Earnings Call Transcript - TPC Q1 2024

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation First Quarter 2024 Earnings Conference Call. My name is Maria, and I'll be your coordinator for today. As a reminder, this conference call is being recorded for replay purposes. I will now turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Jorge Casado, Vice President of Investor Relations

Hello, everyone, and thank you for your interest and participation. With us today are Ronald Tutor, Chairman and CEO; Gary Smalley, President; and Ryan Soroka, Senior Vice President and CFO. Before we discuss 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 we filed on February 28, 2024, and in the Form 10-Q that we are filing today. The company assumes no obligation to update forward-looking statements, whether due to new information, future events or otherwise, other than as required by law. Thank you, and I will now turn the call over to Ronald Tutor.

Ronald Tutor, Chairman and CEO

Thanks, Jorge. Good day, and thank you for joining us. We delivered a very good first quarter results that exceeded our expectations and demonstrates that we are on track for double-digit revenue growth and a return to profitability in 2024, just as we indicated in our earnings call last quarter. Our first quarter results featured 35% consolidated revenue growth, strong profitability with operating margins of 15% and 3.9% for our Civil and Building segments, respectively, and $0.30 of diluted earnings per share, which was especially strong given the typical seasonality of our business. Backlog grew 26% year-over-year and continues to be very healthy at $10 billion. Importantly, we recently completed a successful debt refinancing, which strengthened our balance sheet and will extend our debt maturities. We continue to focus on resolving various disputed matters which contributed to the outstanding operating cash we generated. We expect to resolve most of the remaining legacy disputes and collect substantial amounts of associated cash this year, with expectations to be as strong as 2023's record cash performance. As I mentioned, our first quarter backlog is $10 billion, up a solid 26% year-over-year. We still anticipate that our backlog will grow significantly later this year and in 2025 as we bid and win our share of major project opportunities supported by the Bipartisan Infrastructure bill as well as strong state and local funding. We anticipate positive earnings for 2024, again, with significantly stronger earnings expected in 2025 and 2026. Thank you. And with that, I'll turn the call over to Ryan to review the financial results.

Ryan Soroka, Senior Vice President and CFO

Thank you, Ron, and good afternoon, everyone. As Ron mentioned, we're off to a great start in 2024 with excellent first quarter results that exceeded our expectations. Our ongoing focus on dispute resolutions and cash generation helped us to achieve very strong operating cash flow of $98.3 million in the first quarter, the second highest first quarter result we have had since 2008. We expect strong cash flows to continue to be enhanced this year and next year by the anticipated resolution of various remaining disputes. The refinancing strengthened our balance sheet and will extend our debt maturities. Revenue for the first quarter of 2024 was $1.05 billion, up 35% compared to $776 million for the same quarter last year. The strong growth was primarily driven by increased activities on the California High-Speed Rail project, the Brooklyn Jail project in New York, and the LAX Airport Metro Connector project in California. The Civil segment revenue for the first quarter of 2024 was $472 million, up 35% compared to the first quarter of last year, primarily due to increased activities on the Eagle Mountain gas pipeline project in British Columbia. Income from construction operations was $49 million for the first quarter of 2024 compared to an $82 million loss for the same quarter last year. Net income attributable to Tutor Perini for the first quarter of 2024 was $16 million or $0.30 of diluted earnings per share compared to a net loss of $49 million or a loss of $0.95 per share in the first quarter of 2023. Our total debt as of March 31, 2024, was $801 million, down $99 million or 11% compared to $900 million as of December 31, 2023. We are maintaining our 2024 EPS guidance in the range of $0.85 to $1.10. Despite our strong first quarter results, we want to maintain adequate contingency in our guidance to cover potential unforeseen events. Thank you. And with that, I'll turn the call back over to Ron.

Ronald Tutor, Chairman and CEO

Thanks, Ryan. To recap our first quarter highlights, we delivered strong revenue growth and profitability, particularly in our Civil business and secondarily, our Building segment, again reporting $0.30 a share of earnings and $98 million of operating cash flow. We continue to expect strong operating cash flow as we resolve our remaining legacy disputes. We are on track to deliver double-digit revenue growth and return to positive full-year earnings in 2024 and anticipate significantly higher in 2025 and 2026. Our backlog should grow significantly this year and next as we continue to bid and win our share of major near-term opportunities. Lastly, we successfully completed our debt refinancing earlier. And with that, I'll turn the call over to the operator for questions.

Operator, Operator

Our first question comes from Alex Rygiel with B. Riley Securities.

Alexander Rygiel, Analyst

Ron, Gary and team, nice quarter. Can you talk a little bit about historically what is your success rate in winning rebids when you had already won the first round?

Ronald Tutor, Chairman and CEO

Well, those happen so seldom. I can't give you a long history, but let's just say we're very confident on the rebids with the lack of competition and the limited competitors.

Alexander Rygiel, Analyst

Ryan, the Civil margins in the first quarter were very strong. Can you identify the one-time items that might have influenced the strength in the first quarter?

Ryan Soroka, Senior Vice President and CFO

There was a $10 million favorable impact to the first quarter related to a resolution on a Civil segment project here in L.A.

Alexander Rygiel, Analyst

Can you help us with regards to interest expense guidance for the second quarter and for the full year?

Ryan Soroka, Senior Vice President and CFO

We're maintaining our guidance for the year related to interest expense, but the refinancing will result in less debt outstanding at a different rate.

Steven Fisher, Analyst

Nice to see the first quarter profitability there. Is the backlog you have today supportive on an underlying basis of that level of margin?

Gary Smalley, President

Yes. The nearly 13% margin we experienced is pretty much what we expect for the rest of the year. Historically, we've been in the 8% to 12% band, but we expect to be north of the 12%.

Steven Fisher, Analyst

What is keeping the Specialty business from being profitable?

Gary Smalley, President

There's still some underutilization. The business is weighed down a little bit by some legacy items, but we've had a fairly good quarter overall.

Steven Fisher, Analyst

Does this mean the second quarter may look weak?

Ronald Tutor, Chairman and CEO

There are no uncertainties about operating earnings in any of the divisions. Our first quarter is typically our weakest, and we achieved $0.30 a share in earnings. Our projections regard uncertainties from the litigation we are dealing with this year.

Ethan Kalis, Analyst

Congrats on getting the refinancing done. What's the right way to think about normalized CIE?

Ronald Tutor, Chairman and CEO

For our size, assuming $5 billion to $6 billion in revenue, I think we're looking at a range of $300 million to $400 million of CIE in various stages of disputes being resolved.

Ryan Soroka, Senior Vice President and CFO

We've been targeting something in the mid-teens for billings in excess based on the types of projects we're bidding.

Ronald Tutor, Chairman and CEO

We want to work on the owner's money, not ours. We've been able to negotiate these terms over the last 18 to 24 months, and it will continue.

Gary Smalley, President

Only the design portion is included in the CIE billings in excess.

Ronald Tutor, Chairman and CEO

I think we've lowered revenue to a point where it’s fairly well leveled off. We've remanaged and put new people in place and believe we can return to profitability. However, we will still adjust based on legacy projects.

Operator, Operator

There are no further questions at this time. I would now like to turn the floor back over to Ronald Tutor for closing comments.

Ronald Tutor, Chairman and CEO

Thank you, everybody, so much, and we look forward to the next quarterly call.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.