Tutor Perini Corp (TPC) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation Third Quarter 2012 Earnings Conference Call. My name is Aaron and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will be conducting a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. (Operator instructions). I would now like to turn the conference over to your host for today, Mr. Jorge Casado, Director of Investor Relations. Please proceed.

Good afternoon, everyone. And thank you for joining us for our third quarter earnings conference call. With us today for management are Ronald Tutor, Chairman and Chief Executive Officer; Robert Band, President and Mike Kershaw, Executive Vice President and Chief Financial Officer.

Before we start, I'd like to remind our listeners that information discussed during today's conference call including statements about future guidance and answers to your questions may contain certain forward-looking statements. These types of written and oral disclosures are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

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 uncertainties and actual results may differ materially from anticipated results. These risks and uncertainties are discussed in detail in our filings with the Securities and Exchange Commission, including Tutor Perini's Annual Report on Form 10-K for the fiscal year ended December 31, 2011, a definitive proxy statement filed on April 19, 2012, as well as in today's news release.

Statements on this call are made as of today, November 1, 2012 and the Company undertakes no obligation to update any forward-looking statements made during the call whether as a result of new information, future events, changes in expectations or otherwise.

With that, it's my pleasure to turn the call over to our Chairman and CEO, Ron Tutor.

Good afternoon and thank you for joining us. I'd like to begin with an overview of the Company's performance and discussion of our civil, building and specialty contractors markets and opportunities. After which I will turn the call over to Bob and to discuss the Management Services market, and then Mike Kershaw will discuss the details of our financial results for the quarter. Overall, our third quarter financial results were in line with our expectations, despite the delayed release of several awards and continuing weaknesses in our building markets compared to last year.

Since our last conference call, we have seen positive signs of recovery in our end markets. For instance, in our civil markets, we were recently the low bidder on the $952 million East Side Access Subway Project for the New York City MTA. East Side Access Project will connect the Long Island Rail Road with a new terminal beneath Grand Central Station.

We are the managing partner of a joint venture with Schiavone Construction and Picone Construction. We expect the award of contract shortly. Additionally, we're close to final award for the $235 million, Verrazano-Narrows Bridge upper deck replacement and we are awaiting the decision for the recently bid East End Crossing P3 project, which we expect to receive from the owners on or about November 16. That project is valued in the area of $1.5 billion.

With regard to the Tappan Zee Bridge project recently quoted because of the current status of the Thruway Authority's ongoing bid review and selection process, we are unable to provide comments or answer questions about the bid status or any communications between our Company and the Authority.

In January, we will be submitting our bid for another major project, first segment of the California High-Speed Rail, which will be valued at well in excess of $1 billion. As part of four projects to be bid over the next 12 months, the value, which will exceed $5 billion. As a further aside, our low bid for the $239 million Chinatown Station Project in San Francisco, which we discussed in the last quarter, will be re-bid as a part of an $800 million construction project encompassing four stations instead of the one in downtown San Francisco.

In the building markets, we received several third quarter awards or notices of low bids, including the recently spoken to $181 million Graton Rancheria Hotel and Casino, a $73 million contract for the New York State University, a $63 million contract at Mississippi State University. In addition, two other awards entered our backlog in the fourth quarter, a $120 million contract for private campus housing and a $94 million project at the University of California, San Francisco, Mission Bay. All of these projects point to the beginning of improvement in our building markets, which we expect to see carry over into 2013, as the economy continues to recover.

In the specialty contractors markets, we are expecting the awards of two electrical signaling contracts for the New York City Transit Authority to our Five Star Electric subsidiary totaling approximately $225 million just reasonably bid, or excuse me, recently bid. As you can tell the bidding environment has been and continues to be extremely active across our businesses and our project teams have been very busy bidding dozens of projects across the nation. We believe this bodes favorably as discussed previously and with the abundance of major work to quote, we feel we will certainly achieve our share.

Our total backlog at the end of the third quarter was $5.6 billion, compared to $6.4 billion in the third quarter. The reduction was due primarily to lower backlog in our building segments and to a lesser extent our civil segments. The backlog mix this quarter was approximately 39% building, 30% civil, 26% specialty and 5% management services.

New contract awards and adjustments to contracts during the third quarter added approximately $800 million to backlog. Currently, we have $5.7 billion in pending awards, including $3.3 billion in mixed-use, $700 million in hospitality and gaming, $600 million in highways, transportation and mass transit and over $400 million in education. These awards are expected to enter our backlog over the next two to three quarters.

