Tutor Perini Corporation

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation third quarter 2019 earnings conference call. My name is Kevin, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll be opening the call for a question and answer session. As a reminder, this conference call is being recorded for replay purposes. If anyone should require operator assistance, please press star zero on your telephone keypad. I will now turn the call over to our host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Hello, everyone, and thank you for your participation today. Joining us on the call are Ronald Tutor, Chairman and CEO, and Gary Smalley, Executive 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 assessments 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 most recent 10-K, which was filed on February 27, 2019. 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. In addition, during today's call, we will be discussing certain non-GAAP financial measures. The appropriate GAAP financial reconciliations can be found in our unaudited investors report Thank you, Jorge.

Good afternoon and thank you all for joining us. As you saw in our earnings release and as we had expected and hoped, our operating cash generation was extraordinary in the third quarter, setting a new quarterly record that shattered the previous record by 38%. Our strong cash flow was driven by significant collections associated with several settlements, which we discussed during our last earnings call, as well by progress made toward resolving other disputes and overall effective management of our working capital as we continue advancing our larger projects. Of course, I'm pleased with the progress we have made on cash generation. and expect that operating cash to be strong again in the fourth quarter and particularly strong in 2020 the next year. Despite the fact that our third quarter earnings were reduced once again by weather delays on Newark, owner milestone delays on Purple Line Section 2 and a delayed start on the Minneapolis Southwest Rail. I still remain confident in our ability to achieve the lower end of our 2019 earnings projections. In addition, significant negotiations have taken place in the first three quarters of 2019, including the previously announced resolve of all delays to date and immediate payment for those delays on the high-speed rail. Furthermore, we are negotiating significant changes that have been added to the project by the owner, with the extension of over 12 miles of intrusion barrier walls, as well as what we call the North to Madera extension. However, once again, it's a very successful job that should have been done in 2018, and appears to be heading to the 2022 completion. And as such, it delays not only the revenue by four years, but of course the profits associated with the project. As I've said before, there is no diminishment of profit. In fact, it's an extremely successful and profitable job. Unfortunately, as a public company, It simply moves those earnings back year by year. We continue to be in an enviable advantageous position with significantly increasing market demand among an obvious lack and diminished number of competitors for major civil works. Our recent success is reflected by our strong backlog growth this year and the opportunities ahead of us are substantial, including several very large pending awards and a tremendous number of other sizable projects expected to be bid and awarded. As an example, in the Los Angeles Metro Rail System, which is right now the biggest construction project in America that promises many billions of dollars worth of work, Over the next years, 10 years, Tutor Perini has been low bidder and awarded the first three major projects to the tune of $3 billion. And we are low bidder and believe we'll be awarded prior to December 15, the Division 20 job for another $440 million. As we did for many years in the 80s and 90s, we believe we will be consistently prevailing in that enormous operation called LA Metro and will be the backbone of our growth going forward. Of course, as we all know, the growth, the backlog, and the margins are driven by our civil group. I might also add as just a bit of color, for those of you that are watching our public peers, Without mentioning by name, one by one over the last 12 months has announced enormous losses and essentially said to the world, including the marketplace, we are withdrawing from large design, build, civil work, lump sum projects as the risks are too great. Well, that leaves us in only a handful remaining. in the extraordinary marketplace called U.S. infrastructure. We feel this will be significant in not only our continued growth in revenue, but much more impact on our profitability. We booked 690 million of new awards in the third quarter and finished the quarter with a backlog of 10.9 billion, up 28% year over year. Significant awards included a $178 million military housing project in Guam for black construction, three electrical projects for Fisk in Texas, collectively valued at $99 million, and Rudolph and Sletten, $59 million of incremental funding for an education building in Los Angeles and a $51 million Bayside Performance Park in San Diego. Additionally, our fourth quarter new award bookings are already on pace to surpass our third quarter bookings, as we anticipate adding into backlog two pending awards that we recently announced, those being the $440 million Division XX Portal Widening and Turnback Facility, which I mentioned earlier, and the new P3 Miami-Dade County Courthouse, with a value in excess of $260 million. As a reminder, over three quarters of our backlog is comprised of higher margin civil and specialty projects. Accordingly, our backlog growth has been and will continue to be strong this year, and we expect further backlog growth next year, but more significantly increased profits as margins are driven up. We believe that as a result of that tremendous demand and lack of competition, we will generate continued strong revenue growth, but more importantly, higher operating margins and increased earnings in 2020 and the years to follow. In mid-November, actually, the 19th, our civil group expects to bid the $400 million 8th Avenue communication base Train Control Project for New York City Transit. Other sizable upcoming civil bids include two large projects for Los Angeles MTA, the four plus billion dollar West Santa Ana Transit Corridor and the 1.5 billion dollar East San Fernando Valley Corridor, both of which are expected to bid in the latter part of 2020. In addition, We will be looking forward to the Port Authority of New York putting out the $3.5 billion bus terminal in Manhattan, the $2 billion Brooklyn-Queens Expressway, and the $1.2 billion Penn Station access by the MTA. as well as the $1.4 billion portal