Tutor Perini Corp (TPC) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Tutor Perini Corporation earnings conference call. My name is Regina, and I will be your operator for today. (Operator Instructions) Today's 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 Chief Financial Officer. Mr. Burk, please go ahead.

Good afternoon, everyone. Thank you for joining us on Tutor Perini's fourth quarter 2010conference call. With us today is Ronald Tutor, our Chairman and CEO 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 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 vary 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, February 24, 2011. 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 Ron Tutor.

Thanks, Ken. Good afternoon, everyone, and thank you for joining us. 2010 was a very good year for us in terms of demonstrating the organizational versatility and strength of operations as we deliver some of the larger, more complicated projects across the United States. Structurally, we are pleased with the balance of our organization and are poised to grow our core businesses as the economy continues to improve.

On January 3, we completed the acquisition of Fisk Electric, a premier electrical contractor who has eight offices across the country. With the addition of Fisk, we add to our abilities to vertically integrate our buildings and civil operations while maintaining their focus on offering solutions to their existing customer base. Headquartered in Houston, Texas, we expect them to open up more project opportunities for Tutor Perini Companies as we pursue larger projects throughout the southern United States market. Our acquisition pipeline is full of major transactions that are in varying stages of closing, and each will complement our various operating segments.

During the first half of 2011, we will have put all of the capital we raised in the bond market to work. Overall, we expect that all of the transactions combined will be accretive during the first year of ownership.

We entered the year with a backlog of $4.3 billion. During the fourth 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 contract and process during the fourth quarter of 2010 added approximately $925 million to backlog.

Major awards during the quarter included the Seattle SR 99 Bored Tunnel Project, the I-95 Corridor Improvement Project in New Haven, Connecticut, the Fort Lauderdale Airport Terminal Four Project, USC Sports Complex, and the Kosrae International Airport Runway in Micronesia.

Currently, we have approximately $1.2 billion in pending awards that consists of $600 million in power, $160 million in hospitality and gaming, $144 million in education, $132 million in government, $87 million in industrial building, and $37 million in healthcare projects. These awards are expected to enter our backlog over the next few quarters.

As we focus on 2011, we will continue to execute our strategy of bidding on public works, focused on our civil markets and secondarily, the building segments where we expect to continue our growth in higher margins. We estimate the size of perspective opportunities in our civil infrastructure target market to be between $12 billion and $15 billion for 2011in all of mass transit, bridge work, highway work and other major civil work. Some of our larger civil projects will be public-private partnerships, or what we call P3 for short. Tutor Perini will be a major player in this market and will be a part of a movement that addresses our nation's aging infrastructure.

In the non-residential building markets, although slower than we expected, we see some improvements in terms of new project starts and a better climate for financing. We have specifically identified in our tracking approximately $15 billion in targeted projects that could bid this year. Approximately half of this market is in the public sector, including corrections, educational, municipal and transportation build. Now, I would like to turn it over to Bob Band to share the details of our management services group.

Thanks, Ron. In our management services group in 2010, we continued to add awards of IDIQ, indefinite delivery indefinite quantity, contracts, including the US Navy multiple award contract for work on Guam, a $4 billion program for the relocation of US Marines from Okinawa to that island, which is part of the overall spend plan of $10 billion on Guam.

We also added the US Coast Guard and Department of Homeland Security multiple award contract, covering work for those agencies including FEMA. In addition, we have recently been awarded the Containerized Housing Office Contract worldwide for the US Department of State and the Vertical Structures Contract for USAID in Afghanistan. We have submitted and are in the process of proposing for several additional multiple award contracts throughout the world for agencies that we are currently working for overseas.

These four new programs, when added to our existing three IDIQ contracts including, SATOC and HERC contracts for the US Air Force and the multiple award contract awarded in late 2009 for the US Fish and Wildlife Department of the Interior Agencies, provide us with substantial new work opportunities for 2011 and beyond.

In 2010, we won approximately $150 million of individual task orders under these programs, including an $82 million runway repair project in Andrews Air Force Base, Maryland; a $23 million Coast Guard hangar project in Cape Cod; $35 million of projects for the Bureau of Indian Affairs, and $10 million of smaller task orders for US Fish and Wildlife Services.

