Tutor Perini Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Tutor Perini is a construction contractor operating through Civil, Building and Specialty Contractors segments. Unless noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $861.0 million | $1,219.2 million | $1,813.2 million | $2,426.8 million |
| Gross profit (loss) | $(34.2) million | $127.5 million | $16.1 million | $237.9 million |
| Income (loss) from construction operations | $(90.6) million | $68.8 million | $(100.5) million | $118.5 million |
| Net income (loss) attributable to Tutor Perini | $(63.0) million | $31.2 million | $(84.6) million | $47.2 million |
| Diluted earnings (loss) per share | $(1.23) | $0.61 | $(1.65) | $0.92 |
| Operating cash flow | Not separately presented here | Not separately presented here | $178.7 million | $(131.3) million |
Gross margin was approximately negative 4.0% in Q2 and positive 0.9% for the first half, compared with approximately 10.5% and 9.8%, respectively, in 2021. The company reported a 41.3% effective tax benefit rate for Q2 and 37.1% for the first half; tax benefits were elevated relative to the statutory rate because of pre-tax losses and other tax factors.
Financial position and liquidity
- At June 30, cash and cash equivalents were $309.3 million, but only $85.1 million was immediately available for general corporate purposes; much of the remainder was held by joint ventures for JV-related use. Restricted cash and investments totaled approximately $89.0 million.
- Total debt was $968.3 million, down from $993.7 million at December 31, 2021. The $175 million revolver was fully available, and the company reported compliance with credit-agreement covenants. Its first-lien net leverage ratio was 1.78 versus a maximum permitted 2.25.
- Working capital was $1.9 billion; the current ratio was 1.97, down from 2.17 at year-end. Debt-to-equity was 0.62 versus 0.59.
- Operating cash flow improved by $310.0 million year over year for the first half, primarily reflecting improved project collections and working-capital movements. Investing activities used $27.9 million and financing activities used $48.4 million.
- Contract assets were $2.0 billion, including $764.4 million of claims and $515.9 million of unapproved change orders. Contract liabilities were $1.18 billion. Management said about 48% of retention receivable was expected to be collected beyond one year.
Material changes and operating developments
- Revenue fell approximately 29% in Q2 and 25% in the first half. Management attributed the decline mainly to reduced activity on projects completed or nearing completion, delayed awards following the pandemic, and project-specific adjustments.
- All segments had lower revenue year over year in both periods. Specialty Contractors posted a Q2 construction-operations loss of $66.7 million; Civil lost $9.8 million; Building was approximately break-even. For the first half, Specialty Contractors lost $70.6 million, Civil lost $10.7 million, and Building earned $9.4 million.
- Management identified significant adverse items in the first half, including a $33.5 million estimate adjustment for close-out, remediation, supervision and labor issues on a Northeast transportation project; a $29.1 million temporary margin impact from lower-margin, lower-risk change orders on a California mass-transit project; a $25.5 million non-cash charge following an adverse ruling on a New York bridge dispute; a $17.8 million non-cash charge from partial reversal of previously awarded damages on a New York electrical project; a $16.2 million non-cash impact from settlement of a Maryland Civil project dispute; and a $14.6 million estimate adjustment on a Northeast transportation project. These items overlap with management’s explanations of the reported results and should not be summed as a single adjustment total.
- Consolidated new awards were $2.1 billion for the first half, versus $1.6 billion in 2021. Backlog was $8.5 billion at June 30, up 4% from year-end. Remaining performance obligations disclosed in the notes totaled $8.4 billion across segments; this measure may differ from backlog.
Outlook, risks and contingencies
- No specific earnings or revenue guidance was provided. Management described the multi-year outlook as favorable, citing public infrastructure funding, the Bipartisan Infrastructure Law and a large prospective project pipeline. Management cautioned that the timing of bids, awards, starts and project completions could affect growth, and that new work may not fully offset revenue declines from projects winding down.
- Management expected continued progress resolving disputes and unapproved change orders in the second half of 2022 and 2023, and anticipated improved operating cash generation in the remainder of 2022. These expectations depend on collections and resolution timing.
- Key stated risks include inflation and cost-estimate changes, labor availability and productivity, project delays and execution, customer funding and payment delays, litigation and claims recovery, competition and award timing, interest rates, pandemic-related effects, and joint-venture partner performance.
- In the Alaskan Way Viaduct matter, the joint venture’s appeal of a $57.2 million judgment for WSDOT was affirmed by the Washington Court of Appeals; a petition for state Supreme Court review was pending. Tutor Perini had previously recorded its 45% share of the award, and a possible future cash payment was at least $25.7 million plus accrued interest. The company also reported material pending recovery claims in this and other project disputes.
- In the George Washington Bridge Bus Station matter, the company continued pursuing claims against the Port Authority and other parties; court and bankruptcy proceedings remained pending. Management stated that material adverse impact from the Developer’s claims was remote, while estimated recoveries on the company’s claims were included in revenue.
- The filing stated that there were no material changes to the risk factors in the 2021 Form 10-K and no material changes to market-risk exposure.
Important facts for investors to verify
- Whether the unusually large contract-asset balances for claims and unapproved change orders convert into approved billings and cash collections, and on what timetable.
- Whether the adverse project estimates, close-out costs and legal outcomes lead to further charges or cash obligations.
- How much reported cash is usable by the parent company versus restricted or held for joint-venture purposes, and whether first-half operating cash flow is sustained.
- Backlog quality and conversion: timing of formal contracts and notices to proceed, project margins, customer funding, and whether new awards offset projects nearing completion.
- Debt service, the 2017 Senior Notes’ 2025 maturity and its effect on credit-facility maturity provisions, interest costs, and continued covenant compliance.