Ronald Tutor - Chairman and CEO Gary Smalley - EVP and CFO Jorge Casado - VP, IR

Alex Rygiel - B. Riley FBR Steven Fisher - UBS Brent Thielman - D.A. Davidson Sean Eastman - KeyBanc Capital Markets Bobby Burleson - Canaccord Genuity

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation Fourth Quarter and Fiscal Year 2017 Earnings Conference Call. My name is Devin, and I will be your coordinator for today. At this time, all participants are 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 is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Good afternoon, everyone, and thank you for joining us today. With us on the call are Ronald Tutor, Chairman and CEO; and Gary Smalley, Executive Vice President and CFO. Before we discuss our results, I will remind everyone that during today’s call, we will be making forward-looking statements, which reflect our current assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. Please refer to our annual report on Form 10-K filed today, February 27, 2018, for a disclosure about our risk factors that could potentially contribute to such differences. The company assumes no obligation to update forward-looking statements whether as a result of new information, future events or otherwise, other than as required by law. 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 today. We enjoyed a good year in 2017 highlighted by substantial new awards, increased profitability in our Civil segment and record operating cash generation. The year included more than 5.8 billion of new awards, the largest of which was the $1.4 billion Purple Line Section 2 extension of the Los Angeles subway. These new awards resulted in a solid book-to-burn ratio of 1.22 for the year and drove a 17% year-over-year increase in our backlog to 7.3 billion. Importantly, our Civil segment’s backlog, by far the largest and highest margin component, was up 54% for the year. As a reminder, the strong Civil segment backlog growth we experienced in 2017 occurred prior to any anticipated favorable impacts of various new state and local funding measures in the Trump Administration’s recently announced infrastructure program framework, all of which should significantly expand our Civil opportunities over the years to come. We are confident in our positive outlook for long-term growth and increased profitability because of our considerable backlog combined with the other new awards already won in early 2018 and the large volume of project opportunities we continue to see. Once again, like last year, we are already off to an excellent start in 2018 with several notable new awards. We recently announced that the Tutor Perini managed joint venture was approved, was actually awarded a contract by the Port Authority of New York and New Jersey in the amount of $1.41 billion fixed-price design build for the Newark Airport Terminal One project. This is the largest transportation infrastructure design contract in New Jersey’s state history. The project aligns perfectly with our expertise on large complex projects, particularly airport terminal and where there’s successful past experience on other major airport projects such as McCarran International Airport Terminal 3 in Las Vegas, the International Terminal at San Francisco as well as other terminals in San Francisco and of course the Bradley Terminal in Los Angeles. In addition to the Newark Terminal One project, we also announced earlier the WDF was the low bidder on $172 million project of the Baruch Houses complex in New York City. We anticipate these awards will be included on first quarter backlog. Along these new awards, we’ll add 1.6 billion to our backlog and as a result our first quarter backlog will likely approach, if not exceed, our all-time backlog record of 8.3 billion. There has been no slowdown in our level of bidding activity as the remarkable volume of project opportunities continues. Currently, we are focused on bidding several large civil works, including the next phase of the Purple Line subway extension in Los Angeles which is very similar to the last award we received other than they broke it up between the tunnels and stations bidding separately. The two of those aggregate over 1.8 billion with the tunnels bidding in March and the stations bidding in May. We are also rebidding the Minneapolis light rail transit project worth approximately 900 million with a current bid date of May 8. Other civil projects we have been following that appear to be bidding in early part of this year would be the $950 million Swing Bridge replacement in New Jersey and the $750 million Harry Nice Bridge replacement in Maryland. Now I will discuss certain significant projects that we are executing work on during the fourth quarter specifically. In California, the Civil group continues to