Tutor Perini Corp (TPC) 2014 Q4 法說會逐字稿

(Operator Instructions). 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, Vice President of Investor Relations. Thank you. Please begin.

Good afternoon, everyone, and thank you for your participation today. Joining us on the call are Ronald Tutor, our Chairman and CEO, and Michael Kershaw, Executive Vice President and CFO.

Before we discuss our results for the fourth quarter and fiscal 2014, I would like to remind everyone that during today's call we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors which could potentially contribute to such differences in our most recent Form 10-K which will be filed today February, 26, 2015.

With that, I will turn the call over to our Chairman and CEO, Ronald Tutor.

Thanks, Jorge. Good afternoon or good evening, whichever you may be and thank you for joining us.

I am pleased to report that the Company concluded another excellent year with good fourth-quarter performance and strong full-year results. Michael Kershaw will go over the financial details later but in summary our revenue, operating income and backlog all grew significantly for the year. Furthermore, our year-end consolidated operating margin was the highest it has been since 2010.

I am also pleased that during the fourth quarter we received final payment as expected from the Massachusetts Department of Transportation for the Central Artery settlement. We also reached a global settlement with MGM and other related parties regarding the CityCenter dispute which essentially resolved all material issues that had been ongoing with MGM over the past five years.

We received final payment from MGM on this settlement earlier this month and should receive final payment from the insurance companies in settlement of our legal fees on the same issue this week.

2014 was a year of significant new awards for the Company across all of our segments. I will go into greater detail on some of the major awards later but for our building and specialty contractor segments in particular, the level of new awards resulted in a very strong backlog growth. Year-over-year our total backlog grew 13% to $7.8 billion as a result of the large volume of awards. More than 70% of our backlog today continues to be comprised of higher-margin, civil and specialty projects.

I will now provide an update of some of our larger key projects underway. At Hudson Yards in New York, we are almost complete with the initial scope work for the Amtrak Tunnel and are well along on the platform over the Eastern Railyard. The tunnel structure is complete and backfilled and the remaining work involves only some relocation of utilities, installation of a limited amount of track work, and we expect to complete guide summer of 2015.

On the platform project, we have now completed the installation of 185 out of a total of 242 caisson seeded in the bedrock and steel erection work is currently 35% complete. The platform is scheduled to complete fleet in June 2016.

Work on the MOE or maintenance of equipment building which rests on the platform is well underway. We are currently finishing the steel framework and have begun work on the enclosure. We expect to complete the MOE in October of this year.

Work on the South Tower continues to advance well with concrete framework now completed up to the 28th floor. The South Tower is scheduled to complete in March of 2016. In addition, we are continuing the foundation work on Tower D, a residential condominium tower located west of the South Tower. And finally, we are continuing to proceed with the retail gallery estimating a May start for its construction. We expect to receive the contract and notice to proceed for Towers D and E and retail during the first half of 2015.

Our civil group performed significant work during the fourth quarter on the San Francisco Metropolitan Transit Authority stations project as well as the MTA East Side access CMO6 in New York City and the JFK runway reconstruction in New York and on various bridge projects in the Midwest and New York.

On the Seattle SR 99 project, our joint venture, Seattle Tunnel Partners, recently completed the excavation of the 120 foot deep access shaft being used for the removal, repair and enhancements of the TBM cutterhead by Hitachi Zosen. Last week we successfully tunneled into place within the (inaudible) and positioned ourselves for the repairs which have now commenced. We expect the repairs to be completed and tunneling to recommence by July of this year.

Next I will share some information about our recent new orders, backlogs and pending awards. In the fourth quarter we had approximately $948 million of new awards and adjustments to existing contracts which were more than offset by revenue of $1.2 billion for an overall book-to-bill of 0.8. However for the entire year, our book-to-bill was strong at 1.2. We ended the year with a backlog of $7.8 billion, up $887 million compared to the end of 2013. Our backlog is now 45% civil, 28% building, and 27% specialty.

