Tutor Perini Corp (TPC) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2010 Tutor Perini Corporation earnings conference call. My name is Kiana and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Ken Burk, Executive Vice President and CFO. You may proceed.

Good afternoon, everyone. Thanks for joining us on Tutor Perini's first-quarter 2010 conference call. With us today is our Chairman and CEO, Ronald Tutor, and President, Robert Band.

Before we start, I would like to remind our listeners that our comments today will contain forward-looking statements, including statements about future guidance. Management may also make additional forward-looking statements in response to your questions. These types of written and oral disclosures are made pursuant to the safe harbor provision contained in the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risk 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 reasonable, but that are subject to a wide range of risk, and actual results may differ materially. These risks and uncertainties are discussed in detail in our filings with the SEC, including Tutor Perini's annual report on Form 10-K for the fiscal year ended December 31, 2009; our definitive proxy statement filed on April 28, 2010; as well as in today's news release.

Our statements on this call are made as of today, May 6, 2010, 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 out of the way, it is my pleasure to turn the call over to Ronald Tutor.

Thanks, Ken. Good afternoon, everyone, and thank you for joining us on the call today.

With the completion of MGM's project, CityCenter, in 2009, we have moved forward with a new set of challenges and opportunities. Bidding activity in our Civil group is at an all-time high and we continue to compete for our share of the available work. During the months of March and April 2010 we were identified as the low bidder on four civil projects in California, New Jersey, New York and Maryland, totaling approximately $366 million in contract value.

In our Building group we have pending awards in the amount of $969 million, consisting primarily of healthcare, education, and hospitality and gaming projects. We expect these and other promising new work opportunities to bolster our $3.8 billion backlog in the coming quarters.

As we look ahead to the remainder of 2010, our Civil business continues to provide us with the best growth opportunities in terms of new awards as well as higher margins. With the first quarter behind us, we still look for our Civil group to provide more than 40% of our operating income this year. We estimate the size of prospective opportunities in our Civil infrastructure target market to be $16.5 billion for 2010. The breakdown is $5.7 million (sic) in bridgework; $5.2 billion in highways; $3 billion in mass transit; and $2.6 billion of other civil work, including power, rail and water projects.

In the nonresidential markets, there is some signs of economic recovery. Our customers are seeing an improvement in the financial markets and in the Building group we have identified and are tracking approximately $11 billion in targeted projects that we could bid this year. A significant portion of this market is the public sector, including corrections, education, municipal office and transportation buildings.

With respect to MGM CityCenter, approximately $491 million is due and owed to us and our subcontractors, which consists primarily of contract receivables and subcontractor change order requests for additional work requested by the owner. Amounts due us include pass-through subcontractor billings for contract work, including their retention in the amount of $299 million, and subcontractor change orders for extra work of approximately $81 million. In March of this year, we filed a lawsuit against MGM alleging breach of contract, among other allegations, and subsequently filed a $491 million mechanics lien against the project. Needless to say, we are very disappointed with the manner in which MGM has handled the closeout and final payments of this property.

The Fountainebleau property has been sold through bankruptcy proceedings to a development team led by Carl Ichan, and approximately $105 million has been set aside from this sale and is available for distribution to satisfy creditor claims based on seniority as will be determined by the courts. It essentially boils down to the banks disputing the creditors for who goes first.

Terminal 3 at McCarran Airport is approximately 51% complete and continues to be significantly ahead of schedule with what we hope to have a successful completion occur in 2011.

Now I would like Bob Band to share more details of our Management Services group.

Well, thanks, Ron.

In the Management Services group we are continuing to see some of the larger proposal and bid opportunities in Guam come to the surface, which should contribute to new work awards in a more meaningful way in the second half of 2010. The strategic realignment of US forces, including the relocation of 8,000 US Marines and their dependents from Okinawa to Guam is starting to generate project opportunities for the Company. Our team has submitted its proposal to the US Navy for a $4 billion indefinite delivery, indefinite quantity, IDIQ, construction contract. The Navy intends to award at least three IDIQ contracts covering a base year and four one-year option periods. Work under these contracts will include wharf repairs and construction, aircraft parking aprons; taxiways, runways and hangers, as well as general and special-purpose buildings. Selection is anticipated any day for this contract.