swing bridge replacement and the $450 million Raritan River lift bridge, both in New Jersey bidding next year. We've also been positioning to compete for various other large civil opportunities that will be presented to us next year for proposals, and those include two air train projects for the Port Authority of New York, one at Newark where we are currently building their $1.4 billion terminal, and one at JFK, each of which are $2 billion. Other major projects we are tracking for pursuit include the $7 billion Sepulveda Transit Corridor project for which we are Providing pre-qualification documents in the next two weeks. The $400 million LAX Airport Metro Connector, which will be a design-build lump sum, which we are also qualifying for, for Los Angeles Metro. And well over $15 billion of P3 projects all over the country. We're in various qualification stages with our financial partners and those will probably propose over the next two years. The Special Contractors Group continues to bid and win new projects at higher margins than the past because they too have the same situation as us. Diminished competition and many more. He and I have had the opportunity to travel and work together to thoroughly assess the challenges and opportunities that we're facing in both groups. And he will be focusing 100% of his time to begin to bring those groups where we need them to be. And that's consistently profitable in a level of return acceptable to the parent company. Next, I will review some significant projects that contributed to our third quarter results. In Los Angeles, major work is progressing on the $1.3 million Purple Line Section 2 project as we have sunk the shaft at Century City and the tunnel shaft across the street and will begin to place and assemble the tunnel machines before the end of December. We expect to commence tunneling with both tunnel boring machines by February of March of 2020. In addition, we are completing major utility relocations and have started work on a supportive excavation and excavation of the Wilshire Rodeo Station. Also, I might add, as we were awarded Purple Line 3 tunnels and stations and two separate contracts. The TBMs were procured and are currently in manufacturing on Purple Line 3 tunnels, which is a $420 million tunnel-only contract and should arrive at the project site next spring with tunneling work expected to commence by the end of next year. In British Columbia, Frontier Camper's work on the $273 million Kamano Tunnel project continues to progress with about two kilometers of the new tunnel drive completed with five to go, which should be accomplished in the next 18 months. In the Midwest, London Construction continues to advance major work on the $800 million Manipur Minneapolis Southwest Light Rail and is also making significant progress on the $337 million I-74 project in Iowa. In the Northeast, our most active projects include the $1.4 billion Newark Airport Terminal at the New Jersey Airport, the $665 million CMO-7 for the New York Transit Authority, which is nearing completion, The $660 million CS-179 train control and systems contract with New York Transit. And the $318 million CQ-33 also on the east side access in New York Transit. And last but not least, the $190 million Canton Viaduct bridges in Maryland. As a matter of interest, we topped out the newer terminal steel erection on October 24th, and the port and our company celebrated that topping out as is customary in the building business. We anticipate a notable acceleration of project activities in the fourth quarter and continuing throughout the coming year on several large projects, including including many of those just mentioned. However, because of the temporary progress delays I spoke of earlier on several projects this past quarter and the corresponding impact those delays have had on our earnings, we now expect our 2019 earnings per share, excluding the impact of goodwill, will be lower than previously anticipated, and as such, we are revising our 2019 adjusted earnings guidance to a range of $1.40 to $1.55. Finally, I will provide an update on the progress we are making in resolving our disputes and unbilled receivables of the five significant matters we indicated we had settled during our last Thank you for watching. totaling $257 million. We reached a partial settlement with the San Francisco Metropolitan Transit Authority in the third quarter on the Central Subway Project and as a result collected $31 million for the damages dictated by over two years of delay for which the owner accepted full responsibility and paid accordingly. We have a balance of other significant issues, but with the owner's commitment and payment of all delays, we are well in our way and expect by January of 2020 to resolve the preponderance of the other issues with very little in the way of disputes. As I've said before, with negotiations, there can be no certainty that the amounts offered will ultimately satisfy us. However, in all of these cases, our entitlements to receive additional amounts have been agreed, and we are discussing the amounts that we are owed. I might also add in the significance of settlements to date. Every single one of them accumulated. The total exceeded what we had booked. We are also currently in arbitration or litigation on several individual claims that should be concluded prior to March 31, 2020. The most significant of these is our litigation with the Washington Department of Transportation regarding the SR-99 tunnels, which is now expected to conclude on or before December 15 of this year, with a judgment rendered on or about that time. Counting the current cases being arbitrated, litigated in settlement discussions or mediations, we expect resolution on disputes, be it litigated or discussed, with book amounts totaling $618 million to be concluded by the end of 2020 and a balance of disputes Deferred until 2021 and 2022, typically because of the time involved on the Eastern Seaboard with getting court dates. The moral of those pieces of information is everything is finally coming home to roost, whether it be negotiations, mediations, or outright litigations. These will be concluded. and with our history of successes in litigation, we are confident. Meanwhile, we continue to focus on executing effectively on our work in backlog while pursuing significant new opportunities which will drive our growth in the years ahead. I can speak to the newer terminal, high-speed rail, all three purple line Two and three jobs, including the totals, the total of which are probably $7 billion of work that reports direct to me. We have no claims. We have no disputes. The jobs are moving the way they should, and all appear to be extremely profitable. With that, I will turn the call over to Gary to present the details of our financial results.