Tutor Perini Corporation — Q2 2021 Form 10-Q
Business context and period. Tutor Perini is a construction and project-management contractor operating through Civil, Building and Specialty Contractors segments. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods unless noted. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $1.219 billion | $1.276 billion | $2.427 billion | $2.527 billion |
| Gross profit | $127.5 million | $117.8 million | $237.9 million | $228.8 million |
| Income from construction operations | $68.8 million | $57.7 million | $118.5 million | $104.9 million |
| Net income attributable to Tutor Perini | $31.2 million | $18.7 million | $47.2 million | $36.1 million |
| Diluted EPS | $0.61 | $0.37 | $0.92 | $0.71 |
| Operating cash flow | Not presented quarterly | $(131.3) million | $58.2 million |
Revenue declined about 4% in both the quarter and first half, while gross profit and construction-operations income increased. Gross margin was approximately 10.5% in Q2 (9.2% prior year) and 9.8% in the first half (9.1% prior year). Construction-operations margin was 5.6% in Q2 (4.5% prior year) and 4.9% in the first half (4.2% prior year). Management attributed the improvement chiefly to stronger Civil profitability and Specialty Contractors results, including favorable dispute outcomes; Building results weakened.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $231.1 million, down from $374.3 million at year-end 2020. Only $103.5 million was immediately available for general corporate purposes; much of the remainder was joint-venture cash restricted to JV-related uses. Restricted cash and investments totaled $88.4 million.
- Working capital was $2.0 billion; the current ratio was 1.96. Total reported debt was $970.2 million, including $36.9 million current maturities; debt-to-equity was 0.60.
- The $69.9 million remaining Convertible Notes balance was repaid at maturity on June 15, 2021. The $500 million 6.875% senior notes and Term Loan B remained outstanding. The $175 million revolver was fully available, with no borrowings or letters of credit outstanding. The company reported covenant compliance; first-lien net leverage was 0.94x against a 2.75x maximum.
- First-half operating cash use of $131.3 million reflected working-capital investment, including increased costs and estimated earnings in excess of billings, lower accounts payable and lower billings in excess of costs. Investing cash use was $22.8 million and financing cash use was $63.7 million.
Changes, outlook and risks
- Backlog was $7.52 billion at June 30, down 10% from $8.35 billion at December 31, 2020. First-half awards were $1.60 billion against $2.43 billion of revenue. Remaining performance obligations were $7.3 billion: Civil $4.3 billion, Building $1.5 billion and Specialty Contractors $1.5 billion.
- Segment trends diverged: first-half revenue fell 3% in Civil and 17% in Building, while Specialty Contractors grew 17%. Q2 Building recorded a $2.5 million operating loss; Civil and Specialty Contractors recorded income of $75.1 million and $10.0 million, respectively.
- Management anticipated generally steady 2021 revenue supported by existing large Civil projects, but warned revenue could decline as large projects near completion and prospective awards or project starts are delayed. It cited a favorable multi-year opportunity pipeline, particularly in Civil and Specialty Contractors, and expected several significant awards to enter backlog in Q3, including the $471 million LAX Airport Metro Connector and $220 million I-70 Missouri River Bridge projects. These were expectations, not completed awards. No numerical earnings or revenue guidance was provided.
- COVID-19 continued to cause labor constraints, lower productivity, project delays, and delayed bids and awards. Customer funding shortfalls and postponed claim or dispute resolutions weighed on liquidity and results. Management said it could not reliably predict the pandemic’s future effects.
- Contract estimates, claims and unapproved change orders are significant uncertainties. Contract assets totaled $2.11 billion, including $821.2 million of claims and $430.1 million of unapproved change orders. These balances depend on customer agreement or dispute resolution and may take time to bill or collect.
- Inflation and cost increases, especially on fixed-price and guaranteed-maximum-price contracts, could reduce margins if not recovered. Other disclosed risks include execution and schedule performance, new-award timing, litigation, customer funding, joint-venture obligations, debt compliance and potential goodwill impairment.
Unusual items and contingencies
- Q2 and first-half 2021 results included a $20.1 million reduction in costs from a favorable legal judgment on a completed New York electrical project (about $14.6 million after tax, or $0.28 per diluted share). The comparable 2020 periods included a $13.2 million charge from an adverse arbitration ruling on another New York electrical project.
- The Alaskan Way Viaduct disputes remain material: a jury awarded WSDOT $57.2 million, of which Tutor Perini’s 45% share is $25.7 million, subject to appeal. A separate insurance recovery case involves asserted damages of $532 million; the filing says an estimate of probable recovery is included in receivables. An appellate decision on insurance-policy limitations was issued August 2, 2021.
- The George Washington Bridge Bus Station matter includes substantial contractor recovery claims, including a $113 million claim, with related bankruptcy, appeal and litigation proceedings ongoing. The filing states management considers the potential material adverse impact from the developer’s claims remote; recovery estimates are included in revenue.
- The company described the potential material financial impact of the Five Star Electric government investigation as remote. Management cautions that legal and contract assessments involve uncertainty and actual outcomes may differ from estimates.
Most important facts for investors to verify
- Whether the large anticipated awards were formally contracted, funded and added to backlog, and whether backlog replenishes as projects are completed.
- Collection and resolution prospects for the $1.25 billion combined claims and unapproved-change-order contract asset balance, and the related cash-conversion impact.
- Whether the negative first-half operating cash flow reverses, given restricted/JV cash and relatively modest cash available for general corporate use.
- Building segment margin recovery and the durability of Civil and Specialty Contractors profitability apart from the $20.1 million favorable judgment.
- Developments in the Alaskan Way and George Washington Bridge disputes, including possible cash payments, recoveries and changes to recorded estimates.
- Inflation, COVID-19 impacts, customer funding and project delays, as well as the company’s continuing compliance with debt covenants and refinancing conditions.