Jorge Casado - VP Investor Relations Ronald Tutor - Chairman & CEO Michael Kershaw - EVP & CFO

Alexander Rygiel - FBR Steven Fisher - UBS John Rogers - D.A. Davidson Michael Shlisky - Global Hunter Securities John D'Angelo - Macquarie

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation First Quarter 2015 Earnings Conference Call. My name is Roya, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Thank you. Please proceed.

Thank you, Roya. Good afternoon, and thank you all for your participation today. Joining us on the call today are Ronald Tutor, our Chairman and CEO; and Michael Kershaw, Executive Vice President and CFO. Before we discuss our first quarter results, I would like to remind everyone that during today's call we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences, in our most recent Form 10-K which was filed on February 26, 2015. With that, I will turn the call over to our Chairman and CEO, Ronald Tutor.

Thanks, Jorge. Good afternoon and thank you for joining us. Our first quarter results were slightly less than anticipated although the strong revenue growth and reduced profitability were both largely anticipated and in line with our budget expectations. The building segment drove our revenue growth due to significantly increased activity on a number of projects nationwide. This increased activity was and continues to be the result of a strong building segment backlog growth over the past year with resurgent end markets, and just a significant number of active developments talking to us aggressively about building their work. Building projects as you know carries significantly lower operating margins compared to our civil and specialty groups, so strong revenue growth from that sector naturally dilutes our overall consolidated operating margin. The building segment had a loss for the first quarter as a result of an unfavorable adjustment to the expected profit. At completion of an office building on the East Coast, particularly related the losses on the concrete frame. Our civil business experienced modest revenue growth despite reduced buildings on certain tunneling projects this year compared to the last, including as previously discussed reduced activity on the SR99 project in Seattle, and the California High-Speed Rail. You may recall that last year after tunneling boring machines stalled, we were able to continue significant work on various other concrete framing aspects of the project. This year however, as that work got close to completion, there was much less ancillary work available. This coupled with reduced opportunities on other high margin projects impacted our overall profitability in the first quarter. We anticipated those adverse impact and delays in startups in our budget. The good news is that we continue to anticipate strong revenue and profit performance during the balance of the year when projects such as SR99, the California High-Speed Rail, San Francisco subway, and several other large subway projects in New York contribute significantly. As and aside, we finally see restarting SR99 tunnel in the third quarter in Seattle, as well as a major start on the California High-Speed Rail in June. In addition to our revenue growth backlog was the highlight of our first quarter results, substantial new awards and contract adjustments in both the building and specialty contractor segments drove a sustained backlog level in the first quarter, and we concluded the first quarter with $7.8 billion backlog, consistent with the previous quarter and up slightly compared to the first quarter last year. More than 70% of our backlog today continues to be comprised of higher margin civil and specialty work, even though we continue to add a significant number of large building projects as we speak. During the first quarter we received full and final payment on the MGM City Center global settlement, as well as the UCLA Santa Monica Hospital settlement. The cash proceeds received from these settlements were partially offset by short term working capital requirements and certain large civil and electrical projects underway and in their final stages. Fortunately we expect to return the capital by the end of the third quarter restoring significant positive cash flow for the year. The building segment strong revenue growth was driven by increased activity on a variety of projects, including a very large confidential industrial technology project in California. The San Diego Court House project, the Scarlet Pearl Casino Resort in Mississippi, the Broadway Plaza Retail development in California, and the new Panorama Tower we recently broke ground on in Miami, Florida. Our civil segment performed significant work during the first quarter on the Hudson Yards platform to New York transit authority CM006 east side access project, the JFK runway project, and various bridge jobs in the Midwest and New York. These projects were among the top drivers of our incremental first quarter revenue. As to the SR99 project, our joint venture Seattle partners in working with Hitachi Zosen, the TBM manufacturer is completing the repairs and looking to restart tunneling very shortly. Next I will discuss our recent new orders backlog and pending awards. In the first quarter, we had a total of $1 billion of new awards and adjustments to existing contracts. Our first quarter book-to-bill was 0.96. As mentioned, we ended the quarter with a backlog of $7.8 billion, up $136 million or 2% compared to the end of 2014. Our backlog mix is currently 44% Civil, 29% Building and 27% Specialty contractors. Our pending awards at the end of the first quarter were $4.3 billion, up approximately $200 million compared to the end of the first quarter. Of the pending awards, $2.3 billion is associated with current phases of Hudson Yards, which should be executed by the third quarter of 2015. Approximately $1.3 billion in four building projects in California, one of which is an approximate $600 million plus project for a major Fortune 500 foot customer in Silicon Valley, and approximately $700 million for various other smaller contracts. We anticipate booking many of these awards in the backlog over the next two quarters. Looking at new awards and backlog specifically by segment, the building segment at first quarter new awards and adjustments totaling $466 million, and ended the quarter with $2.3 billion in backlog, up 30% compared to the first quarter last year. The largest award included $239 million hospital building contract and a $117 million mixed used project in Pennsylvania and a $50 million educational building in Mississippi. The building segment has the majority of our total pending awards including the before mentioned projects in California and the additional phases of Hudson Yards. The building segment also has numerous other smaller and mid-size awards over the next several quarters, from Florida through Mississippi, the south, and into California. The specialty contractors segment had first quarter new awards in adjustment totaling $334 million ending with a backlog of $2.1 billion, up 4% from the first quarter last year. Significant new awards included a $90 million mass transit electrical project in New York, a $32 million sub-contract for the high end residential electrically in New York, and a $30 million electrical sub-contract for the building segments Panorama Towers in Miami. The civil segment had first quarter new awards and adjustments totaling $223 million, and ended with a backlog of $3.4 billion, down 12% compared to first quarter last year. The largest awards included a $58 million highway improvement project in Pennsylvania, a $656 million tunnel project extension of Amtrak at Hudson Yards in New York, $36 million for several bridge projects with our landed subsidiary in the Midwest. And a $22 million dump closure being performed by Black in Scipen [ph]. Next I will discuss our bidding opportunities. The civil segment sees as usual, a significant pipeline of approximately $14 billion in prospective work to be bid and awarded over the next 12 months. The largest of these prospects is a $2 billion highway widening and bridge project in Virginia. Other civil prospects include approximately $6 billion in various mass transit tunneling and highway projects, and $4 billion in distinct bridge projects in various areas of the Midwest and East Coast. The building segment sees a $9 billion pipeline of prospective work, bidding and awarding over the next 12 months. And we particularly are waiting the results of a final decision by the Port Authority on the La Guardia Airport Terminal project. We have been told, and it appears certain that the port will make a recommendation for award at their May 28 meeting, so hopefully within the next two to three weeks we will know whether it's going to be awarded either to us or the other prospective bidder. This is of course our largest individual prospect and we've been waiting for a result for virtually a year. There are many other projects in virtual discussion in potential, particularly with Memphis [ph] in South Florida, more in the south around the Mississippi and Louisiana area until a lesser extent California. Especially contracting segment continues to have a $4 billion to $5 billion pipeline of prospective opportunities over the next 12 months to the point that in discussing with the principles of both WDF and 5Star are mechanical and electrical subsidiaries in New York City. The amount of work being requested of them to bid if we continue to be awarded will begin to stretch the limits of their capacity. Based on our current backlog and market outlook, we are maintaining our fiscal 2015 guidance for revenue expected in the range of $5 billion to $5.5 billion, and diluted earnings per share expected in the range of $2.20 to $2.50. The earnings per share guidance assumes a tax rate of 41% and 49.5 million shares outstanding. I will now turn the call over to Michael Kershaw, our CFO, to go over the details of the financial results for the quarter.

