Tutor Perini Corp (TPC) 2020 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation Fourth Quarter 2020 Earnings Conference Call. My name is Alex, and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. (Operator Instructions)

At this time, I will turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Hello, everyone, and thank you for joining us today. With us on the call are Ronald Tutor, Chairman and CEO; and Gary Smalley, Executive Vice President and CFO.

Before discussing our results, I will remind everyone that during today's call, we will be making forward-looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. You can find our disclosures about risk factors that could potentially contribute to such differences in our Form 10-K, which we are filing today. The company assumes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law.

In addition, during today's call, we will be discussing certain non-GAAP financial measures. The appropriate GAAP financial reconciliations are incorporated in our earnings release, which we issued earlier today and filed with the SEC, and which is also posted in the Investor Relations section of our website.

With that said, I'll turn the call over to Ronald Tutor.

Thank you, Jorge. Good afternoon, and thank you all for your participation. We had a very strong year in 2020. Our project teams navigated well through the challenges presented by COVID-19, and we worked effectively throughout the year, both at our job sites as well as our offices, and in the case of home offices or work-from-home setting.

Our financial results for 2020 were highlighted by $2.12 of earnings per share, which exceeded our guidance, and we delivered record operating income and record operating cash flow, both of which were higher than in any year since the merger of Tutor-Saliba and Perini in 2008. Most impressively, we achieved these great results despite significant negative impacts of COVID-19, that for many projects, resulted from a lack of available manpower, a reduction in field labor productivity, other labor productivity inefficiencies and essentially, delays to project schedules and deferral of work because, at times, our projects were short as many as 20% to 30% of their workforce.

Gary will detail all our financial results relating to COVID later. However, the incremental costs were estimated to be in excess of $50 million, much of which we are seeking to recover from our owners as recoverable costs. Our revenue grew 20% year after -- year-over-year in 2020, with double-digit growth across all segments and particularly strong growth in excess of 20% in both Civil and Specialty.

The growth was driven by substantial work we progressed on several large civil projects, including Minneapolis Southwest Light Rail; the Los Angeles MTA Purple Line Sections 2 and 3 as well as Division 20 and Purple Line 3 tunnels, 4 contracts of which total virtually $4 billion; and the Newark Airport Terminal 1 for the Port Authority in New Jersey; as well as one large building project, such as the Choctaw Casino and Resort in Oklahoma; another large unnamed hospitality and gaming project in California; and a large technology building project, also in California.

All of our existing projects are continuing to advance well, and we remain cautiously optimistic that in 2021 the worst of COVID-19 is hopefully behind us. Especially now that significant vaccinations are occurring, and they are approved with widespread programs to scale up at an accelerating pace. We are hopeful that by the second half of this year, we will start getting back to a greater sense of normalcy, both in the workplace and in work available to bid.

Operating income of $262 million was another highlight of our 2020 results. As I mentioned, it was the highest result of any year since our merger and up significantly compared to last year. The increase was a result, again, of continued progress on the same aforementioned higher-margin civil projects as well as a favorable arbitration ruling that led to a settlement of a major dispute in 2020. Also recall that our results for 2019 were severely impacted by a goodwill impairment charge, as well as the charge we were required to take on the adverse SR 99 jury verdict.

We generated a record $173 million of operating cash in 2020, which I also mentioned was the highest amount of any year since the merger. The strong cash flow was driven by solid cash collecting, associated with increased revenue on large infrastructure projects and was consistent with our expectations for the year. We believe we will continue to produce healthy cash flow results in 2021 and beyond, driven by the same continued progress on large projects, as well as the anticipated resumption of a more normalized dispute resolution environment to address collections of disputed costs.

Our backlog was $8.3 billion at the end of 2020, compared to $9.2 billion at the end of the third quarter of 2020. At the end of the third quarter -- okay, I get -- I'm sorry. It was down. Our backlog provides us with revenue stability over the next 7 years as it includes those very same large projects such as the 4 projects referred to earlier with the Los Angeles MTA, the California High-Speed Rail and certainly the Minneapolis Light Rail.

