Tutor Perini Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited consolidated results. Tutor Perini provides general contracting, construction management, design-build and self-performed construction through Civil, Building and Specialty Contractors segments.
Financial performance
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Revenue | $1,340.7 million | $1,250.7 million | $3,719.6 million | $3,290.4 million |
| Gross profit / margin | $100.2 million / 7.5% | $140.8 million / 11.3% | $289.6 million / 7.8% | $375.7 million / 11.4% |
| Income from construction operations / margin | $39.0 million / 2.9% | $70.4 million / 5.6% | $89.9 million / 2.4% | $177.3 million / 5.4% |
| Net income | $19.7 million | $35.7 million | $36.6 million | $80.2 million |
| Diluted EPS | $0.40 | $0.73 | $0.74 | $1.64 |
- Revenue increased 7.2% in Q3 and 13.0% year to date, primarily on increased Civil and Building activity; Specialty Contractors revenue declined.
- Operating results weakened despite revenue growth. Q3 cost of operations rose to 92.5% of revenue from 88.7%; nine-month cost of operations was 92.2% versus 88.6%.
- Segment performance was mixed. Nine-month Civil income from construction operations was $120.1 million (8.3% margin), Building recorded an $8.1 million loss (negative 0.6% margin), and Specialty Contractors earned $29.0 million (3.1% margin). Management cited unfavorable project adjustments, lower activity on certain higher-margin work, and prior-year favorable estimate changes.
- Other income was $5.9 million for Q3 and $5.3 million year to date, versus expense in the comparable 2014 periods, mainly reflecting lower acquisition-related earn-out expense and prior-year refinancing and investment-sale costs.
Cash flow, liquidity and debt
- Nine-month operating cash flow was positive $20.7 million, versus use of $143.4 million in 2014. Working-capital changes used $63.8 million, including funding of unapproved change orders and higher receivables, partly offset by higher payables.
- Investing activities used $25.3 million, including $33.4 million of property and equipment purchases. Financing activities used $34.0 million. Cash and cash equivalents fell to $96.9 million from $135.6 million at year-end.
- Cash available for general corporate purposes was $24.1 million; a further $72.8 million was the company’s share of joint-venture cash restricted to JV-related uses. Restricted cash was $38.6 million and primarily supports insurance-related obligations.
- Working capital was $1.132 billion and the current ratio was 1.73, versus $1.114 billion and 1.82 at December 31, 2014.
- Total debt was $832.2 million, down from $865.4 million at year-end; debt-to-equity was 0.59 versus 0.63. The company had $140.0 million drawn on its $300 million revolver and $159.8 million available, after letters of credit.
- Management stated that cash flows and available sources should meet anticipated cash requirements for at least 12 months. The credit agreement includes leverage and fixed-charge coverage covenants.
Material changes, outlook and risks
- Brightwater litigation: An adverse appellate decision received November 9, 2015 affirmed the trial judgment in a legacy joint-venture dispute. The company recorded a $23.9 million non-cash pretax charge in Q3 as a subsequent event, reducing net income by $14.0 million and diluted EPS by $0.28. The decision also provides for reasonable attorney fees and appellate costs; the amount was not known or estimable at filing. Management did not expect a significant future cash-flow impact because the subsidiary had already contributed its share of the trial judgment.
- The Brightwater charge caused a breach of financial covenants; lenders granted a waiver on November 13, 2015, so the company reported it was not in default and expected future covenant compliance. Adjusting solely for that charge, management reported Q3 diluted EPS of $0.68 and nine-month diluted EPS of $1.02; these are non-GAAP measures.
- Other significant estimate changes included a favorable $13.7 million Q3 construction-operations adjustment on a New York runway project and an adverse $14.7 million Q2 adjustment on a substantially completed Building project. Comparable 2014 periods benefited from favorable project estimate changes totaling $15.8 million in Q3 and $30.6 million year to date.
- Backlog was approximately $7.54 billion at September 30, down from $7.83 billion at year-end, after $3.43 billion in awards and adjustments and $3.72 billion in revenue recognized. Management cited approximately $4.5 billion of pending awards, including potential future Hudson Yards phases; these awards are not guaranteed. No specific earnings or revenue guidance was provided.
- Contract estimates depend on project costs, productivity, claims and change-order recoveries and are revised using the cumulative catch-up method. Costs and estimated earnings in excess of billings totaled $883.8 million, including $312.1 million of unapproved change orders and $296.6 million of claims; approximately $41.5 million of those change orders and claims were subject to litigation or dispute resolution. Reduced recoveries could lower future earnings.
- Five Star Electric was cooperating with a federal investigation covering 2005–2014, including minority- and disadvantaged-business enterprise usage and certain compensation, benefits and tax practices. The company said it could not predict the outcome or estimate potential liability.
- For the Alaskan Way Viaduct project, the company stated that potential material adverse effects from insurer and owner legal actions were neither probable nor remote; project recovery estimates remain subject to change. Other disclosed disputes include substantial claims and counterclaims, with outcomes and collections uncertain.
- Management identified risks including converting backlog to revenue, project execution and cost estimates, litigation outcomes and collections, public infrastructure funding, labor, weather, surety availability and access to borrowing. It reported no material change to previously disclosed risk factors or market-risk exposure.
Key facts for investors to verify
- Whether project execution and margins improve, especially in Building and Specialty Contractors, and whether the 2015 estimate changes recur.
- Collection timing and ultimate recoverability of claims and unapproved change orders included in contract assets.
- Any quantified Brightwater attorney-fee award and the company’s compliance with credit-agreement covenants after the waiver.
- The outcome and potential financial exposure from the Five Star investigation and Alaskan Way litigation.
- Whether pending awards convert to signed backlog and whether operating cash flow strengthens without relying on working-capital timing.