Tutor Perini Corporation — Q1 2020 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2020. Tutor Perini provides general contracting, project management and self-performed construction through Civil, Building and Specialty Contractors segments. Results are unaudited and may not indicate full-year performance.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 / comparator |
|---|---|---|
| Revenue | $1,250.7 million | $958.5 million; up 30% |
| Gross profit / margin | $111.1 million / 8.9% | $88.5 million / 9.2% |
| Income from construction operations | $47.2 million | $22.9 million |
| Net income attributable to Tutor Perini | $17.4 million; diluted EPS $0.34 | Net loss $0.4 million; diluted loss per share $0.01 |
| Operating cash flow | $(34.0) million | $(124.8) million |
Revenue growth was driven mainly by higher infrastructure activity in Civil and Specialty Contractors. Improved Specialty Contractors results reflected higher activity and the absence of prior-year unfavorable project closeout adjustments. The effective tax rate fell to 16.4% from 31.7%, principally due to CARES Act treatment of the 2019 net operating loss carryback.
Segment revenue and construction operating margins: Civil $486.6 million and 9.5% (prior-year 12.5%); Building $481.8 million and 0.7% (0.7%); Specialty Contractors $282.3 million and 2.9% (prior-year loss margin of 3.9%).
At March 31, cash and cash equivalents were $198.1 million, of which $80.9 million was available for general corporate purposes; joint-venture cash is restricted to joint-venture uses. Restricted cash and investments totaled $81.4 million. Working capital was approximately $1.4 billion, the current ratio 1.62, and debt-to-equity 0.63.
Total debt was $902.3 million: $185.0 million current and $717.4 million long-term, net of discounts and issuance costs. The company had $175 million available under its $350 million revolving facility and was in compliance with its covenants. Operating cash use reflected working-capital investment, including receivables timing, partly offset by payables and billings timing. Investing cash use was $14.6 million; financing provided $50.6 million, including increased net borrowings and $13.5 million of distributions to noncontrolling interests.
Changes, backlog and outlook
New awards were $587 million, versus $3.2 billion in Q1 2019, when awards were unusually high; management attributed the decline to timing and expected prospective awards later in 2020. Backlog decreased to $10.6 billion from $11.2 billion at year-end 2019. Remaining performance obligations were $9.3 billion: Civil $5.2 billion, Building $1.9 billion and Specialty Contractors $2.2 billion.
Management described the multi-year outlook as favorable, particularly for Civil and Specialty Contractors, citing infrastructure programs, public funding measures and prospective projects. This is not numerical earnings or revenue guidance. Management cautioned that project timing, starts and ramp-ups may affect growth; state and local governments could delay or cancel infrastructure spending as pandemic-related revenues fall.
Risks, contingencies and unusual items
COVID-19 had not significantly affected consolidated operations through March 31, 2020, and most projects were considered essential. Some private-customer projects, particularly in Building and Specialty Contractors, experienced temporary suspensions or reduced activity; New York and California were among the most affected areas. Management could not predict the pandemic’s future effect on operations, liquidity or financial results. Risks include further shutdowns or safety requirements, labor and subcontractor absences, customer payment delays, supply constraints and reduced public infrastructure spending.
A $1.074 billion contract-asset balance comprised $717.4 million of claims and $356.9 million of unapproved change orders. Recovery and timing are uncertain and may involve disputes or litigation. Seattle Tunnel Partners, in which Tutor Perini has a 45% interest, was awarded $57.2 million in damages to WSDOT; the company had recorded a $166.8 million pretax charge in Q4 2019, including its $25.7 million share of the damages. The verdict is under appeal, and payment is secured by a bond pending appeal. The company also reports anticipated insurance recovery in receivables.
For the George Washington Bridge Bus Station project, the company asserted claims exceeding $113 million against the developer and Port Authority; the developer filed for bankruptcy, and recovery is uncertain. The company said the potential adverse financial impact from the developer’s claims was remote. In the Five Star Electric investigation, management could not estimate a potential loss or range of loss.
The credit facility contains a spring-forward provision: if the $200 million Convertible Notes remain outstanding on December 17, 2020, the facility matures then rather than April 2022. The company intended to seek to repurchase the notes in 2020, or consider refinancing, amendment or exchange. It stated that available liquidity should fund the next 12 months, subject to unanticipated events, including COVID-19.
Most important facts for investors to verify
- Whether operating cash flow improves and receivables, claims and unapproved change orders convert to cash.
- Progress on refinancing or repurchasing the Convertible Notes and avoiding the credit facility’s December 2020 spring-forward maturity.
- Actual COVID-19 effects on project execution, customer payments, labor availability and government infrastructure budgets.
- Resolution and cash consequences of the Seattle tunnel appeal, insurance recovery, GWB Bus Station claims and Five Star investigation.
- Whether later-year awards replenish backlog after the sharp year-over-year decline in Q1 awards.