Tutor Perini Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 9 speakers on the call.

Operator

day, ladies and gentlemen, welcome to the Tudor Perini Corporation Third Quarter 2024 Earnings Conference Call. My name is Matt, and I'll be your coordinator for today. All participants are currently in a listen only mode. Following management's prepared remarks, we'll be opening the call for a question and answer session. As a reminder, this conference call is being recorded for replay

Speaker 1

purposes. I'd now like to

Operator

turn the conference over to your host, Mr. Jorge Casado, Vice President of Investor Relations. Thank you. You may begin.

Speaker 2

Chairman and CEO Gary Smalley, President and Ryan Soroka, Senior 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 our disclosures about risk factors that could potentially contribute to such differences in our Form 10 ks, which we filed on February 28, 2024, and in our Form 10 Q that 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.

Speaker 2

Thank you. And with that, I will turn the call over to Ronald Tutor.

Speaker 3

Thank you, Jorge. Good day and thank you all for joining us. As you can tell from our earnings release today, we delivered mixed results for the Q3 of 2024, highlighted by amazing Cash flow for the Q4 is expected to be outstanding, should allow us easily to break last year's record and enable us to prepay certain debt. Our backlog soared to $14,000,000,000 up 35% compared to the prior quarter, setting a new record since the 2008 merger of Tudor, Saliba and Pareen and substantially above our previous record of 11,600,000,000 dollars The strong backlog growth was driven by the awards of several new projects during the quarter, namely the $1,660,000,000 City Center Guideway and Stations project in Honolulu, the $1,100,000,000 Kensigo Eastview Connection Tunnel in New York for Frontier Kemper and a major health care campus project in California worth over $1,000,000,000 for Rudolph and Sleden. Our new awards continue to be strong in the Q4 as we recently won and announced the $331,000,000 Apra Harbor Waterfront Repairs Project in Guam, which will be managed by our subsidiary Black Construction.

Speaker 3

The contract includes 9 options for additional anticipated scope items that if exercised could add another $230,000,000 of backlog. We are confident they will all be exercised. In addition, this morning we announced that our joint venture with O and G Industries in which we are the managing partner has been identified as the apparent selected proposer for the multibillion dollar Manhattan Jail in New York. And we are entering into contract discussions with the expectation that we'd be awarded that design build contract after those discussions have concluded in the short term. By the end of this year, the company's total backlog could reflect additional significant growth as we are also expecting owners decisions and potential awards this quarter for other large projects ensuing the $1,500,000,000 air train that we recently bid and the 5 $50,000,000 Raritan River Bridge replacement that is bidding tomorrow.

Speaker 3

Other projects we are bidding in the months of November, December January are the $750,000,000 Manhattan Tunnel in New York on November 22 and the $2,200,000,000 mid down bus terminal replacement in New York in February of 2025. In addition, Rudolph and Sletten has various current healthcare and education projects underway that are in the pre construction phase with only a modest amount of our current backlog represented by those projects. Over the next 2 years, these projects are expected to advance into the construction phase and anticipate that we will book significant additional backlog. As we've discussed in the past, most of our newer existing and prospective civil projects are higher margin, longer duration projects with improved contractual terms compared to other projects booked several years ago. This is a result of renegotiations of traditional terms into terms far more favorable and reasonable for the general contractor, so our contracts are no longer one-sided but equally fair.

Speaker 3

This provides us with excellent visibility and confidence in our outlook for strong revenue growth and continued earnings performance in the years ahead. Assuming we are successful in continuing to increase our backlog over the next few months, depending on the projects in what part of the country, we may decide to take a short term hiatus from bidding for some of the larger pursuits depending on the markets. That period of time might be up to a year, but at that point with a record backlog at such a level as to sustain us for the next 5 years, we will probably stop bidding or at least reduce that commitment. However, as we look ahead over the next year to 2, some of the more prospects include and are of interest, the $3,800,000,000 Southeast Gateway line, a transit project in Southern California bidding within the next 18 months. That will be a perfect tie into the completion of the $2,500,000,000 Purple Line projects we're currently in a completion phase with L.

Speaker 3

A. Metro. So that might tie in dramatically to work we're completing. Secondarily, the $1,800,000,000 South Jersey Light Rail in New Jersey, which will be proposed the end of next year or mid year 2026. Those are the only projects of substance we are reviewing and keeping a finger on over the next year to 18 months.