Our pending awards at the end of the fourth quarter were $4.1 billion. The majority of these pending awards continue to be for various building projects and the largest component, approximately $2.3 billion, represents the estimated total construction value for the aforementioned phases D, E and the retail of Hudson Yards.

The building group had fourth-quarter new awards and adjustments of $422 million and ended with a backlog of $2.2 billion, up 25% from last year. The largest awards included a $63 million educational facility in California; a $35 million of initial funding for a pharmaceutical facility, pending an additional $165 million of funding hopefully to shortly follow; a $34 million courthouse in California; a $31 million hospitality project in Florida; and a $27 million educational facility also in Florida.

The building group continues to have several large pending awards including the aforementioned phases at Hudson Yards which are expected to be booked into backlog.

The specialty contractors group had fourth-quarter new awards and adjustments totaling approximately $401 million and ended with a backlog of $2.1 billion, up 25% compared to last year. Significant new awards included an $88 million mass transit electrical upgrade in New York; an $87 million transit project in downtown San Francisco in California; and two mechanical contracts at the World Trade Center in New York worth approximately $64 million. New York City continues to be an extraordinarily strong marketplace for both our mechanical and electrical subsidiaries.

The civil group had fourth-quarter new awards and adjustments totaling $125 million and ended with a backlog of $3.6 billion, up slightly from last year.

Next I will discuss our bidding opportunities. The civil group sees $9 billion pipeline of prospective work to be did and awarded over the next 12 months. The largest of these projects is construction package for in the California high-speed rail, the next segment that we believe will be bid in the latter part of this year. Other civil projects currently include $6 billion in various highway, airport and continuing mass transit all over the country.

We are monitoring developments at the federal and state levels that could lead to incremental funding for civil transportation and mass transit projects over the coming years.

Recently there have been calls by government leaders to find a longer-term sustainable solution to fund transportation. Without getting into all the details that have bounced around our government, we see it as a very strong undercurrent ongoing to resolve the issues with the US infrastructure and to fund them accordingly.

Overall there appears to be greater willingness today for bipartisan compromise on transportation funding solutions so we remain watchful as these developments progress as they have the potential to significantly enlarge our pipeline of civil work.

The building group continues to see an $11 million pipeline of prospective work and we recently learned that the Port Authority will await the outcome of a New York airport's design competition introduced by the governor last October before making its team selection for LaGuardia. We are presenting it tomorrow to the Blue Ribbon Committee and we are in hopes that selection will take place within the next 60 days.

The specialty contractors group has a minimum of a $4 billion pipeline of prospective opportunities over the next 12 months with both our West Coast operations as well as Fisk out of Texas having a reasonable amount of work to bid given their significant backlogs and again given New York City's boom, our mechanical and electrical cities here are already at record levels of revenue and backlog with more work coming.

Based on our current backlog and market outlook, we are introducing our guidance for fiscal 2015 with revenue expected in the range of $5 billion to $5.5 billion and diluted earnings per share expected in the range of $2.20 to $2.50. The earnings per share guidance assumes a tax rate of 41%, 49.5 million shares average diluted outstanding, and $41 million or $0.49 of depreciation expense, $5 million or $0.06 of amortization expense, and $39 million or $0.46 of interest expense. At the midpoint our guidance reflects growth of 17% in revenue and 7% in earnings per share respectively.

I will now turn the call over to Michael Kershaw to go over the details of our financial results.

Thanks, Ron. As mentioned we concluded another strong year in 2014 led by the performance of our civil group. We achieved our guidance for both revenue and EPS for the year. Revenue for the year was $4.5 billion, that is up 8% from last year's $4.2 billion and represents our highest annual revenue since 2009.

Revenue growth was due primarily to a significant increase in civil, some increase in specialty, and similar revenue this year to last year in building.

For the fourth quarter, revenue was $1.2 billion which is up 9% from last year's $1.1 billion. Most of that increase came in building with some coming in specialty and civil being flat.

Gross profit for 2014 was $505 million, up 8% from $467 million last year. Our gross margin for the year at 11.3% is up slightly from last year's 11.2%.