Our civil segment is performing well and it remains our engine of future growth. This is the segment with by far the largest volume of significant project opportunities, which traditionally generates the highest margins. These large project opportunities have limited numbers of bidders with very high pre-qualification requirements. We anticipate the continuing high volume of these opportunities, to go on throughout the remainder of the year and continue over the next three years as well.

Backlog for the civil segment at year-end was $1.7 billion, compared to $2.3 billion in the same quarter last year. We estimate the size of prospective opportunities, we intend to bid in our civil infrastructure market over the next 12 months to exceed $11 billion.

In our building segment, the most significant near-term growth opportunity remains the Hudson Yards development project for the related companies and Oxford Properties in Midtown Manhattan, where we continue ramping up our work on schedule and are awaiting the finalization of significant additional project phases valued at more than $2 billion. Our current pre-construction work at Hudson Yards is progressing on the 30th Street Residential Tower and we are hopeful that we will break ground in November on Tower C, an $800 million office building.

Despite the lower levels of backlog, revenue and margin pressures in our building segment caused by an extremely competitive marketplace, I'm pleased with the third quarter results and the continuing progress we've made in that segment. Favorable legal developments, improved claim positions and efficiencies realized on certain healthcare facilities help produced good margins in the building segment and our building business appears to be tracking a return to growth and profitability by the first quarter of next year.

Backlog for the building segment stood at $2.2 billion, compared to $2.5 billion in the same quarter last year. We continue to track and pursue approximately $10 billion of targeted projects in our building segment, bidding and proposing over the next 12 months. Our civil and building segments continue to leverage our specialty contractors through our integrated approach to bidding and executing large-scale projects.

The specialty contractors segment was recently awarded $143 million in new sub-contract work, including more than 90% of which from external customers. Backlog for the specialty contractors segment, at the end of the third quarter was $1.4 billion, up from $1.3 billion in the same quarter last year. Specialty contractors segment has an active pipeline exceeding $6 billion that we'll be bidding over the next 12 months.

Overall, our execution remains strong and I'm optimistic about our long-term outlook with our existing backlog, but most importantly, the volume of very significant large project opportunities that we continue to pursue. We believe that we are among a small handful of major US contractors uniquely qualified and situated to bid and execute these mega scale civil projects. As evidenced by the always limited bid lists and repeat presence of the same three to five bidders on recent large several procurements. Tutor Perini invariably serves as the managing partner in these joint ventures and on a smaller percentage has a secondary role.

Now I'd like to bring Bob Band to share Management Services.

Well, thanks, Ron. Just looking at Management Services overall. In the segment we are continuing to participate in nine multi-year indefinite delivery, indefinite quantity contracts for several US government agencies. The aggregate program value for these ID/IQ contracts at the program level is in excess of $15 billion for all participants.

These programs include the US Navy MACC, design build MACC for the relocation of the US Marines from Okinawa to Guam, the US Department of State Worldwide Construction contract for containerized housing and offices, two USAID contracts, one for vertical structures and another for water and energy, both in Afghanistan, a Central Command MATOC Program for the US Army Corps of Engineers Middle East District, the US Coast Guard, Department of Homeland Security MACC, their agencies including FEMA and ICE and the Fish and Wildlife Service MATOC for the Department of the Interior and other agencies under that department as well as a SATOC and the HERC contracts with US Air Force.

We're also evaluating potential work opportunities in Okinawa as a result of the Navy including Okinawa under the previously awarded design build MACC program. We are performing work under eight of these ID/IQ contracts currently and actively pursuing new projects under all of these programs, which provide us with greater visibility into our new work pipeline in 2013 and beyond.

We estimate the size of prospective opportunities in our Management Services group target market to be between $2 billion to $3 billion for projects that will be bid and proposed on over the next 12 months. We continue to seek additional multiple award contracts from US government agencies, both oversees and domestically as well as pursue major full and open competitions in Iraq, Afghanistan, Haiti and other countries from various US agencies.

We're currently in backlog continues to produce solid on target results, a $120 million Task Order contract under the State Department's containerized housing and office facilities in Southern Iraq is achieving good progress and the $75 million Task Order under the Navy MACC for an aircraft parking apron at Andersen Air Force Base is well underway.

In Haiti, we are making good progress on a $12.7 million electrification project awarded to us by USAID. And in Afghanistan, we were recently awarded $105 million contract for the upgrade to the Southern Electric Power System consisting of upgrades to an existing overhead transmission system in the construction of electrical substations in Afghanistan.

