Tutor Perini (NYSE:TPC) Q3 2019 Earnings Call

0:01 Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation third quarter 2019 earnings conference call. My name is Kevin, and I'll be your coordinator for today. At this time, all participants are 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 purposes. If anyone should require operator assistance, please press star zero on your telephone keypad. I will now turn the call over to our host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.

0:35 Hello, everyone, and thank you for your participation today. Joining 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 are based on management's current assessments 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 most recent 10-K, which was filed on February 27, 2019. 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. In addition, during today's call, we will be discussing certain non-GAAP financial measures.

1:22 The appropriate GAAP financial reconciliations can be found in our unaudited investors report Thank you, Jorge.

1:35 Good afternoon and thank you all for joining us. As you saw in our earnings release and as we had expected and hoped, our operating cash generation was extraordinary in the third quarter, setting a new quarterly record that shattered the previous record by 38%. Our strong cash flow was driven by significant collections associated with several settlements, which we discussed during our last earnings call, as well by progress made toward resolving other disputes and overall effective management of our working capital as we continue advancing our larger projects. Of course, I'm pleased with the progress we have made on cash generation.

2:21 and expect that operating cash to be strong again in the fourth quarter and particularly strong in 2020 the next year. Despite the fact that our third quarter earnings were reduced once again by weather delays on Newark, owner milestone delays on Purple Line Section 2 and a delayed start on the Minneapolis Southwest Rail. I still remain confident in our ability to achieve the lower end of our 2019 earnings projections. In addition, significant negotiations have taken place in the first three quarters of 2019, including the previously announced resolve of all delays to date and immediate payment for those delays on the high-speed rail. Furthermore, we are negotiating significant changes that have been added to the project by the owner, with the extension of over 12 miles of intrusion barrier walls, as well as what we call the North to Madera extension.

3:37 However, once again, it's a very successful job that should have been done in 2018, and appears to be heading to the 2022 completion. And as such, it delays not only the revenue by four years, but of course the profits associated with the project. As I've said before, there is no diminishment of profit. In fact, it's an extremely successful and profitable job. Unfortunately, as a public company, It simply moves those earnings back year by year. We continue to be in an enviable advantageous position with significantly increasing market demand among an obvious lack and diminished number of competitors for major civil works.

4:35 Our recent success is reflected by our strong backlog growth this year and the opportunities ahead of us are substantial, including several very large pending awards and a tremendous number of other sizable projects expected to be bid and awarded. As an example, in the Los Angeles Metro Rail System, which is right now the biggest construction project in America that promises many billions of dollars worth of work, Over the next years, 10 years, Tutor Perini has been low bidder and awarded the first three major projects to the tune of $3 billion.

5:21 And we are low bidder and believe we'll be awarded prior to December 15, the Division 20 job for another $440 million. As we did for many years in the 80s and 90s, we believe we will be consistently prevailing in that enormous operation called LA Metro and will be the backbone of our growth going forward. Of course, as we all know, the growth, the backlog, and the margins are driven by our civil group. I might also add as just a bit of color, for those of you that are watching our public peers, Without mentioning by name, one by one over the last 12 months has announced enormous losses and essentially said to the world, including the marketplace, we are withdrawing from large design, build, civil work, lump sum projects as the risks are too great.

6:30 Well, that leaves us in only a handful remaining. in the extraordinary marketplace called U.S. infrastructure. We feel this will be significant in not only our continued growth in revenue, but much more impact on our profitability. We booked 690 million of new awards in the third quarter and finished the quarter with a backlog of 10.9 billion, up 28% year over year. Significant awards included a $178 million military housing project in Guam for black construction, three electrical projects for Fisk in Texas, collectively valued at $99 million, and Rudolph and Sletten, $59 million of incremental funding for an education building in Los Angeles and a $51 million Bayside Performance Park in San Diego.

