Tutor Perini Corporation

continue to be strong in the fourth quarter, as we recently won and announced the $331 million APRA Harbor Waterfront Repairs Project in Guam, which will be managed by our subsidiary, Black Construction. The contract includes nine options for additional anticipated scope items that if exercised could add another $230 million of backlog. We are confident they will all be exercised. In addition, this morning we announced that our joint venture with ONG Industries, in which we are the managing partner, has been identified as the apparent selected proposer for the multi-billion dollar Manhattan jail in New York. And we are entering into contract discussions with the expectation that we'd be awarded that design bill contract after those discussions have concluded in the short term. By the end of this year, the company's total backlog could affect additional significant growth, as we are also expecting owners' decisions and a potential awards this quarter for other large projects in suiting the $1.5 billion Airtrain that we recently bid and the $550 million Raritan River Bridge replacement that is bidding tomorrow. Other project we are bidding in the months of November, December, and January are the $750 million Manhattan tunnel in New York on November 22nd and the $2.2 billion mid-down bus terminal replacement in New York in February of 25. In addition, Rudolph and Sletton has various current health care and education projects underway that are in the pre-construction phase with only a modest amount of our current backlog represented by those projects. Over the next two years, these projects are expected to advance into the construction phase and anticipate that we will book significant additional backlog. As we've discussed in the past, most of our newer existing and prospective civil projects are higher margin, longer duration projects with improved contractual terms compared to other projects booked several years ago. This is a result of renegotiations of traditional terms into terms far more favorable and reasonable for the general contractor, so our contracts are no longer one-sided but equally fair. This provides us with excellent visibility and confidence in our outlook for strong revenue growth and continued earnings performance in the years ahead. Assuming we are successful in continuing to increase our backlog over the next few months, depending on the projects and in what part of the country, we may decide to take a short-term hiatus from bidding for some of the larger pursuits depending on the markets. That period of time might be up to a year, but at that point with a record backlog at such a level as to sustain us for the next five years, we will probably stop bidding or at least reduce that commitment. However, as we look ahead over the next year to two, some of the more prospects include and are of interest, the $3.8 billion Southeast Gateway Line, a transit project in Southern California bidding within the next 18 months. That would be a perfect tie-in to the completion of the $2.5 billion Purple Line projects we're currently in a completion phase with LA Metro. So that might tie in dramatically to work we're completing. Secondarily, the $1.8 billion South Jersey Light Rail in New Jersey, which will be proposed the end of next year or mid-year 2026. Those are the only projects of substance we are reviewing and keeping a finger on over the next year to 18 months. As we announced a few weeks ago, we made substantial progress during the third quarter of 24 in resolving various matters, including seven of our largest outstanding disputed balances with four of the seven having favorable outcomes for two to three. A couple of these resolved, two to be exact resulted in very, well, maybe three, very unexpected and inexplicable legal decisions, which we strongly disagree with and are appealing. Overall, the recent resolutions negatively impacted our third quarter income by approximately $152 million and EPS by $2.13. Since in appeal, we hope to reverse much of this negative impact, but that will be determined over time. A positive is that we expect to collect over the next 30 to 60 days, $180 million associated with these resolved, most of which we will collect in the fourth quarter. We anticipate that we will continue making substantial progress in resolving the remainder of our disputed matters. Compared to the dozens of such disputed matters that we had a few years ago that backed up during COVID, because of the substantial progress we have made over the last two to three years, we are now essentially down to a dozen or so matters of any significance. We expect to resolve these remaining legacy disputes and continue to collect substantial amounts of cash over the next 12 to 18 months, which combined with cash generated from normal operations should drive significant cashflow in 25 and 26. Year to date through the end of the third quarter, our operating cashflow was 174 million. As we mentioned in our recent announcement, we expect tremendous fourth quarter operating cashflow in the range of a minimum of 250 million up to 400 million, much higher than we were anticipating on our last call. As a result, our full year 2024 operating cashflow is now expected to be 425 to 575 million. With even the low end of this range far exceeding our prior annual operating cashflow record of 308 million set last year. This will represent the third consecutive year that the company has generated record operating cashflow. Note that any shortfall in achieving the estimated 575 million of operating cash at the upper end of the 2024, full year range is expected to be collected in the first quarter of 25. Based on the adverse charges to earnings in the third quarter for the resolution of disputes that I mentioned earlier, we have withdrawn our EPS guidance for 2024, for 2024. However, still expect to initiate 2025 guidance in February when we report our full year results. We very much look forward to a significant return to profitability in 2025. And our confidence has increased around our expectations for significant increases in revenue and earnings growth in 26 and beyond as these projects grow into fruition and operation. Thank you and with that I turn the call over to Gary.