In the US, we've been awarded over $30 million of contract completion work by our surety clients, and most recently, the National Park Service award of a contract valued at $9.6 million to repair the earthquake damages to the Washington Monument. We anticipate increased activity in Haiti, Afghanistan and Guam as well as increased assignments from our US surety clients and multinational firms as well.

Currently, we're looking at in this quarter over a $1 billion of work opportunities to bid by year-end under the US Army Corps of Engineers MATOC.

Now Mike will give you the financial details for the quarter.

Okay, thank you, Bob. Total revenue for the third quarter was $1.1 billion, a decrease of 6% compared to $1.17 billion in the third quarter last year. Revenue reduction was primarily due to last year's substantial completion of a large civil public works building project and two hospitality and gaming projects.

Excluding the contributions from those three projects, our revenue for the third quarter of 2012 would've been up 19% compared to the same quarter last year, due to the continued progress on several large civil and building projects and the ramp up of projects that are awarded late last year or earlier this year.

Total gross profit was $115 million, a decrease of 4% compared to $120 million in our third quarter last year. Overall gross profit margins increased to 10.5% from 10.3% in the third quarter last year, reflecting some favorable project adjustments in the third quarter of this year. General and administrative expenses were $60 million -- $61 million, up 4% from $58 million in the third quarter last year.

Income from construction operations was $55 million, a decrease of 12% compared to $62 million in the third quarter last year. Our operating margin was 5%, down about 30 basis points from 5.3% a year ago. Net income was $43 million compared to $35 million. The increased net income in the third quarter of this year was largely the result of a $17 million tax benefit that was related to the goodwill and intangible asset impairment charge that we recognized in the second quarter of this year.

Diluted earnings per share were $0.88, a 19% increase compared to 74% in the third quarter last year, but excluding the tax benefit in the third quarter of 2012, net income was $26 million, diluted earnings per share were $0.54. Revenues from our building segment were $391 million, a decrease of 21% from $494 million in the third quarter last year. The decreased revenue came as a result of the reduced work volumes compared to last year when we completed the three previously mentioned large projects.

The building segment made progress in the third quarter of this year, generating income from construction operations of $21 million, an increase of 135% compared to $9 million in the third quarter last year. Operating margin for the building segment was 5.3%, up from 1.8% in the same quarter last year due to, as Bob mentioned, favorable legal developments, the improved positions on certain claims and efficiency realized on certain healthcare facility projects.

Revenues from our civil segment were $346 million, an increase of 25% from $277 million in the third quarter last year. The growth was the result of increased activity on certain tunnel projects on the West Coast and several highway and bridge projects on the East Coast and in the Midwest that were awarded in 2011 and early 2012.

The civil segment produced income from construction operations of $26 million, an increase of 10% compared to $24 million in the third quarter last year. Operating margin for the civil segment was 77.6%, down 100 basis points from 8.6% in the same quarter last year due to the substantial completion of several successful public works projects on the East Coast in 2011 and legal costs incurred during the third quarter 2012.

Revenues from our specialty contractors segment were $315 million, a decrease of 6% compared to $336 million in the same quarter last year. The revenue decline is attributed to favorable performance and several -- successful close out of several projects in 2011, including a large volume of work performed on our large hospitality and gaming project. Income from construction operations in the specialty contract segment was $14 million, down 57% compared to $33 million in the same quarter last year. Operating margin for specialty contractors was 4.5% compared to 9.9% last year. The reduced operating income and margin were the result of the favorable performance and closeouts on the specialty projects discussed earlier.

Revenues from Management Services segment were $47 million, a decrease of 22% compared to $60 million in the same quarter last year. The decrease was primarily due to the substantial completion of an overhead coverage project in 2011 and reduced activity on a Task Order Contract for containerized housing in Southern Iraq.

Management Services income from construction operations was $3 million, a decrease of 47% compared to $5 million in the same quarter last year. Operating margin for this Management Services segment was 6.1% compared to 9%. The reduced operating income and margin were the results of the favorable closeout of certain US military facility projects in Iraq in 2011.

Depreciation and amortization expense in the third quarter was $15 million. Interest expense for the third quarter was $11 million, down 5% compared to $12 million in the same quarter last year. As a result of the impairment related tax benefit, we had a significantly reduced income tax expense of $2 million for the quarter, compared to $21 million of tax expense in the same quarter last year.

