Tutor Perini Corp (TPC) 2010 Q2 法說會逐字稿

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

I will now turn the call over to your host for today, Mr. Ken Burk, Executive Vice President and Chief Financial Officer. Please proceed.

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

Before we start, I'd 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 are reasonable, but that are subject to a wide range of risks, 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 12-31-09 and our definitive proxy statement filed in April 28, 2010, as well as in today's news release.

Our statements on this call are made as of today, August 5, 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's my pleasure to turn the call over to Ronald Tutor.

Thanks, Ken, and good afternoon, everyone.

As anticipated, during the second quarter of 2010 we converted a number of pending awards in the backlog across all of our business segments. New contract awards and adjustments to contracts in process during the second quarter added approximately $1.4 billion to backlog. Major awards during the quarter include a $480 million courthouse in San Diego, a $300 million hospital in Northern California, a $149 million rehabilitation of the Tappan Zee Bridge in New York, a joint venture contract on a tunnel at New Irvington in Northern California, our share of which is $91 million, and an $81 million contract for runway paving and electrical work on Joint Base Andrews in Maryland.

Currently, we have approximately $1.1 billion in pending awards that consist of $791 million in hospitality, $184 million in education, $92 million in transportation, and $57 million in the industrial sector. These awards are expected to enter our backlog over the next few quarters.

We continue to be particularly pleased with our Civil segment, which is on track to achieve the margins we expected this year. As we look ahead to the remainder of 2010, we will continue to execute our strategy of increased focus on higher-margin public works projects in our Civil and Building segments.

With the first half of the year behind us, we still look for our Civil group to provide at least 40% of our operating income this year. We estimate the size of prospective opportunities in our Civil infrastructure target market to be $7.3 billion for the remainder of 2010. This breakdown includes $2.1 billion in highways, $1.8 billion in mass transit, $1.3 billion in bridges, and $2.1 billion of other types of Civil work, including power, rail and water.

In the nonresidential building markets, there continues to be a sign of economic recovery. Our customers are seeing improvement in the financial markets. For the Building group, we've identified and are tracking approximately $5.6 billion in targeted projects that we expect to bid over the next two quarters. A significant portion of this market is in the public sector, including corrections, education, municipal office, and transportation buildings.

Our dispute with MGM CityCenter is in the discovery phase, with a trial date set for September 2011. In the meantime, as they have been quick to point out, MGM is in the process of negotiating payments with certain of the subcontractors for final costs.

During the quarter, we continued to make good progress on existing work, including Terminal 3 at McCarran Airport, which is approximately 70% complete and on track for completion ahead of schedule, as well as JFK International Airport's Bay Runway project, wherein we delivered the main runway on a critical milestone date and achieved the bonuses thereto.

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

Thanks, Ron. In the Management Services group, we are continuing to see some of the larger proposal opportunities in Guam surface, which should contribute to new work awards in a more meaningful way in the second half of 2010.

During the second quarter, we have submitted a number of proposals to the US Navy under the $4 billion maximum capacity IDIQ design/build multiple-award construction contract we have received on the island. Work under this contract will include wharf repairs and construction, aircraft parking aprons, taxiways, runways and hangars, as well as general and special purpose buildings.

The final record of decision based upon the environmental impact statement for the Guam relocation and buildup is scheduled to be completed and filed in September 2010. This should give way to contract awards in the near future and continue to ramp up as the full construction program gets off the ground.

The Mamizu program is the Japanese government-funded construction program in Guam, and is expected to exceed $2 billion. We believe that we should get our fair share of this work. Prospects for new work in Iraq and Afghanistan continue and the Company is focused on certain projects that we are tracking with the Department of State and the US Department of Defense. There are additional overhead cover and housing programs specifically that we're interested in, which we expect to be bid in 2010.

We are also tracking private work through sureties and multinational clients, mostly in the defense sector, on a worldwide basis. And following the Haiti relief-related projects with the US Air Force, USAID, the UN, and the non-governmental organizations, which are expected to be bid and awarded later in 2010.

