Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation's First Quarter 2021 Earnings Conference Call. My name is Joe, and I will be your coordinator for today. Operator instructions were given. As a reminder, this conference call is being recorded for replay purposes. At this time, I will turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Hello, everyone. Thank you for your interest and participation today. With us on the call are Ronald Tutor, Chairman and CEO; and Gary Smalley, Executive Vice President and CFO. Before discussing our results, I will remind everyone that during today's call, we will be making forward-looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. You can find our disclosures about risk factors that could potentially contribute to such differences in our Form 10-K, which was filed on February 24, 2021, and in the Form 10-Q that we are filing today. The company assumes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law. With that, I will now turn the call over to Ronald Tutor.

Thanks, Jorge. Good afternoon, and thank you for joining us. We are off to a good start this year, having delivered solid first quarter results that were ahead of expectations. The COVID-19 pandemic had a limited impact on our results in the first quarter, although we still continue to incur pandemic-related additional costs, most of which we are seeking to recover from our customers as allowed by the contractual terms. It is certainly positive that vaccination coverage has been rapidly increasing across the United States, and I'm hopeful that the pandemic's worst effects are continuing to diminish so that robust economic recovery may continue over the coming months. Gary Smalley, our CFO, will provide you with the details of our financial results for the quarter a bit later. But overall, I'm pleased that our revenue and earnings per share came in ahead of budget and remain confident in our business outlook. And as such, we continue to affirm our earnings per share guidance for 2021. Notably, despite a slight revenue decline compared to the first quarter of last year, our operating income actually grew 5% as a result of a favorable shift toward higher-margin civil projects. We had anticipated this mix shift because certain large civil projects in the Northeast are now completing, whereas certain significant higher-margin civil projects in California and Guam are advancing, largely offsetting the declining revenue and more than offsetting concluded work and their declining profit contributions. In fact, our Civil segment operating margin for the first quarter increased 100 basis points year-over-year to 10.5%, certainly a strong result for what is typically a lower margin quarter. Some of the major projects that contributed to our first quarter revenue included California High-Speed Rail, the San Francisco Central Subway, Purple Lines 2 and 3 as well as the Purple Line 3 tunnels, the Division 20 Portal Widening projects all in Los Angeles, the Minneapolis Southwest Light Rail, the Newark Airport Terminal 1 and the Andersen Air Force Base Housing project in Guam as well as certain other large projects in both the Building and Specialty Contractors segments. We ended the first quarter with a backlog of $8.1 billion, down slightly compared to $8.3 billion at the end of 2020 as a result of revenue that outpaced the volume of new awards in the quarter. I will note that we're expecting to book into backlog in the second quarter our newest project for Los Angeles MTA, the previously announced $478 million LAX Airport Metro Connector. Our backlog remains solid and provides us with good revenue stability over the next several years as it includes certain very large projects, such as the Los Angeles Purple Line Subway work that are expected to continue their progress for another 3 to 4 years. As I mentioned last quarter, the COVID-19 pandemic has had a substantial impact on our new awards and our backlog in 2020 and as a result, could continue to cause significant impacts to our customers' revenue sources, which, in turn, has created temporary funding uncertainties. These are all the obvious delays that were occasioned by the lack of funding which took projects that were ready to bid and took them off and put them back on the shelf. We are now seeing those projects come out on a very significant scale as money becomes