Excluding the impact of the second quarter impairment charge, our effective tax rate for the year is estimated to approximate 41%, which includes the impact of us working in highest-state tax jurisdictions. Because of our third quarter performance, we are maintaining our outlook for the remainder of the year and we are reaffirming our guidance of fiscal 2012 revenue outlook of $4 billion to $4.5 billion and diluted earnings per share, excluding the impairment charge in discrete items of $1.50 to $1.70.

Looking at the balance sheet at September 30th, 2012, our working capital stood at $639 million, including $181 million in cash and cash equivalents, up $82 million from $557 million of working capital at year-end, which included $204 million of cash and cash equivalents. Our current ratio increased to 1.48% at September, compared to 1.4% at year-end.

During the third quarter of 2012, the Company generated $4 million of cash from operating activities compared to a use of $37 million last year. At September 30th, our long-term debt, excluding the current portion, was $637 million, which is an increase of $24 million from December 31, 2011.

I'll now turn the call over to Ron for closing comments.

We continue to be pleased with our recent civil performance and growth and the opportunity for continuing building awards. The major civil infrastructure markets continue to be extremely strong and really larger than we have ever experienced in the past 10 to 20 years and we expect that trend to continue at least for the next two to probably three years.

Building markets have been bouncing along the bottom of what has been a very difficult trough environment, with not enough business and extreme margin pressure. But the good news is that with some of our recent building awards and large pending new projects, it appears the opportunity is available to return our building businesses to their formal profitability, certainly during the year 2013 with further growth expected in the years to follow.

We are strategically levering our specialty resources, which continues to be one of our great strengths not just in its earnings, but also in its support of both our civil and building markets providing them with the kind of technical expertise that our peers simply do not have. As we continue to execute our backlog and pursue additional key projects, we continue to focus on managing our G&A, as we try to conclude the integration of our acquisitions and right-size our businesses to work together where there is more of a centralized control system and reduction of G&A.

This concludes our prepared remarks. We'll now ask the operator to open the call for questions.

(Operator Instructions). John Rogers, D.A. Davidson.

Hi, good afternoon.

Hi, John.

Hi, John.

I guess the first thing is, in terms of the legal settlements and project adjustments, can you give us an idea of the size of those or the impact in the quarter? Because it looks like the building margins, segment margins, and I know they bounced around above what sort of been historical trend levels?

Well, we settled the Queensridge litigation and essentially prevailed and that was significant amount of money beyond our expectations. It was in the millions. We continue to win at every turn on the MGM case in court, in our opinion, and we had set certain reserves for certain issues that have been judicially won in court and we've reduced those reserves and that's pretty much it.

Okay. And then my second question is, in terms of the fourth quarter, the current quarter, your guidance has widened, but regardless, suggest that financial results should improve from even from what we saw in the third quarter and which is a big improvement over what we saw in the first half. And I'm curious about what's driving that. I mean, is there a particular segment project closeout that you're looking at?

We have historically always closed our projects very successfully at the end and that does occur. And you all know that the civil and specialty group drives Tutor Perini. Management Services although a great contributor in past years has had a diminished role the last year or two and to say that our building businesses have not produced profits would be an understatement. So this Company is currently driven by civil and specialty. And we just continue, as you've seen in the past, as we finish jobs, our results get better to consistent pattern and that's about the only way I can explain it.

Okay. And I guess just lastly if I could. Just on the Hudson Yards project, what's left there before you actually get to a signed contract?

Well, we have a contract on the 30th Street residential.

Right.

Which is approximately $120 million. We're in the final stages of executing a contract on the $800 million Tower C, which really at any time this month could break ground. And we're very close on what's called Tower A, which is approximately a $1.4 billion building, where there are certain discussions going on that I'm not at liberty to speak to, but could enable us to be in a contract mode during the first quarter of 2013.

Okay. Great, thanks very much.

Steven Fisher, UBS.

Hi. Good afternoon.

Hi, Steve.

Just on those things you mentioned, Ron that we're judicially won in court coming into the building business profits for the quarter. Was that all related to Harmon or were there other things?

It's primarily Harmon, secondarily some reserve for some specific issues. It's not that much money to where you need to worry about, but they were just reserves we had set up and as those issues we felt were adjudicated. With legal support, there was no reason to retain the reserves. If you're aware on the judges' current findings in court, which are a matter of public record, the trial has been going very well for us.

Are these judicially -- judicial rulings things that you expect to be challenged?

I'm sure they'll appeal it, because it's basically very damaging to MGM. They're all truthful and right on point and MGM's getting what they deserve, but -- and they'll challenge it, but they're not going to reverse the judge.

