for civil projects in the Northeast and Mid-Atlantic states remain strong but very competitive.

Our Management Services segment had another great quarter of profitability due to rapid completion during December of '06 and the first quarter of 2007 of a major portion of our two large overhead coverage projects in Iraq. Through the end of the first quarter of 2007, we had turned over about 90% of the facilities originally contracted for in September of 2005. We still have approximately $100 million of similar work in Iraq at U.S. military bases and other government compounds that was awarded in the fourth quarter of 2006. We continue to pursue work both inside and outside of Iraq and Afghanistan through the [Hurricane Sanctum] programs as well as other worldwide contract opportunities.

Overall, we are off to a very successful start in 2007. We recorded substantial new work in each of our building markets, and our backlog remains near record levels. Given the strength of the market and our reputation as the builder of choice for on-time delivery and execution, we anticipate some significant additions to our backlog in the remaining part of this year.

Our backlog continues to provide us with a high level of visibility. And we expect to record a record year in 2007 for both revenue and earnings per share. At this time, we are increasing our guidance. We now expect revenues in the range of 4 to $4.2 billion, up from a range of 3.8 to $4 billion. And we now expect diluted earnings per share in the range of $2.40 to $2.60, up from a range of $2 to $2.20. These increases are based on our expectation of higher revenues from the Building segment, strong profit contribution from the Management Services segment and profitable performance from the Civil segment.

Now let me turn the discussion over to Mike Ciskey, our CFO, who will give you the financial details for the quarter. Mike?

Thank you, Bob. I will now review the first-quarter financial results. In the first quarter of 2007, revenues were $987 million, an increase of 61% from the 613 million reported in the first quarter of 2006. On a reportable segment basis, revenues from our Building segment were $887 million, an increase of 83% from $484 billion in the first quarter of 2006. This increase was primarily due to the increased volume of work in the hospitality and gaming market, as the new contracts we received in the latter half of 2005 are now into the construction phase.

Revenues from our Civil segment were $57 million, down 19% from $71 million reported in the first quarter of 2006. This decline is primarily due to the timing of the startup of new projects.

Management Services revenues were $43 million, down 26% from $58 million a year ago. This decline was due to the completion of our nuclear power (technical difficulty) and modification contract with Exelon at the end of 2006, which was partially offset by an increased volume of work in Iraq.

Our total gross profit increased by $25.6 million to $57.9 million, a 79% increase from $32.3 million in the first quarter of 2006. Overall gross margin percentage for the quarter was 5.9%, up from 5.3% in the first quarter of 2006, reflecting gross margin improvement in both the Building and Management Services segments.

General and administrative expenses were $25.2 million or 2.5% of revenues compared to $17.9 million or 2.9% of revenues in the first quarter of 2006. This reflects a 41% increase in general and administrative expenses on a 61% increase in revenues. In the first quarter of 2007, general and administrative expenses include $3.7 million in stock-based compensation expense from restricted stock units granted in April of 2006.

Income from construction operations was $32.7 million in the first quarter of 2007, an increase of 127% from $14.4 million in the first quarter of 2006. Breaking down income from construction operations by segment, the Building segment income from construction operations for the quarter was $23.9 million, an increase of 157% from 9.3 million in the first quarter of 2006. This increase was due to both increased revenues and improved margins.

Operating margin for the Building segment was 2.7% in the first quarter of 2007, up from 1.9% in the first quarter of 2006. Building margins improved due to the increased revenue. As was mentioned earlier, we are now well into the construction phase on each of the large-scale projects.

Civil segment income from construction operations was $800,000 in the first quarter of 2007, down 81% from 4.4 million in the first quarter of 2006. This decline was due to lower revenues and some additional minor downward profit adjustment on roadway projects in Maryland and Florida. Operating margin for the Civil segment was 1.4% in the first quarter of 2007, down from 6.2% in the first quarter of 2006.

Management Services income from construction operations was $13.7 million compared to $3.4 million in the first quarter of 2006. Management Services operating margin was 31.5% versus 5.8% a year ago. This substantial increase in margin was due to continued favorable performance on projects in Iraq.