made available. As such, the COVID impacts are diminishing, government funding is increasing and of course, this doesn't even take into consideration the infrastructure bill that the Biden administration is pushing. We remain very optimistic that our backlog growth will resume by the second half of this year and should be significant by the second quarter next year. We booked $1 billion of new awards and contract adjustments in the first quarter of 2021, including a $269 million government building facility in Yountville, California with Rudolph and Sletten and more than $220 million in various civil projects for Lunda Construction in the Midwest and an additional $120 million of additional funding for the mass transit project in San Francisco. As I have alluded to previously, there is a seemingly endless list of major projects that we are preparing to bid this year and next. In May, we will be submitting our preliminary proposal for the $4 billion JFK Terminal 1 project and expect selection of the general contractor by September of this year. Other bids in the northeast this year include the $1.5 billion Portal Bridge project in New Jersey, which is a design-bid-build expecting to bid in the third quarter with an award toward the end of 2021. In addition, we are working on a proposal for the $1.5 billion Maryland Purple Line project due in July in Maryland with this contract award expected to be in the late fall of 2021. The $1.2 billion Metro-North Penn Station Access in New York will bid in the fourth quarter with an award anticipated by January of 2022. The $1.5 billion Newark Airport AirTrain is expected to bid in the third quarter of this year with an award anticipated by the end of 2021, and the $2 billion LaGuardia AirTrain for the Port Authority of New York bidding in the fourth quarter of this year with an award first quarter next year. If that were not enough, and the list continues. In Northern California, the $4 billion Santa Clara Valley Transportation Authority BART Phase II tunnel stations, systems and buildings are also expected to commence bidding incrementally beginning in the third quarter of this year, with the first major award being the tunnels, anticipated in the fourth quarter. We have prequalified for the tunnels and are in the process for all of the other prime contracts that are contemplated within that $4 billion package. In addition, in Southern California, we are prequalifying for the $700 million Inglewood elevated people mover, which is supposed to bid in the fourth quarter this year. In Hawaii, as we've discussed previously, the Honolulu rail project is expected to proceed with construction, we are being told, and that should take place by the fourth quarter of this year. Finally, Black Construction, our Guam subsidiary, continues to be overwhelmed by all of the projects in Guam, two of which we are bidding on the island of Tinian and another on the island of Palau, and they're all in the range of $150 million to $200 million each. Other bids on the horizon include the $1.4 billion JFK Landside Roadway Development and the $4 billion West Santa Ana Transit Corridor. And frankly, I could read on and on, but it's beginning to even bore me. There is just a tremendous level of infrastructure. Again, I'm encouraged by the Biden administration's strong focus on infrastructure investments and the increased likelihood of substantial federal infrastructure spending on the horizon. With regard to the major civil projects we will be bidding this year and next year, we expect them to go ahead independent of the infrastructure bill. Clearly, as we've stated before and is obvious to anyone knowledgeable of our industry, we're extremely well positioned to reap these benefits as we continue to be one of only a handful of bidders that either qualify or propose on these major projects. In ending, based on our results through the first quarter and our outlook for the remainder of the year, we are very confident in affirming our earnings per share guidance for 2021 in the range of $1.80 to $2.20. As a reminder, our earnings in 2021, as it's always been, are expected to be weighted more heavily in the second half due to the typical business seasonality as well as the timing previously discussed. Thank you. And with that, I'll turn the call over to Gary Smalley to present the details of our financial results.

