Tutor Perini Corporation

Good day, ladies and gentlemen, and welcome to the Tudor Perini Corporation's fourth quarter 2024 earnings conference call. My name is Stacey, and I will 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 would now like to turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please go ahead.

Hello, everyone, and thank you for joining us. With us today are Gary Smalley, CEO and President, Ron Tudor, Executive Chairman, and Ryan Soroka, 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 disclosures about risk factors that could contribute to such differences in our Form 10-K, which we are filing today. The company assumes no obligation to update forward-looking statements, whether due to new information, future events, or otherwise, other than as required by law. Thank you. And with that, I will turn the call over to Gary Smalley.

Thanks, Jorge. Hello, everyone, and thank you all for joining us. First, let me begin by saying thank you to everyone who reached out to us during the recent wildfires in Los Angeles. We appreciate your support and concern. While our operations were not impacted, a few of our employees unfortunately lost their homes to the fires and are now dealing with the challenges of relocating and rebuilding. The scale of destruction in some areas of LA was truly devastating and unprecedented, and our hearts go out to everyone who has been and continues to be affected. We are committed to assisting our local community in the recovery and expect to participate in some of the debris removal activities that are just getting started. I'm pleased to be presenting to you for the first time in my new role as CEO, but it is important to me that I begin by recognizing the extraordinary contributions of Ron Tudor not just to Tutti Perini, but also to the entire engineering and construction industry. Ron is certainly an icon, really a legend in the industry. He has passionately given it his all every day for more than 61 years he has been leading our company. So I'd like to congratulate Ron on an extraordinary career and express my gratitude for his leadership, mentorship, discipline, and commitment to excellence as he transitions into his executive chairman role. I've learned a lot over the last decade by working closely with Ron, so the transition to CEO has been as smooth as you can imagine. I'm grateful that we will continue to have Ron with us for the rest of this year and all of next year as Executive Chairman. Since we have already gotten this question numerous times, let me summarize what Ron's primary focus will be as Executive Chairman. First, he will continue to provide guidance and advice regarding the resolution of the shrinking list of our remaining legacy disputes. Second, Ron will continue to review the cost estimates and provide his input as to the bidding strategy for the major projects that we will be bidding over the next couple of years. That will give us the luxury of additional scrutiny and advice from the perspective of someone who has pretty much seen it all. Third, Ron is currently helping drive the setup of the major projects that we have already been awarded over the last several months. The importance of proper project setup of these megaprojects cannot be understated, because it is the first key step toward the successful execution of this work. Ron will comment more on this shortly. And lastly, Ron will continue to serve as an advisor and sounding board to me and my leadership team as the company begins the next chapter of what should be unprecedented earnings growth and operational performance. Before I discuss our results, I'd like to briefly share with you some of my priorities as Tutor Perini's new CEO. Certainly one of my key priorities is the importance of our human capital and specifically making sure that we continue to attract and retain the best talent in our industry. We work on some of the largest and most complex projects in the United States, and this is why we need the best of the best working for us, and quite frankly, why we have been able to attract the quality of employees that we have. We want Tutti Perini to be the employer of choice in the construction industry. Another important priority, of course, is returning the company to profitability. Our record backlog, which I will discuss more in a moment, should provide us with a solid foundation for a profitable multi-year stream of growing revenue and earnings beginning in 2025, followed by far superior performance in 26 and 27. To achieve consistent profitability, we will closely manage project execution and performance against our cost budgets, while enhancing our project risk management capabilities. We will also continue to focus on resolving our remaining legacy disputes as expeditiously as possible while still delivering outcomes that are in the best interest of the company and our shareholders. Another priority is a sustained focus on cash generation. Our record backlog will also help in this regard as our elevated earnings from project execution are converted into cash. And our continued focus on negotiating improved and fair contractual terms should help reduce the likelihood of protracted disputes that have hindered historical cash generation at times. Next, it's important to me that we set earnings goals that are ambitious yet reasonable, that we consistently achieve and sometimes even exceed our guidance. I realize that we have not had a good track record of achieving our guidance over the past couple of years. but it is important to note that a lot of the causes of our earnings challenges in recent periods are behind us, so we are confident in our ability to more accurately forecast given this lower risk of earnings volatility going forward. Another important priority deals with making optimal capital allocation decisions that are best for the company and that will ultimately create long-term value for our shareholders. Specifically, As we build up excess cash from continued cash generation, we will look at returning capital to shareholders, and we'll also be looking to refinance our senior notes sometime next year after the two-year non-callable period has passed. We're also focused on finding ways where we can leverage technology, including artificial intelligence, to help us better plan, track, and execute projects. The construction industry has historically