In addition, we are closely tracking Haiti relief-related projects with USAID and the non-governmental organizations, which is expected to be bid and awarded in 2011 and 2012. In addition, we expect the US Navy to award several contracts under the big MACC contract on Guam, which have already been bid. As that program materializes, it is our expectation that we will receive substantial work matching our capabilities on the island. Now Ken will give you the financial details for the quarter.

Thank you, Bob. Our net income was $18.9 million for the fourth quarter of 2010, as compared to net income of $32.5 million for the fourth quarter of 2009. Diluted earnings per share were $0.40 for the fourth quarter of 2010, as compared to $0.66 for the fourth quarter of 2009. We ended the fourth quarter with a backlog of $4.3 billion. The breakdown of backlog by business group at December 31, 2010, is as follows. Building is $2.7 billion, civil $1.4 billion, management services $261 million.

In the fourth quarter of 2010, revenues were $688 million, a 36% decrease from $1.1 billion reported in the fourth quarter a year ago. On a reportable segment basis, revenues from our building group were $456.9 million, a decrease of 50% from $908.2 million in the fourth quarter of 2009. The decrease is primarily related to the completion of City Center in 2009 and the impact associated with lower levels of new work acquired in non-residential building markets during last year.

Revenues from our civil group were $175.7 million, an increase of 71% from $102.5 million reported in the fourth quarter of 2009. The increase is primarily due to the growth of new work we acquired, and the progress of completing projects such as JFK runway in Greenwich Corridor at the World Trade Center site.

Management services for $55.4 million, a decrease of 23% from $71.5 million reported a year ago. The decrease is due to the completion of a significant portion of work in Iraq and in Guam. Our total gross profit was $72.1 million, a decrease of 18% from $87.6 million in the fourth quarter of 2009. Most of the decrease is due to reduced volume in our building group, partially offset by a greater mix of higher-margin public works projects in our civil group during the quarter. Overall gross margins have increased from 8.1% to 10.1%.

G&A expenses were $39.8 million, down from $44.9 million in the fourth quarter of 2009. The decrease is a result of efficiencies gained from integration and certain other one-time benefits we recognized during the fourth quarter of 2010.

We had income from construction operations of $32.3 million in the fourth quarter of 2010, compared to $42.7 million in the fourth quarter of 2009. Operating margins improved from 3.9% to 4.7%. Breaking down income from construction operations by group, building income from operations was $5.7 million in the fourth quarter of 2010, a decrease of $29.6 million from the $35.3 million in the fourth quarter of 2009. This decrease was primarily related to the reduced revenue that I explained earlier. Civil group income from operations was $22.5 million in the fourth quarter of 2010, a 523% increase from $3.6 million in the fourth quarter of 2009. This was primarily due to the increase in revenues previously described and favorable performance on our projects in New York.

The civil group generated an increase in operating margins from 3.5% in the fourth quarter of 2009 to 12.8% in the fourth quarter of 2010. Management services income from operations was $9.3 million for the quarter, a decrease of 38% from $15.1 million in the fourth quarter of 2009. This decrease was primarily, again, due to completion of work in Iraq and Guam. Other income and expense was an expense of $1.9 million in the fourth quarter, compared to an expense of $1.3 million in the fourth quarter of 2009, primarily due to $5.7 million non-cash impairment charge recorded in the fourth quarter to adjust carrying value of our investments in auction rate securities, which was partially offset by the $5.3 million favorable adjustment of certain business acquisition-related liabilities.

Interest expense increased to $4.2 million in the fourth quarter from $1.4 million in the fourth quarter of 2009. This was due primarily to the interest recorded in the fourth quarter associated with our $300 million senior unsecured notes issued last October. Provision for income taxes was $7.3 million, compared to $7.5 million for the fourth quarter of 2009. Provision was adjusted in the fourth quarter of 2009 for a favorable permanent tax liability difference, which resulted in a lower effective tax rate for 2009 compared to 2010.

As we look at our balance sheet at 12/31/2010, our working capital stood at $592.9 million, up $289.8 million from $303.1 million at 12/31/09.The increases in working capital primarily results from the issuance of the senior secured notes we issued last October. This represents the current ratio of 1.61 to 1 at 12/31/2010.