Thank you, Ron. Good afternoon, everyone. As usual, I'll start with the discussion of the results for the first quarter including cash flow, provide some commentary on our balance sheet and then our 2021 guidance assumptions. Revenue for the first quarter of 2021 was $1.21 billion, down slightly compared to $1.25 billion for the same quarter of last year. Civil segment revenue for the first quarter was $476 million compared to $487 million for the first quarter of 2020. As Ron mentioned, increased activities on certain projects in California and Guam mostly offset a revenue decline associated with certain projects in the Northeast that are completed or progressing towards completion this year. Building segment revenue was $407 million compared to $482 million for the first quarter of last year. The decrease was primarily due to reduced project execution activities on a hospitality and gaming project in the Southeast, an airport facility project that was recently completed also in the Southeast and a project in the Northeast that is nearing completion. Specialty Contractors segment revenue was $325 million, up 15% compared to $282 million for the first quarter of last year, with the growth mostly driven by increased electrical and mechanical project execution activities on a project in the Northeast. Income from construction operations for the first quarter of 2021 was $50 million, up 5% compared to $47 million for the same quarter of last year. As Ron indicated earlier, the higher operating income was driven by a favorable project mix, including strong contributions from certain higher-margin civil projects in California and Guam. Segment operating income was $50 million for Civil, up 9% year-over-year; $11 million for Building, more than tripled the result of the first quarter of last year; and $1 million for Specialty Contractors compared to $8 million for the same quarter of 2020. The significant increase in operating income for the Building segment was largely due to the absence of an immaterial prior year unfavorable project closeout adjustment as well as lower operating costs associated with the segment's lower revenue in the first quarter of this year. The reduced operating income for the Specialty Contractors segment was principally due to unfavorable immaterial adjustments for settlements on two mechanical projects. Operating margins by segment for the first quarter of 2021 were: 10.5% for Civil, as Ron noted, up 100 basis points year-over-year; 2.8% for Building, up 210 basis points year-over-year; and 0.4% for Specialty Contractors, down compared to the same quarter of last year. We continue to be satisfied with the margin performance we are seeing from the Civil and Building segments, though there are still some challenges to work through in the Specialty Contractors segment, mostly related to legacy projects, to enable us to eventually deliver the improved consistent profitability we aim to achieve from that group. Corporate G&A expense for the first quarter was $13 million compared to $11 million for the same quarter of 2020 with the increase mostly due to higher compensation-related expenses. Interest expense for the first quarter of 2021 was $18 million, modestly higher compared to $16 million for the same quarter of last year. The increase was primarily due to a higher average debt balance as a result of our new Term Loan B, partially offset by lower noncash interest expense associated with the reduction in the balance of the convertible notes. Income tax expense for the first quarter was $7 million compared to $5 million for the first quarter of 2020 with the increase due to a higher effective tax rate for the current year period. Recall that the passage of the CARES Act in late March of last year resulted in a significantly reduced effective tax rate of 16.4% for the first quarter of 2020 compared to the 21.7% tax rate for the current year quarter. Net income attributable to Tutor Perini for the first quarter of 2021 was $16 million, or $0.31 per diluted share, compared to $17 million, or $0.34 per diluted share, for the first quarter of last year. The modest reduction was driven entirely by the higher effective tax rate that I just mentioned. Now let's shift gears and discuss operating cash. We used $47 million of operating cash in the first quarter of 2021, a result that was actually a little better than our expectations. As you may know, the first quarter of each year almost always tends to be a cash usage period for us, and this quarter's result was slightly better than our prior 5-year first quarter average. As a reminder, our goal is to generate annual operating cash in excess of net income. We have achieved this goal in 4 of the last 5 years and still anticipate that we will do so again this year. Turning now to our balance sheet. Our total debt as of March 31, 2021, was $1 billion, flat compared to the end of 2020. Our credit facility had a $0 balance at the end of the first quarter of this year as it did at the end of 2020. As a reminder, we still plan to repurchase or retire the remaining outstanding balance of approximately $70 million of our convertible notes at or before their maturity date in June of this year using restricted cash that is already set aside for this purpose. So that will help to reduce our debt in the second quarter this year. We are well within our debt covenant compliance limits and anticipate that will remain the case. As Ron mentioned earlier, we are affirming our 2021 EPS guidance in the range of $1.80 to $2.20 based on our assessment of current market conditions and our outlook for the remainder of the year. Finally, all the assumptions factoring into our 2021 guidance remain unchanged from what we provided during our last earnings call, February 24 of this year. Thank you. And with that, Ron, I'll turn the call back over to you.