7:34 Additionally, our fourth quarter new award bookings are already on pace to surpass our third quarter bookings, as we anticipate adding into backlog two pending awards that we recently announced, those being the $440 million Division XX Portal Widening and Turnback Facility, which I mentioned earlier, and the new P3 Miami-Dade County Courthouse, with a value in excess of $260 million. As a reminder, over three quarters of our backlog is comprised of higher margin civil and specialty projects. Accordingly, our backlog growth has been and will continue to be strong this year, and we expect further backlog growth next year, but more significantly increased profits as margins are driven up.

8:33 We believe that as a result of that tremendous demand and lack of competition, we will generate continued strong revenue growth, but more importantly, higher operating margins and increased earnings in 2020 and the years to follow. In mid-November, actually, the 19th, our civil group expects to bid the $400 million 8th Avenue communication base Train Control Project for New York City Transit. Other sizable upcoming civil bids include two large projects for Los Angeles MTA, the four plus billion dollar West Santa Ana Transit Corridor and the 1.5 billion dollar East San Fernando Valley Corridor, both of which are expected to bid in the latter part of 2020.

9:26 In addition, We will be looking forward to the Port Authority of New York putting out the $3.5 billion bus terminal in Manhattan, the $2 billion Brooklyn-Queens Expressway, and the $1.2 billion Penn Station access by the MTA. as well as the $1.4 billion portal swing bridge replacement and the $450 million Raritan River lift bridge, both in New Jersey bidding next year. We've also been positioning to compete for various other large civil opportunities that will be presented to us next year for proposals, and those include two air train projects for the Port Authority of New York, one at Newark where we are currently building their $1.4 billion terminal, and one at JFK, each of which are $2 billion.

10:41 Other major projects we are tracking for pursuit include the $7 billion Sepulveda Transit Corridor project for which we are Providing pre-qualification documents in the next two weeks. The $400 million LAX Airport Metro Connector, which will be a design-build lump sum, which we are also qualifying for, for Los Angeles Metro. And well over $15 billion of P3 projects all over the country. We're in various qualification stages with our financial partners and those will probably propose over the next two years.

11:31 The Special Contractors Group continues to bid and win new projects at higher margins than the past because they too have the same situation as us. Diminished competition and many more. He and I have had the opportunity to travel and work together to thoroughly assess the challenges and opportunities that we're facing in both groups. And he will be focusing 100% of his time to begin to bring those groups where we need them to be. And that's consistently profitable in a level of return acceptable to the parent company.

12:48 Next, I will review some significant projects that contributed to our third quarter results. In Los Angeles, major work is progressing on the $1.3 million Purple Line Section 2 project as we have sunk the shaft at Century City and the tunnel shaft across the street and will begin to place and assemble the tunnel machines before the end of December. We expect to commence tunneling with both tunnel boring machines by February of March of 2020. In addition, we are completing major utility relocations and have started work on a supportive excavation and excavation of the Wilshire Rodeo Station.

13:45 Also, I might add, as we were awarded Purple Line 3 tunnels and stations and two separate contracts. The TBMs were procured and are currently in manufacturing on Purple Line 3 tunnels, which is a $420 million tunnel-only contract and should arrive at the project site next spring with tunneling work expected to commence by the end of next year. In British Columbia, Frontier Camper's work on the $273 million Kamano Tunnel project continues to progress with about two kilometers of the new tunnel drive completed with five to go, which should be accomplished in the next 18 months. In the Midwest, London Construction continues to advance major work on the $800 million Manipur Minneapolis Southwest Light Rail and is also making significant progress on the $337 million I-74 project in Iowa.

14:57 In the Northeast, our most active projects include the $1.4 billion Newark Airport Terminal at the New Jersey Airport, the $665 million CMO-7 for the New York Transit Authority, which is nearing completion, The $660 million CS-179 train control and systems contract with New York Transit. And the $318 million CQ-33 also on the east side access in New York Transit. And last but not least, the $190 million Canton Viaduct bridges in Maryland. As a matter of interest, we topped out the newer terminal steel erection on October 24th, and the port and our company celebrated that topping out as is customary in the building business.