For Management Services group, we have identified and are tracking approximately $4 billion in targeted projects that can be bid or proposed on this year and early in 2011. These include new IDIQ projects for worldwide services for US government agencies, additional task order work under existing IDIQ contracts and other projects on a worldwide basis.

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

Thank you, Bob. Our net income was $32.7 million for the second quarter of 2010, as compared to net income of $38.9 million for the second quarter of '09. Diluted earnings per share were $0.66 for the quarter, as compared to $0.79 for the second quarter of '09. We ended the second quarter with a backlog of $4.3 billion, which is up 14% from the first quarter of this year.

The breakdown by business group of our backlog at June 30, 2010, is as follows -- Building $3.1 billion, Civil $1 billion, Management Services $195 million. The breakdown of the total Building group backlog by major end market type -- municipal buildings $937 million, health care $903 million, transportation facilities $449 million, hospitality and gaming $390 million, education $132 million, industrial $76 million, and other building markets $167 million.

The Civil group backlog breakdown is as follows -- mass transit $385 million, bridges $342 million, highways $278 million, and other Civil work $38 million. Management Services backlog is predominantly all government contract work.

In the second quarter of 2010, revenues were $914.4 million, a 34% decrease from $1.38 billion reported a year ago. On a reportable segment basis, revenues from our Building group were $663.2 million, down 46% from $1.2 billion in the second quarter of '09. The decrease is primarily related to the completion of CityCenter and the impact associated with lower levels of new work acquired in the non-residential building market during the latter part of '09 and earlier this year.

Revenues from our Civil group were $197.4 million, which decreased -- which increased 103% from $97.2 million reported in the second quarter of '09. The increase is primarily due to the new work we acquired during 2009.

Management Services revenues were $53.8 million, which decreased 23% from $69.5 million reported in the second quarter a year ago. The decrease is due to the completion of a significant portion of our work in Iraq and in Guam.

Our total gross profit decreased by 8.6% to $98.9 million, from $108.2 million in the second quarter of '09. Most of the decrease is due to reduced revenue volume in the Building group offset by greater mix of higher-margin public works projects during the quarter.

Our G&A expenses were $43.1 million, a decrease of 3.1% from $44.5 million in the second quarter of '09. Our current overhead structure will support future growth in our business without significant incremental costs.

We had income from construction operations of $55.9 million in the second quarter of '10, a 12% decrease compared to $63.8 million in the second quarter of '09.

Breaking down income from construction operations by business group, Building is $29.7 million, a decrease of 22% from $38.2 million in the second quarter of '09. This decrease was primarily due to the reduced revenue I explained earlier. However, the Building group generated an increase in operating margins from 3.1% in the second quarter of '09 to 4.5% in the second quarter of 2010. This, again, is primarily due to the higher mix of public works projects that we put in place over the last few quarters.

Civil group income from construction operations was $29.7 million in the second quarter of 2010, a 37% increase from $21.7 million in the second quarter of '09, primarily due to the increase in revenues that I previously mentioned. This obviously is driven through our performance in all our projects in both California and New York.

Management Services income from construction operations was $6.9 million in the quarter, a decrease of 51% from $14.2 million in the second quarter of '09. This decrease is due to the completion, again, of the work in Iraq and Guam, which produced higher margins a year ago.

Looking at our balance sheet at June 30, 2010, our working capital stood at $344.7 million, up from $303 million from the beginning of the year. As of June 30, 2010, our current ratio was 1.26 to 1, as compared to 1.23 to 1 as of December 31, '09.

As of June 30, we had $303.2 million in cash and cash equivalents, compared to $348 million at the beginning of the year and compared to $257 million from the quarter end in the first quarter. The decrease in our cash balance during 2010 is primarily due to the increased receivables from CityCenter, as well as we posted restricted cash to secure insurance-related obligations in lieu of more expensive letters of credit.