As of December 31, 2010, we had $471.4 million in cash and cash equivalents, compared to $384.3 million a year ago. The increase in our cash balance during 2010 is primarily due to the proceeds we received from the notes we issued, offset by special cash uses for the acquisition of Superior Gunite, share repurchases and payment of a special dividend on our common stock.

Cash flow from operating activities for the fourth quarter was $62.2 million. The civil group contributed significantly to the improvement in our operating cash flow during the quarter. At December 31, long-term debt, excluding the current portion, stood at $374.4 million, which is an increase of $290 million from a year ago. This was a resulted again, of the issuance of the notes that we put out in October. At December 31, 2010, we had $304.5 million available under our credit facilities.

Shareholders' equity increased $24.6 million, reflecting our net income for the year, partially offset by repurchases of stock and the payment of our dividend described earlier. We believe the current financial position and credit arrangements provide us with the resources to meet our working capital requirements for executing existing and new projects.

At this time we are initiating guidance for 2011. Revenues are estimated to be in the range of $4.2 billion to $4.7 billion. And diluted earnings per share are estimated to be in the range of $2.20 to $2.40 per share. The ranges reflect our current view of new work prospects that could enter our backlog and be converted to revenues and profits this year, as well as estimated revenues and earnings from acquisitions currently in process. Our tax rate is estimated to be 36.5% for 2011. I will now turn the call over to Ron for some closing comments.

Thanks, Ken. We expect 2011 to be another exciting year for Tutor Perini, as we continue to grow our civil operations, and maintain a commitment to go to the growth of our margins. Our strategy continues to be a more diversified contractor with significant national self-perform capabilities, which will be further defined as we complete the acquisitions currently on our plate. With continued improvement in the US economy, we expect to generate the momentum to carry us through the course of this year and next, which sets Tutor Perini up for its long-term growth in our industry. We are now open to questions.

( Operator Instructions ). Your first question today, gentlemen, comes from the line of Steven Fisher with UBS.

Good afternoon.

Hi, Steve.

I want to clarify a couple things. Do I have this right in terms of the margin, 1.2% in building and 16.8% in management services?

That is correct.

So both of those were outside of the bounds of what we would typically assume. To the low end on the building side and to the high on management services. Can you talk about what it was in the quarter that drove those results?

On the building side, we have some adjustments from our insurance allocations. That would be the building side. And management services, we had some improved profitability in Iraq, namely the East End barracks job.

Fair to assume that these insurance adjustments are not going to recur, is that right?

That is correct, Steve, those are basically true-up allocations resulting from our year-end insurance program.

Okay. So we will be back to the low to mid single digits going forward on the building side?

Yes.

Okay, so management services, that is fine. In terms of 2011, just trying to discern the expected mix of profits. I know you have called out in the past when there has been an oversized contribution from the civil side to the revenues that called out are much higher than I expected, but the earnings were about in line. Any color you can give on the expected relative contribution?

This is Ron Tutor. Our civil operation will significantly produce more profits than the building operation. It has been our direction for the last two years. My guess is that civil will out produce building by probably something just under two to one in terms of profitability. Management services will stay consistent, but even as we try to recover from the issues in the building industry in the last two years and building business strengthens, there's no question that our civil work and our civil profitability will continue to be the driving force behind Tutor Perini.

Okay. Can you talk about how material the acquisitions are that you have in process? Because it sounds like you have included some expectation from them in your guidance, and then so, how material are these? And can you talk about what stage of process they are in, in terms of completion to make sure we don't have a risk that they won't get actually completed?

We have four acquisitions currently being discussed. Three of which have executed letters of intent. We expect at least the ones with the executed letters of intent to close. They do have a material impact. We have weighed that in our projections. They are significant acquisitions as you can tell from the fact we committed all the bond dollars to acquisitions. They will have a material effect, and we expect to close them somewhere between April 1 and May 1.

Okay. When do you expect to start bidding on the containerized housing task orders?

None of it has hit street yet.

Wait a minute. The containerized housing unit task, there have been three bids already. Totaling 200 [ audio not understandable ]

I'm sorry. I got confused with what Bob is doing in Iraq, with what I am doing in Guam.

The containerized housing, we did three task orders in Iraq, and they had a gross value in the $300 million range total.