Fourth-quarter gross profit was $130 million versus $140 million in the fourth quarter of last year. SG&A for the year was $264 million, stable compared with 2013. Our fourth-quarter SG&A was $65 million, down 6% from last year's $70 million which is due to reduced overhead costs across all segments and corporate, partially offset by increased performance-based compensation.

Our income from construction operations for 2014 was up 19% or $242 million versus $204 million last year which is driven by strong growth and profitability in our civil segment combined with flat SG&A despite the revenue increase for the year.

Our fourth-quarter income from construction operations was $64 million versus $70 million in the fourth quarter of 2013. Our full-year and fourth-quarter operating margins were both 5.4% which is the highest year-end operating margin we have had since 2010 and that operating margin is up 50 basis points from last year's operating margin.

Our net income for 2014 was $108 million, up 24% from last year's $87 million and it represents the highest net income since 2009.

Our fourth-quarter net income was $28 million versus $33 million. Our diluted EPS for the year was $2.20 which met our guidance. Fourth-quarter diluted EPS was $0.56 versus $0.68 in the fourth quarter of last year. Our fourth-quarter revenue and EPS were generally in line with our internal expectations with continued strong operating performance in civil and improved profitability in special contractors offset by a small operating loss in building.

Moving on to discussing each of our segments and starting with the civil segment. Our revenue was up for the year $1.7 billion which is up 17% from last year's $1.4 billion and represents our highest full-year revenue in civil due primarily to increased activity on civil projects at Hudson Yards, mass transit projects in California and New York, bridge projects in the Midwest and New York, and a runway reconstruction project in New York. This was partially offset by decreased activity on the tunnel projects on the West Coast, certain highway projects on the East Coast and an airport parking apron project that was completed in 2014 -- 2013 in Guam.

For the fourth quarter, revenue was $449 million, pretty flat with last year's $444 million. That quarterly increase was due primarily to the increased activity on mass transit, the bridges and runway projects that I mentioned and that was partially offset by decreased activity on some of our higher-margin projects and the tunnel projects that we mentioned.

Income from construction operations for 2014 was up 24% at $221 million versus $178 million in 2013. That is due primarily to the strong increased revenue and the net favorable adjustments associated with the legal settlements that were reached earlier in the year.

Our full-year operating margin of 13.1% is up 80 basis points from 12.3% in 2013 and it represents the highest operating margin for civil ever.

Our fourth-quarter income from construction operations at $65 million was lower than last year's $73 million primarily due to the decreased volume on some of our higher-margin projects which benefited the results in 2013. Our fourth-quarter civil operating margin was 14.4% versus 16.5% in the fourth quarter of 2013.

Moving on to our buildings segment, revenue here for the year was $1.5 billion, down slightly from last year's $1.6 billion and was due primarily to decreased activity on hospitality and gaming projects in several states and healthcare projects in California. For the fourth quarter, revenue was $422 million, up a strong 22% from last year's $347 million due primarily to increased activity on an industrial project in California and this was partially offset by decreased activity by a California courthouse project and hospitality and gaming projects that I mentioned earlier.

Our income from construction operations in 2014 was stable at $25 million this year compared to $25 million last year. Our full-year operating margins of 1.6% was also consistent with 2013. The fourth quarter profitability was negatively impacted by legal expenses in the quarter which led to our fourth-quarter operating margin being a negative 0.9% versus a positive 1.1% last year.

On our specialty contractor segment, revenue for the year was $1.3 billion which is up 10% from last year's $1.2 billion and this of course represents our highest specialty contractor revenue ever and our revenue growth was due primarily to increased activity on various mechanical projects on the East Coast, two signal system modernization projects in New York, and various electrical projects in the Southern US and this was partially offset by the Hurricane Sandy related projects that we performed in 2013.

For the fourth quarter, our revenue at $331 million is up 7% from last year's $309 million and that is due to increased volume on electrical and mechanical projects on the East Coast partially offset by decreased activity on various smaller electrical projects in the Southern US.

Our income from construction operations for 2014 was $51 million, up 4% from last year's $49 million and that is based on revenue changes and the improved performance that we have achieved this year on two of our businesses as partially offset by a settlement that we booked last year.