Other income was $2.4 million in the first quarter of 2007 compared to 400,000 in the first quarter of 2006. This increase was the result of higher interest income due to the positive cash flow from operations, resulting in an increased amount of cash available for short-term investment.

Interest expense was $700,000 compared to $900,000 in the first quarter of 2006. This decline was the result of decreased borrowing on our term loan, which was paid in full as a condition to the closing on our new credit agreement in February 22, 2007. You may recall, we entered into a new $125 million, five-year credit agreement with a group of banks led by Bank of America and also including TD Banknorth, BMO Capital Markets Financing and Sovereign Bank in February.

The provision for income taxes was $11.8 million compared to $5.8 million in the first quarter of 2006. The effective tax rate for the first quarter of 2006 was 34.2% compared to 41.9% in the same quarter a year ago. Net income was $22.7 million in the first quarter of 2007 compared to $8.1 million in the same quarter a year ago. Diluted earnings per share were $0.84 per share in the first quarter of 2007 versus $0.30 per share for the same period of 2006.

Looking at our balance sheet, at March 31, 2007, our working capital stood at $203.4 million, up from $194 million at December 31, 2006. This represents a current ratio of 1.22 to 1 unchanged from year-end. As of March 31, 2007, we had $242.3 million in cash and cash equivalents compared to the December 31, 2006 balance of $225.5 million. The $16.8 million increase in cash was the result of $48.9 million in cash flows provided by operating activities due to the substantial increase in our Building segment revenues combined with favorable performance by the Management Services segment.

In the first quarter of 2007, cash used by investing activities was $6.6 million, primarily for the purchase of construction equipment and property to be used in support of our building construction operations. Cash used by financing activities was $25.6 million, of which 22.5 million was used to pay the outstanding balance of our term loan. At March 31, 2007, long-term debt stood at $16.4 million and we had $113.5 million available under our credit facility.

Stockholders' equity increased 11% to $271 million from $244 million at December 31, 2006. We believe that our strong financial position and credit arrangement provide us with more than sufficient resources to meet our liquidity and working capital requirements.

As Bob mentioned earlier, our backlog at March 31, 2007 totaled $8.6 billion, up slightly from $8.5 billion at December 31, 2006. Backlog by segment is Building segment backlog of 8 billion, Civil segment backlog of 378 million and Management Services backlog of 150 million.

I will now turn the call back over to Bob for his closing comments.

By every measure, we had an excellent performance in the first quarter, setting the stage for a record year in revenues and profitability in 2007. Revenues for the quarter totaled $987 million, up 61%. And our profits increased 180% to $22.7 million. We had another quarter of stellar performance from our Building segment, particularly on our major hospitality and gaming projects in Las Vegas, Connecticut, and Maryland.

Rudolph and Sletten provided another quarter of strong profits and new work awards and are ideally positioned to capture opportunities in the Native American gaming market. Management Services made a substantial contribution to its rapid completion of two overhead coverage projects in Iraq. Despite some loss adjustments, the Civil segment also contributed to our profit this quarter.

We added more new work to our backlog than we generated in revenues. And there are multiple opportunities for new project awards in each of our markets. Based on our $8.6 billion backlog at March 31, 2007, we continue to have excellent visibility of our expected revenue and earnings stream. Our success to date has been a function of our consistent, on-time delivery of complex, large-scale projects and this remains our top priority in the year ahead.

That concludes our prepared remarks. Mike Ciskey, Dick Rizzo and I are happy to take your questions.

(OPERATOR INSTRUCTIONS). John Rogers, D.A. Davidson.

Congratulations. A couple of things, I guess most specifically on the Management Services business, you reported another great quarter there -- very high margins. And I see your backlog is running off there as I think everybody expected, but how sustainable is that?

Sustainable in terms of--?

The margin more than anything else I guess I am wondering.

Well I think we will continue to have fairly strong margins this year as we complete the $120 million of that backlog, which is actually in Iraq. And I would say that that does relate to rapid closeout of these overhead coverage projects. We were turning over substantial amounts of square footage in December in each of the months in the first quarter of 2007.