COVID-19 pandemic once again had a substantial impact on our new awards and backlog as it resulted in, and continued to cause, significant impacts to our customers' revenue sources, which, in turn, has created temporary funding uncertainty. A whole array of major work I'll speak to later was simply taken from 2019 and pushed to -- or 2020 and was pushed to the end of 2021, which caused our inability to maintain our backlog growth.

We expect that the backlog could continue to decline through the first half of 2021 as delays in those solicitations and awards may continue. But we are seeing many of those major projects we were tracking to bid in 2020, now coming back on the Street, which I will speak to later, which should significantly increase the potential for backlog in the second half of this year.

We booked $2.4 billion of new awards and contract adjustments in 2020. These included approximately $732 million for various mass transit projects, $615 million for building projects, $286 million for various electrical projects in Texas, California and Florida, and $271 million in several domestic federal government facilities and another hundred -- excuse me and $58 million for various electrical projects in New York. Recently, we have submitted several proposals for new projects and multi- award government contracts that are pending customer decisions and contract awards.

In addition, we anticipate bidding and proposing on various other substantial projects this year. For example, in March, we will be finally bidding the $450 million LAX Airport Metro Connector for the Metropolitan Transit Authority in Los Angeles, which has been delayed a number of times. Black Construction, our subsidiary in Guam, which has the largest backlog in its history by 100% over any previous high, is bidding 2 large projects for the military in Guam and the Northern Mariana Islands, the values of which will exceed $800 million. We are also pursuing the [$3.5 billion] (corrected by company after the call) JFK Terminal One project, which we believe will be bid and awarded in the third quarter of 2021.

We are strongly positioned and well-qualified for that project, given our successful experience, working with the Port Authority on the $1.4 billion Newark Airport Terminal One. Furthermore, the $1.5 billion Portal Bridge project in New Jersey finally appears to be moving forward as it's received funding, and we anticipate bidding that project sometime in the third quarter this year.

In Southern California, the $1 billion Inglewood Elevated Automated People Mover is expected to propose in the third quarter. Also, the $2.5 billion Honolulu Rail project that we proposed on last year and for which we had been the announced low bidder, is being repackaged by the owner due to budgetary reasons for a rebid expected to occur later this year. In addition, we are in the midst of qualifications on a number of contracts for the Santa Clara Valley Transportation Authority that totaled $4 billion led by a very large tunnel segment that will be approximately $2 billion of the $4 billion. In addition, we're in the process of qualifying for the $1.2 billion Maryland Purple Line project as a new opportunity following the departure of the former contractor on that project. That proposal will go in later this summer.

Finally, we are in the process of bidding a $700 million military base project in Florida in the second half of the year. That were not enough, other large bids on the horizon include the $2 billion Newark Airport Airtrain, which is now advancing recently having entered a 30-day comment period on their draft environmental assessment report; the $1.4 billion JFK Airport Landside Roadway Development project; the $1.2 billion Metro North Penn Station Access project in New York; the same $4 billion West Santa Ana Transit Corridor and the $1 billion East San Fernando Valley Light Rail project, all for the L.A. MTA; the Port Authority bus terminal in New York, which is valued in excess of $3.5 billion; the $2.5 billion Dumbarton Bridge Rail Corridor in Northern California; and the $2 billion LaGuardia AirTrain project.

One of the key elements of all of these projects coming at once is we feel that the $1.9 trillion federal bailout will go a long ways to refinancing these major agencies and their revenue shortfall. And our sources are saying that once that is concluded, the majorities of these will go out to bid this year and irregardless, a significant number of these are funded and still going forward.

In all, we are currently tracking approximately $35 billion of near-term project opportunities. $25 billion of which is in civil projects over the next 9 to 18 months and $10 billion of building projects over the next 6 months. Of course, with that much work to pursue for our general contracting divisions, it provides great opportunities for our specialty projects.