Thanks, Ron. As expected our building group experienced significantly increased activity on a variety of projects nation-wide which took our building segment revenue higher, and this was the major contributor to our first quarter revenue which is the highest it's been since 2009 at about $1.1 billion, up some 12% from last year's $1 billion. Reduced activity on certain higher margins civil projects and certain power projects in the west caused income from construction operations to be lower this year at $20 million compared with last year $41 million. Our first quarter operating margin was 1.9%. Both a reduction in operating income and resulting lower operating margin were anticipated with and were driven by the increase in building activity. As Ron mentioned, we expect stronger performance over the remainder of the year. First quarter SG&A was $71 million compared with last year's first quarter of $64 million. This was mostly due to increased performance based incentive compensation for this quarter which will be lower in subsequent quarters. As a result of the reduced operating income, net income for the first quarter was $5 million versus $16 million in the first quarter of last year, diluted EPS was $0.10 versus $0.33 last year, and our first quarter revenue and a relatively lower EPS compared to the first quarter of last year were in line with our internal expectations. As expected, the building segment strong revenue growth diluted our consolidated operating margin. Moving on to discussing this by segment, for civil, the increased activity on several large mass transit projects in New York and various bridge projects in Midwest was partially off by decreased activity on some of our tunnel projects on the West Coast and certain higher margins projects. This led to revenue for civil being the highest first quarter revenue ever at $375 million versus $365 million last year, however, this change in mix of projects reduced our operating income from construction operations for the first quarter to $31 million versus $44 million last year, and led to operating margin being lower this year at 8.2% versus last year's 12.2%. Moving on to our building segment, revenue for the first quarter of 2015 was $399 million, up 34% from last year's $298 million. We had increased activity on various smaller building projects in California, the southern U.S. and Florida, an industrial project in California, some mixed used facility projects in New York, California and Louisiana, and some hospitality and gaming projects in Mississippi and Florida, and this was partially offset by decreased activity on some of that court house projects. As Ron mentioned, the income driven by this increased activity was offset because of a booking of a quarterly loss on a large office project in the East Coast, this was created by unfavorable adjustment to the expected change order revenue on that project. This led a removal to our first quarter 2015 loss of income from construction operations of $2 million this year compared to an income of $2 million last year. Operating margin was negative 0.6 versus positive 0.6 last year. With respect to our specialty contractors segment, we had increased activity on various electrical and mechanical projects in New York, was mostly offset by decreased activity on various smaller electrical projects in the Southern U.S., electrical projects of the World Trade Center, a mechanical projects of the UN and New York. This led to revenue for the first quarter of 2015 being up very slightly at $293 million versus $292 million last year. However, our income from construction operations this year was $11 million, up 35% from last year's $8 million, and the associated operating margin grew from 2.7% to 3.6% this year, and that's based on an improved performance in our mechanical unit in New York and our concrete business unit. We're pleased with the progress we are making towards improved profitability in the specialty contractors segment. With respect to other expenses, our interest expense was essentially flat at $11 million versus $11 million last year. Our other expenses were reduced this year because of lower contingent acquisition expense, and because of our decrease in pretax income, our income tax expense for the first quarter was $3 million compared to $11 million last year, and tax rate this quarter was impacted by some minor discrete adjustments that only impact this quarter that let us to have a rate of 37.5% versus 41.6% last year. And excluding most discrete, our tax rate for the quarter would have been approximately 41%. Moving on to our balance sheet, our working capital at March 31, 2015 was $1.1 billion, this is virtually flat with $1.1 billion at end of 2014. As Ron mentioned, we received final payments related to the MGM City Center and UCLA Santa Monica Hospital settlements this quarter. As we told you last quarter we had strong collections in December on certain projects, and as a result we had to make substantial payments to sub-contractors and other vendors early in Q1 related to those projects. Q1 is always a cash usage quarter for us, but this year we also had to fund some additional short term capital, working capital associated with some of our large projects until they meet some specific billing milestones. And we expect those milestones to be meet during the rest of this year and to receive significant cash from those projects by year end. In the quarter we used $2 million in cash from operating activities compared with a use of $41 million in the first quarter of last year, our total debt at March 31 is $883 million compared to $865 million at the end of December. I'll now turn the call back over to Ron for closing comments.