Thanks Ron. We see truly exciting times ahead with the future brighter than ever before. As we continue to put a significant number of disputed legacy items behind us and utilize another record year of cash generation to further de leverage our balance sheet, which has been a key capital allocation objective. We're pleased that the collection of large amounts of cash that we have foreseen and talked about for some time now is finally upon us. As we announced in October, from these cash collections, we plan to prepay 100 million to 200, excuse me, 100 million to $150 million of our term loan B debt in the fourth quarter with further prepayments of 50 million to $75 million expected in the first quarter of 2025. So in total, you can expect our term loan to be paid down between $150 million and $225 million in the next few months. Of this total expected payoff of the term loan, I should note that we have already paid down $50 million of the balance since our announcement on October. So we are well on track to do what we said we would do. Of course, the reduced debt level should result in a significant decrease in interest expense. With interest rates unpredictable, but expected to come down more, it is hard to predict the precise impact, but using current rates, we estimate that we will have annual interest expense savings beginning in 2025 of between $15 million and $22 million, which translates to additional EPS of between 21 cents and 32 cents. With unprecedented cash flow and a record and growing backlog built on new awards with better margins and contractual terms, this is the dawn of a new era for Trudeau-Perin. The expected abundance of cash should give us the ability to continue to significantly pay down our debt and our very strong backlog provides excellent visibility as to what we expect will be a profitable multi-year revenue stream. Thank you, and with that, I will turn the call over to Ryan to review the financial results.