So the work pace, the $120 million, that would carry you pretty well through most of the rest of this calendar year. Is that right?

We do believe that. Right.

And then secondly, you mentioned, Bob, the expectation that you might have some opportunities for some I think you said substantial additions to backlog in the second half of the year. Were you referring to building projects there or what are sort of the projects that you've identified as targets?

Most of that refers to building projects, John. And a lot of that comes out of the continued refinement of the final pricing on the major projects that we have under contract now and on prospects that are in front of us and Rudolph and Sletten at this time.

And then last question if I could, in terms of your cash balance, obviously continues to grow with your profitability. Can you run through just kind of your priorities for the cash at this point?

Our priorities are fairly consistent with what they've been over the last three years. We do look for acquisitions that have very good resource potential to assist us in our building business. We look for continued opportunities with niche markets, so it's -- initially, I would say primarily for growth of the Company including acquisitions.

Richard Paget, Morgan Joseph.

I wondered if you would talk a little bit more about some of these additional jobs -- additional work that you've got in the casino work in Las Vegas. Is this something where it's the scope of the jobs and they are adding additional rooms or floors or buildings? Or is this -- they are looking at the job again and there's either some kind of cost inflation or some more complexity in there and the overall job has gone up?

I would say this is more the finalization and definition of the project as design progresses toward completion. So I would classify it primarily as added scope.

Bob, this is Dick. I don't know if you noticed in the paper, MGM announced an expansion of about 600 -- close to 700,000 square feet of program at MGM CityCenter.

Right, right.

So much of that was attributed to the expansion of program.

Which I consider to be scope additions.

Right, yes.

And then with operating income in the Civil, if we kind of back out those project write-downs, what would margins have been roughly?

They would've been about 4%.

So ex any charges going forward, that's a better way to look at it then?

That's probably right. There are two reasons. There were the write-downs that we took which were relatively minor really in the quarter. The volume being down has hurt their margin as well.

Then, looking into '08, given the high volume we're going through in building and then Management Services having great margins but some of those projects might be winding up in '07. How much earnings upside is there next year versus this year given that things are going at a pretty high pace?

We're not really ready to talk about '08. It's too early in '07 really to even think about '08. We'll have to see in the third quarter -- or at the end of the third quarter what we've been able to accomplish in terms of new work awards and things like that.

Clearly with the backlog we have, '08 will be a strong year. It's just that we're not in the practice of giving guidance at this early in the prior year.

I just meant even you are setting a very high bar here and especially with Management Services going at these margins and with the uncertainties with Iraq work, is that something that's going to get reupped again? Or is that just going to one time in -- that's going to wind down eventually?

You hit it right on the head -- uncertainties. And we deal with there's still continued demand for projects over there, but there's also deteriorating security circumstances. So we balance our appetite for work and the safety of our people, security of our people. So while there are opportunities that present themselves, we're fairly cautious and selective.

I will get back in queue.

(OPERATOR INSTRUCTIONS). Steven Fisher, UBS.

I wondered if you could first put the $435 million of Rudolph and Sletten awards into context. How does that compare to what the awards were in some of the recent quarters?

I think that's probably a strong result in terms of one quarter's worth of work. But on the other hand, there's no shortage of opportunities on the prospect list. So I would say that they had a very strong quarter for new work acquisition, but we don't say that there aren't still substantial opportunities ahead of them.

I am wondering, you mentioned, Bob, that there could be some more additions to backlog as the year progresses. But I am wondering if you think that backlog overall could grow as well. There's obviously some pretty big projects being converted into revenues at this point. And I'm wondering how easy it will be really to replace those going forward. That kind of ties into my trying to understand the Rudolph and Sletten and everything else.

Let's look at it this way. To a large extent, '07 is dedicated to the existing backlog. And in preconstruction, we continue to work with our client base. I'm talking about Perini in Las Vegas and in the gaming and hospitality sector, not Rudolph and Sletten.

