Tutor Perini Corporation — Form 10-Q, quarter ended September 30, 2020
Business context and reporting period
Tutor Perini is a general contractor and construction-services provider operating through Civil, Building and Specialty Contractors segments. This unaudited filing reports the three and nine months ended September 30, 2020, compared with the same 2019 periods; balance-sheet comparisons are with December 31, 2019.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.442B | $1.189B | $3.969B | $3.273B |
| Gross profit | $124.9M | $115.1M | $353.7M | $304.5M |
| Income (loss) from construction operations | $83.0M | $47.9M | $187.9M | $(270.9)M |
| Net income (loss) attributable to Tutor Perini | $36.8M | $19.3M | $72.9M | $(301.6)M |
| Diluted EPS | $0.72 | $0.38 | $1.43 | $(6.01) |
- Revenue increased 21% in both comparison periods, mainly from higher activity on infrastructure projects and selected building projects. Gross margin was approximately 8.7% for Q3 and 8.9% year to date, versus 9.7% and 9.3% in 2019.
- The 2019 nine-month loss included a $379.9M non-cash goodwill impairment charge. Excluding that charge, 2019 nine-month construction operating income was $109.0M and adjusted diluted EPS was $0.55; the company reported $187.9M and $1.43, respectively, in 2020.
- Segment revenue for the first nine months was Civil $1.668B, Building $1.463B and Specialty Contractors $838.7M. Segment construction operating income was $181.8M, $37.1M and $6.6M, respectively. Specialty results included offsetting significant legal and arbitration effects described below.
- Operating cash flow was $131.0M for the first nine months, versus $111.4M in 2019; working-capital changes used $107.8M. Investing activities used $32.9M and financing activities provided $129.1M. Cash, cash equivalents and restricted cash totaled $429.3M, including $169.0M available for general corporate purposes and joint-venture cash restricted to venture-related uses.
- At September 30, working capital was $1.760B; the current ratio was 1.75. Total debt was $1.021B, compared with $834.5M at year-end 2019; debt-to-equity was 0.68. The company had $175M available under its revolver and reported compliance with its credit covenants.
- Contract assets totaled $1.886B, including $743.1M of claims and $372.8M of unapproved change orders within costs and estimated earnings in excess of billings. These balances depend on contract resolution and collection timing.
Material changes versus prior periods
- Q3 and nine-month revenue rose 21%, while construction operating income improved. The comparison with 2019 is materially affected by the prior-year goodwill impairment; adjusted 2019 nine-month construction operating income was $109.0M.
- Backlog fell to $9.182B from $11.221B at December 31, 2019, as revenue recognized exceeded new awards of $1.930B. September backlog was approximately 57% Civil, 21% Building and 22% Specialty Contractors. Remaining performance obligations were $8.9B in total.
- New credit facilities completed in August replaced the 2017 credit facility. The $425M Term Loan B and $175M revolver funded repayment of prior borrowings and repurchase of $130.1M principal amount of convertible notes. $69.9M principal remained outstanding and was backed by restricted cash for repayment.
Outlook, risks and unusual items
- The company gave no quantified full-year earnings or revenue guidance. Management described the multi-year outlook as favorable, particularly for Civil and Specialty Contractors, and expected prospective project bidding and awards later in 2020 or in 2021. Award timing, funding and project starts remain uncertain.
- Management estimated COVID-19 reduced 2020 revenue by about $40M in Q3 and $230M year to date, construction operating income by $3M and $15M, and diluted EPS by $0.04 and $0.21, respectively. Most projects were considered essential; disruption was concentrated in Building and Specialty work. Further restrictions, delays, labor availability and customer or joint-venture payment issues could affect results and liquidity.
- Q3 Specialty Contractors results included a $19.6M favorable arbitration decision and a $15.2M adverse legal ruling on a California mechanical project. The nine-month period also included a $13.2M adverse arbitration ruling on a New York electrical project. The net favorable effect of the Q3 decisions was not a recurring operating trend.
- Other expense included an $8.4M charge for an unfavorable resolution of a dispute related to a past acquisition. Interest expense rose to $58.5M for the first nine months, including non-cash debt-extinguishment costs associated with the August refinancing.
- In the Alaskan Way Viaduct matter, a jury awarded WSDOT $57.2M; Tutor Perini’s 45% share is $25.7M if the verdict survives appeal. The company recorded a $166.8M pre-tax charge in 2019 and has separately recorded an estimated probable recovery from insurers. Appeals were pending.
- Other material uncertainties include the unresolved Five Star Electric government investigation, for which the company could not estimate potential loss, and claims connected to the George Washington Bridge Bus Station project and the developer’s bankruptcy. Management’s project-claim revenue estimates may change as disputes are resolved.
Important facts for investors to verify
- Whether the $9.182B backlog converts to revenue on schedule, and how new awards compare with revenue recognized.
- Collectability and timing of the $743.1M claims balance and $372.8M of unapproved change orders, including the significant litigation-related receivables.
- Cash genuinely available for corporate use, given joint-venture restrictions and $156.4M of restricted cash and investments.
- Repayment of the remaining convertible notes and the effects of the new secured debt, interest costs and covenant requirements.
- Developments in the Alaskan Way, Five Star Electric and George Washington Bridge Bus Station matters, as well as continued COVID-19 impacts on project execution and public-sector funding.