In addition, we used $11.2 million of cash to repurchase 617,000 shares of our common stock in accordance with our previously announced common stock repurchase program authorized by our board of directors. Subsequent to June 30 and through yesterday, we have repurchased an additional 1.5 million shares for an aggregate purchase price of $28.2 million. This leaves a balance of approximately $29 million under our original repurchase program, which was originally set at $100 million.

Cash flow from operating activities for the second quarter and the first six months were $73 million and $12.7 million, respectfully. The ramp up of new work in our Civil group during the quarter contributed significantly to an improvement in our cash flow during the quarter.

At June 30, long-term debt stood at $82.9 million excluding the current portion, and we had $311 million available to borrow under our credit facility. On July 16, 2010, we extended the maturity date of the $106.1 million of our supplemental facility portion of our current credit facility from December 31, 2010, until February 22, 2012, which is the date of our maturity of our current base revolver.

Shareholders' equity remained consistent at $1.3 billion at June 30 and December 31, as the addition to stockholders' equity from our net income was partially offset by the reduction in equity resulting from the repurchase of shares that I mentioned earlier.

We believe our current financial position and credit arrangements provide us with the adequate resources to meet working capital requirements for executing existing as well as new projects.

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

I'll now 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 is helping our industry. The non-residential building markets are showing signs of recovery, albeit slower than we would like. However, our Civil group has a significant number of major bidding opportunities that fit our target profile for size and complexities. Our Civil operations are delivering all the margins we expected.

And finally, the program in Guam has commenced with our turning in proposals over the last 90 days that exceed $500 million in value. We are waiting for those results as they are closed openings, so as yet, we have not been informed. We believe, once again, that we'll capture our share of the work and participate in the huge ramp-up on the island.

That concludes our prepared remarks, so that myself, Ken Burk and Bob Band will now take your questions.

(Operator instructions). Your first question comes from the line of John Rogers representing D.A. Davidson. Please proceed.

Hi, good afternoon.

Hey, John.

Ken, I apologize, I couldn't keep up with you. How -- cash at the end of the second quarter, did you say $303 million?

Yes, $303 million.

Okay. And how many shares do you have left under your repurchase authorization?

Well, as you know, we don't know exactly where that would be.

Oh, I'm sorry, or cash.

Yes, we're in -- we have about $28 million left.

Okay. Perfect.

$29 million, right at $29 million to repurchase, to fill -- fulfill the $100 million that we had authorized.

Okay. Okay, thank you. And then as it relates to work prospects, it's surprising, maybe just to me, but $790 million of potential hospitality work. I thought that market was pretty quiet.

Yes, well, we've seen -- we're waiting. There's been publicity about the casino racetrack, the Aqueduct Race Track in New York, with the [Genting] partnership. That's included in there. We've got another decent size gaming project in the Upper Northwest we're waiting to hear on, and then we have a few other prospects that we still feel pretty good about.

Okay. And I guess just finally, Ron, you mentioned the signs of improvement. Has the bidding environment changed in terms of competition for the work, or is it still the same players?

No, it's the same players. As long as the work is of a very large size and complexity, there's no more added players. It's the same two or three competitors. It's only when you get down to the $50 million and less that it gets horrific. The very large work still has very limited competition.

Okay. Great. Thank you very much.

Your next question comes from the line of Steven Fisher representing UBS. Please proceed.

Hi. Good afternoon.

Hi, Steve.

On the hospitality pending awards, separate from the -- or setting aside Aqueduct for a second, what are the hurdles left to get those other ones into the backlog?

Well, the larger one that I mentioned here on the West Coast, we really don't see really any impediments at this stage. I think we mentioned that we expect them to go into backlog in the third or fourth quarter. So we're not really aware of any particular issues.

Closing and financing.

Okay. And then revenues and backlog have both turned positive this quarter. Is there any reason to think that this isn't a sustainable inflection point?

No. I think we will continue to grow the backlog. We have some very substantial proposals that have been in that are beginning to germinate, and we're in hopes that we'll see some significant awards in the next four to eight weeks.

