Tutor Perini Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in U.S. dollars. The filing is unaudited.
Business context and operating results
Tutor Perini provides general contracting, project management and self-performed construction services through its Civil, Building and Specialty Contractors segments. The company reported higher Civil and Building revenue offset by lower Specialty Contractors revenue. Management attributed continuing pressure on revenue and profitability partly to delayed project awards and execution following the pandemic.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,060.7 million | $1,070.9 million | $2,858.8 million | $2,884.1 million |
| Gross profit / margin | $50.9 million / 4.8% | $50.3 million / 4.7% | $91.7 million / 3.2% | $66.5 million / 2.3% |
| Loss from construction operations | $12.6 million | $6.9 million | $92.1 million | $107.4 million |
| Net loss attributable to Tutor Perini | $36.9 million | $32.5 million | $123.6 million | $117.1 million |
| Diluted loss per share | $0.71 | $0.63 | $2.39 | $2.28 |
| Operating cash flow | — | $180.8 million | $251.3 million |
Cash and liquidity: At September 30, cash and cash equivalents were $290.0 million, and restricted cash and investments totaled $140.3 million. Only $100.6 million of cash was immediately available for general corporate purposes; much of the remainder was held by joint ventures for JV-related uses. Working capital was $1.5 billion, with a 1.75 current ratio.
Debt: Total debt was $904.8 million, including $500 million of 6.875% senior notes due May 2025 and $368.2 million outstanding under Term Loan B. The $175 million revolver was undrawn and available. Term Loan B and revolver borrowing rates were 10.2% and 12.3%, respectively, at quarter-end. The company reported compliance with its financial covenant; its first-lien net leverage ratio was 2.01 versus a 2.50 maximum.
Orders: Backlog was $10.65 billion at September 30, up 34% from December 31, 2022, principally reflecting the $2.95 billion Brooklyn Jail project awarded in Q2. Remaining performance obligations were approximately $7.9 billion: $4.5 billion Civil, $2.3 billion Building and $1.1 billion Specialty Contractors. Backlog and remaining performance obligations are defined differently in the filing.
Material changes versus comparable periods
- Revenue was down about 1% in both the quarter and nine-month period. Q3 construction-operations loss widened year over year, while the nine-month loss narrowed.
- Nine-month Civil construction income rose to $170.3 million from $12.1 million. Building recorded an $83.9 million nine-month construction-operations loss, versus $9.5 million income a year earlier; Specialty Contractors’ loss widened to $120.7 million from $82.5 million.
- Nine-month interest expense rose to $63.8 million from $49.7 million, primarily reflecting higher borrowing rates. Operating cash flow fell by $70.5 million year over year, although it remained positive at $180.8 million.
- Debt declined from $958.4 million at year-end 2022 to $904.8 million at September 30, 2023, including a $44 million Term Loan B prepayment in April.
Outlook, commentary and risks
- Management described the multi-year revenue-growth outlook as favorable and expected strong operating cash flows for the rest of 2023 and into 2024. The filing provides no numerical earnings or revenue guidance; project timing, execution and collections could affect results.
- Management cited infrastructure funding, including the Infrastructure Investment and Jobs Act, as a source of prospective demand, but said the timing of awards and funding remains uncertain. Higher rates could weigh particularly on Building markets.
- The company faces a spring-forward maturity risk: if the 2017 Senior Notes remain outstanding on January 30, 2025, the Term Loan B and revolver may also mature then. After January 30, 2024, the filing says the credit-facility debt will be classified as current if the provision applies. Management was exploring refinancing and other alternatives and disclosed that more than $70 million had been set aside for refinancing after quarter-end. It stated that available cash and borrowings were not sufficient to repay the senior notes in full.
- Project-estimate changes and disputes remain significant. Nine-month revenue was reduced by $167.4 million for changes relating to obligations satisfied in prior periods. Contract assets included $533.2 million of claims and $573.2 million of unapproved change orders; their ultimate recovery and timing are uncertain. About 58% of retention receivable was estimated to be collected beyond one year.
- Notable charges included an $83.6 million non-cash first-quarter charge following an adverse legal ruling on a New York mixed-use project, and a $25.1 million second-quarter charge following an adverse ruling on a New York educational facilities project. Q3 also included multiple unfavorable project estimate adjustments; management said a California mass-transit settlement’s net adverse period impact was expected to be mitigated by increased profit from future work.
- Other disclosed risks include litigation outcomes, project cost overruns or delays, customer funding and payment constraints, interest rates, refinancing access, and potential joint-venture obligations. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Progress and terms of refinancing the 2017 Senior Notes and addressing the January 2025 spring-forward maturity; confirm subsequent cash set-asides, amendments or financing arrangements.
- Collections and resolution of claims and unapproved change orders, especially given the sizable contract-asset balances and long collection periods.
- Whether Specialty Contractors’ loss-making projects and Building segment performance improve, and whether project-estimate adjustments continue.
- Conversion of the reported backlog into executed, funded work and revenue, including the timing and execution of the Brooklyn Jail award.
- Cash generation after working-capital movements, and the portion of reported cash that is actually available for corporate debt service rather than restricted or held by joint ventures.