15:57 We anticipate a notable acceleration of project activities in the fourth quarter and continuing throughout the coming year on several large projects, including including many of those just mentioned. However, because of the temporary progress delays I spoke of earlier on several projects this past quarter and the corresponding impact those delays have had on our earnings, we now expect our 2019 earnings per share, excluding the impact of goodwill, will be lower than previously anticipated, and as such, we are revising our 2019 adjusted earnings guidance to a range of $1.40 to $1.55.

16:46 Finally, I will provide an update on the progress we are making in resolving our disputes and unbilled receivables of the five significant matters we indicated we had settled during our last Thank you for watching. totaling $257 million. We reached a partial settlement with the San Francisco Metropolitan Transit Authority in the third quarter on the Central Subway Project and as a result collected $31 million for the damages dictated by over two years of delay for which the owner accepted full responsibility and paid accordingly.

17:56 We have a balance of other significant issues, but with the owner's commitment and payment of all delays, we are well in our way and expect by January of 2020 to resolve the preponderance of the other issues with very little in the way of disputes. As I've said before, with negotiations, there can be no certainty that the amounts offered will ultimately satisfy us. However, in all of these cases, our entitlements to receive additional amounts have been agreed, and we are discussing the amounts that we are owed. I might also add in the significance of settlements to date. Every single one of them accumulated.

18:48 The total exceeded what we had booked. We are also currently in arbitration or litigation on several individual claims that should be concluded prior to March 31, 2020. The most significant of these is our litigation with the Washington Department of Transportation regarding the SR-99 tunnels, which is now expected to conclude on or before December 15 of this year, with a judgment rendered on or about that time. Counting the current cases being arbitrated, litigated in settlement discussions or mediations, we expect resolution on disputes, be it litigated or discussed, with book amounts totaling $618 million to be concluded by the end of 2020 and a balance of disputes Deferred until 2021 and 2022, typically because of the time involved on the Eastern Seaboard with getting court dates.

20:03 The moral of those pieces of information is everything is finally coming home to roost, whether it be negotiations, mediations, or outright litigations. These will be concluded. and with our history of successes in litigation, we are confident. Meanwhile, we continue to focus on executing effectively on our work in backlog while pursuing significant new opportunities which will drive our growth in the years ahead. I can speak to the newer terminal, high-speed rail, all three purple line Two and three jobs, including the totals, the total of which are probably $7 billion of work that reports direct to me.

20:59 We have no claims. We have no disputes. The jobs are moving the way they should, and all appear to be extremely profitable. With that, I will turn the call over to Gary to present the details of our financial results.

21:15 Thanks, Ron. Good afternoon, everyone. I will begin with the discussion over results for the third quarter, followed by some commentary on our balance sheet, cash flow, and then revised guidance assumptions. Revenue for the third quarter was $1.2 billion, up 6% year over year, the strongest quarterly revenue growth we have had in four years. We expect further revenue growth in the fourth quarter and for the next several years. Civil segment revenue for the third quarter was $525 million, up a strong 22% year over year, driven by increased activity on several newer projects that continue advancing and are contributing meaningfully. Revenue for the building segment was $415 million, down 9% compared to the third quarter of 2018, with the reduction due to the timing of revenue burn for newer work.

22:09 Several newer building segment projects, are expected to generate significant revenue next year as construction activities pick up. Specialty contractor segment revenue was $249 million, up 6% year over year, primarily due to increased activity on a newer, large mechanical project in New York that has begun to contribute significantly to the group's results. We anticipate even larger contributions from various projects in the specialty segment that are in the early stages and are accelerating over the remainder of this year and into 2020. Gross profit for the third quarter of 2019 was $115 million, up 4% compared to the third quarter of last year, with a corresponding gross margin of 9.7% that is essentially the same as last year's third quarter.

23:01 G&A for the quarter was $67 million, up 5% compared to last year, mainly due to higher legal and personnel related expenses. As a result, income from construction operations for the third quarter was $48 million, essentially level but up slightly compared to the same quarter of last year. Civil segment income from construction operations for the third quarter was $51 million, up 23% compared to the same quarter of last year, consistent with the increase of the segment's revenue in this quarter. The segment's operating margin for the third quarter of 2019 was 9.7%, level with last quarter, and up marginally compared to the third quarter of last year. We anticipate higher margins in the civil segment as several of the group's larger and newer projects contribute more substantially to our results over the coming quarters.