Thank you, Michael. We look forward to providing you our next update in August, by which time we expect to be in a position to more fully discuss all of these large pending projects that god willing will have in the award column out of the pending column. We're pleased that the end market across all our segments continue to grow and provide us the opportunities to build upon our foundation for growth. This concludes our prepared remarks. We'll ask the operator to open the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Alexander Rygiel with FBR.

Thank you. Nice quarter, Ron.

Thank you.

It clearly sounds like bid pipeline is huge, your pending award pipeline is very, very large and your comments right at the end there which suggest that Q2 could be a very strong new award quarter, is that fair to conclude?

Let's say we are waiting with bated breath on literally billions of dollars of potential awards in the next 30 days.

And Mike, if you excluded the project loss in the quarter and the building segment, what did the margins in that segment look like?

It would have been pretty close to last year's number, it would be above that, maybe about 1% I think.

And are there any big projects roping up in 2Q?

You mean finishing, existing ones?

Yes.

No, no, in fact quite the contrary we're just getting ready for a major start on California High-Speed Rail I was just there on Monday, and we're in hopes of getting a major start in the third quarter early on Seattle tunnel. So cranking and backup and start generating revenue.

Right, thank you. Good luck.

Thanks.

Thank you. Our next question comes from the Steven Fisher with UBS. Please proceed.

Thanks, good afternoon. So it sounds like the California High-Speed Rail and Seattle tunnel are the biggest things that have to happen in order to hit your guidance, first of all, is that the right interpretation?

