Tutor Perini Corporation

Good day, ladies and gentlemen, and welcome to the Tudor Perini Corporation first quarter 2022 earnings conference call. My name is Joe, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will 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 during the conference, please press star zero on your telephone keypad. At this time, I will turn the conference over to your host, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Hello, everyone, and thank you for joining us. With us today are Ronald Tudor, 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 assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. You can find disclosures about risk factors that could potentially contribute to such differences in our Form 10-K, which we filed on February 24, 2022, 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. Thank you, and I will now turn the call over to Ronald Tudor.

Thank you, Jorge. Good afternoon, and thank you for joining us. Our first quarter results were highlighted by a substantial record-setting level of operating cash for a first quarter. Contrary to our typical negative cash flow in almost every first quarter since the merger, we generated nearly 121 million of cash, driven primarily by the resolution of certain disputes, and the collection of certain successfully negotiated and approved change orders that we had discussed during the Q&A portion of our last earnings call back in February. Gary would provide more details and put it in perspective a bit later, but suffice it to say that it was by far our largest first quarter of operating cash since the merger in 2008 with Tudor Saliba. In addition, our backlog grew in the first quarter compared to the last quarter and also compared to the first quarter of 2021. Unfortunately, however, our first quarter earnings were significantly reduced by the impact of an unfavorable legal ruling on a completed bridge project in New York, as well as temporary timing impacts related to certain lower margin, lower risk change orders that were successfully negotiated and approved for a mass transit project in California, which although increasing the project's overall profit, reduced its overall profit margin percentage due to its limitations on subcontractor margin. Consequently, we report a loss of 42 cents per share for the first quarter of 2022. Regarding the adverse legal ruling, the original project design required us to build a cable-stay bridge for the project in New York. However, after we were awarded the project, the owner changed the design from a cable-stay bridge to a causeway bridge. Ultimately and amazingly, courts declined to even hear the merits of our claims for the difference in cost. to recover the added costs we incurred to build the alternative bridge. Although we have another avenue of cost recovery we are pursuing, we believe it appropriate to take a $25.5 million charge in the first quarter result of the ruling. Our backlog stands at $8.3 billion. Demand for our services continues to be significant. and we're preparing to bid and hopefully win our share of various large new civil projects in the next 30 days and the balance of the year through the end of next year, some of which I'll detail in a moment. We also expect that we will continue to generate even stronger operating cash in the second quarter and throughout the balance of the year, as we have discussed in the resolve of other disputed issues including claim resolves, arbitration conclusions, and court trials. We booked 997 million of new awards in the first quarter of 2022, slightly larger than the first quarter last year. Our new awards so far this year have mostly come in the civil and building segments, and the most significant first quarter awards included the $260 million Eagle Mountain wood fire gas pipeline in British Columbia, Canada, and $121 of additional work for our mass transit California high-speed rail project in California, and two health care projects, an educational project, and an entertainment venue totaling $251 million. Our new awards are continuing at a steady space, and already in the second quarter we have announced another project for black construction in Guam, the $106 million BOQ at Marine Corps Base Blas, and we have just been awarded an $85 million U.S. Coast Guard family housing project in Alaska. We also anticipate soon booking three new building projects in California, for Rudolph and Sletten, totaling nearly $300 million. So it is evident that even ahead of our bidding, some larger projects this spring, we continue to be successful in capturing our share of smaller and mid-sized projects. We also have two other pending commitments in the gaming area, totaling over $500 million, we hope to be awarded in the next 60 days. Demand for our services is continuing to increase meaningfully beginning later this year when the funding from the federal infrastructure bill begins to flow. As I've said previously, that funding is anticipated to be allocated over the next five years and spent over the next 10 years. Consequently, we continue to believe this substantial sustained funding will favorably impact our current projects as well as those prospective opportunities over the next five to 10 years. Ahead of even the benefits of the infrastructure bill, we have talked repeatedly about tracking tens of billions of dollars of prospective projects that are expected to bid and be awarded over the next couple of years. I'll move on to those projects in that next I will discuss These projects will be bidding this month and over the remainder of 2022. In the period of time of May 15th to June 1st, we will be submitting bids for two major highway jobs in P3 programs in Maryland, the two projects of which exceed $3 billion. called the Maryland Express Lines. We anticipate team selection shortly thereafter and a contract award for whoever that apparent low bidder is by the fourth quarter of 2022. Also in that two-week time period, we are bidding the $350 million Raritan River Bridge replacement in New Jersey. with an award to the publicly bid and open project to shortly follow. Then on May 26, we will be bidding the $2.5 billion Newark Air Train replacement project and anticipate team selection with a contract to follow shortly thereafter. As you can see, May will be an incredibly busy month of bidding. And the three major projects of the four only have one other bidder. Other significant projects bidding this year are the $1.6 billion Brooklyn jail, the $2.5 billion Navy dry dock job in Hawaii, $800 million JFK roadways and ground transportation in New York City, the $1 billion East San Fernando Light Rail Project for the Los Angeles MTA, and a $700 million Inglewood People Mover in Los Angeles. Before I hand things over to Gary to discuss the details of our financial results, I want to be clear that we are confident we will deliver improved financial performance over the rest of this year. Therefore, despite the negative first quarter and its impacts on earnings, we are maintaining our guidance for 2022 in the range of the same $1.15 to $1.60. As I said previously, we would also add we believe our operating cash will continue to increase and be strong throughout the whole year of 2022. Thank you, and with that, I turn the call over to Mr. Smalley.

