Tutor Perini(TPC) - 2023 Q4 - Annual Report

Part I Business Tutor Perini Corporation is a global construction company operating in Civil, Building, and Specialty Contractors segments, with a $10.2 billion backlog and 74% of 2023 revenue from government contracts - The company operates through three primary business segments: Civil, Building, and Specialty Contractors, offering diversified services from large-scale infrastructure to specialized electrical and mechanical systems[18] - The company estimates that approximately $4 billion, or 40%, of its backlog as of December 31, 2023, will be recognized as revenue in 2024[36] - Revenue from federal, state, and local government customers constituted 74%, 68%, and 66% of total revenue for the years 2023, 2022, and 2021, respectively[42] - As of December 31, 2023, the company had approximately 8,200 employees, including 1,900 salaried and 6,300 hourly employees, with about 3,600 union employees[50][52] Backlog by Business Segment as of December 31 | Business Segment | 2023 (in thousands) | % of Total | 2022 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Civil | $4,240,684 | 42% | $4,416,340 | 56% | | Building | $4,177,452 | 41% | $2,223,601 | 28% | | Specialty Contractors | $1,740,311 | 17% | $1,289,172 | 16% | | Total Backlog | $10,158,447 | 100% | $7,929,113 | 100% | Backlog by Customer and Contract Type as of December 31 | Backlog by Customer Type | 2023 | 2022 | | :--- | :--- | :--- | | State and local agencies | 76% | 65% | | Private owners | 13% | 20% | | Federal agencies | 11% | 15% | | Total | 100% | 100% | | Backlog by Contract Type | 2023 | 2022 | | :--- | :--- | :--- | | Fixed price | 56% | 74% | | Guaranteed maximum price | 36% | 14% | | Unit price | 4% | 4% | | Cost plus fee and other | 4% | 8% | | Total | 100% | 100% | Risk Factors The company faces material risks from numerous legal proceedings, contract estimation inaccuracies, intense competition, substantial indebtedness with a 'spring-forward' maturity, and potential cybersecurity breaches - The company is involved in numerous lawsuits, and unfavorable outcomes could materially harm financial results and reputation, as exemplified by an $83.6 million non-cash charge from an adverse court decision in April 2023[58] - Inaccuracies in estimating contract revenue and costs, particularly on fixed-price and guaranteed-maximum-price contracts, can lead to lower profits or losses, with economic factors like inflation also negatively impacting profitability[60][61] - A significant portion of operations are concentrated in New York and California, making the company more susceptible to adverse economic conditions in those states[67] - The company's long-time Chairman and CEO will transition to Executive Chairman at the end of 2024, introducing a new CEO, and such management changes could adversely affect the business[70] - A 'spring-forward' maturity provision in the 2020 Credit Agreement could accelerate the maturity of the Term Loan B and Revolver to January and April 2025 if the $500 million 2017 Senior Notes are not repaid or refinanced, though the company is working on a refinancing transaction expected by the end of April 2024[88][89][91] - The company has substantial debt of $899.7 million as of December 31, 2023, with restrictive covenants, and failure to comply with these, such as the First Lien Net Leverage Ratio, could trigger a default and debt acceleration[94] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[98] Cybersecurity Cybersecurity risk is overseen by the Board and Audit Committee, managed by a CIO and CISO, with no material incidents reported - Cybersecurity oversight is managed by the Board of Directors, the Audit Committee, a CIO with over 35 years of experience, and a CISO with over 25 years of experience[99][100] - The company's risk management strategy includes annual cybersecurity risk assessments, an incident response plan aligned with NIST standards, third-party penetration tests, and mandatory employee training[102] - The company has not experienced any cybersecurity incidents that have had a material adverse impact on its operations or financial results[101] Properties The company owns and leases various office facilities and equipment yards across the United States, including its corporate headquarters, which are considered suitable for current needs Major Office and Equipment Yard Locations | Location | Owned/Leased | Business Segment(s) | | :--- | :--- | :--- | | Los Angeles (Sylmar), CA | Owned & Leased | Corporate, Civil & Specialty Contractors | | Barrigada, Guam | Owned | Civil | | Black River Falls, WI | Owned | Civil | | Fort