In addition, separate competitive construction opportunities on Guam for infrastructure utilities, housing, healthcare, education and other facilities are in the proposal and bid process, and more are anticipated throughout 2010, 2011, and beyond. For example, the [Mimizu] program is the Japanese-government-funded portion of the construction program on Guam and is expected to exceed $2.2 billion. Tutor Perini has marshaled the resources of all of its companies to pursue these opportunities through Black Construction, our wholly-owned subsidiary on Guam.

Prospects for new work in Iraq and Afghanistan continue and are very competitive. We are tracking projects with the US Departments of State and Defense and also Department of Homeland Security, which are expected to be bid in 2010, as well as private work through sureties and multinational clients.

We are closely tracking the Haiti reconstruction-related projects with the US Air Force, USAID, and the nongovernmental organizations, which are expected to be bid in 2010. We have resources on the ground in Haiti.

Under our US Air Force SATOC task order contract, PMSI and Cherry Hill Construction of our Civil group were notified of the award of an $81.2 million project for the repair and replacement of West Runway One-Left at Joint Base Andrews in Maryland. This project is included in the pending awards Ron mentioned earlier.

In addition, after clearing two protests, the US Coast Guard has awarded its IDIQ contract to eight contractors, including Perini Management Services. Each contractor is funded for up to $500 million of task order work.

Excellent progress continues today on the $190 million of contracts currently underway in Iraq.

Now Ken will give you the financial details for the quarter. Ken?

Thank you, Bob.

Our net income of $20.9 million for the first quarter of 2010 as compared to net income of $39 million for the first quarter of '09. Diluted earnings per share were $0.42 per share for the first quarter of '10 as compared to $0.80 for the first quarter of 2009.

We ended the first quarter with a backlog of $3.8 billion. The breakdown by business group of our backlog at March 31, 2010 is as follows -- Building, $2.7 billion; Civil, $922 million; and Management Services, $150 million.

The breakdown of the total Building group backlog by major end market type is as follows -- healthcare, $651 million; transportation facilities, $593 million; hospitality and gaming, $552 million; municipal buildings, $461 million; education ,$167 million; and industrial. $165 million; and other building markets, $96 million.

The Civil group backlog is as follows -- mass transit, $419 million; highways, $303 million; bridges, $163 million; and other civil work, $37 million.

Management Services backlog is predominantly all government contracts.

In the first quarter of 2010 revenues were $865.1 million, a decrease of $1.5 billion reported in the first quarter a year ago (sic - see Press Release.)

On a reportable segment basis, revenues from our Building group were $686.3 million, a decrease of 48.9% from the $1.3 billion in the first quarter of '09. The decrease is primarily related to the completion of CityCenter and the impact associated with lower levels of new work acquired during the latter part of '09.

Revenues from our Civil group were $124.7 million which increased by 39.6% from $89.3 million reported a year ago. The increase is primarily due to the new work we acquired in '09, such as the JFK runway project and the Greenwich Corridor at the World Trade Center site.

Management Services revenues were $54.1 million, which decreased by 37.1% from the $86 million we had reported in the first quarter of '09. The decrease is due to the completion of a significant portion of our work in Iraq.

Our total gross profit decreased 28.8% to $76.1 million from $106.7 million (sic - see Press Release) in the first quarter of '09. Most of the decrease is due to the reduced revenue volume in our Building group and higher margins that we achieved for work in Iraq during the first quarter of '09.

General and administrative expenses were $42 million, a decrease of 5.2%, or $2.3 million, from the $44.3 million in the first quarter of 2009. As we ramp up our backlog with new business, we expect our G&A to remain flat through the next several quarters.