Do you know how broad, regionally the containerized housing ID/IQ is? It would incorporate. I know it must be beyond Iraq.

It is a worldwide contract. There are additional task quotas to be proposed in that region, as well as other regions. If you have questions on the program, you have to call the State Department.

Okay.

Your next question comes from the about line of John Rogers with D.A. Davidson.

Good afternoon. Can you talk a little bit more about your pending award for a power plant project?That is somewhat of, I believe, a newer end market for you and what your relationship is there .

We have a certain owner in California that has told us we are the low bidder, and they are waiting a final permit approval before a contract award to us. It is supposed to be literally on a week-to-week basis, but that has been ongoing for some two to three months. All we do is await their permit and a final acknowledgment that they are going to enter into contract negotiations.

And are there more opportunities for power plants for you?

Yes. We are in the process of quoting another large one in Reno, Nevada, and are looking at power plants on a national scale.

Okay. Are you doing these as the sole contractor or in partnerships?

Typically sole contractor, Tutor Perini alone.Remembering we have mechanical and electrical subsidiaries, we are virtually able to produce these power plants within our organization with the very little subcontractor support.

In terms of the acquisitions that you completed, particularly Fisk, did they add significantly to your backlog, and is it included in the building segment?

Fisk would add approximately $200 million in backlog and Ken, where is it?

We would normally put it in the building segment, but we are exploring another segment.

Have you put it into the backlog?

No -

We close January 1, so they're somewhere between $200 million and $250 million of backlog, with probably another $200 million in pending awards. Since it closed in January 1, it is not in the figures you have.

Okay. I thought it was December 31. Thanks. That is all I had.

Your next question comes from the line of Philip Volpicelli with Deutsche Banc.

This is Shaun [inaudible] filling in for Phil.Is there any update on the City Center receivable out there? Has that been completed?

The City Center receivable at Tutor Perini continues to go down. I would say that a reasonable number is that is down from over $500 million to somewhere in the range of $250 million as MGM continues to pay off all of our subcontractors. There only remains approximately a dozen subcontractors from the first group of over 200 that are unpaid. We fully expect to collect every penny from our dear friends at MGM.

Great. That is very helpful.

(Operator Instructions).Your next question comes from the line of Kalpesh Patel with Jefferies & Company.

Hello? Hi. You mentioned the three PPP projects. Are you in negotiations, or in talks with specific opportunities there? I think that is the first time you talked about them.

I do not know where you got the idea of three, we mentioned --We have been following these P3 projects for over one year. We in fact have teams prior to this. It appears the first P3 project we'll propose on is the Goffels Bridge, in joint venture with Acciones, which is a very large international construction company from Spain. We continue to pursue that marketplace. We intend to be a significant player and are exploring the idea of establishing our own infrastructure fund as we speak.

Has there been a pickup in those discussions in the last quarter ? Is that why you're now discussing

Well there has been a relatively consistent volume of P3s across the country in the last three to four years. We have only recently, within the last 12 months, committed to being a major player in that marketplace.

Got it.I am not sure if I put this in your opening remarks. How many outstanding proposals do you currently have in Guam?

I think we have three major proposals sitting in front of the government now, for anywhere from six months to a year awaiting an answer.

What is the total value of those three proposals?

It is in the hundreds of millions; I just don't recall.

Okay. Any update on the Japanese contract there and the qualification process?

No. We either just turned in, or about to turn in a joint venture qualification with two Japanese partners where we retained a significant majority in concert with those two companies, and expect to be a significant participant in what they call the Mamizu.

So this one, you are proposing it as a joint venture versus a TBC loan ?

The ones we are in right now, we are sole ventures. the Mamizu, meaning the Japanese-sponsored work, wherein we are putting forth a qualification document with our Japanese partner, none of that is yet to bid.

I got you.

What is in is basically a Black Construction Company, which is a subsidiary of Tutor Perini sole ventures bids.

Right. Right. One last question, in terms of your guidance, what takes you to the top end, and what takes you to the bottom end in your 2011 EPS guidance?

All we try to do is give you a fair range. There's so many variables, it is just what it looks like, it's a low to a high.

Okay. I don't know if there were specific projects that would swing the numbers significantly.