I will reiterate what I have said repeatedly in the past, namely, that customer demand is reflected by the volume of prospective projects remains at an unprecedented level, despite the funding challenges and resulting delays in bidding and awards that COVID-19 has presented. Our pipeline of large civil opportunities is likely to grow even further once the federal government approves the long-awaited infrastructure investment program that's been talked about for 4 years under the Trump administration is now at the forefront of the Biden administration. So Tutor Perini is once again very well positioned to benefit from the combination of strong pent-up customer demand and the increased likelihood of the infrastructure bill funding from the federal government.

COVID-19 pandemic continues to be a fluid situation that presents uncertainties. And as such, we are currently unable to accurately predict its future impact on our business. If anything, we underestimated in the third quarter those impacts, and we more accurately realize them in our fourth quarter year end. We anticipate continued revenue growth from our existing backlog of large multi-year civil infrastructure projects on the West Coast. And with particular emphasis on the unparalleled growth in Guam, where the government has published a list of bids for 2021 that total over $1 billion, which is incredible, given the size of the island, where the military boom is just remarkable. Offsetting this growth, however, is the fact that certain of our very large civil projects, such as the Newark Terminal One and CM007 are completing or nearing completion over 2021.

As mentioned earlier, we are pursuing several large prospective projects on the West Coast, Northeast and in Guam that are expected to be bid and awarded in 2021 and '22. However, the timing and magnitude of those incremental revenue increases may not be sufficient to offset the expected revenue reductions associated with completing projects.

In other words, we need work to get back out in the marketplace so we can continue to dominate the major works. For these reasons, we are taking a cautious but practical approach this year and estimating our financial performance for 2021. Accordingly, based on our current market assessment and business outlook, we are establishing our initial EPS guidance for 2021 at a range of $1.80 to $2.20. As in previous years, our earnings in 2021 are expected to be weighted more heavily in the second half of the year due to the anticipated timing of large project activities as well as typical business seasonality.

Thank you. And with that, I'll turn the call over to Gary Smalley, to present the details of our financial results.

Thank you, Ron. Good afternoon, everyone. I'll start by discussing our results for the year, after which I will review the fourth quarter. I'll then provide some comments on our cash flow and balance sheet as well as our 2021 guidance assumptions.

As a reminder, we have provided in our earnings release and 10-K, a reconciliation of certain non-GAAP financial measures to the most nearly comparable GAAP measures. These non-GAAP measures apply only to our results for 2019 and exclude the impact of the goodwill impairment charge that we took that year as well as the tax benefit associated with that charge. Accordingly, in any reference or comparison to our 2019 results, I will be discussing adjusted income or loss from construction operations, adjusted net income and adjusted EPS on a pre-impairment basis for the applicable 2019 period, so that comparisons of our 2020 operating results to 2019 are more meaningful.

Revenue for 2020 was $5.3 billion, up 20% compared to $4.5 billion in 2019, despite significant impacts of COVID-19 during the year. Civil segment revenue grew 24% year-over-year to $2.2 billion, primarily due to overall increased project execution activities on various mass transit projects, including the Purple Line projects in L.A., the Light Rail project that Ron had mentioned as well as others. Building segment revenue increased 14% to $2 billion, principally due to increased project execution activities on the hotel and casino projects in Oklahoma and California as well as various other projects in California.

Specialty segment revenue grew 22% to $1.1 billion with the growth driven by increased electrical and mechanical project execution activities in the Northeast and California. Income from construction operations for 2020 was $262 million, as Ron noted, a record high amount since the merger in 2008 and up substantially compared to adjusted income from construction operations of $15 million for 2019. The increase was driven by contributions from the large infrastructure projects that both Ron and I mentioned, as well as the absence of the prior year $167 million pre-tax charge related to the adverse jury verdict that we are appealing for SR 99, the completed Seattle tunnel project.

Civil segment income from construction operations for 2020 was $246 million, with a corresponding operating margin of 11.2%, a strong result for 2020 despite COVID-19 and driven by increased volume on certain higher-margin infrastructure projects that are progressing. Building segment income from construction operations was $53 million despite the COVID-19 impact, with a healthy corresponding operating margin of 2.7% in line with our expectations and also driven by increased volume on certain higher margin projects.