Speaker 3

As we announced a few weeks ago, we made substantial progress during the Q3 of 'twenty four in resolving various matters including 7 of our largest outstanding disputed balances with 4 of the 7 having favorable outcomes for Tuder Pareen. A couple of these resolved, 2 to be exact resulted in very well, maybe 3, very unexpected and inexplicable legal decisions, which we strongly disagree with and are appealing. Overall, the recent resolutions negatively impacted our 3rd quarter income by approximately $152,000,000 and EPS by 2.13 dollars In appeal, we hope to reverse much of this negative impact, but that will be determined over time. A positive is that we expect to collect over the next 30 days to 60 days $180,000,000 associated with these resolved, much of which we will collect in the 4th quarter. We anticipate that we will continue making substantial progress in resolving the remainder of our disputed matters.

Speaker 3

Compared to the dozens of such disputed matters that we had a few years ago that backed up during COVID. Because of the substantial progress we have made over the last 2 to 3 years, we are now essentially down to a dozen or so matters of any significance. We expect to resolve these remaining legacy disputes and continue to collect substantial amounts of cash over the next 12 to 18 months, which combined with cash generated from normal operations should drive significant cash flow in 2025 and 2026. Year to date through the end of the third quarter, our operating cash was $174,000,000 As we mentioned in our recent announcement, we expect tremendous 4th quarter operating cash flow in the range of a minimum of $250,000,000 dollars up to $400,000,000 much higher than we were anticipating on our last call. As a result, our full year 2024 operating cash flow is now expected to be $425,000,000 to $575,000,000 with even the low end of this range far exceeding our prior annual operating cash flow record of $308,000,000 set last year.

Speaker 3

This would represent the 3rd consecutive year that the company has generated record operating cash flow. Note that any shortfall in achieving the estimated $575,000,000 of operating cash at the upper end of the 2024 full year range is expected to be collected in the Q1 of 'twenty five. Based on the adverse charges to earnings in the 3rd quarter for the resolution of disputes that I mentioned earlier, we have withdrawn our EPS guidance for $2.24 for 2024 however, still expect to initiate 2025 guidance in February when report our full year results. We very much look forward to a significant return to profitability in 2025 and our confidence has increased around our expectations for significant increases in revenue and earnings growth in 'twenty six and beyond as these projects grow into fruition and operation. Thank you.

Speaker 3

And with that, I turn the call over to Gary. Thanks, Ron.

Speaker 4

We see truly exciting times ahead with a future brighter than ever before as we continue to put a significant number of disputed legacy items behind us and utilize another record year of cash generation to further deleverage our balance sheet, which has been a key capital allocation objective. We are pleased that the collection of large amounts of cash that we have foreseen and talked about for some time now is finally upon us. As we announced in October, from these cash collections, we plan to prepay $100,000,000 to $250,000,000 of our term loan B debt in the 4th quarter with further prepayments of $50,000,000 to $75,000,000 expected in the Q1 of 2025. So in total, you can expect our term loan to be paid down between $150,000,000 $225,000,000 in the next few months. Of this total expected payoff of the term loan, I should note that we have already paid down $50,000,000 of the balance since our announcement on October, so we are well on track to do what we said we would do.

Speaker 4

Of course, the reduced debt level should result in a significant decrease in interest expense. With interest rates unpredictable but expected to come down more, it is hard to predict the precise impact, but using current rates, we estimate that we will have annual interest expense savings beginning in 2025 of between $15,000,000 $22,000,000 which translates to additional EPS of between $0.21 $0.32 With unprecedented cash flow and a record and growing backlog built on new awards with better margins and contractual terms, this is the dawn of a new era for true to parent. The expected abundance of cash should give us the ability to continue to significantly pay down our debt and our very strong backlog provides excellent visibility as to what we expect will be a profitable multiyear revenue stream. Thank you. And with that, I will turn the call over to Ryan to review the financial results.

Speaker 5

Thank you, Gary.

Speaker 6

Good afternoon, everyone. As Ron and Gary mentioned, our operating cash is certainly one of the major highlights of our year to date results and those anticipated for the full year of 2024. We expect strong cash flows in 20252026 that will continue to be enhanced by the anticipated resolutions of disputes. As Gary mentioned, we've already paid down $50,000,000 of our term loan B in the Q4 and plan to further deleverage our balance sheet significantly in the near term by using any excess cash for debt reduction. We're delivering on our promise to improve our balance sheet and capital allocation.

