Tutor Perini Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Dollar amounts are in U.S. dollars. Tutor Perini provides general contracting, construction management and design-build services through Civil, Building and Specialty Contractors segments. Management cautions that quarterly results may not indicate full-year results because project timing and estimated profitability can vary.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $1,066.5 million | $955.2 million | +11.6% |
| Gross profit / margin | $90.8 million / 8.5% | $105.3 million / 11.0% | Margin down 2.5 percentage points |
| Income from construction operations / margin | $20.1 million / 1.9% | $41.5 million / 4.3% | Down 51.6% |
| Net income | $5.1 million | $15.9 million | Down 67.8% |
| Diluted EPS | $0.10 | $0.33 | Down $0.23 |
| Operating cash flow | $(2.3) million | $(41.1) million | Cash use narrowed |
Revenue growth was led by Building, up 33.9% to $398.8 million; Civil rose 2.6% to $374.7 million, and Specialty Contractors was nearly flat at $293.0 million. Construction income declined in Civil to $30.6 million from $44.4 million and Building reported a $2.3 million loss versus $1.8 million income. Specialty Contractors improved to $10.5 million from $7.8 million. The Building decline included an unfavorable adjustment to estimated recovery on an East Coast office project. Corporate G&A rose $6.3 million, primarily due to performance-based incentive compensation.
Cash, liquidity and debt
- Cash and cash equivalents were $146.0 million at March 31, including $84.1 million held by joint ventures and restricted to JV-related uses; corporate cash available for general purposes was $61.9 million. Restricted cash was an additional $44.1 million.
- Working capital was $1,143.3 million; current ratio was 1.86. Management said it expects cash flows to cover anticipated requirements for at least 12 months.
- Total debt was $883.3 million, up $17.9 million from year-end; debt-to-equity was 0.64. Revolver borrowings were $185.0 million, term-loan balance $238.8 million, and senior notes carrying value $298.8 million.
- The $300 million revolving facility had $114.8 million available to borrow. The credit agreement also includes a $250 million term loan; both mature June 5, 2019. The company reported compliance with financial covenants.
- Investing activities used $4.6 million, mainly for $5.7 million of property and equipment purchases. Financing activities provided $17.3 million, principally reflecting net borrowing.
Operating cash use reflected early-quarter subcontractor and vendor payments following strong December collections, plus working-capital funding for large projects that had not reached billing milestones. Ten projects collectively required more than $90 million of cost funding during the quarter.
Backlog, outlook and material developments
- Backlog was approximately $7.8 billion, broadly consistent with December 31, 2014. First-quarter awards and adjustments totaled $1.023 billion, compared with $1.066 billion of revenue recognized.
- Management cited potential future awards of up to $2.3 billion for Hudson Yards phases, approximately $1.3 billion for four California building projects, and about $700 million in other contracts. These were pending, not booked backlog; management anticipated booking many over the next several quarters.
- Management’s strategy is to pursue higher-margin public works and opportunistic building projects, using self-performance and schedule-control capabilities. No quantitative earnings or revenue guidance is provided in the filing.
- Management attributed lower earnings mainly to reduced activity on certain higher-margin projects that had contributed in Q1 2014, West Coast tunnel activity, the East Coast office-project recovery adjustment, and higher corporate incentive compensation.
- Unapproved change orders and claims included in costs and estimated earnings in excess of billings totaled $553.9 million at quarter-end; approximately $43.4 million of these balances were subject to litigation or dispute resolution. Recovery estimates depend on judgments and may be reduced, which could affect future earnings.
- Significant matters include the Brightwater dispute, where the company’s joint venture had paid a $155.8 million jury verdict and $14.7 million in fees; appeal arguments were heard in March 2015 and a decision was expected within three to six months. A $5.0 million contingent liability was recorded, while the ultimate impact remained uncertain. Other disclosed claims include the Long Island Expressway/Cross Island Parkway, Fontainebleau, Westgate Planet Hollywood, and NOAA matters.
- The 156 Stations dispute settled in April 2015 for an amount consistent with the recorded position and without material financial impact. The filing reports no material change in risk factors or market-risk exposure.
Investor verification points
- Whether margins recover, particularly in Civil and Building, and whether the office-project recovery adjustment or other project estimates change.
- Collection, approval and realization of the substantial unbilled change-order and claim balances, including disputed amounts and litigation outcomes.
- Conversion of pending awards into contracted backlog, and the timing and profitability of the existing $7.8 billion backlog.
- Working-capital demands and cash availability, distinguishing corporate cash from joint-venture and restricted cash; monitor revolver usage and covenant headroom.
- Developments in Brightwater and other major disputes, including any effect beyond recorded liabilities or estimated recoveries.