Thanks, Gary. With first quarter results that were ahead of expectations, I'll deal with what the key issues are and the key objectives, that is, to meet or exceed all of our earnings expectations, but equally as important, reduce our underbillings and collect the cash we're rightfully due. We settled a number of claims in the first quarter. We continue to settle claims. And as I've said time and again, I believe this year and 2022 will force many of our largest claims to the forefront as owners cannot hide behind court dates in the future. The court dates are upon us. We expect that to support collections, and we expect significant cash flow over this year and next, not only from those collections, but from the earnings we see. I've said so many times, I'll repeat it again. The extraordinary number of major jobs that are in front of me as we speak, that we're both proposing on, qualifying for, and getting ready to propose is truly a phenomenon of the times. There has never been a marketplace like this, and I'm very excited about the role we can play in major infrastructure going forward. Without belaboring it any further, I'll turn the call over to the operator for questions.

Operator instructions were given. Our first question is from Steven Fisher of UBS.

Just wanted to start off on the specialty margins. Maybe just to clarify, in the quarter, was it legacy projects that are still going on? Or was it charges to write off claims from projects that were already completed in the past?

It was four or five projects that had been completed for many years. Just settling them, closing them and collecting the cash, we took a number of write downs, none of which were significant on the specific project, but in accumulation, had that level of impact.

Okay. So what was the amount of that? Or what would the margins have been excluding it? Because it sounds like there were still problems. I think Gary mentioned the margins aren't where you want them to be. Is that still the case even after you add back whatever this was for these settlements?

I'll let Gary answer. But the answer is, yes, we still aren't where we need to be even exclusive of that.

Yes. And I'll just say this, Steve, the new margins on the new work are in the range that we've been communicating to you that where we want to be in that 6% to 8% range after segment overhead. We feel really good about the margins on the new work. It's just still closing out some of the old work and then settling out on some of the old work.

We closed some work that was finished for three, four and five years — various stages of litigation. It just made no sense to continue to litigate. And God bless our owners. They saw the light and were able to close out a number of them, continue to put that pressure to bear through this year and next. And candidly, most of these underbillings will conclude one way or the other by the end of next year. Very few will go into 2023.

Okay. So when do you think you'd start to see that 6% to 8% actually be visible in the reporting? Could that be sometime later in '22? Or could it be sooner than that?

I'd say midyear 2022 I think you'll begin to see it.

Okay. And then you mentioned, Ron, you settled claims, but it looks like the claim balance went up a little bit from the year-end to the end of the first quarter. So what's actually driving the increase in the claim balance?

Yes. Steve, this is just, more than anything, a normal progression of unapproved change orders going to claims and the difficulty that we've had in getting the resolutions as timely as we thought we would pre-COVID. So that's starting to pick up now. And I think we're at a point where, similar to where we were pre-COVID, that balance, even though it did go up slightly, I think we're going to see that start to fall.

We settled $40 million in claims. But between litigation costs and claim growth, it just seemed to absorb it, which I was as disappointed as you were, but it is what it is. What it requires to put a dent in it are some of these $50 million and $80 million and $100 million items that are all coming due between fourth quarter this year and the end of next year. We'll have probably a dozen of those dealt with before the end of next year.

Perfect. And then there was, I think, $50 million you were trying to collect related to COVID. Is that all part of this? Or is that a separate discussion?

That's a separate discussion, and most of those are in various stages of negotiations. In fairness to our owners, most of them are agreeing they owe it. Some are using the excuse they're waiting to be reimbursed from the federal government. But these are pandemic costs. They're not force majeure, and some have already paid us. Some are contemplating it. Some are wringing their hands. But we expect to collect the better part of that $50 million.

Got it. And then just lastly here, curious on the building side of the business. Have you seen anything — any particular change in recent months from private sector developers? Anything getting more active on the bidding and awarding front there? It seems like things are starting to turn with some more confidence in the economy, people traveling a little more. Curious if you're seeing anything come through your business.

We're seeing a big influx, believe it or not, thank goodness, of Indian casinos. We were just awarded one and given a letter of intent on another. But I can't honestly say we're that close to the developer market. My understanding of New York and Miami is they're beginning to go again. But we have — I'm just very reluctant to do business with developers. We haven't had a good history with collecting money. It's an area of private work and developers where, let's just say, we're not an aggressive participant and leave it at that.

Our next question is from Alex Rygiel from B. Riley.

Ron, I know you don't give revenue guidance. But given where your backlog is today, coupled with bids outstanding and upcoming, obviously, it would appear that revenue will probably be down a little bit in 2021. But how do you think about 2022?