We had income from construction operations of $34.2 million in the first quarter of '10 compared to $62.6 million in the first quarter of '09. Breaking down income from construction operations by business group, our Building income from construction operations for the quarter was $32.3 million, a decrease of 25.4% from the $43.3 million in the first quarter of '09. This decrease was primarily due to the completion of our work at CityCenter. However, the Building group generated an increase in operating margin from 3.2% in the first quarter of '09 to 4.7% in the first quarter of '10. This was primarily due to a higher mix of public works projects during the quarter.

Civil group income from construction operations was $8.3 million in the first quarter of '10, a decrease of $4.4 million from $12.7 million in the first quarter of '09. The decrease is primarily due to better than expected operating results we achieved in the first quarter of '09, coupled with under-absorbed overhead as new contracts recently awarded ramp up.

Management Services income from construction operations was $3.1 million for the first quarter of '010, a decrease of 80.1% from $15.6 million in the first quarter of '09. Again, this decrease is due to the completion of work in Iraq, which realized higher margins in the first quarter of '09.

Other income was $0.3 million in the first quarter of '10 compared to $1.3 million in the first quarter of '09. This decrease was primarily due to lower interest income on investments, as we had lower average investment balances during the first quarter of '10.

Interest expense increased to $1.5 million in the first quarter of '10 from $1.2 million in the first quarter of 2009. This was due primarily to higher average outstanding debt balances during the first quarter of '10. Provision for income taxes was $12 million compared to $23.7 million in the first quarter of '09.

If we look at our balance sheet, at March 31, 2010 our working capital stood at $324 million, up from $303.1 million at December 31, 2009. As of March 31, 2010 our current ratio was 1.26 to 1 as compared to 1.23 to 1 as of December 31, 2009.

As of March 31, 2010 we had $256.9 million in cash and cash equivalents compared to $348.3 million at December 31, 2009. The decrease in our cash balance during 2010 is primarily due to increased receivables associated CityCenter, as well as $23.5 million of restricted cash we used to secure insurance-related contingent obligations in lieu of more expensive letters of credit. For the first quarter, operating cash use was $60.3 million.

At March 31, 2010 our long-term debt stood at $87.7 million, excluding the current portion, and we had $311.5 million available under our credit facilities.

Shareholders' equity remained consistent at 1.3 for both periods of March, of '10 as well -- yes, $1.3 billion, excuse me, at March 31, 2010 and December 31, 2009. We believe our current financial position and our credit arrangements provide us with adequate resources to meet our working capital requirements for executing existing and new projects.

Our guidance is estimated to be within the ranges we previously provided. Revenues are estimated to be in the range of $3.4 billion to $3.9 billion and diluted earnings per share are estimated to be in the range of $2.00 to $2.20 per share. The ranges reflect our current view of our new work prospects that could enter our backlog and be converted to revenue and profits this year.

With that, I'll turn the call back over to Ron for his closing comments.

Thanks, Ken. We believe there are notable signs of improvement in our economy that should help the construction industry. The nonresidential building markets are beginning to grow and we have many bidding opportunities in our civil work that existed beyond what we could foresee a year ago. Meanwhile, we continue to focus on continued project execution and cost control, as we grow our backlog with the prospect of new business.

That concludes our prepared remarks. Now, Bob Band, Ken Burk and I will take your questions.

(Operator instructions.) Richard Paget; Morgan Joseph.

Ken, I just wanted to make sure that I added up everything correctly for the backlog breakdown. So for Building, does it look like you have about $2.685 billion? Is that the total?

Yes. Yes, that's right.

All right. And then what would be Managed Services then? I know it would be the balance, but just for rounding. I want to make sure.

$150 million.

150? Okay. Wonder if you could talk a little bit more about Guam and what kind of margin expectations you guys might be having for that work? Because it sounds like we've heard more companies trying to throw their hat in the ring, and I'm wondering what the competitive environment will be and ultimately how that will impact potential profitability there.

