Tutor Perini Corporation

Good day, ladies and gentlemen, and welcome to Tudor Perini Corporation's first quarter 2023 earnings conference call. My name is Alicia and I'll be your coordinator for today. All participants are currently 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. I will now turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Hello, everyone, and thank you for your participation. With us on the call 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 this 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-Q, which we are filing today, and in our most recent Form 10-K, which we filed on March 15, 2023. 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 Tudor.

Good afternoon, and thank you all for joining us. As we disclosed in a Form 8K that we filed on April 21st, there was an unfavorable legal ruling recently handed down regarding our claims dispute on the completed George Washington Bridge bus station project in New York City, which required us to take a non-cash pre-tax charge of $83.6 million that impacted the building and specialty contractor segments in the first quarter of 2023. A number of years ago, we were in arbitration pursuing recovery of our claim from the project's developer and were clearly winning in that process. Once it became clear they would be owing us a significant amount of money, the developer stopped paying their lawyer and immediately filed for bankruptcy. Based on case law and the advice of preeminent bankruptcy counsel, we believe that we would be reimbursed for amounts that we were owed outside of the bankruptcy proceeding. Unfortunately, the appellate courts ruled otherwise, so we took the charge. However, we are still pursuing recovery of significant amounts of money we believe are owed and entitled to collect through two other separate legal proceedings related to the project, one against the individual owners of the developer and another against the Port of New York and New Jersey, who is the owner of the project, who has now succeeded the developer in taking it back. Separately during the first quarter, we successfully negotiated more than $220 million of change orders for a civil segment mass transit project in California. However, these were lower margin and of course lower risk change orders that resulted in once again a temporary negative project catch-up adjustment of $28 million in the first quarter due to the treatment of these approved change orders under the percentage of completion accounting rule. You may recall that this same phenomenon occurred on the same project in 2022 and that as we indicated then the negative financial impact will reverse itself over the remaining life of the project. It is a situation where we have an earned profit to date that is significantly higher than the specific earnings of the executed change order. And even though the profit goes up by the strict percentage of completion, we have to take this paper right down until we're further along and it comes back. It is an oddity of percentage of completion when you have wild disparity amongst profits in certain changes as well as the contract, but we're dealing with it and although it impacts us in any given quarter, they should reverse themselves and in fact go back the other way. Gary will go over the details of these impacts and our financial results for the quarter in a moment. Both factors negatively impacted our revenue and earnings for the first quarter of 2023. Our first quarter revenue also declined year over year because of reduced project execution activity on the Newark Airport Terminal A project that opened in January, which impacted all three segments, as well as previously mentioned the lingering effects of the COVID-19 pandemic. which delayed the awards of almost 11 billion in low bids or in fact ended the awards and rejected our bids. The bids were rejected because thanks to the upswing in COVID costs, everything that we were low on was significantly over the owner's non-updated budgets. They're rejected. They're coming back out in 2024 in various stages. But nevertheless, between the ending of Newark and the enormity of those bids which should have been in awards and generating revenue not going forward has resulted in this dramatic reduction of revenue. As a result of these negative impacts as discussed, we reported a loss of 95 cents per diluted share for the first quarter of 2023. Positive news for the first quarter, including operating cash flow of $21 million, driven by solid collection activities, including collections associated with certain settlement negotiations that concluded in the fourth quarter of last year. We continue to make good progress in resolving various unapproved change orders and claims, which will continue to have a favorable impact on our cash flow throughout this year and next. We also continue to anticipate our cash generation will be stronger in 2023 than our record operating cash in 2022. And depending on the timing and magnitude of disputes resolution this year, our cash generation could be much stronger. For the first quarter, we maintain our backlog of $7.9 billion level with our year-end 2022 backlog. On our last earnings call, I mentioned that we had more than $3 billion of pending new awards, and I am pleased to report that in the second quarter of 2023, we've already booked a contract more than $3.2 billion of new projects in the backlog. including the recently announced $2.95 billion Brooklyn Jail Design Build Project with the New York City Department of Design and Construction, for which we executed a contract last week, as well as the $222 million Tinian International Airport Project in the Northern Mariana Islands that was recently awarded to Black Construction, our Guam subsidiary, and a $41 million electrical subcontract to Fiskelectric for a healthcare project in South Florida. Our bidding pipeline remains significant and active with numerous additional opportunities, including Guam and the United States, in particular the East Coast. Some of the more significant awards and contract adjustments that we worked in the first quarter of 23 included the $224 million of additional changes for a mass transit project in California, a $91 million educational facility in California, a $75 million facility renovation for the military in Colorado, a $62 million bridge repair in Minnesota, and a $56 million of additional funding for a healthcare project in California. We continue to believe the demand for our services will remain strong and increase meaningfully as substantial funding from the infrastructure law increasingly flows to our customers this year and next. Hopefully this will enable our customers to move forward with the many more large civil projects that have been the pipeline and have not yet been released. As I have said before, successfully growing our civil business, which is historically the part of our business that has been most resilient and successful during economic downturns, remains our primary focus and will continue to be the driver of our future growth and profitability. We are still awaiting a decision expected in the coming months on Frontier Camper's bid for the $500 million Great Lakes Tunnel project. Other larger near-term opportunities include the $3 billion plus Queens jail, which will now propose in July with an expected award in September and a notice to proceed in December of this year. The $2 billion Honolulu rail transit job, which should bid in the fourth quarter of this year, which of course was the project we were low bidder in 2020. and it too was rejected as being over budget. And the $1.5 billion Inglewood automated people mover in Southern California, which should bid in the fourth quarter. With significant new awards mentioned earlier that have already been booked, we expect to report a significantly larger backlog at the end of the second quarter of 2023 and what could potentially be a new record backlog by the end of this year as we capture other large projects. Our first quarter financial results make the achievement of our initial EPS guidance for 2023 challenging. Accordingly, we're throwing our EPS guidance. However, we believe there are certain positive events that will occur later this year which could offset some of the negative results we experienced in the first quarter. Therefore, we plan to reassess our outlook over the next few months and intend to provide an updated guidance when we report our results for the second quarter of 2023. Looking ahead, we continue to anticipate positive and normalized EPS performance in 2024 and beyond. Thank you. With that, I turn the call over to Gary Smalley to review the financial data.