23:55 Building segment income from construction operations was $8 million compared to $9 million in last year's third quarter with a decline reflective of the segment's lower volume. The building segment's third quarter operating margin was 1.8% We anticipate that building segment will report higher margins in 2020 as several of the group's newer higher margin projects continue to advance. Specially contractors income from construction operations was $7 million compared to $12 million in the same quarter of last year. The decrease was principally due to the net impact of adjustments on certain electrical projects in New York.

24:40 Operating margin for the specialty contractor segment was 2.9% compared to 4.9% for the same quarter of last year. While we were pleased to see a return to profitability for this segment in the third quarter, the group's profitability remains below the 5% to 7% margin level that we expect the longer term. As Ron mentioned earlier, we are working diligently to stabilize and improve the specialty group's performance. Interest expense for the third quarter of 2019 was $17 million compared to $16 million in the same quarter of last year. The increase was primarily driven by higher average revolver balance during this year's third quarter compared to the prior year period. Effective tax rate for the third quarter was 17.3% compared to 22.5% for the same period of 2018.

25:31 The lower rate for this year's third quarter primarily reflects the favorable impact of tax to return provision adjustments, a smaller unfavorable impact of share-based compensation related charges, and a higher content of earnings from non-controlling interests. Net income attributable to Tutor Perini for the third quarter of 2019 was $19.3 million, or $0.38 per diluted share, compared to $21.3 million or 42 cents per diluted share for the third quarter of last year. The lower net income in this year's third quarter was due to the higher income attributable to non-controlling interests compared to the same quarter of 2018 where we consolidate the revenue but only pick up our proportionate share of the earnings.

26:16 Also keep in mind that as Ron noted earlier, namely that the third quarter revenue shortfall that drove our revised DPS earnings guidance for 2019. It does not represent lost earnings, but simply profit. It did not materialize as quickly as we expected, so it just shifted into future periods. Next, I'll shift gears and discuss our balance sheet and operating cash. Our project working capital decreased significantly by 10% in the third quarter compared to the second quarter, primarily because of an increase in billings in excess of costs or advanced billings which is partially offset by an increase in retainage receivables. As I mentioned last quarter, we have been successful in continuing to advance bill several of our large fixed price projects.

27:03 Our operating cash generation third quarter of $223 million was beyond the outstanding operating cash flow that we predicted for the third quarter at our last earnings call. This quarter's operating cash flow completely eclipsed our previous and many more. Although we do not expect another record operating cash flow for the fourth quarter, we do fully expect to close the year strong and finish this year with operating cash flow well in excess of net income, excluding the second quarter goodwill impairment charge.

27:56 As a result, 2019 should mark three of the last four years that our operating cash flow has exceeded net income and we anticipate more of the same for next year and beyond. Our total debt as of September 30th, 2019 was $836 million, a substantial reduction of $120 million or 13% compared to $956 million at the end of the second quarter. The decrease reflects a significant pay down of our revolver balance enabled by the strong cash that we generated in the third quarter. We're well within the limits of and in compliance with our debt covenants for the third quarter and we do not expect any issues related to covenant compliance going forward.

28:41 Ron mentioned earlier our revised adjusted EPS guidance for 2019. All of the previous assumptions associated with our guidance remain the same except for our estimated adjusted effective tax rate for 2019. We now anticipate this rate to be between 26% and 27% for the year, slightly lower than the previously expected rate for the reasons I mentioned earlier that resulted in the lower tax rate for the third quarter. With that, Ron, I'll turn the call back over to you. Thank you, Gary.

29:11 Without reiterating the obvious that our cash flow was remarkable and we expect it to continue, and the fact our backlog is at record highs, and we seem to be able to dominate the low-bid atmosphere in both Los Angeles and New York, I am extremely optimistic about 2020 and 2021 for one simple reason. Our civil group has always achieved and always led Tutor Perini with significant earnings and maintained budgets and maintained the earnings expected. With our struggles in the building group and the issues contained within our specialty group, it has always been a problem and never been consistent, which is why we always earn money but On a number of years, not quite what we should have and may have disappointed not only ourselves, but our shareholders.