This is Ron Tutor. I'd assume that other companies will come from the US and even maybe some other parts of the world. But our margin philosophy remains consistent. We see that as a high margin market, pretty much like our civil works operation. It's significantly across the Pacific. There's logistics problems associated with working there. You have to bring in your workmen from other parts of the world. It's just -- we see it as the same consistent level of margin that we've always had and more consistent with our Civil sector than our Building sector.

Okay. So given your inherent cost advantage there, that might be your margins versus some of the other players trying to come in there?

I would assume others might go in at a lesser margin, but there's also very significant risks with someone coming from the US and working in Guam for the first time. They're very obvious to all our competitors. And all we can do is maintain our discipline and bid what we think. Only time will tell how that fares.

Okay. And then, moving on to CityCenter, is your -- is this something that might go to arbitration sooner as opposed to later or does this look like --

No, we'll litigate.

Okay, so the resolution of this will take awhile then.

I'd assume 18 months to two years.

So in the meantime will you possibly take any reserves out?

No. We'll collect every penny and you can quote me.

Okay. Thanks. I'll get back in queue.

Steven Fisher; UBS.

Looks like some nice awards there on the Civil side of things. And I'm just wondering, will that full $366 million go into your backlog in the second quarter?

The answer is yes.

Okay. So that's after any JV partner shares or anything? That's all Tutor Perini's share?

Yes. Only one of them is a JV. The rest are all us.

Okay. Great. And then, are you still targeting double-digit operating margins in Civil? And how quickly do you think you can ramp up to that level?

We would expect Civil ramped up to where we'd like it by end of the third quarter, beginning of the fourth quarter. And we haven't seen or done anything to change our attitude on double-digit Civil margins.

Okay. And that's operating margins, right?

Yes. And as you saw, Steve, the first quarter, I mean, we were still ramping the business. I think it's fair to say the second quarter is going to be much stronger in terms of the volume of business that we're generating.

Right. Okay. And in terms of the CityCenter, what are your expectations for timing of payments to subcontractors? I mean, do you think you can hold them off for that 18-month time period?

We're primarily a pay-when-paid. And it's not a matter of whether we can hold them off. Unfortunately for them, they're in the litigation with us against MGM. And as long as MGM continues to avoid the payment, they're in it with us until the bitter end.

Okay. So there's no subcontractors that can force you or --

No.

-- through legal actions to pay in advance?

No.

Okay. And then, Bob, I mean, any kind of guesstimate you can make or what targets do you have in mind in terms of task orders that you hope to book in Guam in 2010?

Well, we're anxiously awaiting the award of the large multiple award contract. I think right after that they'll be projects to propose under that contract right away. I'll give you -- you probably know, but that US Coast Guard task order contract, after fighting back two protests, was finally awarded this week. And they've told us they have seven projects right away with a combined value of $350 million to $400 million to propose on. So that's the Coast Guard. I think Guam will start off with a similar bang as well.

Does any of that Coast Guard relate to the Gulf oil situation?

Not to my knowledge.

Okay. And then, just lastly, the municipal buildings backlog held exactly flat. Was that coincidence, or is there a stalled project there?

There's no stalled project, so --

Just coincidence.

-- just coincidental.

Okay. Great. Thank you.

John Rogers; D.A. Davidson.

In terms of the Building work that you announced you were low bid or pending, how quickly does that ramp into backlog?

There's -- it's going to vary, of course. We have, in healthcare for example, we're still working through terms and conditions. So I think with all of that $969 million that we mentioned that we are expecting this year. But I wouldn't be able to give you any real good prediction whether it will fall -- how much it will fall in the second and third quarter, John.

Okay. And then, it's a smaller portion of your business, but the electrical and mechanical subcontracting or operations that you have, are they seeing the pickup in commercial building work that you referred to?