Thank you, Gary. Good afternoon, everyone. As Ron and Gary mentioned, our operating cash is certainly one of the major highlights over -to-date results and those anticipated for the full year of 2024. We expect strong cash flows in 2025 and 2026 that will continue to be enhanced by the anticipated resolutions of disputes. As Gary mentioned, we've already paid down 50 million of our term loan B in the fourth quarter and plan to further de-leverage our balance sheet significantly in the near term by using any excess cash for debt reduction. We're delivering on our promise to improve our balance sheet and capital allocation. Now, let's discuss our P&L results. Revenue for the third quarter of 2024 was 1.1 billion, up slightly compared to the same quarter last year. The growth was primarily driven by increased activities on certain building and civil segment projects, including various healthcare and educational facility projects in California and the Brooklyn jail project in New York, as well as civil segment projects in California, the Northern Mariana Islands and British Columbia. Civil segment revenue for the third quarter of 2024 was 546 million, up 5% compared to the third quarter last year. Through the first nine months of 2024, civil segment revenue was up 10% compared to the same period in 2023. Building segment revenue for the third quarter of 2024 was 436 million, up 19% year over year, mostly driven by the increased activities I mentioned on healthcare and educational facility projects in California, as well as on the Brooklyn jail project in New York. Specialty contractor segment revenue was 101 million, down substantially compared to the third quarter of last year, primarily due to reduced activities on various electrical and mechanical projects in New York and Florida, all of which are complete or nearing completion. As Ron mentioned, and the company previously announced in October, we recorded net charges that now total approximately 152 million in the third quarter of 2024, related to the progress we made in various decisions for which we expect to collect 180 million of cash, mostly by the end of this year. Consequently, we reported a loss of construction operations of $107 million for the third quarter of 2024, compared to a loss of 13 million for the same quarter last year. Like last quarter, third quarter earnings negatively impacted by 13 million of higher unrealized stock-based compensation expense compared to the same quarter last year. That was due to the impact of a significant increase in our stock price in 2024, with the recognition of certain long-term incentive compensation awards. As a reminder of what we said last quarter, over the past few years, we've had to issue some incentive compensation awards as cash settled performance share units, or CPSUs. Due to the combination of a somewhat depleted share pool and a very low stock price at the time of those awards. Because a low stock price causes dollar-based equity awards to eat into the share pool at a faster clip. The use of CPSUs was really a short-term solution to deal with a depleted share pool and a low stock price. Since these awards will be paid out in cash, they're accounted for as liability awards, and therefore require quarterly remeasurement to fair value, with any changes in fair value reflected in earnings. We expect that future equity awards to management will be settled in stock, not cash as done previously. This will eventually eliminate the earnings volatility we have seen this year due to the large increase in share-based compensation expense compared to last year. The civil building and specialty contractor segments reported a loss from construction operations for the third quarter of 2024, of 13 million, four million, and 57 million respectively. The civil segments third quarter operating income was negatively impacted in particular by a previously announced unfavorable adjustment of 101.6 million, related to an unexpected adverse arbitration decision on a legacy dispute related to a big bridge project in California, which the company will appeal. The building segments are a quarter operating income was adversely affected by an unfavorable adjustment of 20 million for a settlement on a legacy dispute related to a government facility project in Florida, mostly offset by the increased activities I mentioned earlier. The specialty contractor segments third quarter operating income was negatively impacted by reduced volume, as previously mentioned, and several immaterial unfavorable adjustments that totaled 43.4 million. The financial impacts of the recent dispute resolutions unfortunately massed otherwise solid operational performance. In other words, had it not been for the significant charges we took in the third quarter, both our revenue and operating income would have been significantly better than the reported results and consistent with what we had budgeted. Corporate G&A expense was 33 million in the third quarter of 2024, compared to 21 million for the same quarter last year. The increase was primarily due to the increase in long-term incentive compensation expense that I just mentioned. Other income was 4 million compared to 3 million for the third quarter last year. Interest expense was 21 million this quarter compared to 20 million for the same quarter last year. I think it's important to reiterate that our planned debt reductions in the fourth quarter of this year and first quarter of next year should result at current interest rates in a significant decrease in interest expense of between 15 million and 22 million annually, translating to additional EPS of between 21 cents and 32 cents. Income tax benefit was 34 million in the third quarter of 2024 with a corresponding effective tax rate of .5% compared to an income tax benefit of 4 million with an effective tax rate of .7% for the same quarter last year. Remember that the net operating losses we generated recently are helping to reduce our cash outlays for income taxes this year and will continue to help in future years. Net loss attributable to Tutor Perini for the third quarter of 2024 was 101 million or a loss of $1.92 per share compared to a net loss of 37 million or a loss of 71 cents per share in the third quarter of 2023. As Ron indicated earlier, the recent resolutions negatively impacted our third quarter EPS by 2,013 cents. Our third quarter EPS was also negatively impacted by 23 cents due to elevated share-based compensation expense I mentioned earlier. Now, let me discuss the balance sheet. Our total debt as of September 30th, 2024 was 681 million, down 218 million or 24% compared to 900 million as of December 31st, 2023, mostly because of the $91 million payment we made earlier this year on the term loan B and the refinancing we completed in the spring in which we replaced 500 million of 2017 senior notes with 400 million of new 2024 senior notes. As of September 30th, 2024, we were in compliance with the covenants under our credit agreement and expect to continue to be in compliance in the future. I'd like to point out that for the first time since 2011, during a net VIE or net billings in excess position whereby our BIE exceeds our CIE or cost in excess. As a reminder, BIE is essentially deferred revenue and it represents billings that we have issued and payments that we have received in advance of incurring anticipated costs on our projects. Whereas CIE represents costs that we have on projects which we are not yet contractually able to build to our customers. So being in a net BIE position is a great thing from our perspective as it means that we are operating in a net cash positive position across our portfolio projects using our customers' money instead of our own to fund the projects. Thank you. And with that, I'll turn the call back over to Ron.