Well, let's put it this way. I think it will go up. I think that the amount of work we're going to get by the end of next year will go through the roof. I think our backlog will be at new records that will far surpass our old records. The only issue with that is you got to remember, on some of these enormous design-build projects, we're awarded a $4 billion job. Then we do about $200 million worth of work the first 12 months in design, site clearance, mobilization. And before you see anything significant in revenue and cost and earnings, usually takes a year. If not a year, nine months. So that's the only lag. With an explosive number of new contract awards and a huge backlog, I think that 2022 will be better than 2021. But let me tell you, I think 2023 will go through the roof because then all of the new work we see that should be signed up by the summer of 2022 will then begin to generate serious revenue and costs in 2023.

Alex, if I could add, just also — Alex, just on the revenue side, you're right. We don't give revenue guidance. But we were roughly $43 million less than we were year-over-year for the first quarter of last year. And I wouldn't write off 2021 as being a lower revenue year than 2020 at this point. It depends on some of the work, how fast we book it, but we could exceed that revenue for 2020 in 2021.

That's helpful. And how was your win rates on awards over the last year? And do you feel like you're gaining share? And what does that say about the competitive environment out there?

Let me say, the last five major contracts at the Los Angeles MTA bid, we got all five of them — majority of them. We had only one other bidder. So we're back where we used to be, dominating Southern California. And as we speak, we have one other proposer on the JFK airport of $3.5 billion to $4 billion. We are bidding the $1.5 billion Maryland Light Rail project that resulted from the termination of Fluor. And there's really two other foreign bidders. We don't have much competition right now. All you've got to do is look at the size of the projects and who we compete with. And our win rate particularly on the West Coast, I hate to say we've been batting a thousand, but we have. On the East Coast, a little more difficult, but I'd still say that we'll get a significant percentage of that which we bid.

And lastly, probably about a year ago, you were talking about a change in contracting within the State of New York and risk profile of certain projects. How does that market stand today?

It's a very difficult market to work in. I'm constantly talking to our major owners who we do business with and their principals and reminding them they can't continue to ratchet the risk profile up and write onerous contracts or we'll stop bidding. And if it gets too outrageous, we'll close the office or we'll use the office to bid elsewhere but New York. And since we're one of only two major players in the entire state, they better think about it and think about if they're going to build their own work from now on because New York has always been a difficult place to work. And even our good owners in New York, I tell them very clearly, you've got to be reasonable. If anything, make your contracts less difficult, make it more contractor friendly than less. Are you going to find yourself without any competition? The classic example of that is when we were the only bidder on the project at Newark Terminal, a $1.5 billion job nobody else bid. So I don't see the State of New York or the City of New York in any position to dictate onerous terms. We simply don't tolerate it. And the only other bidder of consequence is Skanska, and I don't believe that they'll tolerate it. So the time has come for them to pull back and start being rational and fair.

Our next question is from Zane Karimi of D.A. Davidson.

So first off here, just looking at the Civil margins and how those have been developing. Would you expect them to pick up from here as we move through the rest of the year similar to 2020?

We think all our Civil margins will continue to trend up as we add more and more new work at higher margins and some of the old legacy projects begin to drop off. I don't see anything but positive trends in the civil work.

Okay. Great. And then any thoughts on the initial proposals for federal infrastructure plans and where Tutor could fit in with that?

Well, we're as big an infrastructure contractor as in the United States as we speak. So all the work that I gave you earlier, some $30 billion to $40 billion worth of design-build projects that are coming out over the next 12 months are already funded. So the only thing I can say is I believe this infrastructure bill will just pour more money into a marketplace that is already well funded and the industry such as it is will be inundated with opportunities. And as I've said before, our only issue is at some point, we run out of the engineering talent to build it. So if there were 30 major projects and we were the only bidder on all of them, we couldn't build all 30. We'd have to decide what our physical capacity was and our financial restraints, and that would be what would stop us. It certainly wouldn't be margins or the numbers of jobs because there just isn't that much competition and now an overwhelming array of jobs. It's an interesting situation.

Ladies and gentlemen, this concludes our question-and-answer session. And I would like to turn the call back to Ronald Tutor for closing remarks.

Nothing more to add. Thank you, everyone, for our quarterly call. Hopefully, it sheds some light. Until we see you again. That's it for Tutor Perini.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.