Lauderdale, FL | Leased | Building & Specialty Contractors | | Framingham, MA | Owned | Building | | Houston, TX | Owned | Specialty Contractors | | New Rochelle, NY | Owned | Civil | Legal Proceedings Information regarding the company's legal proceedings is incorporated by reference from Note 8 of the Notes to Consolidated Financial Statements - Details on legal proceedings are discussed in Note 8 of the Notes to Consolidated Financial Statements[104] Mine Safety Disclosures While not a mine operator, the company provides required mine safety disclosures in Exhibit 95 when offering construction services to the mining industry - Information regarding mine safety violations and other related matters is provided in Exhibit 95 to this Form 10-K[105] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Tutor Perini's common stock trades on the NYSE under 'TPC', with 298 holders of record as of February 22, 2024, and no immediate plans for dividends or repurchases - The company's common stock is traded on the NYSE under the symbol 'TPC'[107] - The company did not repurchase any of its common stock during Q4 2023 and does not have immediate plans to pay dividends[108] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, revenue slightly increased to $3.9 billion, construction loss narrowed to $114.6 million, backlog grew 28% to $10.2 billion, and record operating cash flow of $308.5 million was generated, with a key focus on refinancing 2017 Senior Notes Executive Overview The company's 2023 performance saw a slight revenue increase to $3.9 billion and a reduced loss from construction operations of $114.6 million, driven by $6.1 billion in new awards and a 28% backlog growth to $10.2 billion - The reduced loss in 2023 was primarily due to a lower amount of net unfavorable impacts from legal judgments and settlements compared to 2022, with adverse legal decisions having a net unfavorable impact of $122.2 million in 2023 versus $147.8 million in 2022[119] - Consolidated new awards were $6.1 billion in 2023, a significant increase from $3.5 billion in 2022, with major awards including the $2.95 billion Brooklyn Jail project[130][131] Consolidated Operating Results (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $3.9 billion | $3.8 billion | | Loss from Construction Operations | ($114.6 million) | ($204.8 million) | | Diluted Loss Per Share | ($3.30) | ($4.09) | Backlog Changes in 2023 (in millions) | Segment | Backlog at Dec 31, 2022 | New Awards in 2023 | Revenue Recognized in 2023 | Backlog at Dec 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Civil | $4,416.3 | $1,708.2 | $(1,883.9) | $4,240.6 | | Building | $2,223.6 | $3,256.4 | $(1,302.5) | $4,177.5 | | Specialty Contractors | $1,289.2 | $1,144.9 | $(693.8) | $1,740.3 | | Total | $7,929.1 | $6,109.5 | $(3,880.2) | $10,158.4 | Results of Segment Operations In 2023, Civil segment income significantly increased, Building segment incurred a loss despite revenue growth and backlog doubling, and Specialty Contractors segment saw revenue decline and continued losses - The Building segment's backlog increased 88% to $4.2 billion, largely driven by the $2.95 billion Brooklyn Jail project award[150] Civil Segment Performance (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $1,883.9 | $1,734.9 | | Income from construction operations | $198.6 | $21.1 | Building Segment Performance (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $1,302.5 | $1,242.6 | | Income (loss) from construction operations | ($91.2) | $7.2 | Specialty Contractors Segment Performance (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $693.8 | $813.3 | | Loss from construction operations | ($144.8) | ($168.0) | Corporate, Tax and Other Matters Corporate G&A expenses increased to $75.2 million in 2023 due to higher compensation, while interest expense rose to $85.2 million due to higher rates, and the effective tax rate was 30.1% - Corporate G&A expenses increased to $75.2 million in 2023 from $62.2 million in 2022, primarily due to higher compensation-related expenses and professional fees[156] - Interest expense increased by $15.6 million in 2023, substantially due to higher interest rates on the Term Loan B and the Revolver[158] Liquidity and Capital Resources The company generated a record $308.5 million in operating cash flow in 2023, increasing liquidity, but faces a critical 'spring-forward' maturity provision on its debt requiring refinancing of $500 million 2017 Senior Notes - Net cash provided by operating activities was a record $308.5 million in 2023, up from $207.0 million in 2022, primarily due to improved collection activity[163] - The 2020 Credit