No, not really.

Thanks a lot and good luck.

Thanks.

Your next question comes from the line of Avi Fisher with BMO Capital Markets.

Hi, good afternoon. Ken, you spoke slowly, and I still didn't get the number. I think you gave a tax rate guidance for 2011.

36.5%.

When I back into the revenues and EPS numbers, it looks like you're guiding for margins to decline year-over-year. I am trying to get a gauge of why that might be.

I don't necessarily think that. I think, Avi, I think you have to look at them independently. The revenues, obviously, are driven by new business and timing. And obviously the mix has an impact on those. It will depend on how quickly we are able to book, for example, civil business versus building. I would not read too much into the margin.

If anything, the industry that we are in, the acquisitions we are currently looking at, they are more profitable, consistent with the civil bit business than they are with the building business. Even though revenue was up dramatically, I would not take the position that any of the margins are down.

I am trying to understand that though. It looks like you're guiding to weaker margins.

Because of the upswing in revenue and a marginal upswing in profit?

Yes.

I think part of the mechanics too, Avi, are the acquisition-related costs, as well as the amortization, have intangibles that will go along with that. That obviously has an impact on the first year of an acquisition. I think you should factor that in your analysis.

Absolutely. That's great. When Ron said it was accretive, I assumed.

We are expecting it accretive.

Right, but there's still amortization, and there's still impact.

You still have to absorb amortization and deal cost.

What should we think about interest expense? Does it stay flat around these current levels, given you have already issued the debt.

I think that is a fair statement. We think the run rate is probably very reasonable.

When we think about -- PMSI margins are always all over the place. When you look at future work in Afghanistan or Guam, does it look similar to Iraq or does it look more similar to the civil, more of a civil run rate?

We have maintained all along that normalized margin is more like civil.

Okay. Just a theoretical question. When you guys have been venturing on the larger projects whether the three P or not, you tend to go with the Europeans, or the overseas companies, particularly the Spanish. I'm trying to get a sense of your thinking of how that benefits you? Or does it on certain projects, and why you're going that route with the overseas company?

That is a loaded question.

I did not mean it to be.

I'm only kidding. You have to understand, until we can conclude in infrastructure finance operation of our own, independent of the Europeans, virtually every major P3 in the US has been financed by these European companies. That is why you us joint venturing with them because there has not been an alternative. I think you will find that by December this year, certain of us in the US construction industry will have developed our own infrastructure finance arms that would no longer have to rely on the Europeans to provide that. Then you will see less reliance on the European companies. There is some very good European construction companies that can become valuable partners, but without that card to play, they play less of a role.

Do you see yourself developing that, or you'll continue to use the balance sheet of your partners and yourselves combined?

We don't see any benefit to developing any more than we already have with our European partners. We stand on our own.

Most of the US firms are reluctant to do these infrastructure finance arms. It puts you at an advantage, I think.

That is what we would guess. We are trying to move very rapidly to accomplish that infrastructure finance arm, so we can be more of a player in that market, and less reliant on the Europeans.

It is getting harder to lock up partnerships at all? I know there are American companies, some that reported today, that are pursuing larger projects and looking for partnerships?

What do you mean by partnerships?

Joint ventures on large projects.

Not at all. We have the same joint venture partners that we've had for 20 years. We are never in a position where we cannot find a JV partner if we want one.

What do you see in terms of the as bid or as sold margins on some of the fixed price work or the larger civil work? Is it getting better, worse, the same?

It continues to be very strong. Nothing has changed. For example, when we bid Seattle, there was only two bidders, two joint ventures. Most of this big civil work, it is two to three proposals. Margins remain very strong in the very large work. They remain poor in the smaller work, which we typically try not to pursue.

Do you see yourselves bumping up against any capacity restraints in any near term?

No.

Thank you for taking my questions.

Ladies and gentlemen, this concludes the question-and-answer portion of today's call. I would like to turn the call over to management for closing remarks.

Thank you, everybody. We are really excited to about 2011, if anything more so about 2012, as we continue to build Tutor Perini and what we perceive us to be. Thanks for everything. The questions were right on.

Ladies and gentlemen thank you for your participation in today's conference. This concludes our presentation and you may now disconnect.