Speaker 6

Now let's discuss our P and L results. Revenue for the Q3 of 2024 was $1,100,000,000 up slightly compared to the same quarter last year. The growth was primarily driven by increased activities on certain Building and Civil segment projects, including various health care and educational facility projects in California and the Brooklyn Jail project in New York, as well as Civil segment projects in California, the Northern Mariana Islands and British Columbia. Civil segment revenue for the Q3 of 2024 was $546,000,000 up 5% compared to the Q3 last year. Through the 1st 9 months of 2024, Civil segment revenue was up 10% compared to the same period in 2023.

Speaker 6

Building segment revenue for the Q3 of 2024 was $436,000,000 up 19% year over year, mostly driven by the increased activities I mentioned on healthcare and educational facility projects in California as well as on the Brooklyn Jail project in New York. Specialty Contractors segment revenue was $101,000,000 down substantially compared to the Q3 of last year, primarily due to reduced activities on various electrical and mechanical projects in New York and Florida, all of which are complete or nearing completion. As Ron mentioned, and the company previously announced in October, we recorded net charges that now total approximately $152,000,000 in the Q3 of 2024 related to the progress we made in various dispute resolutions for which we expect

Speaker 5

to collect

Speaker 6

$180,000,000 of cash mostly by the end of this year. Consequently, we reported a loss from construction operations of $107,000,000 for the Q3 of 2024 compared to a loss of $13,000,000 for the same quarter last year. Like last quarter, our 3rd quarter earnings were negatively impacted by $13,000,000 of higher unrealized stock based compensation expense compared to the same quarter last year. That was due to the impact of a significant increase in our stock price in 2024 with the recognition of certain long term incentive compensation awards. As a reminder of what we said last quarter, over the past few years, we've had to issue some incentive compensation awards as cash settled performance share units or CPSUs due to the combination of a somewhat depleted share pool and a very low stock price at the time of those awards because a low stock price causes dollar based equity awards to eat into the share pool at a faster clip.

Speaker 6

The use of CPSUs was really a short term solution to deal with a depleted share pool and a low stock price. Since these awards will be paid out in cash, they are accounted for as liability awards and therefore require quarterly remeasurement to fair value, with any changes in fair value reflected in earnings. We expect that future equity awards to management will be settled in stock, not cash as done previously. This will eventually eliminate the earnings volatility we have seen this year due to the large increase in shared based compensation expense compared to last year. The Civil, Building and Specialty Contractors segments reported a loss from construction operations for the Q3 of 2024 of $13,000,000 $4,000,000 $57,000,000 respectively.

Speaker 6

The Civil segment's 3rd quarter operating income was negatively impacted in particular by a previously announced unfavorable adjustment of $101,600,000 related to an unexpected adverse arbitration decision on a legacy dispute related to a bridge project in California, which the company will appeal. The Building segment's 3rd quarter operating income was adversely affected by an unfavorable adjustment of $20,000,000 for a settlement on a legacy dispute related to a government facility project in Florida, mostly offset by the increased activities I mentioned earlier. The Specialty Contractor segment's 3rd quarter operating income was negatively impacted by reduced volume as previously mentioned and several immaterial unfavorable adjustments that totaled $43,400,000 The financial impacts of the recent dispute resolutions unfortunately masked otherwise solid operational performance. In other words, had it not been for the significant charges we took in the Q3, both our revenue and operating income would have been significantly better than the reported results and consistent with what we had budgeted. Corporate G and A expense was $33,000,000 in the Q3 of 2024 compared to $21,000,000 for the same quarter last year.

Speaker 6

The increase was primarily due to the increase in long term incentive compensation expense that I just mentioned. Other income was $4,000,000 compared to $3,000,000 for the Q3 last year. Interest expense was $21,000,000 dollars this quarter compared to $20,000,000 for the same quarter last year. I think it's important to reiterate that our planned debt reductions in the Q4 of this year and Q1 of next year should result at current interest rates and a significant decrease in interest expense of between $15,000,000 $22,000,000 annually, translating to additional EPS of between $0.21 $0.32 Income tax benefit was $34,000,000 in the Q3 of 2024 with a corresponding effective tax rate of 27.5 percent compared to an income tax benefit of $4,000,000 with an effective tax rate of 13.7 percent for the same quarter last year. Remember that the net operating losses we generated recently are helping to reduce our cash outlays for income taxes this year and will continue to help in future years.