And then in terms of the revenue side of things -- and I guess you probably still have some of the bigger projects still burning off there, which would be a bit of a headwind, but can the stuff you're booking now, can that ramp up quickly enough to sustain the inflection point on revenues as well?

It will sustain the point on profit. Revenue might be a little more difficult. It just depends how quickly they award and break ground.

Okay. And then on the repurchases, was there anything about alternative cash needs or usages that changed, that motivated you to start buying back stock recently in terms of -- were you looking at acquisitions before and now you're not, so you're buying back stock, or was it the business turning? Any comments you can make there?

Well, the fact of the matter is the stock is so preposterously low, in the Board's and my eyes, that we see it as an opportunity to reduce the shares out in the marketplace, as well as we feel that things are beginning to look better, and what better investment than our own shares? Secondarily, we still continue to look for acquisitions. It appears that we have signed a letter of intent on what we would call a smaller strategic acquisition, but continue to look for significant transactions. And with our cash and credit facility available, we don't see any problem with funding any acquisition that we like.

Okay, great. Thanks a lot.

Your next question comes from the line of Richard Paget representing Morgan Joseph. Please proceed.

Good afternoon, guys.

Hey, Richard.

I mean, I know we already kind of touched on this, but with such a surge in new awards, I mean, was this just a couple of things happened to hit at the same time? Do you think it was pent-up demand or, I mean, as you somewhat alluded to, that this is kind of the beginning of a recovery and things are starting to move forward a lot?

We think things are starting to move forward. As I think I mentioned, we have literally another $1 billion-plus of proposals in where I think we have an excellent chance of being awarded a significant number of them. We are literally writing proposals and bids on a week-to-week basis all over the country, predominantly in the Civil sector and secondarily in the Building business. But it's remarkable, the government and the institutions still continue to bid buildings, and there still continues to be significant major civil work all over the country available.

Now, do you think this is left over -- the kind of tail end of stimulus money, or this is totally funded differently and it should be sustainable?

The majority of it isn't stimulus money at all. It's like looking at a proposal on the Goethals Bridge in New York, which is over $1 billion. It's looking at another one on -- the Vincent St. Thomas Bridge in Los Angeles, over $1 billion. It's the roads and approaches for CalTrans at the Golden Gate Bridge, is $500 million. It's R 91, a big highway project in Los Angeles that's over $1 billion. There's just, as you can hear, a significant number of major projects that have our interest all over the country, none of which are touched by stimulus funds.

Now, that being said, I guess what do you feel your capacity internally to handle -- I mean, where do you kind of top out at backlog?

We have no limit. I'm just kidding, I'm just kidding. Let's just say that there's nothing we've seen yet that gives us a cause for concern with our limits. I suppose at some point my favorite conversation would be to tell you we're beginning to tap out, but that's so far out there yet, we're not there yet.

We're also seeing still talent. There's a talent pool that's available, as well.

All right. And then, Ken, on interest expense, it jumped up. Was that just because of the lower cash balance, or anything kind of one time in nature happen with (inaudible - multiple speakers)?

We -- actually, we did have about $1.7 million where we trued up the mineral -- we had the royalties associated with our aggregates business. It's a noncash element of interest expense. But the run rate would be much less than that, so other than that, everything was fairly normalized from the previous year.

Okay. All right, thanks. I'll get back in queue.

(Operator instructions). Your next question comes from the line of Avi Fisher representing BMO. Please proceed.

Hey, guys. Nice quarter. Thanks for taking my questions.

Sure.

A little housekeeping first. Ken, you -- in the Civil backlog, I heard the first number was 385. What category did that fall into?

385? What do you mean?

You broke out the Civil backlog, and I got something and bridges, highway and other.

Oh, it's this breakdown of the $900 million.

The breakdown of the backlog?

Yes.

Okay, hang on one second.

Thanks. I appreciate it.

Yes, the backlog breakdown -- mass transit $385 million, bridges $342 million, highways $278 million, and other $38 million.