Our full-year operating margin was 3.9% versus 4.1% last year. Our fourth-quarter income from construction operations at $20 million is up significantly from last year's $4 million and that improvement over the year is based -- year-over-year is based on performance, certainly an improved performance over our earlier in the year and is due primarily to the increased volume that I mentioned and the progress that we have made on claims.

Our fourth-quarter specialty operating margin was 5.9% versus 1.4% last year and we continue to focus on improving margins in this segment particularly at our mechanical business unit in New York.

Speaking for a few minutes about our other expenses, our depreciation and amortization expense for the year was $56 million, down $3 million from last year's $59 million. Fourth-quarter depreciation and amortization expense was $14 million, down 22% from last year's $18 million.

As Ron mentioned, we anticipate depreciation and amortization expense in 2015 of approximately $46 million and this reduction is due to reduced acquisition related amortization that we incurred this year and will not be incurring going forward.

Our interest expense for 2014 was $45 million which is down slightly compared to the $46 million that we had last year and that is a result of lower rates that we benefited from this year even though our borrowings have increased. Fourth-quarter interest expense was consistent at $12 million in both years.

Our income tax expense for 2014 was $80 million compared to $52 million last year and this is due primarily to the increase in pretax income, expected increased activity that we actually achieved in higher tax jurisdictions and year-end tax true ups that are part of the normal process, the return to provision adjustments that also indirectly impact the current year provision calculations.

They were more significant this year and primarily related to state tax returns where that adjustment occurs in the fourth quarter. As a result, our fourth-quarter income tax expense was $26 million versus the $20 million that we incurred this time last year. As Ron mentioned, we expect a 41% effective tax rate for 2015 because of where we expect to perform work.

Finally on our balance sheet, our working capital at December 31, 2014 was $1.1 billion but is up from last year's $787 million. $136 million of that is cash and cash equivalents versus $120 million last year and the bulk of the remainder comes from our project related working capital which increased this year as a result of increased activity across all of our segments.

In the fourth quarter, we generated $87 million in cash from operating activities versus $62 million last year and our Q4 generation of cash is essentially due to payments that we receive related to the legal settlements and also strong collections across all of our segments especially in the month of December.

The cash generated in the fourth quarter was used to pay down debt. Our total debt at December this year was $865 million compared with $946 million at the end of the third quarter albeit that being higher than the $734 million that our debt was at the end of 2013.

I will turn the call back over to Ron for closing comments.

Thanks, Mike. I am pleased with our overall performance in 2014, the most significant aspect of which was we won the judgment on C11 generating and an $88.7 million judgment of which in excess of $50 million came to us in the fourth quarter. In addition to a resolve of the Santa Monica hospital, the MGM CityCenter claim and the legal fees associated with it in the first 60 days of 2015, we achieved over $200 million in cash.

Not only is it the cash associated with these wins for the lack of a better term, it is the fact that those monumental litigations are behind us and we were vindicated in every way in all our positions having essentially either settled or won outright in excess of what we booked and with interest in legal fees being reimbursed on MGM.

In addition, we continue to execute well which is evidenced by our average earnings on our civil and specialty backlog and we continue to remain focused on adding to an already significant backlog.

This concludes our prepared remarks. I will now ask the operator to open the call for questions. Thank you.

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

Good afternoon. A couple of things. First of all, the legal costs that you mentioned in the fourth quarter, the weight on the building segment, how significant were those?

It is a few million dollars. I mean it is not a lot but with building being such a thin margin job just a few million dollars can swing you one way or the other.

Okay, so the business would have been closer to breakeven without it?

Yes. Yes. Right.

And then in terms of SR 99 tunnel project, I noticed the depreciation numbers for 2015 look a little lower I guess than what I had thought they would be. Is that because of the timing of when the machine starts back up again? And then also where are you in terms of receivables on that and what is in dispute?

You are talking about SR 99 again?

Yes.

Where we are right now is we are having discussions with the owners. We just won a very significant DRB. We have a another disputes resolution board going in another month. I'm still more confident than ever that we will resolve all the issues during 2015 favorably for the joint venture.