Speaker 6

Net loss attributable to Tutorferini for the Q3 of 2024 was 101,000,000 dollars or a loss of $1.92 per share compared to a net loss of $37,000,000 or a loss of $0.71 per share in the Q3 of 2023. As Ron indicated earlier, the recent resolutions negatively impacted our Q3 EPS by $2.13 Our 3rd quarter EPS was also negatively impacted by $0.23 due to elevated share based compensation expense I mentioned earlier. Now let me discuss the balance sheet. Our total debt as of September 30, 2024 was $681,000,000 down $218,000,000 or 24% compared to $900,000,000 as of December 31, 2023, mostly because of the $91,000,000 payment we made earlier this year on the term loan B and the refinancing we completed in the spring in which we replaced $500,000,000 of 2017 senior notes with $400,000,000 of new 2024 senior notes. As of September 30, 2024, we are in compliance with the covenants under our credit agreement and expect to continue to be in compliance in the future.

Speaker 6

I'd like to point out that for the first time since 2011, we are in a net BIE or net billings in excess position, whereby our BIE exceeds our CIE or cost in excess. As a reminder, BIE is essentially deferred revenue and represents billings that we have issued and payments that we have received in advance of incurring anticipated costs on our projects, whereas CIE represents costs that we have on projects, which we are not yet contractually able to build to our customers. So being in a net BIE position is a great thing from our perspective, as it means that we are operating in a net cash positive position across our portfolio of projects using our customers' money instead of our own to fund the projects. Thank you. And with that, I'll turn the call back over to Ron.

Speaker 3

Thanks, Ryan. To recap the highlights, we delivered 35% backlog growth in the Q3 compared to 2024 with further pending awards that we hope will increase that backlog between now and the end of the year. We have also generated strong operating cash flow through the 1st 9 months of the year with potential for record shattering operating cash flow for the full quarter and the full year 2024. As previously stated, we've already paid down the debt $50,000,000 and we'll expect to pay our term loan down significantly by year end and I believe paid off by the end of the Q1. We have made excellent progress in resolving many of our legacy disputes with only about a dozen or so matters of significance left to be resolved, which I would expect would occur over the next 12 to 18 months.

Speaker 3

And by the end of that period, only a handful of open issues remaining. We anticipate that our operating cash flow will continue to grow and be even stronger in 2025 'twenty six with revenue growth and a significant return to profitability in 2025 with even higher revenue and earnings in 2026 as these newer projects progress from design to the construction phase. Thank you. And with that, I turn the call over to the operator for your questions.

Operator

Great. Thank you. We'll now be conducting a question and answer session. First question here is from Steven Fisher from UBS. Please go ahead.

Speaker 7

Thanks. Good afternoon and congratulations on all the project awards and cash flow continued improvement there. I wanted to ask now sort of the next step on all these awards is really kind of getting them into burning revenues. Can you talk about what the shape of the curve looks like there on all these projects? When we really start to see that substantively coming through your revenues?

Speaker 7

Is it sort of like second half of twenty twenty five? Is it twenty twenty six? Is it first half

Speaker 6

of twenty twenty five?

Speaker 7

How do we think about that curve and how it goes towards the people?

Speaker 3

Well, the way these work is we initially have significant billings on award because we post bonds and insurance. And then there is a design phase. So before you see, for example, if it's a $2,000,000,000 job over 5 years, before you see $400,000,000 a year of cost, it takes between 6 9 months to get design completed up to where it gets ahead of construction. So all of these awards you're seeing currently, you'll see major construction beginning somewhere between June September of next year. So although there'll be some significant increase in volume in the second half of the year, where it will hit remarkably will be in 'twenty six and 'twenty seven and 'twenty eight because these are all 5 year jobs with steady income streams and significant profitability.

Speaker 7

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

Speaker 3

Well, as you can see, the specialty group in the quarter was down to a relatively low revenue. And what we've done is shrunk, finished off all of the bad work. And conversely, almost every one of these jobs has a large component. When I say large relative to the job size, components set aside for our various specialty contractors, be it East Coast or West Coast. They will that revenue will ramp up in specialty.

