Tutor Perini Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparison is Q1 2018. Unaudited consolidated results. Amounts are in U.S. dollars; “million” and “billion” are used for readability.
Business context and operating performance
Tutor Perini provides general contracting, project management and self-performed construction services through Civil, Building and Specialty Contractors segments. Revenue declined as certain Building and Specialty Contractors projects wound down and weather slowed work; Civil activity increased as newer projects ramped up.
| Metric | Q1 2019 | Q1 2018 | Change / context |
|---|---|---|---|
| Revenue | $958.5 million | $1,028.2 million | Down 6.8% |
| Gross profit / margin | $88.5 million / 9.2% | $67.1 million / 6.5% | Margin improved |
| Income (loss) from construction operations | $22.9 million | $(0.9) million | Improved; prior-year period included a $17.8 million charge |
| Income (loss) before taxes | $6.9 million | $(15.2) million | Improved |
| Income tax expense (benefit) | $2.2 million | $(4.3) million | Effective tax rate 31.7% vs. 28.1% |
| Consolidated net income (loss) | $4.7 million | $(10.9) million | Includes noncontrolling interests |
| Net loss attributable to Tutor Perini | $(0.4) million; $(0.01) per share | $(12.1) million; $(0.24) per share | Improved, but parent company remained loss-making |
| Interest expense | $16.4 million | $15.1 million | Up $1.3 million, primarily higher average revolver borrowings and rate |
Segments, awards and backlog
| Segment | Revenue | Construction operating income (loss) | Backlog at March 31 |
|---|---|---|---|
| Civil | $333.5 million, up 27% | $41.8 million; 12.5% margin | $6.5 billion |
| Building | $433.5 million, down 12% | $3.1 million; 0.7% margin | $3.0 billion |
| Specialty Contractors | $191.5 million, down 30% | $(7.5) million; (3.9)% margin | $2.1 billion |
New awards were $3.2 billion, versus $2.2 billion in Q1 2018. Backlog reached $11.6 billion, up 25% from December 31, 2018; approximately 56% Civil, 26% Building and 18% Specialty Contractors. Major awards included the $1.4 billion Purple Line Section 3 Stations project, the Choctaw Casino and Resort, and other hospitality and transit work. Remaining performance obligations were $8.3 billion: $4.5 billion Civil, $2.0 billion Building and $1.8 billion Specialty Contractors. The filing notes backlog can differ from remaining performance obligations, including because some backlog awards may not yet have executed contracts or notices to proceed.
Cash flow, liquidity and debt
- Operating cash flow was a use of $124.8 million, versus a use of $73.4 million in Q1 2018, mainly reflecting working-capital investment and slower receivable collections.
- Investing cash outflow was $19.2 million, including $14.4 million of property and equipment purchases. Financing provided $130.7 million, principally from net borrowings of $134.3 million.
- Cash and cash equivalents were $101.5 million, but only $37.3 million was available for general corporate purposes; much of the remainder was joint-venture cash. Restricted cash and restricted investments totaled $69.0 million.
- Working capital was $1.7 billion; current ratio 2.09. Reported debt was $898.6 million, versus $761.5 million at year-end 2018. Debt-to-equity was 0.50, compared with 0.43.
- The $350 million revolver had $169 million available. The company reported covenant compliance at quarter-end: leverage ratio 2.87 against a maximum 3.50, and fixed-charge coverage ratio 3.51 against a minimum 1.25.
- On May 7, 2019, after quarter-end, the credit agreement was amended to maintain the maximum leverage covenant at 3.50 for the remainder of its term, eliminating a scheduled step-down to 3.25. Total revolving commitments and maturity were unchanged.
Outlook, risks and unusual items
- Management described the multi-year outlook as favorable, particularly for Civil and Specialty Contractors, citing infrastructure spending plans, voter-approved funding and project opportunities. It cautioned that growth could be moderated by delays, completion timing and project ramp-ups. The filing provides no numerical earnings or revenue guidance.
- Specialty Contractors recorded $13.6 million of unfavorable closeout adjustments on certain New York electrical and mechanical projects. Building profitability also declined with lower volume and the completion of a profitable California project.
- The Q1 2018 comparison included a primarily noncash $17.8 million charge from an arbitration decision on a completed Civil project in New York; its absence contributed materially to the year-over-year earnings improvement.
- Contract assets included $740.8 million of claims and $362.3 million of unapproved change orders. Their recovery depends on customer agreement or dispute resolution; management estimates variable consideration, but outcomes and timing remain uncertain.
- Significant legal matters include the Alaskan Way Viaduct tunnel dispute, with trial scheduled for October 2019 and substantial claims by multiple parties; the Long Island Expressway matter and NYSDOT appeal; and an ongoing U.S. Attorney investigation involving Five Star Electric for which the company could not estimate a potential loss. Management said ordinary-course matters were not expected, based on current information, to materially affect consolidated financial position.
- Adoption of lease accounting added $43.3 million to assets and liabilities, with no effect on Q1 earnings or cash flow. Management said there were no material changes to risk factors and no material interim goodwill impairment trigger.
Important facts for investors to verify
- Whether the large backlog converts to executed, funded work on schedule, and how award timing compares with reported remaining performance obligations.
- Collection and resolution prospects for the $740.8 million in claims and $362.3 million in unapproved change orders, as well as retainage and other unbilled balances.
- Whether operating cash flow improves as receivables are collected, given the Q1 cash outflow and limited unrestricted corporate cash.
- Progress on Specialty Contractors project closeouts and evidence of sustainable margins across segments, especially the low Building margin and Specialty Contractors loss.
- Compliance headroom under the amended credit agreement, borrowing costs and debt levels; also review the 2021 Convertible Notes and 2025 Senior Notes terms.
- Developments and potential financial exposure in the Alaskan Way Viaduct, LIE and Five Star Electric matters.