Thanks, Ron. To recap the highlights, we delivered 35% backlog growth in the third quarter compared to 2024 with further pending awards that we hope will increase that backlog between now and the end of the year.

We have

also generated strong operating cashflow through the first nine months of the year with potential for record-shattering operating cashflow for the full quarter and the full year 2024. As previously stated, we've already paid down the debt $50 million and we'll expect to pay our term loan down significantly by year end and I believe paid off by the end of the first quarter. We have made excellent progress in resolving many of our legacy disputes with only about a dozen or so matters of significance left to be resolved, which I would expect would occur over the next 12 to 18 months. And by the end of that period, only a handful of open issues remaining. We anticipate that our operating cashflow will continue to grow and be even stronger in 2025 and 26 with revenue growth and a significant return to profitability in 25 with even higher revenue and earnings in 2026 as these newer projects progress from design to the construction phase. Thank you and with that, I turn the call over to the operator for your questions.

Great, thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question key. You may press star two if you'd 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, we'll pull for questions. First question here is from Steven Fisher from UBS. Please go ahead.

Thanks, good afternoon and congratulations on all the project awards and cashflow continued improvement there. Wanted to ask now, sort of the next step on all these awards is really kind of getting them into burning revenues. Can you talk about what the shape of the curve looks like there on all these projects when we really start to see that substantively coming through your revenues? Is it sort of like second half of 25? Is it 26? Is it first half of 25? How do we think about that curve and how it kind of works towards the peak? The

way these work is we initially have significant buildings on award because we post bonds and insurance and then there is a design phase. So before you see, for example, if it's a $2 billion job over five years, before you see 400 million a year of cost, it takes between six and nine months to get design completed up to where it gets ahead of construction. So all of these awards you're seeing currently, you'll see major construction beginning somewhere between June and September of next year. So although there'll be some significant increase in value in the second half of the year, where it will hit remarkably will be in 26 and 27 and 28 because these are all five year jobs with steady income streams and significant profitability.

That's very helpful. And then just thinking about what happens with the specialty business earnings from here, how much does all these wins sort of get in the way get your specialty group involved? And how do we think about that inflecting back to profitability and the ramp of the profit curve there?

Well, as you can see, the specialty group in the quarter was down to a relatively low revenue. And what we've done is shrunk, finished off all of the bad work. And conversely, almost every one of these jobs has a large component. When I say large relative to the job size, components set aside for our various specialty contractors, be it East Coast or West Coast. That revenue will ramp up in specialty. And as we have, they have significant margins and should do significantly better going forward in the marketplace we're in today, as opposed to where we were three, four and five years ago.

Okay, I guess a very timely question here. Curious if you guys have any thoughts on the election outcome and what it might mean for the construction industry.

Well, as Ron Tudor, I'm elated that Trump won and wiped Kamala Harris out. I know that's not, I'm not supposed to say things like that, but I'm delighted, but I don't know that it'll have an impact one way or another on us. Most of these are federally funded, approved and moving forward, or as in New York City and state funded. So I don't know that it has a plus or a minus other than I've always considered Trump good for business. And since his background is construction, I can't imagine him being anything but positive.

Okay,

terrific. I will leave it there. Thanks a lot.

The next question is from Adam Dahlheimer from Thompson-Deavison Company. Please go ahead. Hey, good afternoon, guys.

Good afternoon.

The jobs that you guys are winning today, can you remind us how the contracts differ at all from legacy projects? And Ron, you mentioned in your prepared remarks that you see the contracts as equally fair, just hoping you can expand on that a little bit.