Specialty Contractors income from construction operations was $17 million, with an operating margin of 1.5% both substantially better than in 2019 when the segment reported an adjusted loss from construction operations, but still, 2020 is not in line with our expectations. Corporate G&A expense for 2020 was $54 million, a 17% reduction compared to the prior year, mostly due to lower compensation-related and legal expenses as well as reduced travel expenses due to the pandemic.

Other expense in 2020 was $12 million compared to other income of $7 million in 2019. The net expense in 2020 was primarily the result of the unfavorable resolution of certain disputes pertaining to past business acquisitions, which were not material individually or in the aggregate, while the net other income in 2019 was primarily related to a net gain on the sale of property and equipment.

Interest expense in 2020 was $76 million, up 13% compared to $67 million in 2019. The increase was almost entirely due to noncash extinguishment costs that resulted from our debt restructuring transactions in August of 2020. Income tax expense in 2020 was $22 million compared to an income tax benefit of $66 million in 2019. The effective income tax rate was 12.6% in 2020 compared to 15.4% in 2019. The effective income tax rate for 2020 primarily reflects the favorable tax rate differential realized on the 2019 net operating loss or NOL.

You may recall that under the CARES Act, the NOL generated in 2019 may be carried back up to 5 years, whereas under previous NOL rules, we are only allowed to carry such losses forward. This allowed us to realize the benefit of the tax rate differential by carrying back the NOL to tax years when the federal statutory tax rate was 35% rather than the current rate of 21%. The 2019 tax benefit was due to the SR 99 charge.

Net income attributable to Tutor Perini in 2020 was $108 million or $2.12 of earnings per diluted share, which exceeded our EPS guidance for the year. Our highly profitable 2020 was a dramatic improvement compared to the 2019 adjusted net loss attributable to Tutor Perini of $57 million and adjusted loss of $1.14 per share. The 2019 results included a $167 million pretax charge with a negative EPS impact of $2.38 related to the December 2019 adverse jury verdict on the SR 99 project that we've spoken about a couple of times, again, that we are appealing. EPS in 2020 was even more impressive when you consider that includes an unfavorable impact from COVID-19 of an estimated $0.41 per share.

Now for the fourth quarter results. Revenue for the fourth quarter was $1.3 billion, up 15% year-over-year. Civil segment revenue for the fourth quarter was $532 million, an increase of 19% compared to the same quarter of last year, but the growth mostly due to the absence of the prior year revenue reduction associated with the SR 99 charge that we took in the fourth quarter of '19, but also due to increased project execution activities in 2020.

Building segment revenue was $522 million, up 12% compared to the same quarter of 2019, primarily due to increased project execution activities on a large technology project and a large hospitality and gaming project, both in California.

Specialty Contractors segment revenue was $296 million, an increase of 11% compared to the fourth quarter of 2019 driven mostly by increased project execution activities on electrical mechanical projects in California and the Northeast. Income from construction operations for the fourth quarter of 2020 was $74 million, and the breakdown by segment was $64 million for Civil, $16 million for Building and $11 million for Specialty Contractors, partially offset by corporate G&A of $16 million for the quarter.

Fourth quarter segment operating margins for Civil, Building and Specialty were 12%, 3.1% and 3.6%, respectively. We are pleased with the margin performance we are seeing from the Civil and Building segments, but we still have work to do to deliver improved consistent profitability in the Specialty Contractors segment. As I just mentioned, corporate G&A expense for the fourth quarter was $16 million, a 16% reduction compared to the same quarter of 2019, mostly due to certain lower compensation-related expenses as well as other miscellaneous expenses.

Interest expense for the fourth quarter of 2020 was $18 million, modestly higher compared to $16 million for the same quarter of last year, with the increase primarily due to a higher average debt balance as a result of our new Term Loan B, partially offset by lower noncash interest expense.

Income tax expense for the fourth quarter was $7 million compared to a tax benefit of $30 million for the fourth quarter of 2019. Tax benefit for last year was, of course, the result of the SR 99 charge. Net income attributable to Tutor Perini for the fourth quarter of 2020 was $35 million or $0.69 per diluted share compared to the adjusted net loss attributable to Tutor Perini of $86 million or adjusted loss of $1.71 per share that we reported in the fourth quarter of 2019. Again, the disappointing results in fourth quarter of '19 were driven by SR 99, which negatively impacted EPS by $2.38 for that period.

Now let's shift gears and discuss operating cash, which was certainly another highlight of our 2020 results. Our operating cash generation for the year was $173 million, which as Ron noted, set a new record high since the merger in 2008. It was up 27% compared to last year's $137 million result, which was our previous annual record.

The strong cash generation was driven by increased project execution activities on various higher-margin projects and solid collection efforts overall. We achieved our goal of generating operating cash in excess of net income for 2020, which marked the fourth time in the last 5 years that we have done so, and we expect to achieve this goal again in 2021 and beyond.

Turning now to our balance sheet. Our net debt as of December 31, 2020, was $651 million, essentially flat compared to the end of 2019. Recall that during the third quarter of 2020, we refinanced our debt, replacing our former $350 million credit facility with a new $175 million revolver and a $425 million Term Loan B. Note that at the end of 2020, we had no borrowings against the revolver.

We still plan to repurchase or retire the remaining outstanding balance of approximately $70 million of our convertible notes at or before the maturity date in June of this year using restricted cash that is already set aside for this purpose. As Ron stated earlier, we are initiating our 2020 EPS guidance in the range of $1.80 to $1.20, based on our current market assessment and business outlook. We believe this range...

Gary, $1.80 to $2.20.

Yes. Yes, Ron. That's right. $1.80 to $2.20. We believe this range appropriately considers the market conditions we are seeing at this time, including the remaining uncertainties presented by COVID-19 and the uncertain timing of anticipated federal supplemental funding for state and local customers.

So in closing, let me provide you with the assumptions for our 2021 guidance. G&A expense for 2021 is expected to be approximately $255 million to $265 million. Depreciation and amortization expense is anticipated to be approximately $110 million, interest expense is expected to be about $67 million, of which $6 million will be noncash.

Our effective income tax rate for 2021 is anticipated to be approximately 24% to 26%. Noncontrolling interest is expected to be approximately $35 million to $40 million. Weighted average diluted shares outstanding are anticipated to be approximately 52 million. And finally, capital expenditures for 2021 are expected to be approximately $20 million to $30 million.

With that, Ron, I'll turn the call back over to you.

Thanks, Gary. To just recap it all, we had a very strong 2020 despite COVID-19. Our results were underscored by strong double-digit revenue growth across all segments, record operating income with strong margins in the Civil segment and of course, the record operating cash flow. We remain optimistic that COVID-19 is beginning to abate, particularly now that widespread vaccination programs are underway and that the pandemic's future impacts on our company should begin to be reduced.

In addition, as I've said, we find ourselves extremely well positioned to benefit from the strong customer demand combined with the increased likelihood of substantial federal funding targeted and infrastructure that is long overdue. Our backlog, together with the numerous large prospective projects that we'll be bidding provides us with confidence once again in our long-term growth and success.

Finally, I reiterate the obvious very limited competition for most of our very large projects that we are pursuing and the expectation that this will not change into the future. Our marketplace that we key to is the largest and most complex infrastructure projects in the country, where we believe we have the best opportunity to succeed.

Thank you, and I will turn it over to the operators for questions.

(Operator Instructions) Our first question comes from Brent Thielman with D.A. Davidson.

Great. Ron, in the past, you've talked about some jobs within Civil that you picked up that have margins above that kind of 10% to 12% target range. And I know you've got to get to that point in some of these projects. But I'm just wondering how realistic it is that you might see some of that show up in 2021 versus what you got reflected in the guidance right now?

You're asking me to question our own guidance. The only thing I can respond is I listed all of our very large projects. There's some 5 or 6. Newark Terminal One will conclude by the end of '21, but it falls into that high-margin category. And the balance of them will go on with the exception of CM007, which finishes up in April or May. The rest of them have 3 and 4 years remaining and I would categorize them as all high double-digit margins that we've talked about.