30:14 But I would remind everyone, as our disappointments relate to so many cents a share, our public competitors are writing off hundreds of millions of dollars in the same time frames for their inability to do the same jobs we're excelling at. Given that in mind, I expect the next two to three years to have more enormous opportunities than we can even accomplish. And we'll continue to raise the margins until somebody finally beats us. With that, I'll turn the call back to you. Thank you. We'll now be conducting a question and answer session.

30:59 If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming from Alex Regal from B Riley FBR. Your line is now live.

31:28 Thank you, Ron. Great quarter on cash collection there. Congratulations. Could you, just to clarify, could you repeat on the cash collections that $257 million that you had identified on your second quarter conference call that you were going to collect by the end of March 2020? On this call today, did you just say that you expect most of this to be resolved by the end of January?

31:54 No. Or was that in reference to the L.A.?

31:58 That's SFMTA.

32:00 That's SFMTA only.

32:02 Okay. and your visibility and confidence on the remaining balance to get to that 257 by the end of March. How confident are you on that front?

32:15 Absolutely confident.

32:18 How many other projects make up that remaining balance there?

32:22 Oh, it's about between maybe eight or nine, something like that. Not quite a dozen.

32:31 We even had a job as I projected. I have my own list of every single unbilled receivable claim and litigation. And we had ticketed our Andrews Air Force Base claim where we have sued the government for $39 million. We ticketed for an adjudication to 2023. And the government called and said, before we waste any money with lawyers, They'd like a mediation in January or February of next year. So what's happening, and will continue to happen on a quarterly basis, one by one, three by three, five by five, they're all coming to a head. And if we do what we've always done in the past, we will prevail on, if not every single one, most of them. and we'll report it as they come up, whether it's news releases or quarterly calls.

33:30 Alex, if I could add this, on this particular one, Andrews, that Ron was mentioning, that's not, it wasn't last quarter and we have not adjusted, you know, the 257 to include it in this quarter. It could be, as Ron's saying, that the 257 then is accelerated, at least with respect to that one, where it could even be larger. But it's not in the 257.

33:52 Okay, and then you announced that you had $700 million of awards subsequent to the end of the quarter. Ron, can you repeat and quantify the value of the projects that you're low bid on right now? I got a little confused there, Nicole. Thank you.

34:09 Well, the biggest single one is the Division 20 turn back, again, for Los Angeles MTA. That's $440 million. and then there were, if I recall, a couple of building jobs. Oh, excuse me, we have the Miami-Dade County Courthouse, which was $260 million, which we have given a notice of award. It's a P3 job, and the only thing remaining is our P3 financial partners are doing final terms. And the two of those constitute $700 million. $700 million. and by the way, the Division 20 we've been told will award on or before December 10th.

34:53 And lastly, given the increase in P3 opportunities in front of you, can you comment on terms and conditions and risks that you see within those projects and how they compare to maybe terms and conditions and risks over the last couple of years?

35:07 Well, what I would add is the times are very extraordinary. So I spent a lot of my time visiting with the principals of our largest owners, namely the Port Authority. I don't talk to New York Transit. Jack Frost, our president, seems to be in their office every week. But I'm explaining to our owners, for those of them that don't understand, that whether it's a P3, a design build, or a design bid build, they all function around the general contractor. There may be a dozen financial leads in the P3 market, but they can't do anything without a giant like us to guarantee price and guarantee schedule and delivery. So the handful of us left control that.

35:58 And let me simply add, I meet with all our owners and agencies and say, if your terms are not changed to be contractor friendly, With reasonable liquidated damages, significant paid upfront mobilizations, clauses that mandate resolves as you go, we simply won't bid. And for the first time they get it, and the greatest example is the Newark Terminal, where we're the only vendor that finally proposed. And because they had to get it built, they award it. The time for owners dictating terms has passed. We don't get reasonable terms. We wave goodbye.

