Tutor Perini Corporation — Q1 2021 Form 10-Q
Business context and reporting period. Tutor Perini is a construction contractor operating through Civil, Building and Specialty Contractors segments. This unaudited quarterly report covers the three months ended March 31, 2021, compared with the same period in 2020; balance-sheet comparisons are with December 31, 2020.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $1.208 billion | $1.251 billion |
| Gross profit / gross margin | $110.5 million / 9.1% | $111.1 million / 8.9% |
| Income from construction operations / margin | $49.7 million / 4.1% | $47.2 million / 3.8% |
| Net income attributable to Tutor Perini | $16.0 million | $17.4 million |
| Diluted EPS | $0.31 | $0.34 |
| Net cash used in operating activities | $46.7 million | $34.0 million |
| Capital expenditures | $9.8 million | $11.7 million |
| Total debt | $1.026 billion | $1.025 billion at Dec. 31, 2020 |
| Cash and cash equivalents | $318.7 million | $374.3 million at Dec. 31, 2020 |
| Working capital / current ratio | $1.9 billion / 1.88 | $1.8 billion / 1.80 at Dec. 31, 2020 |
Cash immediately available for general corporate purposes was $176.8 million; additional cash was held by joint ventures for JV-related uses. Restricted cash and investments totaled $156.1 million, including $69.9 million set aside for the Convertible Notes. The full $175 million revolver was available and unused at quarter-end. The company reported a first-lien net leverage ratio of 0.75 to 1.00 against a maximum covenant of 2.75 to 1.00 and said it was in compliance.
Material changes and operating trends
- Revenue declined 3%, mainly as Building activity fell, partly offset by growth in Specialty Contractors.
- Construction operating income increased despite lower revenue, reflecting stronger Civil results and improved Building results. Specialty Contractors income fell to $1.3 million from $8.3 million, with the company citing unfavorable adjustments on two mechanical projects.
- Segment revenue and construction operating income were: Civil $475.6 million and $50.1 million; Building $407.2 million and $11.2 million; Specialty Contractors $324.8 million and $1.3 million.
- Net income attributable to the company and diluted EPS decreased, primarily because of higher interest expense and a higher effective tax rate, partly offset by improved construction operating income. The effective tax rate was 21.7%, versus 16.4%; the prior-year rate benefited from CARES Act NOL carryback provisions.
- Operating cash outflow increased by $12.7 million year over year, primarily reflecting working-capital investment, including lower accounts payable and billings in excess of costs and estimated earnings, partly offset by lower receivables.
- New awards were approximately $1.0 billion, versus $0.6 billion. Backlog was $8.1 billion at March 31, down from $8.3 billion at year-end 2020 and $10.5 billion at March 31, 2020. Remaining performance obligations were $8.0 billion: Civil $4.8 billion, Building $1.5 billion and Specialty Contractors $1.7 billion.
Outlook, risks and unusual items
Management provided no numerical earnings or revenue guidance. It described the medium-term growth outlook as favorable, particularly in Civil and Specialty Contractors, and cited prospective large projects and potential infrastructure investment. However, management cautioned that pandemic-related funding uncertainty and award delays, as well as the completion or wind-down of major projects, could reduce 2021 revenue; the timing and scale of new projects may not offset those reductions. The company anticipated adding the previously announced $478 million LAX Airport Metro Connector project to backlog in Q2 2021.
- COVID-19 continued to contribute to labor shortages, lower field productivity, inefficiencies and schedule delays. The company was seeking customer recovery of incremental costs, with some relief already received; management could not reliably predict the pandemic’s future effects.
- Revenue in Q1 included a negative $19.3 million impact from revisions to estimates on performance obligations satisfied in prior periods; the comparable 2020 impact was immaterial.
- Contract assets totaled $1.99 billion, including $806.5 million of claims and $369.4 million of unapproved change orders. Recovery timing and amounts are uncertain and may involve litigation or other dispute resolution.
- In the Alaskan Way Viaduct matter, the company’s 45%-owned JV appealed a $57.2 million jury award to WSDOT; the company had recorded a $166.8 million pre-tax charge in 2019, including its $25.7 million share of the award. Appeals concerning the WSDOT verdict and insurance coverage remained pending.
- In the George Washington Bridge Bus Station matter, the company continued to pursue claims exceeding $113 million through litigation and appeals; management’s estimated recovery is included in revenue recorded to date. Management said the potential for a material adverse financial impact from the developer’s claims was remote.
- The company planned to repurchase or retire the remaining $69.9 million principal amount of Convertible Notes at or before their June 15, 2021 maturity, using funds held in restricted cash.
- Other risks identified include contract-estimate revisions, project execution and schedule exposure, customer and subcontractor disputes, backlog cancellations, joint-venture obligations, debt covenant compliance, and potential goodwill impairment.
Important facts for investors to verify
- Whether the company converts its large contract-asset balances—especially claims and unapproved change orders—into cash, and how those balances change.
- Whether operating cash flow improves and whether working-capital investment, receivable collections and supplier payments develop as management expects.
- Whether new awards and backlog stabilize or grow, including the timing of the LAX project and other large prospective awards.
- Whether the weak Specialty Contractors margin improves and whether project-estimate revisions create additional charges or recoveries.
- Developments and potential financial exposure in the Alaskan Way Viaduct and George Washington Bridge Bus Station disputes.
- Repayment or retirement of the Convertible Notes and continued availability of liquidity and compliance with credit-agreement covenants.