Other was $38 million. And then in the Buildings backlog breakdown, that $449 million, is that primarily the McCarren Airport, what's left of the McCarren Airport?

Yes, that would be primarily the McCarren Airport.

Okay. And did you recognize any awards from the JFK runway project in EBIT in the quarter?

Awards? We were awarded that last year.

Yes.

No, I mean, I'm sorry, the completion, for completion of phase one on time and on schedule.

We recognized some incremental benefit from the milestone that Ron mentioned.

We got a bonus.

Yes.

Right. And did you -- I mean, as I understand it, if you did it within 120 days, you got a $5 million bonus.

Yes, the bonus, and I'm assuming we recognized it.

Yes, we recognized the appropriate percentage of completion of that.

Got you, okay. And you had great margins in the Civil segment this quarter. How much -- and you also had great weather this quarter. I mean, is it to be expected that the 10 to 12% target plus the 300 bps upside because of just solid execution, good weather? I mean, is that the --

Weather doesn't apply into that. This is Ron Tutor. We've been averaging that for the last 20 years at Tutor-Saliba. What happens in the weather is typically the revenues go down because we're either unable to work or we work at a reduced pace. But that's what we expect, have always earned, and since our people are running the Civil sector, I see no reason to believe we can't do that well or better.

Was it a contributory factor to the strong burn rate in the Civil segment this quarter?

I think so. I think what we demonstrated is how quickly we can execute the work and deliver it. And if you'll recall, the JFK runway job, which is now an extremely successful job, we were 15%, 18% low and having doubters talk about how could we be so cheap,. Same thing with the Greenwich Corridor, which is an extremely profitable job that, again, we were extremely low and being told how can we be so consistently cheap? So we think we're doing everything the way we expect to and doing it well, and the results are in the earnings.

I was one of those doubters who has asked about that.

Aware of that.

But you also had fantastic weather this quarter in New York City.

Oh, weather doesn't build jobs. People build jobs, Avi.

Got you. It helps. It helps to make it easier.

I agree.

In terms of some of the projects that you mentioned in the Goethals Bridge, the SR 91, a lot of those are what's known as alternative delivery projects, say design/build.

Correct.

But do you have a -- do you need to partner with an engineer to do that? I'm trying to flesh out your experiences in doing --

Typically, they're designed, built and financed. So we typically -- we don't necessarily partner with a design engineer. We get a design engineer who's a part of the team often as a committed consultant to our joint venture. And then if it's a finance, we typically partner with one of the Spanish companies, who are the most powerful in providing financing.

So they will take the equity stake in the project and you'll try to avoid that? Or you'll take the equity --

We're not taking the equity stake. We're strictly a contractor on the construction side and hope that these joint ventures will be set up with partners that will take the equity stake and provide that funding.

Any sense on the timing of some of these project proposals that you mentioned in your prepared statements?

I would say fourth quarter this year, first quarter next year of the ones I mentioned. There are other ones, like the Seattle transit, which exceeds $1 billion, that will be going in at the -- sometime early in the fourth quarter.

And then I think last quarter I asked you what was going on in Vegas, and that seemed to slow down, but it seems like there's likely to be a pickup in casino work out there.

Boy, I don't see it if there is.

Not in Vegas.

Not in Vegas.

Unless it's certain hotel companies beating subs out of money, I don't know what's going on.

I think that taps out my questions for now. I appreciate the color. Thank you.

Thanks, Avi.

Your next question comes from the line of Kalpesh Patel representing Jefferies & Company. Please proceed.

Hello?

Hey, Kal.

How are you?

Good.

Great quarter, gentlemen.

Thank you.

Thank you.

Question on Guam. Do you have expectations in terms of dollar amounts for how much to bid this year and next year?

Well, we've turned in already, as we speak, over $500 million in bids awaiting the outcome, and probably we expect another $200 million to $400 million before year-end.

So about 7 to 9 in 2010. How about 2011?