However, I would tell you that the prospect -- the prospect array ahead of us is stronger today in absolute numbers than it was prior to signing up all the large work in '05. So given the strength of that sector, gaming and hospitality and gaming in our other core markets and Rudolph and Sletten's core markets in high tech, healthcare, office complexes and now Native American gaming, I will remind you that this is a lumpy business. And new work does not come evenly throughout periods. However, there are some substantial opportunities ahead of us.

So it sounds like you think that backlog could continue to grow from here as the year progresses, lumpiness included I guess.

I would say we can't talk quarter to quarter. But I would say over a longer period, there's every opportunity to at least maintain strong backlog numbers exactly.

Just a couple of follow-ups here. On project CityCenter and I guess Cosmopolitan and Trump, have you switch to the guaranteed maximum price on these or are you still at the cost-plus phase?

Bob, if my voice hangs out, we -- Trump has already been converted to GMP, guaranteed price. The portion of Cosmo that is underground through ground level is under a guaranteed number, not the remainder. And we haven't yet gotten a GMP on the various projects on CityCenter. But our schedule indicates we will start converting some of those programs to GMP in the next quarter.

Lastly, can you just remind me how much joint venture cash do you have, how much of that -- your cash balance is allocated to joint ventures?

I think it's in the $30 million range at the end of the quarter.

Yes, it was 32 million, Steve.

[Dan Cardelli], Private Investor.

I'm a longtime shareholder. And I remember back in 1990 when the dividend was omitted, they said that they were going to give priority to reinstating at the appropriate time. And I think it might be appropriate time in the near future.

Do you have a question, Dan?

Yes. Did you hear the question?

I think you are asking if the dividend will be reinstated in the near-term?

Or at least give some thought to that?

We will most likely discuss uses of cash at the upcoming Board meeting in May. And certainly, there are no holds barred at those discussions.

Yes, because it would be nice to get a little something after a lot of years.

On top of the large increase in the common price, right?

Right, right, which is very nice if you want to sell it. But if you don't want to sell it, it really doesn't help you that much.

Thank you for the comment.

(OPERATOR INSTRUCTIONS). John Rogers, D.A. Davidson.

I guess Bob or Dick, the improvement that you've seen in the Building segment margins over the last couple of quarters to [tenths] basis point but steady improvement. How much of that is just the newer projects coming in with a little bit higher margins, or are you seeing better execution relative to how you bid the projects or--? What are you seeing there? And what is driving that increase?

Bob, do you want to handle that or me?

Mike will.

John, it really is the fact that those projects had better than our historical average margin on them. And secondly, it's also just the total volume. Because the G&A expenses at the local units haven't increased proportionately to the revenue increases. So both of those things contributed to the increase in margin.

So as you're bidding work now, is it at least at those margin levels or better?

Correct.

Correct. Correct.

That's what I wanted to understand.

[Ben Warman], Bishop, Rosen & Company.

Let me congratulate you. We are all tickled pink with the performance of the Company as long as I have been a longtime shareholder. Now, with the increased value of the stock, would you give any consideration the possibility of a stock split to [port] ownership?

We have not discussed a stock split. And remember the stock has moved up fairly quickly, so that's typically not on the agenda. Our uses of cash are discussed by the Board repeatedly. But a stock split hasn't been on the agenda, and I will mention it to the Board. But I don't believe at this time that we will give it much consideration.

Congratulations again.

Steven Fisher, UBS.

Just a follow-up, it looks like you are getting some pretty good leverage on your corporate general and admin expense with kind of the further growth in backlog and tight markets here. Do you expect any meaningful expansion in that -- in the G&A expenditure level where we are right now?

No.

No.

No.

Okay.

That was unanimous.

That was unanimous.

We have no questions in the queue. I will turn it back to our host for any additional or closing remarks.

Thank you very much everybody. We are pleased as I'm sure you are with the outstanding performance in the first quarter of '07 and look forward to reporting the next quarter to you. Thank you very much.

Once again, this does conclude today's call. Thank you for your participation. Have a great day.