Thank you, Ron. Good afternoon, everyone. As usual, I'll start with a discussion of our results for the first quarter, including cash flow, followed by some commentary on our balance sheet and our 2022 guidance assumptions. Revenue for the first quarter of 2022 was $1 billion, down from $1.2 billion for the same quarter of last year. Civil segment revenue for the first quarter was $391 million compared to $476 million for the comparable prior year quarter. Building segment revenue was $331 million compared to $407 million for the first quarter of last year. Specialty contractors revenue was $231 million compared to $325 million. The lower revenue in the current quarter reflects reduced project execution activities on a completed building segment technology project and a nearly complete civil segment mass transit project, both in California, as well as the impact of the adverse legal ruling that Ron mentioned earlier. In addition, we experienced reduced activities on various civil and specialty contractor segment projects in the Northeast, as many of them are now complete or winding down. Certain projects in California and the Midwest, however, are in their earlier stages and are partially offsetting the revenue reductions I've mentioned. As these and other new projects accelerate and contribute more meaningfully, we expect to more substantially backfill the revenue declines associated with our late stage or completing projects. And with continued robust bidding activity that Ron mentioned, we still expect to win our fair share of prospective projects and therefore should see revenue growth toward the end of the year and for next year. We reported a loss from construction operations of $10 million for the first quarter of 2022 compared to income from construction operations of $50 million for the same quarter of last year. As Ron mentioned, our first quarter earnings this year were significantly reduced by the impact of the adverse legal ruling in New York and the temporary impact earnings associated with the approval of a significant amount of change orders on a mass transit project in California. I'd like to explain why the successful negotiation of significant change orders on the California project resulted in a negative accounting impact for the first quarter. The new work approved was of a lower risk and therefore carried a lower margin percentage than the project's overall project margin. As a result, even though the total profit in dollars that will ultimately be recognized for the project increased with the approval of the change orders, the cumulative margin percentage for the project declined slightly. Also, since much of the additional work that was negotiated has not yet been performed, there was a small reduction in the project's percentage of completion. The combination of the slight decline in the project's overall profit margin percentage and the small decrease in the project's percentage of completion resulted in a $17.6 million decrease in the profit recognized for the project in the first quarter. So, in summary, we had a successful negotiation of significant change orders that increased the overall profit of the project, but the accounting treatment for the change orders resulted in a negative cumulative correction to earnings in the first quarter. Most importantly, the first quarter reduction of earnings is only temporary, since it will reverse itself and be recognized in profit over the remaining life of the project. Collectively, the two factors mentioned negatively impacted the civil segment by $43 million, and as a result, the civil segment had a loss from construction operations of $1 million for the first quarter of 2022 compared to income from construction operations of $50 million for the comparable quarter last year. Building segment income from construction operations was $9 million compared to $11 million for the first quarter of 2021, with the reduction primarily due to the segment's lower revenue volume in the current quarter. The building segment's operating margin for the first quarter of 2022 came in at a healthy 2.9 percent, essentially level compared to 2.8 percent for the first quarter of last year. The specialty contractor segment had a loss from construction operations of $4 million in the first quarter of 2022 compared to income income from construction operations of one million dollars in the same quarter last year with the decrease primarily due to lower profitability and reduced project execution activities in the northeast including the electrical