Okay. And then on the Hudson Yards, the $800 million potential booking, what still has to happen for that? I mean, if you expect to possibly break ground this month, what --?

All it happens is, we've signed the contract. We're concluding and we physically break ground. It could be any time this month, but they hold the control to that.

Yes. I think the difference Steve, on this one, as we talked about is, we've been working as if we -- the relationship with us is, we're working on all the pre-construction activity just as if we had a signed contract.

Yes. And they're paying us for that and it's to a point, we've really manned up all the people they manage it. We're very confident on Tower C, we'll break ground this month. We've taken sub-contract bids. They've given notification of award. There really isn't much doubt. It's hopefully by Thanksgiving we'll break ground on Tower C. It's not a guarantee, but it's at least our feeling.

But you wouldn't break ground without a signed contract, right?

No.

Okay. And then I guess a similar question on Verrazano. What still has to happen to book that?

I think it's all gone through the process. We expect an award in either December, January. They are slow movers, were low. There's no problems. We've met with the agency. It's pure mechanics from here.

Okay. And then given that you expect to return to profitability in the building business next year, and I guess your overall confidence at this point that 2013 earnings for the whole Company will be better than 2012?

I would say so. Building business drove down 2012 so dramatically, just returning to profitability will be a major impact.

Okay. Just the last question. Can you give us what the current portion of long-term debt was at September 30?

It's about $60 million.

No, it is less than that.

$63 million.

$63 million.

Okay. Thank you.

(Operator Instructions) Richard Paget, Imperial Capital.

Good afternoon, guys.

Hi, Rick.

Hi, Rick.

I guess, I'd be remissed, if I didn't ask Hudson Yards project. Do you guys, as far as you can tell, didn't get any setbacks from flooding or the hurricane that would cause anything to be pushed out?

You know the truth of it is -- this is Ron Tutor, up and trying to get our New York office and our guys since Monday, and I can't get anyone. You know all the phones are out, power is out. I can't get anybody in New York to tell me.

But I think you guys would have made that, what's that, 34th Street cut-off where the electricity was on or off?

Well, our office is in New Rochelle and that's out and they're telling us it may not be for another week. I talked to both of our senior executives, Craig Shaw and [Mike McLean] and they're were both in Las Vegas and they're are struggling just to get back into New York. I'm planning to go there. Airports allowing me Monday or Tuesday, myself to see for myself.

The good news is that no matter what damage there may be to our existing jobs, there is literally tens of billions of dollars with of repair work that's going to be required and we think we should be a major recipient of it, particularly, since we own by twice the size the largest electrical contractor in the city, and there's electrical power issues and wiring issues throughout the transit system as well as virtually everywhere. The city is underwater. It's truly remarkable.

Yes, [well done]. I'm across the river and I can't get over there either.

So you understand.

And then on the -- so on some of the other large projects, California Rail. I was reading that they are planning on awarding that first half of next year that first leg. Do you still think that a lot of people are thinking that that's going to get challenged up in court by the environmentalists?

No. I can't imagine having personally driven the entire right away. But what possible challenge the environmentalists have, it's predominantly [had great disturbance] very little, but people's buildings that are going to get torn down, which are not environmental issues. They are issues of damages and settlements with state. So I mean god bless our environmental community. There is an assumption that challenge everything, but I certainly don't know why this would be one.

Okay. And then, so you guys were shortlisted for DC rail project. What's the timing on that?

I think they're issuing documents in December, January with proposals in April or May, but I'd have to talk to our people back East. I've only -- I'm aware of it. I know we're bidding it, but I haven't seen the latest time for it.

Okay. And with the election coming up and hearing both candidates platforms, are there any kind of binary impacts that you guys think on your either civil business or Managed Services. And then if sequestration, if it comes down to that, what other impact might we want to look at for you guys?

Well, I am a complete supporter of the Presidential candidate that spends the most money on infrastructure, right, wrong or indifferent. And right now the current President is pumping tens of billions of dollars into infrastructure on a course unparallel. If God forbid, the Republicans win, I can only hope there is [knowledgeable].

Okay. And sequestration, is anyone saying anything about?

I can't comment on it, not intelligently.

Okay. And then just to be clear with guidance, the tax benefit in this quarter is considered to discrete item and not included in that?

It's correct.

That's right.

Right, thanks. I will get back in queue.

And I would now like to turn the call over to Ron Tutor for closing remarks.

Thank you everyone for joining us. And we will look forward to any follow-up questions and we will talk to you in the fourth quarter with a full year end.

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