Tutor Perini Corporation — Q2 2015 Form 10-Q
Business context and reporting period. Tutor Perini provides general contracting, construction management and design-build services through Civil, Building and Specialty Contractors segments. This unaudited filing covers the quarter and six months ended June 30, 2015; financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $1,312.4 | $1,084.5 | $2,378.9 | $2,039.7 |
| Gross profit / margin | $98.6 / 7.5% | $129.5 / 11.9% | $189.4 / 8.0% | $234.9 / 11.5% |
| Income from construction operations / margin | $30.9 / 2.4% | $65.4 / 6.0% | $51.0 / 2.1% | $106.9 / 5.2% |
| Net income | $11.8 | $28.5 | $16.9 | $44.5 |
| Diluted EPS | $0.24 | $0.58 | $0.34 | $0.91 |
- Revenue rose 21.0% in Q2 and 16.6% for the first half, led by higher activity on civil infrastructure and building projects. Profitability fell substantially: Q2 net income declined 58.7% and first-half net income declined 62.0% year over year.
- For Q2, Civil construction income was $46.3 million (versus $58.0 million); Building recorded a $12.6 million loss (versus $7.7 million income); Specialty Contractors earned $13.7 million (versus $12.6 million). First-half Building also recorded a $14.9 million loss.
- Other income/expense improved compared with 2014, chiefly because of lower acquisition-related contingent-consideration expense and prior-year securities-sale and refinancing costs. Interest expense was $11.0 million for Q2 and $22.1 million for the first half.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was negative $31.8 million, compared with negative $61.4 million in 2014. Investing used $23.5 million, including $29.5 million of property and equipment purchases; financing provided $26.6 million. Cash and cash equivalents fell $28.7 million to $106.9 million.
- Cash included $48.4 million available for general corporate purposes and $58.5 million attributable to joint ventures and available only for joint-venture uses. Restricted cash was $39.5 million.
- Working capital was $1,158.7 million, up from $1,114.0 million at year-end; the current ratio was 1.78 versus 1.82. Management said cash flows should meet anticipated requirements for at least 12 months.
- Total debt was $892.8 million, up $27.4 million from year-end; debt-to-equity was 0.64 versus 0.63. The company had $185.0 million drawn on its $300 million revolving facility, $235.0 million outstanding on its term loan, and $114.8 million available to borrow. It reported compliance with credit-facility covenants.
- Accounts receivable, including retainage, was $1,553.5 million. Costs and estimated earnings in excess of billings were $816.5 million, including $274.1 million of unapproved change orders and $293.8 million of claims.
Backlog, outlook and management commentary
- Backlog was approximately $7.75 billion at June 30, versus $7.83 billion at December 31, 2014. First-half awards and adjustments totaled $2.30 billion against $2.38 billion of revenue recognized.
- Management identified pending potential awards, including up to $2.3 billion for future Hudson Yards phases, approximately $1.0 billion for five California building projects and approximately $1.0 billion of other contracts. These were pending, not booked backlog; management anticipated booking many over the following quarters. The filing gives no specific earnings or revenue guidance.
- Management attributed the earnings decline largely to favorable Civil project estimate adjustments in Q2 2014 that did not recur and an unfavorable estimate revision on an East Coast office building in Q2 2015. The latter reduced construction income by $14.7 million, net income by $8.7 million and diluted EPS by $0.17.
Risks, contingencies and unusual items
- Construction results depend on estimates of project costs, claims, change orders and recoveries; revisions can materially affect current and future margins. Disputed claims included in costs and estimated earnings are subject to uncertainty, and reductions in expected recovery could reduce earnings.
- Significant matters include the Brightwater joint-venture litigation, where the company reported a $5.0 million contingent liability and said the ultimate financial impact remained uncertain; the NOAA claims, where approximately $29.5 million had been denied and litigation was ongoing; and the Long Island Expressway claim and counterclaims. The filing says outcomes may differ from recorded estimates.
- The company cited risks including project delays or cost overruns, converting backlog to revenue, litigation outcomes, availability of borrowing and surety bonds, labor disruptions, and changes in public infrastructure funding. It reported no material changes to previously disclosed risk factors or market-risk exposure.
- No material changes in internal controls were reported; management concluded disclosure controls were effective. Management noted that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the Building segment’s loss-making project and cost-to-complete estimate stabilize, and whether Civil margins recover without prior-year favorable estimate adjustments.
- Collection timing and recoverability of receivables, unbilled balances, unapproved change orders and claims, particularly the $41.3 million subject to pending litigation or dispute resolution.
- Progress and outcomes in Brightwater, NOAA and other material disputes, including any effect on recorded recoveries or liabilities.
- Conversion of pending awards into funded backlog and revenue, and the resulting project mix and margins.
- Working-capital demands, unrestricted cash availability, revolver utilization and continued compliance with debt covenants.