mechanical components of a transportation project that is nearing completion other income for the first quarter of 2022 was four million dollars compared to nearly zero for the first quarter of 22 excuse me compared to the first quarter of 2021 with the increase primarily driven by interest earned on federal income tax receivable balances. Corporate G&A expense for the first quarter of 2022 was $15 million compared to $13 million for the same period last year, with the increase largely driven by higher compensation-related expenses. Interest expense for the first quarter of 2022 was $16 million compared to $18 million for the first quarter of 2021, The decrease was principally due to the absence of amortization of discount and debt issuance costs on our convertible notes that we repaid last year. Income tax benefit for the first quarter of 2022 was $4 million compared to income tax expense of $7 million for the prior year first quarter, and the corresponding effective tax rate was 17.1% for the first quarter of this year compared to 21.7% for the comparable quarter last year. The lower effective income tax rate for the first quarter of 2022 was primarily due to non-controlling interest making up a higher percentage of earnings for 2022 based on annual projections, as well as share-based compensation adjustments in the current year period. Net loss attributable to TutorPrinti for the first quarter of 2022 was $22 million, or a loss of 42 cents per share compared to net income attributable to Tiruparini of $60 million, or 31 cents, of earnings per share for the same quarter of last year. The substantial decline was principally due to the two factors I mentioned earlier that negatively impacted our operating income this quarter. They had a cumulative negative EPS impact of 63 cents. In fact, our first quarter EPS would have been ahead of budget had it not been for those two negative impacts. Now let's switch the discussion to cash flow, which was certainly the major highlight of our first quarter results. Due to the seasonality of our business, namely weather challenges in some of the markets we serve, our first quarter operating cash is nearly always negative, as Ron had indicated earlier. Last year's first quarter operating cash usage of $47 million was right at the average for the operating cash performance that we typically see in the first quarter. However, this year is different and much improved. As Ron noted, we generated a first quarter record operating cash of nearly $121 million this year. This was by far our best first quarter operating cash result since the merger in 2008, and it was also our third highest operating cash of any quarter. Consistent with what we expected and discussed in our last earnings call back in February, we experienced strong cash generation this quarter that was primarily driven by an improved cash collection cycle, including collections associated with the recent resolution of of certain amounts that were previously disputed and that had previously required a use of cash. We anticipate continued strong operating cash generation for the remainder of 2022 based on projected cash collections, both from project execution activities and the resolution of various other outstanding claims and change orders. We also still expect that operating cash for 2022 will be well in excess of our consolidated net income. Now let's briefly turn to our balance sheet. Our net debt as of March 31st, 2022 was $687 million, down 13% compared to $791 million as of December 31st, 2021. We remain well within our debt covenant compliance limits and anticipate that this will continue to be the case in the foreseeable future. Our costs and estimated earnings in excess of buildings, or what we refer to as CIE, declined very slightly during the quarter. We actually made good progress in reducing CIE for many projects, but these reductions were nearly entirely offset by continued growth and unapproved change orders in the Northeast, where we continue to work with our owners to resolve the open issues. As Ron mentioned earlier, we are maintaining our EPS guidance of $1.15 to $1.60 per share. We're optimistic that we will be able to claw back much of the first quarter earnings underperformance from increased project execution activities, and the resolution of various disputed balances later this year. As such, all of our 2022 EPS guidance assumptions also remain unchanged from what we provided during the earnings call in February. Thank you, and with that, Ron, I'll turn the call back over to you.

