Dive Brief:
- Tutor Perini’s loss widened in the third quarter on similar revenue from a year ago, as the heavy civil contractor took several write-downs for its numerous legal disputes.
- The Los Angeles-based firm lost $36.9 million in Q3, compared to bleeding $32.5 million during the same period in 2022, on $1.06 billion in revenue. That topline number was basically flat from the $1.07 billion the company reported for the third quarter last year. On a positive note, its $10.6 billion in backlog represented a 28% jump over the last 12 months.
- On a conference call with Wall Street analysts following the results, CEO Ron Tutor asked investors to stick by the company. He said the firm was making headway to refinance its debt and resolve its outstanding litigation, a process he said would largely be completed in 2024. “Thank you, everyone, for joining us and stay patient,” he said at the end of the call. “We’re getting there.”
Dive Insight:
“We delivered mixed results for the third quarter of 2023, with very strong cash generation and year-over-year backlog growth, but with challenged earnings due to a number of write-downs that resulted from the resolution of various disputed matters,” Tutor said.
Gary Smalley, the firm’s CFO, broke down the impacts of ongoing disputes and settlements the company has been involved in over the last several quarters.
For example, he highlighted the $13 million dollar loss in the firm’s construction operations segment, which he said was “primarily due to changes in estimates resulting from negotiations, settlements and legal judgments on certain disputed claims and unapproved change orders.”
Separately, the firm reached a settlement on multiple components of a different mass transit project in California, resulting in a negative adjustment of $23 million. That was at least partially offset by a positive, $9 million adjustment on another component of the project, Smalley said.
A healthy bid pipeline
Tutor Perini’s ongoing disputes, charges and settlements illustrate the risk that comes with large, multiyear infrastructure projects. A recent study found construction had the third most legal filings — which resulted in the third-highest costs — among all U.S. business sectors. What’s more, the cost of construction disputes has skyrocketed — up 42% in the last year.
Indeed, some firms, such as competitor Granite Construction, have purposefully eschewed multibillion-dollar megaprojects because of the cost uncertainty that comes with bidding on jobs with end dates that are several years in the future.
For Tutor Perini, however, continuing to bid on those projects, while more risky, has also resulted in it often being one of just two or three bidders on a job. That puts it in a sweet spot, Tutor asserted on the call.
“As competition, as I've said time and again, has diminished, we are confident that we win our share of these projects and can continue to grow our backlog substantially over the next 12 to 18 months,” Tutor said.
To that point, Tutor Perini previously announced in the second quarter that it won a $2.95 billion contract to build the Brooklyn facility for New York City’s Borough-Based Jails System. On the call, the company highlighted several successful bids from its third quarter, including:
- $115 million of additional funding for a healthcare project in California.
- $95 million and $81 million of additional funding for two mass transit projects in California.
- The $47 million New Everglades National Park Visitor Center project in Florida.
- A $42 million mining project in Virginia.
- The $40 million Central District Wastewater Treatment Plant in Florida, awarded to its Fisk Electric subsidiary.
Tutor also outlined several opportunities in the contractor’s bid pipeline which it expects decisions on by end of year or early in 2024, including:
- The $3 billion Queens jail facility in New York.
- The $1 billion Frederick Douglass Tunnel project in Maryland.
- The $800 million Amtrak East River Tunnel Rehab project in New York.
- The $500 million RFK Bridge retrofit and rehabilitation project in New York.
- The $225 million MD 4 at Suitland Parkway Interchange in Maryland.
- The $200 million Long Slip Canal Rail Enhancement project in New Jersey.
Additional near and longer-term bid opportunities include:
- The $2.6 billion Downtown Rail Extension of the Transbay Transit Center in San Francisco.
- The $2 billion Honolulu Rail Transit project in Hawaii.
- The $1.6 billion Amtrak Sawtooth Bridges replacement project in New Jersey.
- The $1.5 billion Inglewood Automated People Mover project in Southern California.
- The $1.5 billion Newark AirTrain project in New Jersey.
- The $750 million Manhattan Tunnel project in New York.
- The $500 million Great Lakes Tunnel project by its Frontier Kemper Subsidiary.
- The $500 million Amtrak Connecticut River Bridge Replacement project.
- The $500 million Palisades Tunnel in New Jersey.
Refinancing in the works
In addition to working its way through its legal disputes, the firm also said it’s looking for avenues to refinance its debt. The firm had $3.2 billion in liabilities on its balance sheet at the end of the quarter, versus $4.5 billion in assets.
While the result is a net positive, as the Federal Funds Rate has increased from near zero to over 5% since the beginning of 2022, the cost of refinancing has also gone up. On the call, Smalley said the firm was working on finding avenues for refinancing, and noted it had set aside more than $70 million of its positive cash flow in the fourth quarter toward that end.
“We are focused on our debt maturities and have been taking a holistic approach that considers a broad range of alternatives, leveraging both our management’s and board of directors experience in evaluating our refinancing options,” Smalley said. “Soon we will begin the actual refinancing process.”