36:45 I got a call from the largest subway district in Canada, the principals of the agency, who are desperate for competition and there's not much left in Canada, and asked because we're the biggest transit builder in the U.S., would we consider coming to their city and bidding their work? My response is it's very nice. Thank you. Thank you. Our next question today is coming from Stephen Fisher from UBS.

37:42 Your line is now live.

37:44 Thanks. Good afternoon. Hi, Stephen. Familiar voice. Yeah. Hey, Ron. It's good to see, obviously, the strong cash on the quarter. Can you just break that $223 million down for us in terms of how much was the dispute collections versus just ongoing profit conversion versus... Advanced Payments. I think, Gary, you did mention there was some of that in the quarter. So just kind of break it to those three buckets if you can.

38:15 Yeah. See, there are a lot of moving parts. But, you know, for the settlements that we have announced, we had $101 million plus the $30 million for SFMTA. So, you know, certainly we had some smaller settlements, also that Rodney and Castor in the quarter. We also had Advanced Billings. that totaled about $180 million for the quarter. So that is indicative of, you know, billings in excess of cost.

38:42 Yes, we did.

38:44 And the, you know, I would say then, you know, we also have other uses of working capital, you know, at the projects that offset some of those amounts. But those are some of the biggest ones.

39:01 We settled to be direct. We settled $126 million with California High Speed Rail, and they prepaid it for the settlement of all delays to date. We settled $31 million with San Francisco MTA because they assumed responsibility for all the delays to date. And just to support Gary, there's so many other miscellaneous. We had a number of settlements in the $5, $7, $8 million range. I've got three that we've settled and I'm waiting for documents to come through. That's very helpful.

39:38 Just kind of building on that, just curious about what the base case for minimum collections are. Is the starting point that $24 million that you mentioned from Fontainebleau and $695 and then is there some degree or some level of Advanced Billings that you expect already based on some of these additional awards?

40:03 Well, yes, there'll be. We basically mandate that the jobs we get, we expect to get mobilization or what we call advanced billings. We expect to work off the owner's money, not ours. And those contracts that don't afford those, we think seriously about not quoting unless there's no competition. and we overcompensate in margin if they won't give us a decent contract. But having said that, I think we covered the settlements of claims.

40:39 Right. So, Steve, besides the advanced billings that we expect to continue, you know, not quite at the clip that we had in this last quarter, but, you know, the remaining $24 million that you mentioned, and then, you know, we're talking about $257 million that would be collected by the end of the third quarter, excuse me, first quarter of next year, end of March.

41:02 So we clarify, let me correct that. There's 257 that will be adjudicated. That's right. We haven't collected it yet. We just believe that it will be consummated one way or the other. One is a large lawsuit. The rest are a whole series of settlements where we're in various stages of agreement where we've got to come to a number that we've agreed to.

41:28 That is very helpful. And then, Gary, it looks like your Q4 margins in civil are implied to have a pretty solid rebound there. I'm getting somewhere in the low teens levels. Is that the way you're thinking about it? I think in your comments you said there's some of the newer projects that will – be getting going. So does that take you directly to that 13%? And is that sort of a starting point to build on as you go through 2020? Or is it sort of going to level off at that kind of 13-ish percent or so?

42:04 You know, after segment overhead, we do expect to be around that range. You know, we're hopeful that longer term we drive it higher than that.

42:14 We'll be significantly higher going forward. We have historically, for the last 10 years, our civil group has landed, let's say, between 11 and 13 as is with those margins. I can tell you the margins of all our new backlog is significantly higher than what our norm was over the last 10 years. So as that new work finally gets going and generates significant revenue and cost, I expect to expand on the 13% somewhat significantly. But it will require that the Purple Line tunnels and stations get going, high speed rail gets released, which is significantly better. Newark is continuing. The only thing we fight in Newark is the most incredible array of rain on a regular basis. But other than that, the real answer is everything that we've been awarded in the last two years as if margins significantly higher than what has generated 11% to 13% in the past. How's that for sticking my neck out?