Agreement has a 'spring-forward' maturity provision, where if the 2017 Senior Notes are outstanding on January 30, 2025, the maturity of the Revolver and a portion of the Term Loan B will accelerate to that date; the company is working to refinance the 2017 Senior Notes and anticipates completing a transaction by the end of April 2024[171][172] - The company made a mandatory prepayment of $91.0 million on its Term Loan B in February 2024, related to annual excess cash flow from 2023[173] First Lien Net Leverage Ratio Covenant | Period Ended | Actual Ratio | Required Ratio | | :--- | :--- | :--- | | December 31, 2023 | 2.07 to 1.00 | ≤ 2.25 : 1.00 | Critical Accounting Estimates Critical accounting estimates involve significant judgment in revenue recognition for long-term contracts and annual goodwill impairment testing, with no impairment found for the Civil reporting unit in 2023 - Contract revenue is recognized over time using the cost-to-cost method, which requires significant management judgment and assumptions regarding future events, change orders, claims, and total estimated costs[179][181] - The company tests goodwill for impairment annually on October 1, and the 2023 test performed on the Civil reporting unit, which holds the entire goodwill balance of $205.1 million, determined that goodwill was not impaired[188][192][272] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $373.5 million variable-rate debt, where a 0.50% change impacts annual interest expense by approximately $1.9 million - The company is exposed to interest rate risk from its variable-rate debt, which totaled approximately $373.5 million as of December 31, 2023[194] - A 0.50% (50 basis point) change in floating interest rates would change annual interest expense by approximately $1.9 million[194] Financial Statements and Supplementary Data The Report of Independent Registered Public Accounting Firm and Consolidated Financial Statements are included in Item 15 of the Annual Report on Form 10-K - The company's audited Consolidated Financial Statements are incorporated by reference from Item 15[195] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[196] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, a conclusion affirmed by Deloitte & Touche LLP's unqualified opinion - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[197] - Management concluded that as of December 31, 2023, the company's internal control over financial reporting was effective based on the COSO framework (2013)[199] - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2023[204] Other Information No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q4 2023 - No director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements during the quarter ended December 31, 2023[210] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[211] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the definitive proxy statement, and the company has adopted a Code of Business Conduct and Ethics - Required information is incorporated by reference from the definitive proxy statement[213] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement - Required information is incorporated by reference from the definitive proxy statement[215] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides equity compensation plan information, with 2,682,894 securities to be issued and 987,001 remaining available, and further details incorporated by reference from the proxy statement Equity Compensation Plan Information as of December 31, 2023 | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 2,682,894 | $23.33 | 987,001 | Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive proxy statement - Required information is incorporated by reference from the definitive proxy statement[217] Principal Accountant Fees and Services Information regarding fees paid to the company's principal accountant is incorporated by reference from the company's definitive proxy statement - Required information is incorporated by reference from the definitive proxy statement[218] Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including Consolidated Financial Statements, the Independent Registered Public Accounting Firm's Report, and an index of all exhibits - The Consolidated Financial Statements for the three years ended December 31, 2023, and the Report of Independent Registered Public Accounting Firm are filed as part of this report[221] - An index of exhibits is provided, including material contracts such as the 2020 Credit Agreement and its amendments, and various employment and lease agreements[225][226] Form 10-K Summary The company reports no Form 10-K summary - None[228]