Tutor Perini Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; filed November 3, 2021. Tutor Perini provides civil, building, and specialty contracting services. Figures below are in U.S. dollars; “Q3” means the three months ended September 30.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,178.2m | $1,442.1m | $3,605.1m | $3,969.2m |
| Gross profit | $114.0m | $124.9m | $351.9m | $353.7m |
| Gross margin | 9.7% | 8.7% | 9.8% | 8.9% |
| Income from construction operations | $52.1m | $83.0m | $170.6m | $187.9m |
| Net income attributable to Tutor Perini | $15.4m | $36.8m | $62.6m | $72.9m |
| Diluted earnings per share | $0.30 | $0.72 | $1.22 | $1.43 |
- Cash flow: Operating cash flow was negative $152.6m for the first nine months, versus positive $131.0m a year earlier. The company attributed the outflow primarily to working-capital investment, including increased costs and estimated earnings in excess of billings and lower accounts payable.
- Cash and liquidity: Cash and cash equivalents were $187.5m at September 30, down from $374.3m at year-end 2020; only $66.2m was available for general corporate purposes, with much of the remainder held for joint-venture use. Restricted cash and investments totaled $93.5m. Working capital was $2.0bn, current ratio 2.04, and debt-to-equity ratio 0.59.
- Debt: Reported debt was $968.0m, including $28.0m current maturities. The $69.9m remaining Convertible Notes principal was repaid at maturity in June. The $175m revolving facility was fully available; the company reported compliance with its covenants, including a first-lien net leverage ratio of 1.09 against a 2.75 maximum.
- Backlog and remaining performance obligations: Backlog was $8.4bn at quarter-end, up slightly from $8.3bn at December 31, 2020 and 12% from June 30. Remaining performance obligations were $7.6bn: Civil $4.4bn, Building $1.8bn, and Specialty Contractors $1.4bn.
Changes versus prior comparable periods
- Revenue declined 18% in Q3 and 9% for the nine-month period. Management cited reduced execution on Building projects that were completed or nearing completion, COVID-related effects, and timing of project awards and execution.
- Construction operating income fell 37% in Q3 and 9% year to date. Q3 net income attributable to the company fell to $15.4m from $36.8m.
- Segment revenue was lower in Civil and Building in both comparisons. Specialty Contractors revenue fell 16% in Q3 but was roughly level for the nine months; the segment recorded a Q3 construction operating loss of $5.5m.
- Q3 2020 included a $19.6m favorable arbitration decision and a $15.2m unfavorable legal ruling in Specialty Contractors. In the first nine months of 2021, results included a $20.1m favorable judgment on a completed electrical project, $18.1m of favorable Civil project estimate adjustments, and a $14.5m negative impact from estimates on a New York electrical project. Management also cited $23.7m of unfavorable current-year effects on certain New York electrical projects.
- Interest expense declined to $16.7m in Q3 and $52.4m for nine months, partly reflecting the absence of prior-year debt-refinancing extinguishment costs. The 2021 effective tax rates were 24.9% for Q3 and 22.0% year to date, versus 0.1% and 12.2% in 2020; the prior-year rates benefited from CARES Act NOL carrybacks.
Outlook, risks, and contingencies
- Management said 2021 revenue would likely decline because projects nearing completion were not expected to be offset by new projects in time. It described the longer-term growth outlook as favorable, but gave no numerical earnings or revenue guidance in the provided filing text.
- New awards totaled $2.1bn in Q3 and $3.7bn for nine months, versus $0.6bn and $1.9bn, respectively, in 2020. Major Q3 awards included the $471m LAX Airport Metro Connector and $220m I-70 Missouri River Bridge project. Backlog increases were driven in part by Building awards.
- COVID-19 continued to cause labor shortages, lower productivity, schedule delays, delayed awards and customer payment constraints. Management said these effects and delayed dispute resolution had pressured liquidity; timing of collections and resolution of claims remained uncertain. It stated available cash, operating cash generation, and unused revolver capacity should meet needs for 12 months, subject to unanticipated adverse events.
- Contract assets included $840.2m of claims and $448.6m of unapproved change orders. Recovery depends on agreement or dispute resolution; the filing notes that some matters may require litigation. These balances and the associated cash conversion are important uncertainties.
- Material proceedings include the Alaskan Way Viaduct dispute: a jury awarded WSDOT $57.2m, of which Tutor Perini’s 45% share is $25.7m, recorded in 2019 and payable if the verdict is upheld on appeal. The company also reports claims against insurers and WSDOT. In the George Washington Bridge Bus Station matter, the company is pursuing claims exceeding $113m through several proceedings; recovery is uncertain. Management considered material adverse impact from the Five Star Electric investigation remote.
- Other identified risks include contract estimate revisions, inflation, project delays and liquidated damages, customer funding and cancellations, joint-venture partner performance, competition, cybersecurity, and debt covenant compliance. The company reported no material change to previously disclosed risk factors.
Investor verification priorities
- Track operating cash flow, general-purpose cash, and working-capital movements, especially collections and changes in costs and estimated earnings in excess of billings.
- Assess collectability and timing of the $840.2m claims and $448.6m unapproved change orders; compare future approvals, settlements, billings, and cash receipts with recorded balances.
- Monitor project estimates and profitability, particularly the New York electrical projects and Q3 Specialty Contractors loss, as well as performance on recently awarded work.
- Follow backlog conversion, award timing, and the outlook for projects nearing completion; backlog and remaining performance obligations are not necessarily equivalent.
- Review updates and potential financial outcomes in the Alaskan Way Viaduct and George Washington Bridge Bus Station disputes, including the appeals and claimed recoveries.
- Confirm continued revolver availability and covenant compliance, and consider that joint-venture cash is generally restricted to joint-venture-related uses.