make good progress on the San Francisco MTA Central Subway project with the completion date appearing to be mid-2019. We continue to make progress on the California High-Speed Rail Project with a projected completion date in the first quarter of 2020 as well as the start-up of Los Angeles MTA Purple Line 2 extension. In New York, the civil work progressed substantial work on several lease side access projects, particularly for the New York City MTA including contracts CMO7, CS179 and CQ33. Certain other civil projects are nearing completion, including the SR99 project in Seattle which should open the tunnel traffic in the fourth quarter. The Building segments work in the fourth quarter included various large projects, primarily in California as well as in Pennsylvania and Maryland. The largest revenue contributor for the group in the fourth quarter as well as the full year 2017 was the large technology office project in Northern California that is completing in the next few months. Other revenue contributors included the Pechanga Resort and Casino expansion in Southern California and the Maryland Live! Casino expansion, both of which are nearing completion as well as the El Camino Hospital medical office building and the Washington Hospital in Northern California and the W Hotel in Philadelphia. In addition, work on the new $500 million technology office campus project in Northern California is ramping up with half of the project’s funding already in backlog and the remainder coming over the balance of the year. Finally, our Gulf Coast subsidiary Roy Anderson Corp. is working on several disaster response contracts including Texas where Hurricane Harvey emergency repair work is continuing and also in Louisiana. In our Specialty Contractors segment, major contributors in the fourth quarter include Fisk Electrical work on the Transbay Transit Center in San Francisco and on the SR99 project in Seattle as well as Five Star Electric’s work on the CS179 and CMO7 east side access projects as well as the Cortlandt Street Station for the New York City MTA. As I mentioned earlier, we concluded 2017 with a total backlog of 7.3 billion, up 17% compared to the prior year. Our backlog composition at the end of the fourth quarter was 57% Civil, 23% Building and 20% Specialty. Next, I will provide some details regarding new awards by segment that drove our backlog growth followed by bidding opportunities for both the Building and Specialty Contractors group. The Civil segment’s new awards and adjustments totaled 240 million in the fourth quarter with $3 billion for the year resulting in the strong year-end backlog of 4.1 billion. The most significant Civil segment award in the fourth quarter was the $189 million Canton Viaduct Replacement Bridge in Maryland. The Building segment’s new awards and adjustments were 561 million in the fourth quarter and 1.7 billion for the year resulting in a year-end backlog of 1.7 billion. The segment booked a significant volume in the fourth quarter, mostly for projects in California, including 254 million for two healthcare facilities, 200 million of additional funding for the new technology campus project, 53 million for another technology building and two hotel projects valued at 50 million and 52 million. The Specialty Contractors segment booked new awards and adjustments totaling 174 million in the fourth quarter and 1.1 billion for the year resulting in a year-end backlog of 1.5 billion. The segment’s largest new award in the fourth quarter was the Five Star Electric $45 million subcontract for electrical work of a New York City MTA’s new fare payment system which will be installed in hundreds of subway stations through 2020. In addition, in the first quarter, as a result of our award of the Newark Terminal One, Five Star Electric and WDF mechanical will receive 350 million of electrical and mechanical awards in the first quarter of 2018. We believe that the prevalence of public-private partnerships in the U.S. will continue to grow in the coming years regardless of if or when the federal government passes an infrastructure plan. With our design-build capabilities, our ability to execute large fixed priced projects on time and budget and our vertical integration giving us the capacity to self-perform significant portions of the work, we are uniquely qualified to participate in these opportunities. For these reasons, we have been positioning ourselves to play a major role in certain significant domestic P3s that we are tracking. In ending, based on our current backlog which includes the new recent awards in 2018, we are introducing our 2018 guidance. We expect diluted earnings per share will be on the range of $1.90 to $2.30. With that, I will turn the call over to Gary to present the details of our financial results.