Speaker 3

And as we have, they have significant margins and should do significantly better going forward in the marketplace we're in today as opposed to where we were 3, 4 5 years ago.

Speaker 7

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

Speaker 3

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

Speaker 3

And since his background is construction, I can't imagine him being anything but positive.

Speaker 7

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

Operator

Our next question is from Adam Thalhimer from Thompson, Davis and Company. Please go ahead.

Speaker 5

Hey, good afternoon, guys.

Speaker 3

Good afternoon,

Speaker 5

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

Speaker 3

Well, in the past, in my entire career over the past, let's call it 60 years, All contracts were written by owners completely one-sided, onerous and dictatorial. And as long as they had 5 to 7 bidders on every job regardless of comment, when I would protest, the answer would be, well then don't bid if you don't like our terms. So over the years, we came to accept onerous terms, negative terms, no mobilization, excessive retentions and so on as a part of doing business. Well, as you can see over those years, the 7 and 8 bidders has shrunk to 12 and the handful of us that are left that are quoting these jobs, we now sit down and talk terms and everything that's unreasonable, including excessive retention, any excessive liquidated damages, schedules that are too short. We basically take the position that you either negotiate with us something reasonable and acceptable to us or we don't bid.

Speaker 3

And when you have only 2 prospective bidders, if one of it says he's not going to bid, now you're down to 1, you can't bid it. So we've been able to negotiate upfront mobilization payments that heretofore were difficult, reduced retention, better contract terms in terms of cure periods and the inability for them to assess consequential damage, literally every onerous term has been eliminated and I'll give you a classic example. When I first got the original contract terms from the New York City Department of Corrections on the New York City jails. I read them with our legal department, send them back a letter and said, your terms are so onerous, although we appreciate the size of the projects and your needs. By looking at your contract terms, we have decided there are entirely 2 owners.

Speaker 3

We will not be a bidder. Thank you. And that was the end of it. 3 months go by, get a letter back and says basically you're right, they're entirely too onerous. We want you to bid.

Speaker 3

We'd like to discuss and meet what you expect. We met, we got every single term of reason and it isn't that we were unreasonable. It's fair terms that are equally reasonable with upfront cash payments on the theory. We build these projects with your money, not our money. So that's across the board in every job we now bid.

Speaker 3

Better terms, better schedules or the response is simple. We're not bidding. And with us being one of the few remaining risk takers that will bid these big jobs, it typically generates the changes we need.

Speaker 5

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

Speaker 3

I don't understand what you mean by 25%, 26%.

Speaker 5

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

Speaker 3

I know what the ranges are. The interesting aspect is, is this something we normally don't discuss in a public forum and our bid profits. Let me gauge it with this. You've seen the margins we produced in Civil, Building and Specialty in the past, significantly up particular emphasis on both Building and Specialty because over $7,000,000,000 or excuse me, almost $6,500,000,000 of the backlog is going to the building end in New York City with significantly increased margins far more than the building group normally gets. And all of our civil group in the new backlog, I would say starting in 2000 the end of 2023 and certainly 2024 significantly increased with the margins you're used to in past Civil where they made 11% to 12% on revenue.

Speaker 3

Does that help?

Operator

Okay. That's perfect.

Speaker 5

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

Speaker 3

The only thing I can say is, I believe you can interpret in the numbers we presented that Q3 would have been profitable and you can probably back into the earnings it would have been, were it not particularly for Shasta and all of the write offs. I don't see anything major in the Q4, but I've got 4 or 5 virtual disputes in various stages of negotiation and potential settlement that I think will get settled by mid December. I really can't tell until then. And if I it's not going to be anything resembling this Q3, but I'm reluctant to say we're going to make the margin in the Q4 because as you can see, I'm pushing to be rid of all these legacy disputes, collecting a lot of cash and moving into this tremendous backlog with reduced debt and significant cash balances, so we can earn what we got to earn.

Speaker 5

Okay. Great color.

Speaker 3

I think I danced around it, but it's the best I can.

Speaker 1

No, no, no.

Operator

Very clear.

Speaker 5

Thank you.

Speaker 4

We've got profit forecast in the Q4.

Speaker 5

Okay. Thanks again.

Operator

Our next question is from Alex Rygiel from B. Riley Securities. Please go ahead.

Speaker 8

Thank you and a very nice quarter. Congratulations on the wins there. A couple of quick questions.

Speaker 5

Thanks Alex.

Speaker 8

Could you help us to bracket sort of the value potential in disputes that are remaining?

Speaker 3

I'd say between now and the end of next year, between $450,000,000 $500,000,000

Speaker 8

And then very helpful. And then kind of a 2 part question. Can you talk about the CapEx needs and working capital needs as you start to step into this really big backlog build? And then when you think about your capital structure, what's the optimal leverage on the business? And what do you plan on doing with your cash after you get to that point?

Speaker 3

Well, let me try to deal with it. First, the way we bid these jobs, we bid them on the basis that the owner provides all of the cash necessary in the mobilization upfront to where if our backlog goes to $20,000,000,000 our existing working capital doesn't finance it, the owner payments do and that we've insisted on and been 100% successful. We don't finance any of the work if their payments to us finance their own work. Secondarily, the capital expenditures are consistent with the past. We own most of the equipment necessary for this work and that which we don't, the jobs pay for as their 4 to 5 year rentals and the cost is baked into the job.

Speaker 3

So you're not going to see any significant CapEx beyond what it's been in the past between $25,000,000 $30,000,000 a year.

Speaker 8

And then your optimal capital structure? Pardon

Operator

me?

Speaker 8

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

Speaker 3

Well, my optimal basis will be to pay off all our debt with the exception of that abysmal bond issue where we were unfortunate enough to finance it at 11.75%. And as we continue to generate these significant levels of cash, that's a decision that we and the Board are going to have to make over the next 12 months because I think I've made it clear we're going to pay off all debt and have a revolver as needed. But we expect the needs of that revolver to be minimal and it's there as insurance. And as we continue to accumulate cash, we're going to have to make a decision what we do with it.

Operator

Very helpful. Great quarter. Thanks.

Speaker 1

Thanks Alex.

Operator

Next question here is from Michael Dudas from Vertical Research Partners. Please go ahead.

Speaker 1

Good afternoon, gentlemen.

Speaker 3

Hey Mike.

Speaker 1

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

Speaker 3

Well, I can't really speak for our peers because there's very few of them that compete with us. But all of the major jobs, dollars 500,000,000 and up, which is what we call a major project, essentially come across my desk for approval to bid and then review of estimates. And we try to look at the entirety of the company, where it's located, if it's East Coast Civil, it's a matter of their capacity in house. Do they have the people? Do they have the resources?

Speaker 3

If they do, we don't hesitate to support them. If we don't, we turn off the tap and say you've got an adequate backlog with significant cash flow and major earnings go out and deliver it. We'll talk. Meanwhile, all of the operations have day to day bids to sustain themselves. Our civil group in the Midwest, London is a consistent profit earner.

Speaker 3

They bid anything and everything they like up to that $500,000,000 without a lot of needed approval from me because of their record. So we keep a tab on them and all we want to be sure is you have the resources and people to build the work and be certain there are no owners contract terms. So as long as that continues, when I say we'll shut off the work, it's in the $1,000,000,000 plus category. The day to day $100,000,000 $200,000,000 jobs will continue across the board. Those are typically 18 month to 3 year jobs that the subsidiaries will determine on their own.

Speaker 4

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

Speaker 1

That's very helpful. All good issues to have. Thanks, gentlemen.

Operator

Thank you. Our next question is a follow-up question from Adam Thalhimer from Thompson, Davis and Company. Please go ahead.

Speaker 5

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

Speaker 6

Yes. It's a good question. So the what we anticipate is structuring awards to be settled in shares in the future. We still have outstanding awards that are out there today that are liability classified that we'll have to continue to remeasure. Although we anticipate, like I said, the future awards will be settled in shares.

Speaker 6

So you won't see this you won't see the volatility that spikes up or spikes down related to the comp expense.

Speaker 5

So it doesn't go away in 2025, but it starts to taper from 2025 on?

Speaker 6

That's fair, yes.

Speaker 5

Okay, perfect. Thanks.

Speaker 1

No problem.

Operator

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

Speaker 3

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

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Earnings Conference Call
Tutor Perini Q3 2024
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