Well, in the past, in my entire career over the past, let's call it 60 years, all contracts were written by owners, completely one-sided, onerous and dictatorial. And as long as they had five to seven bidders on every job, regardless of comment, when I would protest, the answer would be, well, then don't bid if you don't like our terms. So over the years, we came to accept onerous terms, negative terms, no mobilization, excessive retentions, and so on as a part of doing business. Well, as you can see, over those years, the seven and eight bidders has shrunk to one and two. And the handful of us that are left that are quoting these jobs, we now sit down and talk terms and everything that's unreasonable, including excessive retention, any excessive liquidated damages, schedules that are too short. We basically take the position that you either negotiate with us something reasonable and acceptable to us, or we don't bid. And when you have only two prospective bidders, if one of it says he's not gonna bid, now you're down to one, you can't bid it. So we've been able to negotiate upfront mobilization payments, the heretofore were difficult, reduced retention, better contract terms in terms of cure periods, and the inability for them to assess consequential damage. Literally every onerous term has been eliminated. And I'll give you a classic example. When I first got the original contract terms from the New York City Department of Corrections on the New York City jails, I read them with our legal department, send them back a letter and said, your terms are so onerous, although we appreciate the size of the projects and your needs, by looking at your contract terms, we've decided that are entirely two owners, we will not be a bidder, thank you. And that was the end of it. Three months go by, I get a letter back and says, basically, you're right, they're entirely two owners, we want you to bid, we'd like to discuss and meet what you expect. We met, we got every single term of reason, and it isn't that we were unreasonable, it's fair terms that are equally reasonable with upfront cash payments on the theory. We build these projects with your money, not our money. So that's across the board in every job we now bid. Better terms, better schedules, or the response is simple, we're not bidding. And with us being one of the few remaining risk takers that will bid these big jobs, it typically generates the changes we need.

Okay, great color. And then as investors, how should we think about, as you execute on these jobs at these terms, what kind of margin ranges people should expect as you think out the 25 and 26 and 27?

I don't understand, what do you mean by 25, 26?

No, what kind of margin ranges that you think you can do in the segments as these jobs turn into profit?

I know what the ranges are, the interesting aspect is, is this something we normally don't discuss in a public forum and our bid profits. Let me gauge it with this, you've seen the margins we produced in civil building and specialty in the past, significantly a particular emphasis on both building and specialty, because over seven billion, or excuse me, almost six and a half billion of the backlog is going to the building end in New York City with significantly increased margins, far more than the building group normally gets. And all of our civil group in the new backlog, I would say starting in 2000, the end of 2023, and certainly 24, significantly increased with the margins you're used to in past civil where they made 11 to 12% on revenue.

Does that help? Okay, that's perfect. And last one, I know we're focusing on the long term, but we have to stick something in the model for Q4. I'm just curious if you expect that to be a profitable quarter or how we should model that?

The only thing I can say is, I believe you can interpret in the numbers we presented that Q3 would have been profitable and you can probably back into the earnings it would have been were it not particularly for Shasta and all of the write-offs. I don't see anything major in the fourth quarter, but I've got four or five virtual disputes in various stages of negotiation and potential settlement that I think will get settled by mid-December. I really can't tell until then. And it's not gonna be anything resembling this third quarter, but I'm reluctant to say we're gonna make the margin in the fourth quarter because as you can see, I'm pushing to be rid of all these legacy disputes, collecting a lot of cash and moving into this tremendous backlog with reduced debt and significant cash balances so we can earn what we gotta earn.

Okay, great

color. I think I danced around it, but it's the best I can do. No,

no, no, very clear, thank you. We've got profit forecast in the fourth quarter. Okay, thanks again.

Our next question is from Alex Reggio from B-Rally Securities, please go ahead.

Thank you, and a very nice quarter. Congratulations on the wins there. Couple of quick questions. Thanks, Alex. Could you help us to bracket sort of the value potential in disputes that are remaining?

I'd say between now and the end of next year, between 450 and 500 million.

And then, very helpful. And then, kind of a two-part question. Can you talk about the capex needs and working capital needs as you start to step into this really big backlog build? And then when you think about your capital structure, what's the optimal leverage on the business and what do you plan on doing with your cash after you get to that point?