Thank you, Ron. Good afternoon, everyone. I will start by discussing our results for the year after which I will review the fourth quarter. I will then provide some comments on our balance sheet, cash flow and our 2018 guidance assumptions. Revenue for 2017 was $4.8 billion, down slightly compared to last year mainly due to reduced volume on various Civil and Building segment projects that are nearing completion. Newer projects that are earlier in the project lifecycle and are not yet generating the larger volume of revenue expected that they will later and certain delays in the timing of new awards and project execution activities for previously awarded projects. The Civil segment’s revenue was $1.6 billion and the Building segment’s revenue was $1.9 billion, both also down modestly compared to last year for the same reasons I just mentioned. The Specialty Contractors segment revenue was 1.2 billion, virtually leveled compared to the prior year. Gross margin for 2017 was 9.6%, the highest annual gross margin percentage since 2014. G&A for the year was $275 million, up 8% compared to 2016. The increase was due to increased compensation expense attributable to the hiring and retention of certain key executives in anticipation of a substantially larger volume of work ahead of us. Our income from construction operations was $179 million, down 11% compared to 2016 due to net unfavorable adjustments primarily related to certain mechanical projects in New York and California and the Specialty Contractor segment, none of which were individually material as well as the revenue and G&A factors I previously mentioned. The decrease was partially offset by work performed on certain higher margin Civil and Building projects. Despite the slight revenue reduction, Civil segment income from construction operations was $192 million, up 11% compared to 2016. The segment’s operating margin was 12% in 2017 which was at the upper end of expectations and compared to 10.3% in 2016. The strong income from construction operations and improved operating margin in 2017 are both principally due to increased project execution activities on certain higher margin projects in California and New York. Building segment income from construction operations was $34 million, down substantially compared to 2016 primarily due to favorable closeout activities that were booked in 2016 on two projects in New York and also the lower revenue in 2017 that I mentioned earlier. The decrease in income from construction operations was partially offset by improved performance on a large technology project in California that is nearing completion. Building segment operating margin was 1.8% in 2017 within the normal range expected for the segment. Specialty Contractors segment income from construction operations was $19 million, down significantly compared to 2016 due to the net unfavorable adjustments on mechanical projects that I mentioned earlier. Consequently, the segment’s operating margin fell to 1.6% in 2017 compared to 3.1% back in 2016. Other income for the year was $44 million compared to $7 million in 2016. Other income in 2017 included a gain on a $37 million legal settlement back in the second quarter. Interest expense for the year was $69 million compared to $60 million in the prior year. Nearly all of the increase was non-cash and was primarily due to a loss on debt extinguishment related to the refinancing of our credit facility in 2017, as well as increased amortization associated with convertible notes that we issued in 2016. Our effective tax rate for 2017 was very favorably impacted by the Tax Cuts and Jobs Act of 2017 which was enacted this past December and as you know reduces the federal statutory rate from 35% to 21%. Even though the lower corporate tax rate will not reduce our tax obligation on current period earnings until 2018, we are required to re-measure our net deferred tax assets and net deferred tax liabilities at the end of 2017. Since we are in a net deferred tax liability position, this was the primary reason that the new lower federal statutory rate resulted in us recording a $53.3 million tax benefit in the fourth quarter of 2017. We estimate that approximately $40 million of the $53 million deferred tax benefit will turn over the next one to five years, which means the company will end up paying about $40 million less in income taxes than we otherwise would have during this period had it not been for the new tax bill. This cash tax savings is on top of the tax savings that we will have from the lower effective tax rate in future years as a result of the new tax bill. To recap taxes, we had a full year tax benefit of approximately $500,000 in 2017 and our effective tax rate was a negative 0.4% for the year. Net income attributable to Tutor Perini for 2017 was $148 million, up 55% compared to 2016, largely attributable for the tax benefit. Our 2017 diluted earnings per share was $2.92 compared to $1.92 a year ago. Excluding the $1.05 diluted EPS impact from the tax benefit, we were still at the upper end of the range revised EPS guidance that we provided last quarter. Now for the fourth quarter results. Revenue for the quarter was $1.2 billion, down slightly compared to the fourth quarter of 2016. Civil segment revenue was 429 million, up a little compared to the prior year fourth quarter. Building segment revenue was $458 million, down 15% compared to the same quarter last year predominately due to reduced activity on various building projects, particularly in California and Florida that are completed or nearing completion. Specialty Contractor segment revenue was $306 million, leveled with the fourth quarter of 2016. Consolidated gross margin for the fourth quarter was 10.9%, the highest quarterly gross margin we have had since the third quarter of 2014 reflecting contributions from certain newer higher margin civil projects that are underway and ramping up. Our fourth quarter G&A was $71 million, up 9% compared to the prior year fourth quarter. As mentioned earlier, the increased G&A expense was due to higher compensation expense related to the hiring and retention of certain key executives as we position ourselves for the growth that we foresee. Fourth quarter operating income was $59 million compared to $52 million for the same quarter in 2016, which resulted in consolidated operating margin of 5% for the quarter compared to 4.2% for the fourth quarter of 2016. Both fourth quarter other income and interest expense were comparable to the fourth quarter of the prior year at $2 million and $60 million, respectively. Non-cash interest expense was about $3 million of the $60 million of total interest expense. Net income attributable to Tutor Perini for the fourth quarter was $81 million compared to $30 million for the fourth quarter of 2016 with the increase largely due to the previously mentioned tax benefit from tax reform. Our fourth quarter diluted EPS was $1.60 including the $1.05 with tax benefit compared to diluted EPS of $0.60 a year ago. Let’s shift gears now and talk about our balance sheet and our operating cash. Our project working capital grew modestly in 2017 primarily due to increases in our accounts receivable and cost in excess of billings or our unbilled costs. These increases were largely offset by a significant increase in our billings in excess of costs. In fact, the growth of our billings in excess of cost outpace the growth of our unbilled costs resulting in a net overall improvement in our net unbilled costs. While this is a positive, we remain dedicated to significant reduce our unbilled costs. Based on how negotiations are developing and expect it to further progress, we anticipate more progress in resolving and reducing certain of our larger unbilled cost issues in 2018 and beyond. The uptick that we saw in our unbilled costs in 2017 was due to increases for certain projects that have some of the larger unbilled positions as these projects incurred additional costs and moved closer towards completion. With these projects now nearing completion, they will not generate the increase of the unbilled balance by incurring more costs and we should be able to make even greater strides towards their resolution. Cash flow from operations was $164 million in 2017, a record high for Tutor Perini as Ron mentioned and significantly higher than the respectable $130 million that we generated in 2016. The record operating cash generated in '17 was due to continued improvements in the company’s billing and collection cycle as a result of management’s intense focus on working capital management. For example, a retention receivable is reduced by approximately $40 million in the fourth quarter which helped drive our strong cash generation. Operating cash flow has now exceeded net income for the second consecutive year and we expect this will be the case again in 2018 as we remain highly focused on reducing our unbilled costs and collecting the cash that’s owed to us. Our total debt as of December 31, 2017 was $736 million compared to $760 million at the end of 2016. Because of our substantial operating cash generation in the fourth quarter, we paid down the outstanding balance of our credit facility in December and concluded the year with a zero balance on the revolver. Although we expect to be in and out of the revolver during 2018 depending on the timing of collections and disbursements, the payoff of the revolver balance this past December illustrates the impact that our cash generation efforts are having and certainly a large step in the right direction for us. Our leverage ratio for the fourth quarter of 2017 calculated over a trailing 12-month period was 2.45, well below the requirements of our bank covenants that required us to be under 4.0 for the period ending December 31, 2017. Finally, let me speak for a moment about some of the assumptions in our 2018 guidance. We are expecting appreciable revenue growth in our Civil and Building segments and expect revenue consistent with 2017 for the Specialty Contractor segment. You may have noted we are no longer guiding specifically on revenue assumptions other than these for 2018, so we are not providing revenue guidance. The Civil segment’s operating margin should be in the 10% to 12% range that we have indicated in the past and the Building segment operating margin should be in the 1.5% to 2% range, also as previously discussed. For the Specialty Contractor segment, our expectation is that their operating margin will be at the lower end of the 5% to 7% range that we normally anticipate from them. As Ron noted previously, our EPS guidance in 2018 is $1.90 to $2.30. We expect that our results be significantly weighted toward the second half of 2018 due to the typical seasonality we face with a lighter first quarter than last year not only due to the seasonality but also due to the timing of projects that have been completed or are nearing completion and also those that are just now ramping up. Keep in mind that our 2018 guidance projects earnings growth for each of the three segments as I had discussed but also have to backfill $0.43 for EPS in 2017 related to the $37 million legal settlement that I mentioned. We anticipate that our effective tax rate for 2018 will be in the range of 29% to 30%. This considers the reduction in the federal corporate rate from 35% to 21% but also the loss of deductibility in certain areas under the new tax law. We are also assuming approximately 51 million diluted shares outstanding, interest expense of $57 million. Of this amount, $12 million will be non-cash. Capital expenditures of $50 million and depreciation and amortization expense of $45 million. We expect that our G&A will increase modestly in 2018 on a dollar basis as a result of the growth we are anticipating. However, the G&A will be lower in 2018 on a margin basis when compared to 2017. We also anticipate that non-controlling interest will increase in 2018 to approximately $15 million to $20 million. As we noted previously, our operating cash flow in 2018 is expected to exceed net income as the last two years and it will also benefit from a lower tax rate as a result of tax reform. Deleveraging, in other words debt reduction, remains a top priority in terms of capital allocation. We plan to utilize as much of operating cash we generate in 2018 as possible for this purpose also providing for any additional project working capital needed for growth. With that, Ron, I’ll turn the call back over to you.