I mean I think that's fair. We've assumed that by the second quarter, first part of the third quarter, they would refire up, one is $1.5 billion, the other is $1 billion. I left High-Speed Rail, there is no question it will start on a major scale in June. So that one is pretty much put to bed, and I believe it's very early in the third quarter we will start the Seattle tunnel. However, I mean that doesn't mean something couldn't delay it but I'd say the odds on, we'll start driving tunnel which of course will immediately crank out revenue there.

Okay. And so related to California High-Speed Rail, I think the issue before was on land acquisitions, that slowed it down, have those things all been cleared now?

I meet personally with the principals of High-Speed Rail and we are satisfied there is enough ride away out ahead of us that we can get a major cost effective start and that will be able to stay ahead of us, so they won't impact us any longer.

Okay. And then, sorry, on the Seattle tunnel, what are the biggest things that have to happen to get that one going again?

We're just rebuilding the machine and it would be commissioned and baring anything unforeseen in the repair, we'll start up and commence the tunnel drive.

Okay. Can you give us an update on the dispute resolution boards related to that project, has there been any new developments there?

I believe we just won our second dispute resolution over the pipe that was in the tunnel, that this all started and I believed I haven't seen it but I was told by the job site that we won that dispute and the DRB found we were correct and entitled.

Okay. And then I guess related to the cash flow, how backend loaded would you say those milestones are for generating the cash flow and did they relate to both of those two big projects, California High-Speed Rail and Seattle tunnel or is it something else?

California High-Speed Rail, as you might expect has generated virtually no cash flow because all we've been doing is designing and engineering and meeting and scheduling, we have virtually started little or no work, although we did start a couple of months ago with some utility relocations. So we expect starting in June the finally yet substantial positive cash flow. Excuse me, the Alaskan viaduct [ph] all goes well and we start in August, then immediately that begins to generate the balance of revenue remaining in the job, and since most of the ancillary structures are in the 75%, 80% category, the job virtually completes right behind the tunnel and the extraction of the machine.

I mean there is one other project that has to hit some milestones in New York and we're working to push that as well, it's getting to the point where Alaskan has stocked CMS [ph], where it's going to get into the areas where they can generate significant cash to overcome where they are.

The MO6 is another set of issues, and that appears there is some substantial changes we'll have to work through with the owner who has admitted that they have to be resolved and we have to be paid, and that could delay the project for a few months, I hope not, but it's a cost reimbursable situation, and it should basically take care of itself in the next – anywhere from 30 to 90 days.

Okay, thanks. I'll turn it over.

Thank you. Our next question comes from the line of John Rogers of D.A. Davidson. Please proceed.

Hi, good afternoon.

Hi, John.

I guess just following up on the cash flow, I just want to be clear, the bigger pic that you're seeing in the – I think, Mike you said in the third quarter, if the Seattle job continues in a dispute situation, is there any chance that cash flow gets delayed, even if you start work?

Yes.

Okay.

Although that is not the most significant cash driver right now. Our most significant cash driver frankly is an interim situation we're resolving with the port authority on the world trade center. We've done so much emergency change order in major extra work, they got so far behind and we get so far behind in resolving it, we've had to fund an enormous amount of change orders and we are now in a committed mode to resolve and pay and it started last months and there has been a commitment to resolve it before the 1st of September, we're talking about an enormous amount of cash.

And that's in the specialty segment, John.

Okay. And then in terms of the building segment, the work that you have in Silicon Valley, the $600 million project, that is not in backlog at this point?

No.

Okay.

But we believe that will be executed literally within the next two weeks.

Okay. I know that with Hudson Yards, the way that come through relatively low margin work or has been, this other work that you're pursuing them, $1.3 billion in other projects, could we see higher margins there, certainly than you've put up recently?

Up double the – [cross talks] double John.

Okay. Alright, so we should feel ramp in…

Yes, our today's New York margins off less than 2% are over, there is entirely too much work and we're too good at what we do to sell our services for that level any longer.

Okay. And then, I guess it's – in terms of the Virginia project that you mentioned, the highway project, when do you expect a decision on that?

We are just putting together a team and the engineers and our partners, that probably won't even propose to the owner until the third or fourth quarter.

Okay. Third or fourth quarter?

This is 2016 job if we're fortunate to get it.

Okay. And then, just the last thing, the higher corporate expense, I see the uptick in incentive comp during the quarter, I think it was $9 million, is that what that drops off over the next couple of quarters?

It drops off the next quarter, right. That was a onetime charge and we probably should have stayed it as such because of anything our G&A has been help constant or reduced, I just gone through a G&A review of all the subsidiaries and we've reduced that counts and cut back with particular emphasis on our building businesses.