No. I would say that they have been fairly level. Their focus is almost more in supporting our Civil work operation, while they try to maintain their building awards. But I wouldn't say they're growing. I'd say they're maintaining their revenues.

Okay. And as far as the Civil work that you're pursuing now, you've talked in the past about New York and California. Are those still the primary markets that you're targeting?

They're the primary markets, but we're also in Pennsylvania. We're looking at a major project in Washington, DC. Where our sphere is is typically the East Coast from Washington DC up through New York, and Florida. And then the West Coast from California up through the State of Washington, including Nevada and Arizona. So we really cover both coasts. And unless there's a significant project in the Midwest or the South that we feel suited to, most of the really big work falls on the coasts.

Chicago and Illinois is not a place we have ventured and neither have we hit the deep South much. So there are parts of the country we don't typically go. But I'd say the primary Civil markets are the Eastern and Western Coasts.

Okay. Thank you. And, oh, one other thing -- I guess for -- we haven't seen the complete balance sheet yet, but the $491 million from MGM, is that what will show up as a receivable and then be offset by pending payables?

No. No, that won't show up, John. As we mentioned on the call in remarks, there's about $81 million of subcontractor claims that would not be booked in our balance sheet. These would only come in on the basis of their approved status. And as we stand right now, we don't see that happening in the near term.

Okay. But still, so $400 million and change would be in there?

Correct.

Okay. Thank you very much.

Richard Rossi; Wunderlich.

Just a couple things. On the bidding in the Civil area, what's the competition on that bidding looking like? Has there been much of a change?

No, it's been fairly consistent. So long as we stay in the markets of $150 million to $200 million and up and a work of a certain level of complexity and difficulty, we still find ourself bidding against anywhere from three to four other general contractors.

Okay. And just one thing on Guam. You mentioned the Japanese-financed portion of that. Is that work that you believe you have a shot at, given the normal reluctance of the Japanese to share?

Well, the Japanese don't control it. They have funded it and the US Navy controls the award of those contracts. And we have been assured that inasmuch as we are bidding them alone, that there will be no preferences, particularly with the US Navy administering the programs.

Well, that's certainly good to hear. And then, finally, regarding the MGM situation and the 12, 18 months maybe even longer, any sense of how much legal fees that might involve on your part?

I would expect them to be significant as we make MGM do what they're supposed to do.

And is there any reimbursement for that?

Yes. There's legal fees. There's interest. There's all sorts of ways for whoever turns out to be the losing party to pay the price.

Got you. All right. That's all for me. Thank you.

(Operator instructions.) Avi Fisher; BMO Capital.

I'm curious about Harmon. Is that still in the backlog? And if so, how much does it represent?

There's no backlog in Harmon. It's part of MGM. It's completed and it's in that -- it's in the litigation.

Got you. And the Cosmopolitan?

The Cosmopolitan is still ongoing. It will probably complete in the fourth quarter of this year. And let me see if we can fi- -- do you want to know the amount of backlog remaining at Harmon -- I mean, excuse me, at Cosmo?

Yes. I mean, I guess it's not the $552 million is it?

No. It's just under $500 million.

So you -- just to clarify, the backlog number that you have, the $3.8 billion, which I thought was excellent, that includes Harmon being removed from it?

Harmon's never been in it. Harmon was done last year as part of the conclusion. And all of the MGM CityCenter was removed from backlog. So the only backlog really remaining in Las Vegas is the backlog associated with Cosmopolitan and Terminal 3 at McCarran Field.

Got you. In regards to the McCarran, I mean, that burns off I think in 2011. I guess if -- a question following up John's question on electrical and mechanical work, just so I want to clarify. Is most of that electrical and mechanical sub work in the Southwest Nevada region?

In Nevada and California. Lot in California.

Okay. And I guess they're involved in the McCarran?

Yes. Desert Plumbing is the mechanical contractor on McCarran with $140 million of contract from Perini Building Company.