Thanks, Gary. To recap, we're off to a strong start this year from a cash perspective and expect to continue generating very strong operating cash throughout the balance of this year And if anything, even stronger next year. As we've discussed time and again, all of our disputes are finally coming to fruition with trial dates, arbitration dates, or owner mediations. The end of the arguments is this year and next year. Our disappointing EPS was primarily the result of the loss generated by a bad decision that we spoke of previously. and it contributed to the biggest part of our loss, as well as the difficulty of settling over 100 million of subcontractor changes at lower margins where we had to take a large loss in the quarter, what was really a gain in profitability that will return over the next three years of performance. Our backlog still provides us with good visibility over the next few years. And as I described early in the call, the sheer enormity of all the work we're bidding, $6 billion in the next three weeks and probably an additional $10 billion by the end of the year, we expect and hope to grow that backlog substantially. We already have a substantial volume of projects being pursued. And we expect it to continue to increase significantly as the funding from the infrastructure bill finds its way to our public agencies. Lastly, as discussed earlier, we believe our financial performance will improve and be able to absorb a poor first quarter and still deliver the operating results we stipulated earlier. Thank you, and with that, I'll turn the call over to the operator for any questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Alex Rigel with B Reilly. Please proceed.

Ladies and gentlemen, Ron, you know, I suspect that you didn't anticipate these two items. And so given that you're reiterating 2022 guidance, you're by default significantly raising guidance for the remainder of the year. So my question here is what's changed to give you that confidence?

Well, first of all, to be blunt, we had a significant reserves set up for 2022 with so many hundreds of millions of dollars in claims being litigated and negotiated. We'd set up a significant reserve. We think everything is going very well on all the other major projects. And given our projections, although it's unnerving, particularly the legal loss, which That's the problem with trials. Most of the time you get the result you should, but periodically you get a case like this where the truth of it is we rewarded the job, they stopped construction, we never proceeded, they redesigned the bridge in totality, refused to sit down with us and discuss the added costs, and at the end of the job, in so many words, told us to sue them. Now, under normal circumstances, you would get paid all of the costs of the redesign. Somehow in New York, the courts found we didn't give them timely and adequate notice to the most obvious issue, and we lost. We still have one more course of action under our delay claims, which are a substantial part of it. However, I chose to write it off, and although we're still appealing and moving forward, we've chosen to write it off. The other one was particularly unusual because we settled over $100 million of subcontractor changes, the majority of which only carry a 5% markup by contract. It's a large civil job where we typically perform the majority of the work and we're not only allowed significantly more margin, we typically make significantly more margin, but this was limited to subcontractor work. So although there's nothing negative and we achieved additional profit for the job, when you understand timing and percentage of completion, a positive change order actually caused a $17 million paper loss for the first quarter. And it really is a paper loss. We made money on the change, even though it had a horrific impact. So that was the crux of the quarter, and we believe we have enough remaining that's positive that will offset it.

And then can you talk a bit about competition? Where do we stand today? Are there more competitors, less competitors? I know you mentioned that you were one of two bidders on a number of projects, but in totality, where do we stand? Because it feels like, margins are still somewhat constrained, and that would be, in theory, due to competitive environment, but would love your color on that.

Well, there's no competitive environment. We have three major jobs in the billion and a half, the two and a half billion we're bidding in the next two weeks. Two of them we're bidding against a Spanish and Italian joint venture. The third one we're bidding against one other bidder of two American companies. So the $3.5 billion plus jobs we're bidding have one other bidder each. There's no more competition today than there was a year ago, six months ago. And as I've said previously, we know every major player in the U.S., as well as every major foreign player that wants to come in the U.S. There's not going to be much more competition, at least in the next 12 months. Because in order to compete on these megaprojects, you have to have a major presence here. You can't fly in from Spain or Germany and compete on a $2 billion job and land with 200 engineers and $50 million worth of equipment. So it still remains. There's very seldom more than two bidders on everything we bid. The marketplace is up significantly. And to put it bluntly, we've raised our margins significantly. And if the one other bidders we face don't, we'll address it. But we are in a mode that believe that those few of us left should get more reasonable and sensible margins. And we remain committed to it.

Yeah, Alex, if I could just add this to go on top of what Ron was saying. A lot of what you're seeing is really timing related. As the new projects come in, we expect those to be higher margins. So some of the results that you see still reflect the older projects where we haven't been able to get those higher margins.

Well, that's accurate because we haven't really signed up a major project in the last two years. All of what we're talking about is work that's very profitable, but from three and four years ago. Since this lack of competition, which is primarily in the very large work, let's call it a billion and above, there's only been two or three bid in the fourth quarter last year, and the whole world froze with COVID. So now it's opening back up, and candidly, we raised our prices, and it appears our peers didn't. The next few weeks will tell the story with these three major projects, and the balance of the year will tell the story whether or not we're the only one raising our costs as opposed to our few peers that are left. But it still remains there's very seldom more than two bidders on any major project, and I can tell you about owners talking to us about projects where they're careful they may not get any bidders.

It's helpful. Thank you very much.

Our next question is from Brent Thileman with DA Davidson. Please proceed.