John, actually what I said is that we would incur that and it would be reduced in future quarters.

Okay. I just wanted to understand the magnitude of that. Okay, great. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Michael Shlisky with Global Hunter Securities. Please proceed.

Good afternoon, guys.

Hi, Mike.

I have a quick one and then if you will be out of the field but – with the number of things you're doing so strong, and the amounts are big, and perhaps some of the folks enrolling gas, maybe I've seen – such as a robust pipeline right now. Have you seen anyone from that industry try to sneak in and grab a few projects that are further up, there are other folks?

What I really precluded by the way our industry operates, virtually every major project we propose on requires prequalification, and prequalification absolutely entails experience and knowledge of that type of work. So you could be a $10 billion a year oil and gas and refinery contractor, but when a big bridge or a big highway comes, if you haven't got extensive bridge and highway experience, you can't even make a proposal. So we have had none of that. Our biggest issue has been the influx of Europeans who have been in this marketplace and continue to. Other than that there has been no new on trace, nor do I expect any from other industries, it's just – it isn't possible for them to make inroads in our industry any more than I could go to Chevron and ask to talk to them about building a refinery.

Well said, thank you very much.

Thank you.

Thank you. Our next question comes from the line of John D'Angelo with Macquarie. Please proceed. John D'Angelo: Good afternoon, thanks for taking my call guys.

Hi, John. John D'Angelo: So you kind of touched on this with John's question, but maybe we can get a little more granular. In terms of getting the strong operating cash flow that you're talking about by year end, with the return of all that working capital, what are kind of the risks that you see that you don't get that working capital back this year and some of that gets pushed into the first half of '16? Thank you.

I don't know, I suppose you could call it a risk. It is our working capital and we use our lines of credit, and since it's all money we're entitled to and we've set targets and our owners have agreed to September 1 if that's slid to January 1 or March 1 next year, it would just be what it is, it would continue to be business as usual. And when I said slid, there is over $100 million coming out of one owner and one project. So it is being settled in phases, we just collected $38 million last week and when I say September 1, it is incrementally resolved literally every two weeks when we meet. So the entire amount going into next year would not be possible, so I don't think there is much risk of that, is it impossible, nothings impossible but I don't believe that it could be that way. John D'Angelo: Okay, thank you so much.

Sure.

Thank you. Our next question comes from the line of Rob Murphy with Adventec Global Advisors [ph]. Please proceed.

Good evening everybody.

Good evening.

Just a quick question, you've mentioned before Ron that the competitive nature of the market, can you just kind of give us a glimpse of what you're seeing from a competitive perspective, I mean, I know this work is obviously all fixed price in nature but are you seeing certain companies become more aggressive and how is that impacting the margin profile or as bid margin on the work that you're currently looking at today?

That's a very good question. We find that our competition seems to be coming more from Europe than it does from our usual peers. The competitors we have in the U.S. that are substantial and excellent builders and we're used to competing with virtually from my life type [ph]. We find the Europeans are bidding everything of consequence. Let me be shared upon say I don't believe they are doing very well here, I believe they will continue to do poorly because they don't operate like we or our U.S. peers do. This is a competitively bid hard money market where you have to work for a fixed price. And the Spanish have been the most aggressive for all the wrong reasons but they will continue to pay the price for that aggressiveness. We on the other hand do not operate by reducing our margins. I tend to think of major civil jobs as like buses, you miss one or two buses, there is always a third one behind it. And we will not play our capacity or our technical ability without the corresponding margins we deserve, it gets that simple.

Okay, that's great. And just quickly, my second question just revolves around the potential renewal of the highway trust fund, the bill that obviously continues to be extended and probably gets extended again, but assuming there is a resolution, whether it's the repatriation of taxes or gas tax etcetera. Can you just talk about how that bill – the opportunity set that that will provide for you all in terms of bidding on various work and projects?

Well, we think it will provide a real infusion of capital, not only into the large highway projects, which everybody is aware of how desperately this country needs to rebuild its infrastructure but also the replacement of 50:80 in a 100-year old bridges that are decaying in place. We expect that there is no alternative given all the issues but for the government to finally put that program in place and one steps finally accomplished probably in the next administration, it's going to be a huge influx of major civil work into a marketplace where there candidly isn't very many of us able to step up and do it.

Great, thanks so much for your time.

Not at all.

Thank you. We have no further questions in queue at this time. I would like to return the floor back over to management for closing remarks.

Thank you. This is Ron Tutor, as always I appreciate the call. We will see you sometime in August.

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