Thanks, Gary. Following a solid year of significant new awards, the excellent cash generation referred to and particularly good performance again from our Civil segment and with the strong first quarter start of new awards, I’m confident 2018 will be an even better year operationally than 2017 both in terms of growth and improved profitability. But more importantly, as we’ve discussed time and again, the collection of our unbilled receivables will focus on 2018 and 2019 when they all come to fruition. As scheduled litigations approach wherein in our experience most are settled without the benefit of trial, we believe that a significant level of our unbills will be resolved before 2019 concludes and the key is for us to settle and close and not replace them with new ones. We have worked towards that end. We believe this last year has been relatively successful with a very significant level of large issues coming to a conclusion this year with certain to follow in '19. With that, I’ll turn the call over to the operator for questions and answers. Thank you.

At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question is with Alex Rygiel with B. Riley FBR. Please proceed with your question.

Thanks. Nice quarter, gentlemen.

Thank you.

Thanks, Alex.

Ron and Gary, a couple of quick questions, first on the numbers. Thanks for the additional guidance that you gave at the end of the conference call there. I haven’t been able to have the chance to flush it through my model. But taking kind of the 50,000 foot view, your revenue guidance feels a little conservative relative to where the very strong backlog happens to be and the new awards that are getting added in the first quarter. And your EPS assumption or guidance seems to be a little conservative also. Can you kind of address those two items?

Well, let me remind you that we are also looking for significant resolves of unbilled receivables and if we’ve been conservative, it’s because a significant portion of our open issues with our lovely owners come to fruition this year and we’re trying to put forth estimates that encompass everything including the collection of many – hundreds of millions of dollars that are due us, a significant part of which come to the forefront in 2018. So it may appear conservative but we’re trying to be both conservative and realistic. I’ve been chided in the past for being too aggressive and then having circumstances reduce our projections. So we’re trying to be cognizant of that and more respectful of what our projections are with a degree of more certainty that we hit them.

Alex, if I could just add. We don’t think we’re being too conservative for the reasons that Ron stated. There’s also in the backlog, there are projects that – the ramping up of the projects, we’re trying to be realistic in what’s that going to generate for '18.

And Ron, through the years you’ve commented on the competitive landscape and we’ve seen a number of foreign entities sort of come in and out through different time periods. Could you comment on the status of those foreign entities bidding on work and winning work and what the pricing environment looks like today?

At the risk of any of them listening, I’m convinced beyond any doubt that none of them are capable of executing any of these major contracts which is evidenced by their performance and that they’re becoming less and less competitive with the exception of one Spanish company that is always as aggressive as can be. One of the indicators you just might look at was the fact we were the only bidder on a $1.4 billion Terminal One at Newark wherein Skanska was prequalified and a joint venture of Turner Lend Lease was prequalified. And out of the prequalified three bidders we were the only one that turned in and we were still awarded the project. I think that and the fact that in none of our project over $1 billion was there ever more than three bidders and as often as not only two bidders. That’s a very positive competitive landscape.

Very helpful. Thank you. Good luck in '18.

Thanks, Alex.

Thanks.

Our next question is with Steven Fisher with UBS. Please proceed with your question.

Thanks. Good afternoon. I’m wondering if you could talk about the timing of some of the unapproved change orders and claim activity that you expect to be resolved in 2018, is some of that litigation scheduled for the first half of the year or is that more back half of the year if you could just talk a little bit about that timing --?

Steven, it’s between June and November. I’d say we got five major cases that are due to try or mediate or mediate and/or try between June and November.

Okay, that’s helpful. And I guess if they were to be resolved by a settlement, we would know that some of them sometimes before June it seems like?