Hey, great. Thank you. Hey, Ron, is it fair to say that any kind of new work you pick up from here is more of a 2023 revenue opportunity, or is there still some things you could grab here that fell in the back half?

It may hit in the fourth quarter if we were fortunate enough, for example, to be awarded one of these four major projects bidding in May. I think we'd probably see an impact in the fourth quarter, but no earlier.

Okay. And are you expecting to sort of claw back some or all of that $17.6 million for that mass transit project over the course of this year, or is that spread out over the course of the next few years?

It's this year and the next two years that follow. Because, again, it added to our margin, but because it was $100 million of work at a significantly lower margin than the job was earning, it created this paper loss, which we'll all feed back in. Because in the final analysis, we paid more money on the change, or we didn't lose. But if you understand percentage of completion accounting, it actually had that dramatic an impact on the quarter.

So, Brent, it's going to be on a prorated basis, really over as the – based on volume. So it's not really based on time, but it will be over, as Ron says, the rest of this year and the next couple years as the volume on that project continues to be recognized in earnings.

Yep. Yep. Okay. Okay. And then on the cash flow side, I mean, great to see the progress and you sound really confident here about the rest of the year. I guess looking for any context, I think you said second quarter should be even better from an operating cash perspective. I mean, what could we potentially see play out here for the rest of the year? And any particular large ticket resolutions that sort of drive that confidence?

I've talked about a number of very large ticket resolutions. but it's hard to pinpoint the second quarter versus the third quarter. We've got large arbitrations and litigations and mediations and negotiations, probably eight or 10 of them that amount to a very significant amount of money. And I hate to isolate them by quarter, but it's through the balance of the year. We just think this I've said it since last year, we think 2022 and 23, will have a significant impact on reducing our costs in excess account and the collection of all of our cash that other people currently owe.

And one other thing related to that, Brent, is we have a little bit of visibility into the second quarter already because we're, what, five weeks into the quarter. And some of the resolutions that we had agreed to previously actually the cash has come in already in the first quarter, excuse me, the second quarter, or will be coming in because it's scheduled. So, you know, what Ron's saying is true. We could have significant additional cash amounts, maybe second quarter, third, fourth quarter, but we do see some things that have already manifested themselves in the second quarter and are scheduled for the second quarter.

Yeah, got it. That answered my next question. I appreciate that. Just last one, I mean, any updates on the plan for the cash generated expected generate year of the course of the year.

When we, when we accumulate five to 600 million of cash through resolves, we'll discuss it with our board, but there's no, no commitment as to what we're going to do. The obvious is we'll reduce debt with some part of it that there's no question of. I'm not supportive of a stock repurchase. However, we've discussed dividends at some point. But our primary focus is this intense commitment to resolve all these disputes and get our CIE, that account from a billion dollars down to where it ought to be in the three to 500 million, collect that cash. And then that's a decision we'll have to make it then. And As we continue to earn as well as collect that cash, we'll obviously reduce debt. As we paid off our convertible bonds, we'll reduce our debt. And then last but of some discussion has been potential dividends. But that's a good year away before we finalize anything.

If I could just add this on stock buybacks. Right now, the question might be, well, why in the world wouldn't you buy back stock at the at the low price that it is. But when we collect these hundreds of millions of dollars that we're talking about, the stock price better not be where it currently is. And we would expect the stock price to rise substantially. And then a stock buyback makes even less sense then.

Well, not only that, we're undergoing what we think is going to be a huge surge in new works and new contracts. And I don't want to spend the money, although it might be advantageous to buy it back at these ridiculous prices. I think the money is best committed to a major new program with a significant increase in backlog and let's reserve the money for the performance of the work because we're looking at billions of dollars worth of work to bid and it would not be inconceivable to almost double our backlog by the end of the year and that will require that cash to be utilized. So that's kind of where we are with cash. We'd just like to see it accumulate for a while, taste it, feel it, let it hang around before it goes back out the door.

Okay. Well, very good. Appreciate it. Very helpful.

Our next question is from Steven Fisher with UBS. Please proceed.

Thanks. Good afternoon and congratulations on the cash collections.

Thanks, Steven.

Sure. So since you, it sounds like you do assume in your full year guidance, the 42 cent loss, it looks like you're assuming about $1.80 or so at the midpoint for Q2 to Q4. Can you just maybe help us with what's the cadence of that? Is that through now normal seasonality or are there different kind of reserves that you talked about that might be coming in or out at different times than normal construction seasonality?

