Tutor Perini Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Comparisons are with Q1 2022 unless otherwise noted. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $776.3 million | $952.2 million |
| Gross profit (loss) | $(24.2) million | $50.3 million |
| Loss from construction operations | $(81.9) million | $(9.9) million |
| Net loss attributable to Tutor Perini | $(49.2) million | $(21.6) million |
| Diluted loss per share | $(0.95) | $(0.42) |
| Operating cash flow | $21.3 million | $120.7 million |
- Gross margin was approximately negative 3.1%, versus positive 5.3% a year earlier. The effective tax benefit was $48.1 million, a 49.6% effective rate, compared with $3.9 million and 17.1% in Q1 2022.
- Cash and cash equivalents were $282.7 million at March 31, including $63.9 million available for general corporate purposes; much of the remainder was held by joint ventures for joint-venture uses. Restricted cash and investments totaled $108.2 million.
- Total debt was $980.7 million, including $66.2 million of current maturities; long-term debt, net, was $914.5 million. Interest expense increased to $21.5 million from $16.5 million, primarily due to higher borrowing rates.
- Working capital was $1.6 billion, the current ratio was 1.82, and debt-to-equity was 0.71. The company reported $145 million available under its $175 million revolver and compliance with its financial covenant.
- Operating cash flow fell by $99.4 million year over year, despite remaining positive; management attributed the change mainly to cash used by earnings sources, partly offset by lower investment in project working capital. Capital expenditures were $17.8 million.
Material changes and business developments
- Revenue declined 18% year over year, reflecting lower activity on a Northeast transportation project nearing completion, the adverse legal ruling described below, and a temporary margin effect from negotiated change orders on a California mass-transit project.
- An adverse Second Circuit decision in the George Washington Bridge Bus Station matter resulted in an $83.6 million non-cash, pre-tax charge in Q1 2023. The charge affected Building by $72.2 million and Specialty Contractors by $11.4 million; the related bankruptcy and arbitration claims against the developer were concluded. Separate claims involving the Port Authority and individual owners remain pending.
- A California Civil mass-transit project change-order negotiation produced a $28.0 million unfavorable current-period earnings impact. Management says the lower-margin, lower-risk approved changes increased estimated total project profit and expects the timing-related earnings effect to reverse over the project’s remaining life.
- Segment revenue and construction operating results were: Civil, $349.9 million and $18.0 million income; Building, $229.7 million and $70.2 million loss; Specialty Contractors, $196.8 million and $12.4 million loss.
- New awards were $766.7 million, down from $996 million. Backlog was $7.9 billion, broadly level with year-end 2022. Remaining performance obligations were $7.8 billion: $4.4 billion Civil, $2.2 billion Building and $1.2 billion Specialty Contractors.
- One customer represented 19.5% of consolidated revenue. Contract assets included $599.5 million of claims and $619.9 million of unapproved change orders; management estimates $642.6 million of costs and estimated earnings in excess of billings will be collected beyond one year.
Outlook, risks and contingencies
- Management said it expects strong operating cash flows to continue through the remainder of 2023, based on projected project collections and resolution of claims and unapproved change orders. The filing does not provide formal earnings or revenue guidance.
- After quarter-end, the company reported more than $3.2 billion of Q2 awards, including a $2.95 billion Brooklyn Jail design-build project and a $222 million Tinian International Airport project. Management expects a substantially larger backlog at June 30, 2023.
- Management views long-term infrastructure spending, including funding under the Bipartisan Infrastructure Law, as supportive of opportunities, but says bid timing, awards, project starts and execution remain uncertain. Higher rates could weigh particularly on Building markets.
- Key exposures include project-estimate revisions, schedule and cost overruns, litigation and dispute outcomes, delayed collections, customer funding constraints, contract cancellations, competition, inflation, interest rates, bonding availability and joint-venture performance. The filing notes that delayed awards and budget constraints have affected backlog, revenue and results.
- The credit agreement required a $44.0 million Term Loan B prepayment, paid in April 2023, arising from 2022 excess cash flow. The amended leverage covenant was 3.75:1.00 for Q1 2023, stepping down to 3.00:1.00 for Q2, 2.50:1.00 for Q3 and 2.25:1.00 for Q4 2023 and thereafter. The Term Loan B and revolver could become due January 30, 2025 if the 2017 Senior Notes remain outstanding at the specified January 2025 date.
- The Alaskan Way Viaduct insurance dispute remains unresolved; management has recorded an estimate of probable recovery. Other claims and estimates are subject to litigation, negotiation and collection uncertainty.
Important facts for investors to verify
- Whether the anticipated Q2 awards are fully executed, funded and included in backlog, and whether planned project starts support management’s cash-flow outlook.
- Recoverability and timing of the substantial claims, unapproved change orders, retention receivables and other contract assets, including balances expected to be collected beyond one year.
- Progress and outcomes in the remaining Port Authority, individual-owner and Alaskan Way Viaduct disputes, and any resulting changes to recorded estimates.
- Liquidity available for corporate purposes versus cash held by joint ventures, interest-rate costs, upcoming debt payments and compliance as leverage covenants step down.
- Whether the California project’s expected reversal of the $28.0 million timing-related earnings impact occurs, and whether further contract-estimate adjustments or project losses arise.