Tutor Perini Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Tutor Perini is a construction and project-management contractor operating through Civil, Building and Specialty Contractors segments. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,021.8 | $861.0 | $1,798.1 | $1,813.2 |
| Gross profit (loss) | $65.0 | $(34.2) | $40.8 | $16.1 |
| Income (loss) from construction operations | $2.4 | $(90.6) | $(79.6) | $(100.5) |
| Net loss attributable to Tutor Perini | $(37.5) | $(63.0) | $(86.7) | $(84.6) |
| Diluted loss per share | $(0.72) | $(1.23) | $(1.68) | $(1.65) |
| Operating cash flow | Not separately provided for quarter | $77.7 | $178.7 |
Gross margin was approximately 6.4% in Q2 2023 versus negative 4.0% a year earlier; for the first half it was approximately 2.3% versus 0.9%. Construction-operations margin was approximately 0.2% in Q2 and negative 4.4% for the first half. Higher interest expense—$22.0 million in Q2 and $43.5 million year to date—partly offset operating improvement. The six-month tax benefit was $47.9 million; Q2 recorded $0.2 million of tax expense.
Balance sheet and liquidity
- At June 30, cash and equivalents were $263.5 million, including just $65.1 million available for general corporate purposes; much of the remainder was held by joint ventures for their uses. Restricted cash and investments totaled $108.2 million.
- Debt was $926.3 million as reported, versus $958.4 million at December 31, 2022. Working capital was $1.6 billion, current ratio 1.81, and debt-to-equity ratio 0.68.
- The $175 million revolver had $150 million available. The company reported compliance with its financial covenant: first-lien net leverage was 2.23x versus a 3.00x maximum at June 30. The maximum steps down to 2.50x in Q3 2023 and 2.25x beginning Q4 2023.
- Term Loan B and revolver rates were 10.3% and 12.0% at June 30. The $500 million 6.875% senior notes mature May 1, 2025; the credit facilities could mature January 30, 2025 if those notes remain outstanding on the specified January 2025 date.
- Operating cash flow was positive but fell $101.0 million year over year, mainly because working-capital investment declined less than in the prior period. Cash from operations included benefits from collections on previously disputed matters.
Changes, backlog and outlook
- Q2 revenue rose 19% year over year, while first-half revenue was roughly flat. Q2 construction results improved markedly from the prior-year loss; first-half parent-attributable loss widened slightly.
- Backlog increased 37% from year-end 2022 to $10.9 billion, primarily on a $3.0 billion Brooklyn Jail award. Q2 new awards were $4.0 billion; first-half awards were $4.7 billion. Remaining performance obligations were $8.2 billion: $4.6 billion Civil, $2.4 billion Building and $1.2 billion Specialty Contractors.
- Management expects favorable revenue growth over the next several years and expects strong operating cash flow for the remainder of 2023, supported by project collections and resolution of claims. The filing provides no quantified revenue or earnings guidance. Management cited infrastructure funding, including the Bipartisan Infrastructure Law, as a source of opportunity, while noting uncertainty in award timing and project execution.
- Material project-estimate and legal items affected results. A first-quarter adverse legal ruling caused an $83.6 million non-cash pre-tax charge ($72.2 million Building; $11.4 million Specialty Contractors). Q2 also included $58.1 million of favorable Civil project estimate adjustments, offset in part by unfavorable adjustments including $35.8 million on a Northeast transportation project and a $24.7 million adverse legal ruling on a New York education project.
Risks, contingencies and unusual items
- Contract estimates, claims, unapproved change orders, project delays, cost inflation, labor availability, litigation outcomes and customer funding can materially affect margins, cash collections and results. Revenue was reduced by prior-period contract estimate changes by $108.3 million in the first half of 2023.
- Contract assets totaled $1.83 billion, including $572.6 million of claims and $576.3 million of unapproved change orders. Management estimated $625.8 million of costs and estimated earnings in excess of billings would be collected beyond one year; approximately 58% of retention receivable was also expected to be collected beyond one year.
- The company continues to pursue recoveries in significant disputes. In the Alaskan Way Viaduct matter, recovery from insurers remains subject to ongoing litigation and limits established by court rulings. A separate $113 million claim involving the George Washington Bridge Bus Station remains pending against individual owners; recovery estimates are included in recognized revenue. The filing states that the company has no further recovery avenues from the developer or bankruptcy actions in that matter.
- Interest-rate increases raise borrowing costs; economic weakness could delay or cancel projects, particularly in some Building markets. Management also identified covenant compliance, bonding availability, joint-venture obligations and the timing of government funding as risks.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting or risk factors during the period.
Important facts for investors to verify
- Whether the large claims and unapproved change-order balances are ultimately approved, billed and collected, and on what timetable.
- Whether favorable Civil project estimate adjustments are sustainable and whether loss-making Building and Specialty projects stabilize.
- Execution, funding, formal contract status and margin expectations for the Brooklyn Jail award and other backlog, including whether backlog converts to revenue as expected.
- Liquidity available for corporate needs after excluding joint-venture and restricted balances, and the effect of high variable borrowing rates.
- Future covenant headroom as leverage limits tighten, and plans for the 2025 senior-note maturity and potential earlier credit-facility maturity.
- Developments in major legal disputes and the assumptions supporting recorded recoveries and contract estimates.