As soon as we settle anything of consequence that has a material impact, we’ll announce.

Okay. And then a couple of margin questions. I wanted to understand some of the puts and takes that you have in your Civil margin expectations year-over-year '18 versus '17 and were there any particular benefits you had in '17 that won’t repeat in '18 or vice versa? And how do you think the mix of work is going to change in Civil in '18 versus '17?

The very large Civil contract in the 700 million, 800 million and above and particularly those that exceed 1 billion always have significantly higher margins than the 100s, 200s and 300s. So given the projects that we currently have that have our highest level of margin, it should be consistent through '18 and we think that the Terminal One at Newark will contribute to that higher level of margin. And it interestingly enough starts on April 1st and literally ramps up in 30 days and goes full-bore on an accelerated basis.

And, Steve, further to your question, there’s nothing in 2017 which propped up margins. There weren’t any large early completion bonuses or any other things that went positively in our favor that distorted the margins in a positive way.

If anything, the abysmal performance of our two mechanical subsidiaries which should not repeat itself in '18 brought '17 down considerably.

Well, I was going to ask about that next. Obviously that was disappointing and so how can we be comfortable that the Specialty segment is now kind of running in normalized margins and then how quickly will that kind of ramp up back to that I guess 5% range that you guided to for the year?

Both of our electrical subsidiaries did well in '17 and our poised to do better in '18. Our real debacle was in both our mechanical subsidiaries West and East Coast. The performance was abysmal as we continued to flush-out bad jobs in New York. The people that were responsible have long since been terminated. I believe we’re at the end of the bad write-downs in both New York and in California mechanically, but I still continue to wait through the closeouts. As I said, we try to collect our unbilled receivables in the next couple of years. I think last year is just very disappointing and we look for both to turn around more importantly New York than California. California is still slow. It’s never been a major profit contributor but it has never been one to post such losses. So we believe we took the hit on the West Coast in '17 and it should not occur in '18. And as far as WDF in New York, I believe they’ve turned the corner and should have a very good year in '18.

Okay. And then just lastly coming back to the guidance on the EPS basis, if you could just sort of frame what’s in the low end and what’s in the high end? And then I know you answered partly with Alex, but what might cause you to be above the range, if anything?

Successful settlements of many of these unbilled receivables where we think we have a conservative number. However, I’m determined to close them out and collect the money. There’s hundreds of millions of dollars involved. And in some cases, I’d take less than we might be entitled to although that mindset is beginning to diminish as we begin to wear these down. That’s really the only thing in my mind other than the usual day-to-day that has the potential for any impact. Conversely, it could go the other way but I am determined to project that which is conservative. And if we see we’re doing better by midyear, I’ll re-project.

Terrific. Thank you.

Our next question is with Brent Thielman with D.A. Davidson. Please proceed with your question.

Hi. Thanks. Nice finish to the year.

Thanks.

Ron on the High-Speed Rail job in California, any update there? And does that start ramping up after the first quarter? I think you were waiting for some write-away issues to get resolved?

Well, it is ramping up, however, bless their soul they continue to have write-away issues. We’re finally getting major pieces of the job turned over to us in the next 60 to 90 days. I’m not certain that the write-away issues won’t extend until September or October, but we’re probably 60 to 90 days to having all the impacts behind us. And we’re literally covering the entire job like a tent with work going ahead. And as I think I said earlier I’m projecting a completion in the first quarter of 2020.

Got it, okay. And then another contractor out there talked about some of the SP1 money starting to flow through to start the year. Are you seeing any benefit yet to bookings or as you look at the pipeline out there from that money, does it look pretty good this year for you guys?

No, because we’re not a big follower of California highway work unless it’s significant. So we really haven’t seen anything that interested us. We always liked Caltrans on an owner but we very seldom look at any Caltrans or highway work until it gets up into the $200 million to $300 million range. So we haven’t seen anything in this significant contract size.

But at the same time with $52 billion, there will be some coming our way, just not yet.

Okay. And then maybe more just a technical question. The Newark Airport Terminal seems sort of across the Civil and Building services. Does that show up in the Civil backlog in the first quarter?