Okay. And the depreciation, still the plan?

The depreciation that we are reporting here excludes anything associated with it because really it is neutral to us.

It is neutral. It is a joint venture. The equipment that was purchased was purchased for the project and written off to the project and won't hit any of our balance sheets and in effect let's take the tunnel machine, 90% of the cost of the tunnel machine was written off as a direct cost of the job. The balance is just a salvage value.

Okay, sorry. Thanks. That explains it. Last thing, in terms of the priorities for the cash at this point, you mentioned the $200 million so far this year. I don't know how much is going to be consumed by working capital in 2015 or I mean is it debt reduction -- ?

A part of it. I would say the significant portion of it will go to debt reduction. Probably at least two-thirds of it. We are just debating as we speak on which debt to reduce and we have a couple of more significant claims we expect to resolve in the next 180 days that will contribute to that.

Okay, great. Thank you.

Steven Fisher, UBS.

Good afternoon. Mike, just looking for a little more clarity on the guidance. Can you give us a sense of which segments you expect to grow faster and which slower? It seems like the margins are implied to be lower than they have been for a while so I am just kind of wondering what you are expecting there? And I guess related to that, I am surprised to hear that the building business is really only at breakeven. So could you talk through some of those points? Thank you.

I will handle it, Mike. Our building business is essentially flat. It has become a 1% business after G&A and I don't see any appreciable increases. An appreciable increase in the building business goes from $20 million to $30 million whereas when you look at the civil business which I believe made in the order of $200 million in 2014, a comparable increase in it is enormous. Our business is focused on civil and specialty which in particular specialty I am looking for significant growth in 2015 and 2016. And we have two very large jobs pending; one of course is the very significant LaGuardia which we have been sitting on our hands for over six months waiting which is a very large multibillion-dollar contract that we sponsor. So that and Hurricane Sandy has put out again another RFP which we are waiting word any day to see if we have been awarded a piece of it. So I still see as the civil business and the specialty business continuing to drive growth and the building business just basically in a stable hold its own mode.

Okay, so to be clear though, Ron, when you say flat, $25 million of profit for the year sounds like that's generally your expectation for 2015, not a breakeven?

No, it won't be a breakeven. As I recall, we didn't breakeven in 2014. I think the fourth quarter did. You correct me if I'm wrong, Mike, as I recall the results of the building division were somewhere in the $17 million or $18 million for the year.

We mentioned it earlier, income from construction operations was $25 million for the year.

For the building group.

For the building, yes, for the building.

Okay.

So Steve, you asked the question about margin dilution. As we booked the backend of the year a lot of work on building, some of that is going to flow through to revenue next year so revenue for next year building should be higher. But that will overall dilute the margins that we talked about because of what Ron was talking about. It is a lower margin business.

And, Mike or Ron, Q1 has historically had a tendency to surprise to the downside. Obviously there has been more weather going on in this year. So could you clarify are you expecting Q1 to be up year-over-year on an EPS basis?

No, it has been absolutely freezing in New York for those of you that live here. We are just not able to work. It has been an extremely cold first quarter. Unless there is an amazing turnaround, Q1 just seems to always be as long as we are focused in the East to be difficult because we just don't generate the revenue given the weather.

So probably down year-over-year.

Yes, Steven, as you know, our guidance is always weighted toward the backend of the year based on those kind of analyses.

Okay. And then the bookings in civil were pretty light. Where do you think we are in the cycle of big projects that will meet your criteria? Do you think there's enough out there that you can still book within the prospects you mentioned or do we need that highway legislation to come through to (multiple speakers)?

No, we are not looking forward to anything from the government other than the usual. We only brought up that language to give you all a sense of what we are tracking. Right now of course we are getting ready to bid a $500 million bridge in Washington DC at the end of the first quarter, $200 million highways in Maryland and Virginia. We are getting ready to turn in a bid on a $500 million subway job in New York City which is immediately adjacent to three contracts we currently have.