And I'll remind you all that when we talk about these 11% and 12% margins in the civil sector, that's net of all of the civil G&A in the offices. So that will give you a better indication of the level of margins at the job level we're dealing with.

Okay. And then, I guess, how material can some of this work in Guam be to earnings in 2021? I know you're after a lot and you picked up a lot of work. Is that going to ramp up pretty quickly for you?

Ramping up dramatically, Guam has been just remarkable. I own Guam from the old Tutor-Saliba days since 1994, and this is now our 27th year. And year in and year out, we were dominant on the island, doing $100 million to $120 million and probably making an average gross profit of $8 million to $10 million. I think it's a matter of public record that in this year-end, between the growth of work in Diego Garcia, where we have a large operation with a government in the Indian Ocean, and the Black operation in Guam, I believe our revenue exceeded $300 million, and our net profit before taxes exceeded $30 million.

So Guam has virtually tripled in revenue and margin and continues to go up with this incredible array of government spending. If you'll remember, I said that the government has published a list of over $1 billion to bid in 2021 in that area of the world where we've had a very strong presence. So where I would have said 4 or 5 years ago, it's not big enough to impact our bottom line. It certainly has become such.

Okay. Last question, just the delays you've seen in some of this new work getting to the bid table, I guess. Any sense whether some of this is also related just to clarity around an infrastructure bill? I just wonder if, ultimately, that could bring some more clarity to these agencies in terms of moving things forward?

Well, I think it's a combination since we're tracking anywhere from a dozen to 15 major civil projects. And I talk to most of those owners regularly. Some has to do with delays in the uncertainty around the pandemic. Some has delays in overall funding. I'm discovering now as we speak, a number of them are funded. And then a number of the following believe they will be within the next 120 days from the government.

So what's happening, we're inundated with qualification documents, and I'm only talking to projects in excess of $1 billion. We're not talking about the routine $100 million, $200 million, $300 million job. And I hate to demean those as if they're not big jobs, they are. But these mega projects continue to line up, and we continue to put in our prequals. And to me, that means they're funded.

So we remain very optimistic that there's going to be major infrastructure work in that $1 billion-plus category beginning to award by the third quarter of this year.

Our next question is from Steven Fisher with UBS.

Nice job in a very difficult year. Just picking up on that last line of discussion. Just really trying to understand how you guys think the revenue trend could go this year in terms of the first half versus the second half of the year. Are you thinking that in the first half of the year we're up year-over-year as you're still burning off some of this backlog and the decline in backlog hasn't kind of hit yet? And then the second half of the year is down year-over-year? How do we think about that?

And then I guess, if you get these projects that are awarded in the third quarter, is that -- should we presume that, that's going to be like 2022 work? So really just trying to see the kind of progression of the year and what it depends on.

Ron, I'll hit the revenue -- I'll hit the revenue part if you want, Ron, and then leave the last part to you.

Please do.

Yes. So Steve, what we're looking at revenue for the first half of the year is essentially flat. Mostly flat for the entire year, but trending right now a little less than flat for the latter part of the year. I think you can probably tell from our guidance and what we noted about the uncertainties and with the uncertainties over new awards, really, we're trying to be quite conservative in that projection. But that's where we are right now is overall relatively flat year and for most quarters flat, but trending a little bit south of flat in the latter part of the year right now.

Steven, I'll speak to the impact. Gary did well. We're looking at a flat year only because I don't see any contracts proposing, even turning in a price, before the third quarter. However, I know of $10 billion in 4 projects that I'm personally talking to the owners and engaged regularly where they're funded, they will bid in the third quarter, and they will be awarded by the fourth quarter.

So I think we'll begin to see -- and when I say third and fourth quarter, you're absolutely right. We won't see significant cost in revenues until the latter part of the first quarter the following year. So I think where we'll see a significant uptick in revenue and earnings accordingly will be in 2022. Because although we have an excellent backlog of profitable work, it's hard to grow the bottom line if you don't continue to replace the work that you finish.