We’re going to share it – I made a decision to give half to Civil and half to building because in fact a significant part of it is apron paving and two bridges. So the Civil has the component. They have the relationship and it’s a very good one with the Port Authority of New York. So although it will be managed by our building group, the Civil work will be performed by our Civil group; the electrical and mechanical by our Specialty group. So it’s kind of a composite effort of everybody. But it will be shared 50-50. And the margin will tend more towards the Civil group margins, however, than the, shall we say, minuscule Building margins.

Okay. Thank you.

Our next question is with Sean Eastman with KeyBanc Capital Markets. Please proceed with your question.

Hi, gentlemen. Congratulations on both the bookings and the cash flow in 2017, very impressive. I just wanted to start on the 2018 guidance. Just given the way you guys were talking on the last call about sort of changing your financial planning processes around setting expectations, I’m hoping maybe there is some specifics you could talk to in terms of how the expectation setting process has changed versus how it was approached in the past?

Well, we are not only looking at all the projections based on the backlog and new awards and the usual build up that goes into every set of projections but we’re trying to look in the past and see where we’ve been surprised by happenstance that’s occurred, shall we say, out of left field. We’ve got a significant number of litigations that are coming due if not litigation settlements. So we’ve tried to make more conservative judgments. Really what – as I told everyone earlier, I’ve received input and I believe I’ve seen the like that it isn’t enough to just compile what we should make but that there has to be some review of potential issues that could come up. And when we think they’re possible, we got to allow for them. So we try to consistently meet or beat margins and not put ourselves in a position where we have a very good year but one or two happenstances derails our earnings.

All right. That’s a good answer. And then, I’m looking at the backlog. It’s obviously up notably. We’ve got some really, really big projects starting to flow through this year. I’m just wondering, Ron, what worries you the most and how do you feel about the execution risk and backlogs here and if there’s any historical context you could provide or just any color would be helpful?

The Building business is pretty much very low risk as its very low reward. I’ll save Civil for last. The Specialty group, we’ve had a lot of issues. I’m convinced the electrical portions are behind us and their earnings were good in 2017. I expect they’ll be better in '18. Obviously I had significant struggles in the mechanical groups. I believe we will continue to struggle in the West Coast until we build that group up. However, I believe WDF in the East Coast has turned the corner. But our Civil group has always had without tooting our own horn extraordinary performance. We just have a history in the last 20 years or just consistently making money. And although we’ve had our share of disputes as all Civil contractors have, we’ve never lost a dispute in the Civil business. And as a result we’ve truly been able to average all jobs in the 10% to 12% and I think over that 20-year period, it was closer to 13%. So long as we continue to maintain the position, then on all this new work it has to be managed with key people that are Tutor Perini veterans and that are known commodities to us, we’ll be just fine. The one area that will always be a struggle as we continue to grow will be to review the talent that we have and be sure we don’t overreach the quality of our management. That’s when you find yourself in a position that some of our foreign peers find themselves where they lose hundreds of millions of dollars because the people they have simply aren’t capable of building the jobs they get. And that just can’t happen to us and that’s my biggest guard has to be that our people don’t overreach our physical capacity. We’re not there yet but I think I said last year that where we are right now with the numbers of very large projects, we probably have the capacity for two or three more of those $1 billion plus jobs. But at some point we could run out of gas. We’re not there yet but it wouldn’t shock me if sometime in 2018 that could happen.

That’s helpful. And last one for me, Ron, is what are you hearing in Washington on the prospect of this infrastructure bill? What are your thoughts on the viability around this push towards state-level funding? And I’m just curious what the underlying growth rate in TPC’s addressable civil market is in infrastructure as it stands today without the infrastructure stimulus?

Well, the two large LA metro jobs as we discussed last year, the sales tax increase in Southern California greatly amped up the amount of revenue available to extend the LA subway system now looking at this evolve in a [ph] tunnel. So from my perspective, certainly with the non-federal input we can sustain our present level. What’s disappointing to me is, is that between the Republicans and the Democrats, they talked about $1 billion for infrastructure. But when it came down to it, they talked about how $200 million of federal funds will somewhat parley itself into $1 billion worth of work. Well, in my experience that’s just not accurate. Usually federal funding accounts for 50% to 70% of all these big highway infrastructure projects, not 20%. Now if they somehow can creatively turn that into P3 work, but the idea that the feds put up 20% in the states and local government puts up 80 is a new one on me. So I’m not very pleased with it. However, having said that, it’s still $200 million in funding over the period which is a larger infrastructure capital expenditure than ever in the history of our government. So if you figure out Washington, I can’t.