So and of course the multibillion-dollar LaGuardia that we are waiting on on a literally week-to-week, month-to-month basis. So there always seems to be a flow of major work and I really expect us given the fact there are so few of us in this business, I really expect to be able to maintain that civil backlog growth.

Okay, thank you.

Alex Rygiel, FBR.

I am here. Sorry about that. Ron, could you circle back towards the awards that are not yet in backlog and what your confidence level is of that $4 billion to sort of move into backlog over the next six months?

Tower D, we are working out the final terms of the language. That is an $800 million job at Hudson Yards. We are awarded on the first draft of the Tower E at Hudson Yards. We are manned and in preconstruction award some time. We have had awards for a contract I should say at the retail which is another $700 million. Those total in the range of $2.5 billion. We've got a $60 million extension of our Amtrak, another Amtrak tunnel award that we should be signing in the next couple of weeks. There doesn't seem to be any real issue about taking those all to contract.

Secondly, as it relates to LaGuardia, can you give us a little bit more detail with regards to your presentation that you discuss tomorrow and then possibly what the timeline looks like after that?

Goldman and I present tomorrow to the Blue Ribbon Committee which I assume and we have been told should take the same format as when we presented to the Port Board some four to six weeks ago and it will be just explain our proposal, our construction pricing, everything about it. I just can't imagine that this thing can drag out more than of another 30 to 60 days.

And if you would have told me last June or July we would still be here at the end of February, I would be amazed but it is what it is and it is a very significant project with a great deal of importance to us and it is down to two of us so hopefully a selection will be made.

Lastly, as it relates to guidance, revenue growth guidance is very attractive in 2015 but yet the EPS guidance is somewhat flattish to up a little. That would obviously suggest you are forecasting margins to be down. Can you just sort of characterize that and expand upon that a little bit?

How can I? These are an assemblage of seven or eight divisions and long discussions. I think that our margins are somewhat down in the civil end. They are still significant but we are feeling some of the pressures of foreign competition. Our building margins if anything have been trending up believe it or not but of course when they trend up, they trend from 2% to 2.5%. So although it is somewhat positive, it is hardly enough to get you excited. We have been under pressure in the civil end and frankly from the European contractors who are hell-bent to make a commitment here in the US irrespective of the problems they have had.

Our specialty group is definitely trending up and I guess the best way to explain it, we took a relatively conservative approach because we have so many large awards pending that we just want to see if we are going to get them.

The other problem is as you can see, I spelled out that we won't commence tunneling until July this year which is another six months of no revenue and no margin out of the tunnel. And we are in a process of negotiating payment for a year and a half delay which means I won't really be able to get going with anything of consequence on high-speed rail until probably June or July of this year, again another six months with minimum revenue and profit of course that emanates from that revenue.

So it really is a point of revenues sliding which of course if it were here all year, our revenue would be up and our margins would be up because they are both very high margin work.

Very helpful. Thank you very much.

(Operator Instructions). Mike Shlisky, Global Hunter Securities.

Good afternoon. I had a question for you on LaGuardia. The last few months we have been hearing about some additional scope at the actual airport itself talking about potentially adding above ground rail service from the subway line as well as (inaudible) in the paper today about expanding their flight options to include cross-country flights. So I was wondering if A, that might affect the timing of the current things you are actually bidding on currently or B, if it would look even better if you had one even larger package to bid on?

I don't think that it makes any sense for them to increase the size of the package. It is enormous enough now and the subway that we are talking about, we have made allowances in our design for the subway to enter LaGuardia. It is just a matter of creating a gap in the buildings to when the subway is built by someone else. As not a part of this contract, we have designed a set of terminals and garages that will receive it. That has already taken place. As far as the balance, they haven't really talked to us but it is like everything else. If the contract gets awarded and then you sit down with our engineers and architects and say we need a design to receive the following, there is no magic, it is just getting them to make a decision is what has to take place.

Got you. Thanks very much.

We have no further questions at this time. I would like to turn the floor back over to Mr. Tutor for closing remarks.

Thank you everybody for our usual year-end call. Appreciate all the questions. Hopefully we were able to answer them for you and good day.