Tutor Perini Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Tutor Perini is a construction contractor operating through Civil, Building and Specialty Contractors segments.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,070.9 million | $1,178.2 million | $2,884.1 million | $3,605.1 million |
| Gross profit | $50.3 million | $114.0 million | $66.5 million | $351.9 million |
| Construction operations income (loss) | $(6.9) million | $52.1 million | $(107.4) million | $170.6 million |
| Net income (loss) attributable to Tutor Perini | $(32.5) million | $15.4 million | $(117.1) million | $62.6 million |
| Diluted EPS | $(0.63) | $0.30 | $(2.28) | $1.22 |
| Operating cash flow | Not separately stated for the quarter | $251.3 million | $(152.6) million |
Gross margin was approximately 4.7% in Q3 and 2.3% for the nine months, versus 9.7% and 9.8% in the respective 2021 periods. Construction-operations margin was approximately (0.6)% and (3.7)%, versus 4.4% and 4.7%. The nine-month tax benefit was $47.0 million; Q3 recorded $0.6 million of tax expense despite a pretax loss.
Liquidity, debt and working capital
- At September 30, cash and cash equivalents were $323.2 million, with another $21.8 million of restricted cash. Only $110.7 million of cash was available for general corporate purposes; most remaining cash was held by joint ventures for JV-related uses. Restricted investments were $79.6 million.
- Working capital was $1.9 billion; the current ratio was 1.91, compared with $2.1 billion and 2.17 at year-end 2021. Total debt was $961.1 million, including $26.9 million current maturities; debt-to-equity was 0.63.
- The $175 million revolving facility was fully available at September 30, with no revolver borrowings. The company reported compliance with its financial covenant, with a 2.10:1.00 first-lien net leverage ratio against a 2.75:1.00 limit.
- Operating cash flow improved by $403.9 million year over year, primarily reflecting better collections and lower investment in project working capital. The filing describes the nine-month result as a record since the 2008 merger. Cash generation should be assessed alongside the company’s sizable contract assets and reliance on claim/change-order collections.
Changes versus the prior comparable period
- Nine-month revenue fell about 20%; Q3 revenue fell about 9%. Management attributed the declines mainly to completed or near-complete projects, reduced execution on remaining projects and the lagged effects of pandemic-related delays in bids and awards.
- Profitability deteriorated substantially, particularly in Specialty Contractors and Civil. Nine-month Specialty Contractors recorded an $82.5 million construction-operations loss, compared with $5.8 million income in 2021; Civil income fell to $12.1 million from $187.7 million.
- New awards were $3.0 billion for nine months, down from $3.7 billion. Backlog, however, edged up to $8.35 billion from $8.24 billion at December 31, 2021. Remaining performance obligations at September 30 totaled $8.3 billion across the three segments.
- Contract assets increased to $2.09 billion from $1.99 billion. Included were $741.7 million of claims and $584.4 million of unapproved change orders. Contract liabilities rose to $1.21 billion from $1.03 billion.
Drivers, outlook and risks
- Management cited significant project-level adverse items in 2022, including $36.0 million of close-out, remediation, supervision and labor-inefficiency costs on a Northeast transportation project; a $25.5 million noncash charge following an adverse ruling on a completed New York bridge project; a $17.8 million noncash charge after partial reversal of damages on a completed New York electrical project; and other unfavorable legal, settlement and estimate adjustments. A $34.6 million Civil-segment impact from negotiated lower-margin, lower-risk change orders reduced current-period margin; management expects that temporary margin effect to reverse over the project’s remaining life.
- Management said it expects improved operating cash generation for the remainder of 2022, based on projected collections and resolution of claims and unapproved change orders. It believes cash, operating cash flow and unused revolver capacity will cover working-capital needs and debt maturities for the next 12 months and beyond, subject to unanticipated adverse events.
- No specific full-year revenue or earnings guidance is provided. Management described the longer-term growth outlook as favorable, citing public infrastructure spending and the $1.2 trillion Bipartisan Infrastructure Law. Two large projects with awards pending over the following three to six months could have a combined value exceeding $4.5 billion; timing and actual awards remain uncertain.
- Risks include project-estimate revisions, inflation and higher interest rates, project delays and execution, litigation outcomes, slow recovery of claims and change orders, customer payment constraints, and the timing of new awards. Management noted pandemic-related effects on labor, productivity, schedules, dispute resolution and collections; it could not predict the pandemic’s future impact.
- After quarter-end, on October 31, 2022, the credit agreement was amended to set the maximum first-lien net leverage covenant at 2.75:1.00 through the quarter ending March 31, 2023, stepping down to 2.25:1.00 beginning June 30, 2023; the amendment also replaced LIBOR with SOFR for the revolver. Commitments and maturity were unchanged.
- In the Alaskan Way Viaduct matter, the joint venture paid the WSDOT judgment and interest on October 18, 2022; Tutor Perini’s proportionate share was $34.6 million. Separate claims against insurers remain pending, and management has recorded an estimate of anticipated recovery it considers probable. Other significant disputes include the George Washington Bridge Bus Station matter, where the company’s recovery claims remain subject to appeals and litigation.
Most important facts for investors to verify
- Whether cash collections and operating cash flow remain strong after the working-capital-driven improvement, and how much reported cash is practically available to the parent.
- Progress and recoverability of the $1.33 billion combined claims and unapproved-change-order balances, including timing of billing and cash collection.
- Whether loss-making or near-completion projects generate further cost revisions, and whether the expected margin reversal on the California change orders occurs.
- Resolution and financial impact of material legal matters, particularly insurer recovery in the Alaskan Way case and outstanding New York and George Washington Bridge disputes.
- Whether the pending projects exceeding $4.5 billion are formally awarded and enter backlog, and whether new awards offset revenue from completed projects.
- Future covenant compliance, debt service capacity and effects of higher interest rates under the amended credit agreement.