So I look for this year to be just that, revenue flat. I think our earnings will again be solid as we pointed out, but the next big upswing would be next year as a basis of awards this year.

Okay. That is very clear. I appreciate that. And I guess in terms of just the cash flow. What's the calendar look like of adjudication that you have this year and how we should think about that might play out?

You will be aware of certain very significant settlements that are in the final stages as we speak that I've chosen not to speak to for all the obvious reasons until they're finally settled and executed by our owners. But we have had a significant number of settlements that will continue to contribute to this significant cash flow, and I see no reason that 2022 -- or excuse me, 2021, will not exceed 2020. I look for this to be a very strong cash flow year with collections leading the way.

Okay. Great. And then, lastly, you mentioned still having some work to do on the specialty side. To what extent do you think now that you've kind of turned the corner there? And what still has to be done to get those margins up another couple of hundred basis points?

We really believe the margins -- the appropriate margin guide is 6% to 7%, and of course, we haven't been making it. But what is happening is, we continue to settle old claims that literally go back 10 and 12 years ago. And in settling and cleaning those up, they have impacted the earnings. As we review all of the existing contracts that have been acquired in the last 4 to 5 years, they haven't been the problems with the high margin. It's cleaning up the past, closing out old claims and old collections, and ending litigations that has caused the write-downs that has affected it so as to muddy the picture of what they're really making on the newer against what it has cost us to clean up their old problem.

This year should be very much near an end of that in the Specialty group. So I think you'll get an uptick this year in the Specialty group, and I'm in hopes that a significant number of those old negative claims will be cleaned up this year, whatever it takes.

Our final question is from Alex Rygiel with B. Riley FBR.

Ron, you mentioned competition. Could you dig a little bit deeper into that? Clearly, it appears to be more limited today than a few years back, especially last cycle. But in light of the potential for big federal stimulus dollars being available, how should we think about competition sort of in calendar '21 and '22? Do you think they all come rushing back in immediately? Or do you think they're sort of late to the party and don't really come back and compete with you until 2022 or 2023?

Well, let me speak to this as I have a number of times, and then I think you'll have a better understanding. There's no one to come leaping back in, as you say. Skanska was a major player. Everybody is aware of tremendous losses they took. I'm a firm believer they will come back in again. Once they've digested those losses and seen the marketplace, they will come back in. They have the size and capacity and they will come back in that I believe those issues will impact their ability to drive low prices, and I think they will be a competitor.

I think Kiewit is still the largest in our industry, and they will be a player. After ourselves, Kiewit and Skanska, I can't think of anyone left in the U.S. Certainly, I don't expect to see Fluor back in, in my lifetime, given the losses they've taken and the shakeup in their organization. And at the risk of others being angry, I don't see Bechtel playing a role. They haven't. And I don't care if there's one bid, I don't see them taking a significant role.

The Europeans have all been here for 10 years, their results are transparent, and they're taking less and less of a role. Because you've got to remember in this business, you still got to be low bidder and then you've got to take these $1 billion projects and produce them at the cost you estimate. This isn't a cost-plus marketplace. It's hard money, and you have to have the organization and the technical ability to deliver these projects. I don't care how much money you have, if you don't have the talent and the people, you cannot compete.

And that's what makes it so difficult. I don't care if we're the only bidder there. In the world today, you can't count on one hand the potential competitors for a major trillion-dollar infrastructure program. And my peers not -- may not like to hear me say it, but the facts are the facts.

And to expand upon that a little bit more. Do you feel as if over the next 2 years contract risk to you and pricing can continue to improve?

Quite the contrary. We don't take the risk we used to take, unless you're downright stupid. Why should I take an imposed owner risk? Two things take place in all our discussions with the owners. You either make the risk acceptable or we don't bid, is option one. Or if the job is particularly desirable and they won't budge on shifting risk to us, we price the risk at such a level it's no longer a risk.

The day of an intelligent contractor assuming the risks of the owner are over. These contracts have to be fair and equitable to both parties or we simply price it or we don't bid.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to management for closing comments.

Thank you all for indulging us. It was a great call and we enjoyed being the bearer of good news. Until the next call, thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.