been less forward-looking than other industries when it comes to technology, but we are exploring available solutions and will continue to identify and make investments that can improve our operations and productivity. As you can tell, all my priorities are intended to significantly increase short- and long-term value to our shareholders while maintaining TutorPrinny as the preeminent leader of our industry. Now, given recent market concerns regarding the Trump administration's scrutiny of federal spending and implementation of new tariffs, it is important to point out that we do not repeat, do not anticipate any significant impacts to our business related to these factors. From a funding perspective, we do not see the risk of any of our major projects being canceled, delayed, or defunded at this time. Some of our major projects are state or local funded, or are a combination of state and local funding. The ones with federal money in whole or in part have funding that has already been committed and or the projects are strategically important to the United States. In terms of potential tariffs, we frequently buy out materials such as steel and concrete as well as large equipment items like tunnel boring machines at the onset of projects, which mitigates the risk of future equipment and commodity price increases. In addition, many of our contracts have Buy American provisions to promote the use of domestic products, and many have allowances or escalation clauses that can protect us from certain unforeseen cost increases, including those associated with new tariffs. Turning now to our financials, we had another year of largely mixed results in 2024 as we settled or otherwise resolved various legacy disputes. With that said, Our record cash generation, enormous debt pay down, record backlog, and double-digit revenue growth all represent significant improvements over 2023. Beginning with cash, as we had anticipated and previously communicated, we closed the year with extremely strong operating cash flow, generating $330 million of cash in the fourth quarter alone and $504 million for the full year of 2024. This was our third consecutive year of record operating cash flow, shattering the prior year's record by approximately $200 million. Our operating cash flow for just the fourth quarter of 2024 alone exceeded our previous record for annual operating cash flow for the full year of 2023. As we announced last week, we have continued to strengthen our balance sheet by utilizing our record cash to substantially lower our debt We have now paid off our term loan B in its entirety and have exceeded the pace of our debt reduction commitments. Specifically, we have reduced our total debt by $477 million, or 52%, since the end of 2023. We finished 2024 with the new all-time record backlog of $18.7 billion, which grew an amazing 84% year over year. Backlog grew 33% in the fourth quarter alone, far exceeding the previous record of $14 billion that we just set last quarter. Our book-to-burn ratio for the fourth quarter was an almost unheard of 5.4x and an impressive 3x for the full year. Also, the civil, building, and specialty contractor segments all ended the year with backlog that exceeded each of their previous record highs. Regarding revenue, we achieved 12% growth in 2024. Of course, this is a positive, but it's just a drop in the bucket compared to what we foresee for revenue growth for future years beginning in 2025 as the newer projects in our record backlog start to contribute more meaningfully to revenue. Importantly, we also made excellent progress during 2024 in resolving various legacy disputes. As you will see in our Forum 10-K, our 2024 operating income was negatively impacted by a net total of $347 million due to various adverse legal judgments or decisions throughout the year and charges that resulted from the expedited settlement or resolution of disputed matters, as well as changes in estimates on various projects, some of which resulted in temporary impacts that will reverse themselves in the future. As we said last quarter, A couple of these legacy disputes resulted in very unexpected and rather inexplicable legal decisions that we strongly disagree with and are appealing. We expect to continue making substantial progress this year and next year in resolving and collecting on the remainder of our legacy disputes, about a dozen or so that are significant. Had it not been for the charges to earnings that reduced revenue, our revenue growth for 2024 would have been substantially more than the reported 12%. which demonstrates that our core business is growing at a healthy rate. And if not for the magnitude of all the net charges, we believe that we would have exceeded our previously provided EPS guidance for 2024. So this provides us confidence as to how our core business is performing from a profitability standpoint. It is also important to note that many of the dispute resolutions contributed to a record cash flow in 2024. Our extraordinary backlog growth in 2024 was driven by $12.8 billion of new awards and contract adjustments, with the largest being the $3.76 billion Manhattan jail project in New York, the $1.66 billion city center guideway and stations project in Hawaii, a $1.4 billion healthcare campus project in California, the $1.13 billion Newark Air Train Replacement Project in New Jersey, the $1.1 billion Kensico-Eastview Connection Tunnel Project in New York, $479 million of additional funding for certain mass transit projects in California, $449 million for two other healthcare facility projects in California, $331 million for the initial ward of the Apra Harbor Waterfront Repairs Project in Guam, a $229 million airport terminal connectors project at the Fort Lauderdale Hollywood International Airport in Florida, and the company's proportionate share of the Connecticut River Bridge replacement megaproject. Our new award activity to begin 2025 also continues to be impressive. We recently announced two major new awards that were both booked in the first quarter. The $1.18 billion Manhattan Tunnel project in New York and $232 million for several owner-approved scope options on the APRA Harbor project in Guam, which brings the total value of that project to $563 million. I'll now pass the call over to Ron, who will discuss our major bidding opportunities and the setup of our newer projects.