Well, let me try to deal with it. First, the way we bid these jobs, we bid them on the basis that the owner provides all of the cash necessary in the mobilization upfront to where if our backlog goes to 20 billion, our existing working capital doesn't finance it, the owner payments do, and that we've insisted on and been 100% successful. We don't finance any of the work of their payments to us finance their own work. Secondarily, the capital expenditures are consistent with the past. We own most of the equipment necessary for this work and that which we don't, the jobs pay for as they're four to five year rentals and the cost is baked into the job. So you're not gonna see any significant capex beyond what it's been in the past between 25 and 30 million a year.

And then your optimal capital structure?

Pardon me?

What is the optimal capital structure of this business? In other words, what kind of debt to cap ratio do you wanna run at and when you get there, kind of what are you gonna do with the excess cash?

Well, my optimal basis will be to pay off all our debt with the exception of that abysmal bond issue where we were unfortunate enough to finance it at 11 and seven eighths. And as we continue to generate these significant levels of cash, that's a decision that we in the board are gonna have to make over the next 12 months because I think I've made it clear we're gonna pay off all debt and have a revolver as needed. But we expect the needs of that revolver to be minimal and it's there as insurance. And as we continue to accumulate cash, we're gonna have to make a decision what we do with

it.

Very helpful,

great quarter, thanks. The next question here is from Michael Dudas from Vertical Research Partners, please go ahead.

Good afternoon, gentlemen. Hey, Mike. Russ, Ron, you mentioned in your program remarks about taking a hiatus from bidding. So a little more thoughts on that. Your win rates probably have been getting much better and you have a lot of opportunities over the next few months which you've highlighted. Is that like kind of close to like the capacity of like you're comfortable with with those types of large projects on board given your risk mitigation, your profile? And that is the market, I assume that others are others looking the same way that there's just everybody's getting very busy and that capacity getting tighter. So maybe some owners might be a little nervous on that front.

Well, I can't really speak for our peers because there's very few of them that compete with us. But all of the major jobs, 500 million and up which is what we call a major project, essentially come across my desk for approval, the bid and then review of estimates. And we try to look at the entirety of the company where it's located. If it's East Coast Civil, it's a matter of their capacity in-house. Do they have the people? Do they have the resources? If they do, we don't hesitate to support them. If we don't, we turn off the tap and say you've got an adequate backlog with significant cashflow and major earnings. Go out and deliver it. We'll talk. Meanwhile, all of the operations have -to-day bids to sustain themselves. Our civil group in the Midwest London is a consistent profit earner. They bid anything and everything they'd like up to that 500 million without a lot of needed approval from me because of their record. So we keep a tab on them. And all we wanna be sure is you have the resources and people to build the work and be certain there are no owners contract terms. So as long as that continues, when I say we'll shut off the work, it's in the billion plus category. The -to-day 100, $200 million jobs will continue across the board. Those are typically 18 month to three year jobs that the subsidiaries will determine on their own.

And Mike, this is Gary, just to clarify, we're not at that point yet, right? We haven't shut off the, just beg it, we continue to pursue the work, but it's just the potential pause if we continue with the wind rate, the improved wind rate that you mentioned. And then some of the business units implied with what Ron was saying, some of the business units won't be impacted at all, not just because of the size of the work, but just because they're not at anywhere close to that capacity. That's

very helpful. All good issues to have. Thanks, gentlemen.

Thank you. My next question is a follow up question from Adam Thalheimer from Thompson Davis and Company. Please go ahead.

Oh, thanks

guys.

Hey, Ryan, can you expand, you said that share-based compensation is gonna change a little bit, I think to the point where it won't be revalued every quarter, is that something that happens in 2025? I didn't quite follow that. Yeah,

it's a good question. So what we anticipate is structuring awards to be settled in shares in the future. We still have outstanding awards that are out there today that are liability classified that we'll have to continue to remeasure. Although we anticipate, like I said, the future awards will be settled in shares. So you won't see the volatility, the spikes up or spikes down related to the complex steps.

So it doesn't go away in 25, but it starts to taper from 25 on.

That's fair, yes.

Okay, perfect, thanks.

No problem.

This concludes the question and answer session. I'd like to turn it back to management for any closing comments.

Thank you everybody, very positive meeting and look forward to more of the same.

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