Got you. And what's next in Nevada after McCarran? I mean, what can we look forward to?

Cleaning streets and sweeping up sidewalks.

It's got to be better than that.

I don't think it's much better, to be very candid.

Got you. Okay. So you would look more to expanding the end mar -- expanding your regional geography or -- ?

I would assume that there will be very little work for us in Nevada for a number of years to procure. And all of our people are just preparing to get on airplanes. As I've told them, "Get ready to move."

Right. Just go where the work is going.

Absolutely. We're a nomadic group.

In terms of your cash, it sounds like based on the balance of the receivables and payables, there's about $110 million of the CityCenter payment that would be yours free and clear?

Yes.

And that's tied up in working capital. I guess I'm concerned, do you have any limitations on what you can book given your cash balance and -- ?

None at all, no. None at all. We have significant working capital. We've got $300 million in credit facilities we haven't tapped. As you can see, we have little or no debt. Our only debt relates to some collateralized equipment, as well as building facilities. We're virtually debt free with lines of credit as well as other receivables of substance we expect to collect this year. So I would say, if anything, even despite them holding $100 million of our cash, we're very strong working-capital-wise.

Got you. And in terms of you have a share buyback authorized, have you been in the market for your shares and do you --

Not yet.

Do you expect to be and at these levels or -- ?

We're contemplating.

(Inaudible) that we've noted from our Board and that's the extent of it at this stage.

Okay. I appreciate it. That's it for me. Thank you.

John Rogers; D.A. Davidson.

Just one follow-up. Relative to your case with the MTA, is there anything new in terms of updates there?

Well, let's just say that it's been very, very positive for the last few months, John. And I think the case has been stripped -- has been reduced is a better term -- by the Court, where neither side can win much, if anything. We feel that the case in many ways has turned and is now on our behalf. And we don't feel we have any exposure remaining. And we feel we have an opportunity to actually, after the misery of the last 15 years, to put a more positive spin on it.

And, I mean, is it possible it gets cleared up soon or is this (inaudible - multiple speakers.)

(Inaudible - multiple speakers.) We had a trial date that was set back, but right now I think we have a current trial date in October, roughly October, and we don't think the trial should take three weeks.

Okay. Thank you.

Kalpesh Patel; Jefferies.

So my first question is regarding the $969 million in pending awards. What is the timeline there and I guess what's holding those awards up in the decision-making process for your clients?

Kal, it's Ken Burk. Basically it's they're all at varying stages of negotiation for final contract terms and conditions.

A big part of that's Kaiser.

Yes. Well, we have a healthcare project that represents the biggest piece of that. And then the other projects, we believe all of these projects will flow into backlog this year. But we haven't provided any specific time- --

The majority of that will flow into backlog in the second quarter. One of the big hospitals was awaiting a corporate guaranty that I just signed this morning. And it's all very near.

Okay. So pretty much second, third quarter and you're very confident that they'll answering. But there's not going to be some change that's going to say, "Okay, we're going to cancel this because of the economy or our financings are off"?

We don't see -- we see very little risk in that regard, Kal.

Okay. No, that's good. That's good news. You also mentioned Fountainebleau in your initial remarks here. How much exposure do you have on that project?

We have about $16.7 million that we have recorded on our balance sheet.

Okay. So that's where you're going to try to get reimbursed on that -- out of that $105 million?

Out of the escrow account.

Yes, out of the proceeds.

Okay. And with your Guam business, can you tell me what your resources are in Guam, how many people you have on the ground at Guam?

I don't think that's something we want to respond to. We have a lot of competition and there's no reason for them to know what we have. Let's just say we're the largest employer on the island of Guam after the government.

Okay. And we'll just go with that, right. All right. Those were my questions. Thank you.

With no further questions, I would now like to turn the conference over to Mr. Ken Burk for final remarks.

Thank you all for joining the call today.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.