We assume it'll straight line something like that through 2013. And then at the end of this year, we provide a qualification statement for a $2 billion MACC within the Japanese Mamizu program.

Say that again, you qualify for a MACC?

As we qualified for the Navy MACC, the multiple awards contract, which we are now bidding work under, the Japanese-funded program called Mamizu has just issued a request for qualifications, as did the US Navy, where we re-prequalified and bid the work that they're going to fund, which that initial Japanese MACC, under the direction of the US Navy, is another $2 billion, which, assuming that gets accomplished this year, that'll start bidding sometime the first or second quarter next year.

Okay, got you.

So Guam is definitely gearing up. We would expect -- of these jobs we've bid, we would expect them to start announcing awards by the end of August, first part of September.

Excellent. I mean, so what does the signature on the final environmental impact statement have to do with anything at this point? I mean, it seems like the program is moving forward at --

It's a technicality.

It's just a technicality?

Of course.

Okay. And in terms of the pending awards that you mentioned, what is -- I guess what's remaining to get those projects moving? Is it all financing issues?

It's the slowness of how the US government -- I mean, they just -- typically, every time we turn in a job in Guam, it takes them 90 days to study it, come back to us with questions, get it through all the government circles, and then finally make an award. It's just the way it is. (Inaudible - multiple speakers.)

I guess I was referring to the $1.1 billion in pending awards across the different --

Yes, the buildings -- most all of those are building projects.

Right.

We mentioned the New York one, which is really more in the political approval stage.

I thought you meant the Guam work.

Yes.

Yes. No, I meant the building work.

No, the building side, there's some, as Ron mentioned, financing, just completing the financing of the projects. I would say that we see the financing as lower risk, certainly, than what we saw 9, 12 months ago. So I think that's starting to be a better situation for the project financing side, and just working closely with the customers, getting them prepared to award and sign up the contract.

Okay, so it's primarily financing.

Yes.

Yes.

Okay. And one last question. All this opportunity and all these projects that you're bidding, has the number of bids that you've been sending out there increased a lot, or is this pretty much the pace that you've always done?

Substantially up.

It's substantially up. Is that just because of the tough market environment, you have more bidders out there?

No, whether -- the market environment has nothing to do with it. I think that there's just an extraordinary pent up number of jobs that are being released by governments across the country, from New York to California, and all the jobs I referenced, and I only talked about the huge projects. There are just a number of those, and, frankly, I can't remember having that many major project opportunities in front of us at any one time. Couple that with bidding a job every two weeks in Guam, and we've just been inundated with government proposals. And we love it, and we continue to support it.

What -- I mean, obviously we're in a tough recession. What is causing that? You would think that --

I'm older than you, and I can tell you from experience, every time there's a depression or a recession -- and for the rest of you older guys, you'll remember that the government always spends like crazy on infrastructure to re-prime it. So while everybody else suffers, the infrastructure industry always prospers from that influx because it's the only thing the government can safely invest in that no one can criticize -- roads, bridges, schools, etc. It's always been like this. It's no different now.

Even when their tax revenues are down.

That never confuses them.

Right, right. Congratulations, gentlemen. Thank you.

Thank you.

Your next question comes from the line of Michael Chapman representing Private Capital Management. You may proceed.

Thanks. Good quarter, guys, and as a shareholder, very happy to see the share buybacks. Question for Ron, since all my others have been answered. Just you've been in the press lately with the film venture. I'm wondering, given the amount of time that you're going to be spending on all the Civil work that's coming up, how much of your time is going to be getting devoted to that. Thanks.

Very little. I'm the lead passive investor, we are hiring -- one of my partners has an entertainment industry group and, over the next three to six months, we'll be putting people in place to where I'll just be a board member and a passive investor.

Great. Thanks. Keep up the good work, guys.

At this time, there are no additional questions. I will turn the call back over to Mr. Ken Burk. Please proceed.

That's all we have. Thank you for joining our call in the second quarter, and we'll look forward to following up with our third quarter call. Thank you.

Thank you for participating in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.