Steve, as we would normally see, the seasonality does have an impact on us. And so we would be, as the year progresses, building earnings. So I think you'll see strength as the year progresses with the back end of the year more heavily weighted.

Okay. And would the fourth quarter then be a bit lower than, say, the third quarter? So build in the second, the third, and then down a bit in the fourth? Or do you think you could build sequentially?

Yeah, we're thinking, you know, look, the fourth quarter should be up. But if you look at us historically, sometimes the fourth quarter is down a little bit from the third quarter. Sometimes it's the other way around. It's almost a coin flip how it will be. But we're looking this year for the fourth quarter to be stronger than the third quarter.

Okay. And Gary, I think you made a comment about timing of revenue growth or return to it. Could you repeat which quarter you think that will occur and what has to happen for that to happen at that time?

Yeah, what I was saying is by the end of the year. So look at, you know, the fourth quarter and then on into next year. I think for it to happen this year, we'll need to get some of the work, the large work that Ron had spoken of earlier. You know, some of it, we'll say the mega work. There's also a lot of other projects that are not in the billion dollar range that will support that. And a lot of those projects were very well positioned for. And some of those are quicker burning. So It's really getting our fair share of the work, getting it quickly, and that should, you know, the sooner we get it, the sooner we're going to see that materialize. So, I would say no earlier than the fourth quarter, but certainly in 2023, we should see it.

Okay. I guess maybe just to follow up on Alex's question, I mean, do you still, you need some of these big bookings that you have bid now to hit the guidance for this year, or you think you have pretty much all of that in backlog already, maybe plus or minus some smaller work here and there.

It's not all in backlog. In fact, in our industry, when all of us put together our plans, there's a certain amount of, let's call it stretch, that stretch with respect to earnings that occurs based on bookings during the year. So there's, as we're in the beginning part of the year, there's a greater chance that things that we would record in this part of the year will have an impact on the year. So there is an element of that, but it's not a disproportionate element. It's an amount based on history that we think is achievable.

And then just lastly, yeah, it does. Thanks. And then just lastly, in terms of how to think about segment margins, maybe focused on specialty and Uh, and civil, how should we think about those for, for the rest of the year?

Civil will continue to be strong. Uh, I expect civil will continue to hold its margins at the high levels. We've been the building business will be consistent at those same two and a half, two and three quarter percent margins. We obviously have struggles in our New York specialty business. Our Western Electrical and Mechanicals are not a problem, but we have had continuing issues in New York with both WDF Mechanical and Five Star Electric, and there's no short-term solution. We're in hopes, or I'm in hopes, that they'll be turned around, but I don't know that this year will turn them around. So they continue to struggle. They're a drag on earnings, not significant. Where we should be making $30 million a year in that specialty group, we're making $10. And there's no more changes that I can make other than for them to execute. And they've been hurt substantially by material escalations and supply line deliveries, much more so than us as a general contractor. But there's still no excuse for the failures to perform. And I just continue to have hopes that they'll turn it around and get back to where they should be. In this same marketplace of limited competition, they have those same benefits. So they haven't had that opportunity as we haven't. The last two years have been bread and butter, smaller work. But they will also participate in these huge civil jobs with us. and hopefully their share will deliver for them as ours will for us. But they obviously continue to be a struggle, and there's no two ways about it.

Go ahead, Gary.

Yes, Steve, I was just going to say on civil margins, just one added note there. The two projects that we've talked about, the adverse legal decision and then also the successful negotiated change order situation, those two projects are both civil margins. And if you normalize the results, in other words, if you ignore the impact on the quarter, we actually had improved margins, slightly improved margins in the first quarter of this year than we had the first quarter of last year. So that's a good trend. And we would expect to build on that margin percentage as the year progresses, as we did last year.

Okay. Yeah, it looks like about 30 basis points, better year over year. Are you expecting that a loss in Should we be modeling a loss in specialty in the second quarter?

We hope not. Yeah, that's not what we have in the budget, no.

Okay.

Thanks very much.

You're welcome.

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I'd like to turn the call back to Mr. Ronald Tudor for any closing remarks.

Thank you, everyone, once again. Our quarterly call is done. We look forward to the next one.

Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect.