Guild Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 9 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation 4th Quarter 2023 Earnings Conference Call. My name is Camilla, and I will be your coordinator for today. All participants are currently in a listen only mode. Following management's prepared remarks, we will be opening the call for a question and answer session. As a reminder, this conference call is being recorded for replay purposes.

Operator

I will now turn the conference call over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

Speaker 1

Hello, everyone, and thank you for joining us. With us today are Ronald Tutor, 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 are filing today.

Speaker 1

The company assumes no obligation to update forward looking statements whether due to new information, future events or otherwise, other than as required by law. Thank you. And I will now turn the call over to Ronald Tutor.

Speaker 2

Thank you, Jorge. Good day and thank you all for joining us. Please pardon my raspy voice. I've had a head cold for a couple of days, but I'll survive. Before I discuss our results for the year, I'd like to mention for those of you that may not have heard or recall that last November we announced that our Board of Directors approved the appointment of Gary Smalley, our former CFO as President of Tudor Perini and that Gary is expected to succeed me as CEO effective January 1 next year.

Speaker 2

Turning now to our results, we had another year of mixed results in 2023, highlighted by record operating cash flow that was nearly 50% better than last year as well as backlog that grew 28% year over year to a $10,200,000,000 figure. We generated $308,000,000 of operating cash in 2.20 3 in 2023, excuse me, compared to $207,000,000 in 2022 with both years setting records as the highest results of any year since the 2008 merger between Tudor Saliba and Perini Corporation. Our earnings in 2023 were challenged due to certain adverse legal judgments or decisions throughout the year, primarily in the Northeast and write downs that resulted from the expedited settlement or resolution of various disputed matters. Our consolidated revenue was up slightly in 2023 compared to 2022, still dramatically reduced from our typical years prior to the pandemic. We sustained modest revenue growth in the Civil and Building segments, mostly offset by lower revenue in the Specialty Contractors segment.

Speaker 2

Ryan will discuss the financials in more detail a bit later. We made excellent progress on claims and dispute settlements in 2023, which helped us to deliver our record cash flow and reduce our unbilled receivables or costs in excess by 17% or $234,000,000 We expect to continue resolving most of our remaining legacy disputes in 2024 with only a handful going into 2025 and thereby collecting substantial amounts of associated cash throughout this year and a certain amount in next year before all of our legacy issues will be resolved and brought current. Last week, we began to utilize some of our excess cash generated since the latter part of 2023 to deleverage our balance sheet by paying down our Term Loan B by approximately $91,000,000 bringing its balance to $276,000,000 compared to its original $425,000,000 This pay down was not required until the 1st week in April, but we decided to pay it down early to capture interest savings over the next few months. Following this paydown, we still have significant cash on hand, which is anticipated to be used for further debt reduction as part of the current refinancing underway. We expect to successfully conclude this refinancing sometime between the middle and end of April.

Speaker 2

As I mentioned, our year end backlog stood at $10,200,000,000 up 28% with strong growth largely driven by the award of a $2,950,000,000 Brooklyn Jail project in New York. Other significant new awards and contract adjustments in 2023 included $788,000,000 of additional funding for certain mass transit projects in California, $287,000,000 of additional funding for 2 large healthcare projects in California, a $222,000,000 military facilities project at Tinian International Airport in the Northern Mariana Islands and $127,000,000 of additional funding for a light rail project in Minnesota. We expect our backlog to grow substantially in 2024 and again in 2025 as we pursue and capture our share of a tremendous volume of available project opportunities, many of which are supported by strong funding that is put in place at the state and local levels as well as the $1,200,000,000,000 bipartisan infrastructure law that was passed in 2021 for which funding is now flowing. We are tracking more than $75,000,000,000 of opportunities over the next 3 to 4 years and $32,000,000,000 of which are expected this year and next. Some of the most significant near term prospects include the $6,000,000,000 drydock at Puget Sound Naval Shipyard in the State of Washington, The $2,600,000,000 DTX Transbay Transit Center project in Downtown San Francisco.

Speaker 2

The $2,000,000,000 Honolulu Rail Transit project, which we had previously been the low bidder in 2020 the $2,000,000,000 sites reservoir project in Northern California, the $1,800,000,000 South Jersey Light Rail in New Jersey, and again the $1,500,000,000 Newark Airtrain for which we had also been low biddered some 2 years ago. And the $1,000,000,000 Englewood Transit Connector project in Southern California, which bids this summer. Regarding our prospective jail projects in New York City, the owner has just made a formal announcement that the Queens facility was awarded to one of our competitors. So we were also shortlisted with one other team on the Manhattan jail, which would be the most we endeavor of all the facilities, which will bid an award in the 3rd or 4th quarter. I could go on and on and I'm only talking about the mega projects.

Speaker 2

However, others worth note are an $800,000,000 Kensico tunnel, the $800,000,000 Amtrak East River Tunnel Rehab, which we've already bid and should hear the results any day, The $500,000,000 Palisades Tunnel in New York and the $750,000,000 Manhattan Tunnel in New York. That and a number of projects in that size too many to mention. We are anticipating significant double digit revenue growth in 2024 with 80% of which sourced by our existing backlog. We are expecting a return to positive earnings in 2024 and significantly higher earnings in 2025 and again in 2026. Based on our assessment of the current market and business outlook, we are establishing our initial EPS guidance for 20.24 in the range of $0.85 to 1.10 dollars As in prior years, our earnings are expected to be weighted more heavily in the second half of the year due to the anticipated timing of large activities as well as the typical business seasonality that is affected by the weather.

Speaker 2

Thank you. And with that, I'll turn the call over to Ryan to review the financial results.

Speaker 3

Thank you, Ron, and good afternoon, everybody. I will start by discussing our results for the year, including our record operating cash, after which I will review the Q4. Then I'll provide some commentary on our balance sheet, our 2024 guidance assumptions and our refinancing. As Ron mentioned, operating cash is one of the major highlights in 2023. For the 2nd year in a row, we achieved a record operating cash flow.

Speaker 3

And more impressive is the $308,000,000 that we generated in 2023 was an increase of nearly 50% compared to the prior year record of $207,000,000 in 2022. Our strong operating cash was driven by overall solid collection activities, including collections related to various settlements and dispute resolutions that we concluded in the latter part of 2022 and into 2023. Some of these were expedited settlements as we continued with the focus we have begun in the latter part of 2022 on accelerating dispute resolutions and cash collections. In fact, we had a modest net favorable impact to earnings and cash generation in 2023 because of various settlements concluded during the year compared to a significant unfavorable earnings impact related to settlements in 2022. We expect continued solid cash collections in 2024, much of which will be associated with anticipated resolutions of various remaining disputes and our cash generation should continue to be strong over the next several years as well.

Speaker 3

Our continued strong cash generation has already enabled us to begin utilizing some of the excess cash generated over the past several months to deleverage our balance sheet, something that we had indicated we had planned to do in last quarter's conference call. As Ron said, last week, we further paid down the balance of our Term Loan B by approximately $91,000,000 a payment that was not due until the 1st week of April, but a payment that we decided to make early to save on interest expense. After making this payment, we still have significant cash available, which is expected to be used for further debt reduction in conjunction with the refinancing of our senior notes. Revenue for 2023 was $3,900,000,000 up slightly compared to $3,800,000,000 in 2022, primarily due to a lower amount of net unfavorable impacts related to settlements, litigation results and other project charges in 2023 as compared to 2022. Civil segment revenue was $1,900,000,000 up 9% compared to last year, primarily due to the absence of certain prior year unfavorable adjustment as well as increased project execution activities on a mass transit project in California and various other projects in Guam and the Northern Mariana Islands.

Speaker 3

Building segment revenue was $1,300,000,000 up 5% with growth driven by increased activities on various projects in California. The growth in the Civil and Building segment was mostly offset by a 15% decline in the Specialty Contractors segment, with specialties revenue coming in at $694,000,000 for 2023, mainly due to decreased activities on the electrical and mechanical components of the completed transportation project in the Northeast. We reported a reduced loss from construction operations of $115,000,000 in 2023 compared to a $205,000,000 loss in 2022. Our results in both years were negatively impacted by net unfavorable adjustments on various projects, primarily due to changes in estimates resulting from recent negotiations, settlements and legal judgments on certain disputed claims and unapproved change orders. Civil segment income from construction operations for 2023 was $199,000,000 up substantially compared to $21,000,000 in 2022.

Speaker 3

The strong improvement was driven by certain current year net favorable adjustments as well as higher volume on the projects I mentioned earlier and also the absence of significant prior year unfavorable adjustments. The Building segment posted a loss from construction operations of $91,000,000 in 2023 compared to income from construction operations of $7,000,000 in 2022. The loss in 2023 was largely attributable to an adverse legal ruling in the Q1 of 2023 on the completed mixed use project in New York that resulted in a non cash pre tax charge of $83,600,000 of which $72,200,000 impacted the building segment and $11,400,000 impacted the specialty contractor segment, as well as an unfavorable adjustment of $14,600,000 in the 2023 Q4 on a government building project in Florida due to increased costs associated with an external subcontractor. The Specialty Contractors segment posted a loss from construction operations of $145,000,000 in 2023 compared to a loss of $168,000,000 in 2022. The reduced loss from construction operations was primarily due to the reduced negative impact of various unfavorable adjustments in 2023 as compared to 2022.

Speaker 3

We were significantly challenged once again in 2023 by charges in the Specialty Contractor segment related to various settlements and negotiations, partly due to our focus on expediting dispute settlements and cash collections in New York, a focus that began in the latter part of 2022. You can of course find further information about the various charges that negatively affected our results in 2023 2022 in our 10 ks, which was filed today. Note that the majority of the remaining larger disputes are expected to be resolved in 2024. Corporate G and A expense was $75,000,000 in 2023 compared to $62,000,000 in 2022, with the increase primarily due to higher compensation related expenses charged to corporate in 2023 that were previously charged to the segments, as well as higher outside professional fees. Other income was $17,000,000 compared to $7,000,000 last year, primarily due to a gain on sale of property in 20 20 3.

Speaker 3

And interest expense for 2023 was $85,000,000 compared to $70,000,000 for 2022, with the increase driven by higher borrowing rates in 2023 on our revolver and term loan B. We reported an income tax benefit of $55,000,000 in 2023 due to our significant pre tax loss for the year and an effective tax rate of 30.1 percent compared to a larger tax benefit of $75,000,000 with an effective tax rate of 28.1 percent in 2022. As we return to profitability in 2024 and in future years, the net operating losses generated in 2022 2023 will help reduce our cash outlays for future income taxes. Net loss attributable to Tutor Perini for 2023 was 170 $1,000,000 or a loss of $3.30 per share compared to a net loss of $210,000,000 or a loss of $4.09 per share in 2022. It was certainly another disappointing year for us in 2023 from an earnings perspective.

Speaker 3

But as Ron mentioned, we anticipate double digit revenue growth and a return to positive earnings in 2024 with substantially stronger earnings expected in 20252026. Now let's turn to the Q4 results. Revenue for the Q4 was $1,000,000,000 up 13% compared to 907,000,000 dollars for the Q4 of 2022. Civil segment revenue was $459,000,000 up 5% compared to $440,000,000 last year. Building segment revenue was $376,000,000 up 15% from $327,000,000 last year and Specialty Contractors segment revenue was $186,000,000 up 33% compared to $140,000,000 last year.

Speaker 3

The revenue improvement across our business was largely attributable to fewer charges in the Q4 of 2023 compared to the same quarter of 2022 for judgments and settlements. Increased activities on certain civil segment projects in British Columbia and California, along with various building segment projects in California and New York also contributed to the revenue growth for the Q4 of 2023. Civil segment income from construction operations for the Q4 of 2023 was 28,000,000 dollars up substantially compared to $9,000,000 for the same quarter last year. The strong improvement was primarily driven by the absence of prior year unfavorable charges on certain projects in the Northeast and California. The Building segment posted a loss from construction operations of $7,000,000 for the Q4 of 2023 compared to a loss of $2,000,000 for the Q4 last year.

Speaker 3

The larger loss in the Q4 of 2023 was primarily due to a current year unfavorable adjustment on a government facility project in Florida, partially offset by improved performance on other projects. The Specialty Contractors segment posted a loss from construction operations of $24,000,000 in the Q4 of 2023 compared to a loss of $86,000,000 in the Q4 of last year as 2023 had fewer unfavorable adjustments than in the prior year. And corporate G and A expense in the Q4 of 2023 was $19,000,000 compared to $17,000,000 for the same quarter last year. And other income for the 4th quarter was $5,000,000 compared to $2,000,000 last year. Interest expense for the Q4 of 2023 was $21,000,000 compared to $20,000,000 last year.

Speaker 3

Income tax benefit was $3,000,000 in the Q4 of 2023 compared to an income tax benefit of $28,000,000 for the same quarter last year. Net loss attributable to Tutor Perini's for the Q4 of 2023 was $48,000,000 or a loss of $0.91 per share compared to a net loss of $93,000,000 or a loss of $1.80 per share in last year's Q4. Now I will address the balance sheet. Our net debt as of December 31, 2023 was $519,000,000 down $180,000,000 or 26% compared to our net debt of $699,000,000 at December 31, 2022, with a significant reduction due to our record cash flow in 2023. As of December 31, 2023, we are in compliance with the covenants under our credit agreement and expect to continue to be in compliance in the future.

Speaker 3

Next, I'll provide some assumptions regarding our guidance. G and A expense for 2024 is expected to be between $265,000,000 $275,000,000 Depreciation and amortization expense is anticipated to be approximately $54,000,000 in 2024, with depreciation at $52,000,000 and amortization at $2,000,000 Interest expense for 2024 is expected to be approximately $83,000,000 of which about $10,000,000 will be non cash. Our effective income tax rate for 2024 is expected to be approximately 22% to 24%. We anticipate non controlling interest to be between 55,000,000 $65,000,000 And we expect approximately 53,000,000 weighted average diluted shares outstanding for 2024. And capital expenditures are anticipated to be approximately $25,000,000 to $30,000,000 with about $5,000,000 to $10,000,000 of that being project specific and owner funded.

Speaker 3

Finally, as Ron mentioned, we are working to refinance our senior notes. We believe that our strong cash flow in 2023, continuing solid liquidity to date in 2024, recent and further anticipated debt reductions and current credit market liquidity will allow us to complete a refinancing transaction by the end of April. Thank you. And with that, I'll turn the call back over to Ron.

Speaker 2

Thanks, Ryan. To recap, we delivered another year of significant operating cash flow, strong backlog growth and made the necessary progress in settling and resolving the various disputed matters in 2023, but our earnings were negatively impacted by certain charges associated with these resolutions as well as some negative court verdicts that were unanticipated. We believe that our operating cash flow will again continue to be strong in 2024 in particular and also in 2020 5 as we resolve frankly the balance of the remaining legacy disputed matters, most of which will be accomplished by the end of this year and collect the substantial associated cash there too. We expect double digit revenue growth in 2024 as we continue to be in a strong bidding environment. And that of course is reflected on our EPS guidance.

Speaker 2

We believe there will be even significantly higher earnings in 2025 and 'twenty six as these new contract awards begin to generate the significant revenue associated with design build. Our backlog is anticipated to grow this year significantly and next as we are tracking and expect to capture certainly our share or more of the $32,000,000,000 of major near term opportunities with at best limited competition. Finally, we have begun to utilize some of our excess cash that we have been accumulating to continually reduce our debt, having paid down the term loan and having the cash available to reduce our bonds. We expect to successfully conclude our refinancing by the end of April. Gary is here with us to participate in any questions.

Speaker 2

Thank you and I'll turn the call back to the operator.

Operator

Thank you. We will now be conducting a question and answer session. Thank you. Our first question comes from the line of Steven Fisher with UBS. Please proceed with your question.

Speaker 4

Thanks. Good afternoon. Good to see the balance sheet continuing to improve. And Ron, hope you feel better soon.

Speaker 2

Thanks, Steve.

Speaker 4

Wanted to just maybe start with unpacking the Q4 a little bit. We still had losses in 2 out of the 3 segments. And can you just maybe break down for us how much of that was projects that had some new charges on them versus what the sort of the resolutions of claims were that were impacting losses. It seems like maybe there was a building project in Florida in the building segment driving that, but I wasn't sure if there was any other kind of new project losses there and similarly in the Specialty segment?

Speaker 2

Well, the building project in Florida, we find ourselves with an unbonded sub that we've had to finance through to the completion of this work so as to not impact our performance. And candidly, we don't think there's any way to get the money back, so we took the hit. In the specialty group, we had continued significant write downs on the New Earth job by both our mechanical and electrical subsidiaries. And Gary, if you could elaborate on anything beyond those that was specific to the Q4, that's what I recall.

Speaker 5

Yes. Ryan, I'll let you go ahead.

Speaker 3

Yes. To go on top of what Ron said, we did continue to struggle in the specialty contractor segment. There was also a mechanical project in the Northeast that also took a charge during the Q4 and that's also specifically disclosed in Form 10 ks.

Speaker 4

Okay. I'll dig those out. Maybe then if we could follow-up with the civil, it seems like there was maybe nothing in particular there. Was there anything in particular that was weighing on the margins there relative to what I think is the potential for kind of double digit margin in the business? Is it just still trying to rebuild the book of business and improve the utilization there plus some seasonality?

Speaker 4

Or is there anything else in that segment weighing in the

Speaker 6

margins in the quarter?

Speaker 2

We're just coming back from COVID in 2 years of virtually nothing happening in the civil business. No dispute. It's like the world stopped and it's back going again. And even though we were low bidder on over $11,000,000,000 worth of work in the last 18 months, none of which got awarded as over budget. They're all coming back on the market and we really expect to get a significant share of this new work.

Speaker 2

So we think our backlog is going to break every record and our revenue will go back to where it was and more.

Speaker 4

Okay. So maybe we can move on to the guidance. And the double digit growth, can you just give us a sense of how that breaks out by segment? Are you expecting double digit growth in each of the segments in 2024 and kind of each quarter through the year? I mean, I guess you said more back end weighted, but maybe just starting with the segment level.

Speaker 2

I'll give you my sense first and then Ryan, you can chip in with your knowledge of the numbers that I'm sure are better than mine. The Civil business will continue to grow, particularly as we add new work and it's very strong with no issues anywhere. The building business is turning around dramatically, not only the prison in New York, but Rudolf and Slupton is in the process of transferring from pre construction activities, major contract awards we expect to see next year. So there's no question the building business will go back to very significant profitability. And the specialty business is simply restricted and continuing to be reduced to where other than Fisk in Texas, most of the work they do is either with us or our subsidiaries in servicing the parent company and not out in the overall marketplace.

Speaker 3

Perfect. I agree with Ron on that.

Speaker 4

Okay. And to what extent does your EPS guidance include or exclude the impact of any settlements? How should we think about that? And then I guess my last question is, are you expecting to incur losses in any quarter of the year?

Speaker 2

No, it's not by quarter. It's really we have made certain allowances for potential settlements and adverse judgments that we think are very safe. But it's important to note that we believe that we're coming back to a reasonable degree of profitability with years to follow significantly better, because frankly there'll be no more litigation and or disputes to try to settle or to settle for less than what we're entitled to.

Speaker 5

Hi, Steve. This is Gary. If I could just add to that. Another way to look at that is any amount that's recorded right now is where we think it's going to end up. So we don't think that we have any charges, at least not that we know of.

Speaker 5

But it's hard to predict what settlement activity will be and what litigation outcomes might be, even though we think it's likely or probable to be at the positions we are at. And then with our history of not always hitting guidance, we want to make sure that we built in enough contingency to make guidance more reasonable and safer to hit. So we think there's adequate contingency there. And as Ron had noted before, we expect 2024 and 2025 to be years where all these things go get behind us and we're not talking about these in a couple of years from now.

Speaker 4

Thanks, Gary. Are you expecting to be profitable in the Q1?

Speaker 5

Yes. Our plan is to be profitable in each quarter. And when you asked Ron, he and as Ryan noted, Ron's answer was spot on with respect to growth. I'd look at it this way. Growth really strong in Civil, quite strong in Building as well and not quite as strong, but still respectably at a respectable level in Specialty.

Speaker 5

And as both you and Ron noted, we'll gain strength as the year progresses due to our seasonality, but we do expect out of the gate to be modestly profitable.

Speaker 4

Terrific. I'll turn it over. Thank you very much.

Operator

Our next question comes from the line of Kevin Lee with Western Alliance Bancorp. Please proceed with your question.

Speaker 7

Hi. Good afternoon, gentlemen. Appreciate your time. Just one quick housekeeping. I know in previous quarters you guys have disclosed or quantified the charges that you guys had to take in any given quarter.

Speaker 7

Is there a number by any chance for those non cash charges or project impairments for Q4?

Speaker 3

Yes. So again, the more significant and material items are going to be disclosed in the K. So in the segment footnote as well in the MD and A. So I think we touched upon the 2 largest earlier related to that the building segment project in Florida and a mechanical project in the Northeast.

Speaker 5

And as far as the like the aggregate total, we do that for the year, but there's no Q4 disclosure that's required in the case. So you'll only see the aggregate of, let's say, settlements or judgments or things like that for the year.

Speaker 7

Okay. Thanks, Gary. Thanks, Ryan. And lastly, maybe if you could talk about kind of the project flows that you guys are seeing out there. I know there have been quite a there were quite a few projects, namely the one the toll road in Maryland that got broken up.

Speaker 7

Could you maybe speak about the flow of infrastructure spending, I guess the funding that comes with that? And if you're seeing that in terms of the progress with current RFPs and projects that you're bidding on, if what the timing of those should be like and if when we might anticipate hearing of awards of such sort? Thanks.

Speaker 2

We're bidding all the time and we're waiting any day for the $800,000,000 Amtrak tunnel that we bid 2 months ago. We're going to be bidding the Inglewood $1,000,000,000 transit project in the second quarter, the Hart job at $2,000,000,000 at the end of the second quarter. We are bidding these major jobs as significant with never more than 2 other bidders and in most cases, one other bidder. So the competition is diminished and it's certainly seen as an opportunity. And we're still hopefully going to be attacking the jobs we've already been low out and there's an unprecedented number of large projects hitting the marketplace where the competition is very limited.

Speaker 2

All right. Thanks. Thanks, Kevin.

Operator

Our next question comes from the line of Michael O'Dell with MidOcean Partners. Please proceed with your question.

Speaker 6

Hey, everyone. Thanks for taking the time. Just wanted to dig in a little bit. If I look at your billings in excess of cost liability and compare that to either backlog or revenue, seems to be at historical levels and nearly double any other time in history, which to me would imply a fair amount of overbilling. Has something structurally changed in the business or should we expect this portion of working capital to

Speaker 2

reverse to more normalized levels? Well, the way to explain it is simple. We have basically argued with and successfully been able to dictate higher mobilization payments on the theory we don't work on our dollars, we work on the owners. And in most cases, the projects have put much higher mobilizations payments anywhere from 8% to 10% when most jobs have nominal 1% to 3% mobilizations. That in the fact, we as most contractors tried to stay ahead of the owners' money.

Speaker 2

On the theory, there's no reason for us to invest our capital to build an owner's project. So that's about the simplest way to sum it up. And I think that trend will continue.

Speaker 6

Okay. You don't expect that to reverse? No. And then just as you think about the refinancing, what do you think the optimal leverage is for the business in the near term than more over the intermediate term, just given a lot of your peers have delevered to net cash or very little leverage position? And how does that go into how you structure a refinancing?

Speaker 2

Well, we hope to reduce the bond issue principles significantly. We've reduced the term loan and from what we're projecting in cash flows over the next 2 to 3 years, there's no reason not to reduce our leverage to seasonal lows. The interest rates are so terrible that there's no reason to borrow if we're going to generate this level of cash flow because the company is well financed as we speak. So the additional cash generated over the next 2 years, I can't think of a better way to use it than to reduce debt further, particularly at these absurd interest rates.

Speaker 6

Okay, great. Thank you.

Speaker 2

And I might add as well as the drag the interest is on our earnings.

Operator

Our next question comes from the line of Abe Landa with Bank of America. Please proceed with your question.

Speaker 8

Good afternoon. Thanks for taking my questions. And also thanks for that update on financing. I have a few more. You did note that the markets are strong, high yield, a lot of money is being raised also on the private side.

Speaker 3

Maybe can you just talk

Speaker 8

a little bit more about your framework around kind of what you think your optimal debt looks like, especially in light of kind of cash collections expected to be strong this year or next year? I want to

Speaker 2

speak to that. I assume that means currently in the second quarter refinancing as opposed to future.

Speaker 6

Is that

Speaker 2

what you're looking at?

Speaker 8

Yes. I mean, I was more looking at like what's the structure What is your debt structure going to look like? Is it going to be bonds? Is it going to be loans? I mean, especially like in light of the fact that you don't want to pay high interest rates, you kind of noted that, and that you kind of expect cash collections this year, next year, etcetera?

Speaker 2

Well, in the short term, we paid the term loan from $420,000,000 to $260,000,000 give or take $1,000,000 We intend to reduce the bond issue when we reset the bonds, be it private or bug, but significantly less than the $500,000,000 and that's current. So that takes place in 60 days. So as we continue to collect cash, there's no reason to even stay with those levels of debt. We'll reduce it as it's appropriate given the liquidity needs and the excess of cash.

Speaker 5

And as far as how that looks structurally, Abe, it really depends on it's a little too early for us to know that right now. We're looking at all But if it's on the public side, we expect, as Ron said, a much reduced bond issuance. And if it's on the private side, then it could take a lot of different forms with respect to that loan and we're not taking off the books the possibility of a complete recapitalization. It really depends on the demand out there and the terms. So again, we're looking at all options right now.

Speaker 8

That was very thorough. Thank you for that. And you answered my follow-up question on potentially the term loan. I guess you also provided your costs in excess of billings. Good to see that trend lower.

Speaker 8

Longer term, where do you expect those what's like a normalized level of costs in excess of billings and when do you expect to reach those levels?

Speaker 2

Assuming we get our revenue back up to $5,500,000,000 or more, which was where it was and should be back there hopefully within the next 12 to 15 months. I think a normalized amount of CIE is always going to hover around 5% of revenue. So if it was me to project $250,000,000 to 300,000,000 dollars of costs in excess disputed matters, however you want to classify them, would be something reasonable. Ours got out of control, exacerbated by a 2 year hiatus in the courts, thanks to COVID, where our world just stopped as they accumulated and didn't resolve. Conversely, by the end of this year, we expect CIE to be reduced dramatically from where it is even now.

Speaker 2

Everything is finally coming to an end. The owners either have a trial date or they're asking for mediation. It can't be stalled off anymore.

Speaker 5

Yes. So Abe, as Ron was saying, the is 5% that's really more focused on those things that are in dispute resolution. And we're always going to have a little bit of CIE that is more timing related or short term being negotiated with unapproved change orders that

Speaker 2

are not being disputed? There's 3 components to it.

Speaker 5

So, the 5% is really the disputed bucket that Ron mentioned.

Speaker 8

And that is expected something on top of that, so maybe like 10% is something like 500, 600, something like that, just maybe a little bit

Speaker 2

lower. No. 5% for disputes, I'd add no more than 2% for timing and open changes in negotiations. See, the disputed claims is always the lion's share of it. So if you wanted to add another $100,000,000 on top of $250,000,000 to $300,000,000 that should be the maximum.

Speaker 8

That's very clear. And last one is just, you kind of mentioned that there's $32,000,000,000 of projects out there with limited competition. You're kind of saying typically you only see 1 to 2 bidders. I mean, what have you seen as your typical like win rate? And then given the limited competition, how do you expect go forward that's going to change your longer term margins, working capital requirements, changes in disputes, etcetera, anything that will help us think about the company going forward?

Speaker 8

Well, one

Speaker 2

of the things that has happened in the last 3 years and unfortunately we got practically everything we did over a period of 14, 15 months that resulted in 11 point $1,000,000,000 of new work, all of which got rejected over budget, all of which is coming back out to bid. What we've also done given the limited competition, we are going to every owner because once you get over $1,000,000,000 there's only 2 or 3 companies, including foreigners in the U. S. That can even bid it, let alone do it. So we go into their terms and we dictate changes of terms on the theory.

Speaker 2

If you have any owners terms, you either change them or you won't bid. And they're usually faced with 2 bidders. So if one of them withdraws, they only get one bid. So we've been able to affect almost every change that is required on owners' contract terms that heretofore in the past when they had 4 or 5 bidders on every job, The owners asked is, well then don't bid if you don't like our contract. Well, the worm is turned.

Speaker 8

And do you have like a typical win rate or is it given 2 to 3, it's 50 to a third, something like that?

Speaker 2

I can't give you a win rate. I would say if we took all the $1,000,000,000 and up that we bid, I could probably dig it out, but I'd guess we're at 50% win rate or better.

Speaker 8

Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to CEO, Ronald Tudor for closing comments.

Speaker 2

Thank you so much for your patience. Hopefully, we've given you information that's helpful and until the next quarter. Thank you.

Operator

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

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Earnings Conference Call
Guild Q4 2023
00:00 / 00:00