That’s helpful. I didn’t expect anything different from that. Thanks so much for your time.

Not at all.

[Operator Instructions]. Our next question is with Bobby Burleson with Canaccord. Please proceed with your question.

Hi, guys. Congratulations on the strong backlog.

Thanks.

Just curious on the non-controlling interest line. What kind of placeholder in terms of how we should think about that growing beyond 2018? It seems like we’re getting more JV work, more types of jobs that will continue to increase that NCI?

Bobby, it’s difficult to project beyond 2018. As I mentioned for 2018, we’re growing up to 15 million to 20 million. That’s from a little over 6 million in 2017. I think there will be growth. It kind of depends on what Ron was saying before with respect to if we get two, three or so more of the large $1 billion projects, those are likely to be projects that would be on a joint venture basis. We typically position ourselves to lead those joint ventures and in the circumstances that then follow that with the accounting rules, there is a greater chance of consolidating those. But you still have access every one of those as they come up, so there’s no guarantee even as the lead JV partner that you consolidate. But I would – to your question I would think that as we grow, I think that 15 million to 20 million estimate would also grow and we can look at that as we get further into '18 and see some of these prospects that are on the horizon whether they manifest themselves into new awards, then we’ll have a better idea. But the 15 to 20 is likely, but I just can’t predict what that would be at this point.

Okay, great. Thanks. And then, Ron, you were talking about being close to capacity at some point here on Civil with a few more large awards and I’m wondering are you guys holding out for really good pricing there before you commit to anything? What’s kind of happening with the pricing for Civil as you bid on work?

I think there’s two types of Civil work we’re bidding. On the West Coast we have a different approach in that we only bid the very large projects. We have three current projects in California; San Francisco Transit Authority project which is 850 million. We have the High-Speed Rail which is closing in on $1.5 billion. And we have the Los Angeles subway at $1.4 billion. Those are what we call high margin positive work. Then when we go to New York, Baltimore, Florida, those are large Civil centers where we do highway work and we do 100 million, 200 million, 300 million. The types of day-to-day work that we just stay away from out West because of the competitive nature, those margins are significantly less but in many ways are training ground for our engineers to graduate to what we call the big work. So I think you could look at our record backlog and begin to project that we could add to it significantly. But if I had to hazard a guess, as I said earlier, I think if we took on two more $1 billion plus jobs we would really have a hard time in conscious, as the lead and managing partner take on any more this year until they were well underway and shall we say organized and working.

Okay, great. And then just one last quick one on commentary on Specialty margins at the low end of that range of kind of 5% to 7% this year. Just wondering what is determining that and whether or not you expect it to kind of snapback to maybe the midpoint or higher in the future?

I think both our electrical subsidiaries are doing well. And other than resolving some old billings and changes, they are all going in the right direction. We are struggling mechanically. We had a God awful year in 2017 in both of our mechanical subsidiaries. One appears to be turning the corner, the other is trying. So that’s going to continue to be a struggle and it has weighted down that Specialty average. And candidly that Specialty group to satisfy me needs to get it closer to 7% pre-tax because they should be making 12% at the job level and their G&A should be no more than 5 given their revenue streams. And the real number should be between 6 and 7, not 3 and 5. But such is the struggle with that Specialty group and it continues. But in their one defense they’ve been a major contributor to our competitive advantages in both Civil and Building by being able to support us with competitive quotes in the marketplace where there’s very little competition. I don’t think we could be achieving what we are in either the Civil or Building group without the support of that mechanical and electrical group and a classic example was the Newark Airport where the electrical bids that we received, our subsidiary was the most competitive, our mechanical the most competitive, our piles the most competitive. So our ability to have these operating Specialty Contractors significantly enhanced our competitiveness. They have their pluses and minuses.

Thanks.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to conclude the call. Thank you and have a great day.

Thanks, everybody. See you next quarter.