43:23 Love it. And then maybe, Ron, just sort of big picture here, you offered some interesting perspective about the industry in general and acknowledge that 2019 was a pretty volatile year with moving parts on project timing changes and special items and the guidance. Just kind of wondering how you think about the potential for reduced volatility in the outcomes in 2020 versus 2019. And related to that, you know, next quarter we'll get your 2020 guidance. So curious how you're going to approach that.

44:01 I think one of the things – The good news is, and even in our specialty group with all the problems we've had, their early projections for 2020 are outstanding. We review the entirety of their work in process. They believe, and I'm almost a secondary believer, that the worst is behind them and their results will do better. But candidly, I think as we move forward, With all the increased revenue and significantly higher margins, we have to do a better job of anticipating the unanticipated, which translates, we have to hold more reserves, we have to be better about reporting what we're going to make, not just based on all of our projections with some reserve for problems, but we've had a history of We continue to make money.

45:30 and have announced to the world they're out, they're not doing any more, and by the way, they lost hundreds of millions of dollars. So we've got to learn from that, and we've got to be more accurate in our projections, and whatever it takes to be more accurate, we've got to utilize, and I'll shoulder the responsibility for that.

45:51 Yeah, Steve, just to expand on that a little bit, Ron and I have talked this week about obviously as we put 2020 guidance out there, And this is consistent with what Ron's saying. We just need to build in larger cushions to absorb some of those impacts that are impossible to predict.

46:10 Sure. All right. Well, thanks a lot, guys. We'll talk to you soon. Thanks, Steve. Thank you. Our next question today is coming from Brent Feelman from D.A. Davidson. Your line is now live.

46:22 Great. Thanks. Congrats as well on the collections and cash flow. Maybe I'll pick up off that last point, Gary. I guess we aren't talking 2020 specifics yet, but you've got a really large backlog with jobs moving in various stages. And I guess is there any initial thoughts on the kind of growth rates you expect to see next year?

46:48 No, we don't want to talk about 2020 this time because we haven't firmed up and applied that cushion to it. But we do expect There could be a significant growth rate. We do have this large backlog, as you mentioned. We're just coming down a little bit from our record backlog. We expect a new record backlog, you know, sometime in 2020. And as that starts to burn its higher margin, as well as Ron had indicated, revenue should go up and margins should go up. So earnings should go up appreciably.

47:22 Okay. And then I guess with the jobs that didn't necessarily progress this quarter, I think in civil, I guess at this point in 4-2, have you started seeing those move?

47:36 Have I started what? The jobs that were not advancing, you know, the temporary progress delays that we had. Are we starting to see them advance in the fourth quarter?

47:45 Well, I know Southeast Rail, the light rail project in Minneapolis has finally gotten started. There were just One difficult delay to start after another, and what should have been going three, four months ago is finally getting going on any scale. Purple Lines 2 and 3, Purple Line 3, although awarded, other than engineering revenue and costs and mobilization, we really haven't started construction, and we won't start construction until fourth quarter of 2020. Now the purple line, three tunnels, we have tunnel machines coming and we expect tunneling to commence next year.

48:32 The problem jobs timing-wise, interestingly enough, are amongst our most profitable. Newark, for those of you that live in New Jersey or nearby New York City, the rain and weather delays beyond the norm for the last year have been lost rapidly. 120 days out of the last 400 days in rain, winds, and weather. And of course, all the revenue costs and margin that goes with it. Are we done? No, we're still fighting weather in Newark, and it could potentially extend the cost, or excuse me, the schedule as much as six months. However, it won't affect our profits.

49:19 It will just affect schedule and the ability to earn the same margin within a shortened period of time. So it affects our EPS. High-speed rail, which started at $960 million and appears to be heading north of $2 billion in a final contract price, has been delayed and delayed, and as I said in the last call, We have agreed with High Speed Rail on virtually all delays. They've compensated us for all delays. We've revised our completion date to the end of 2021. They're still trying to get their easements and right-of-ways procured, but it appears in December, as I said earlier, we'll begin to once again build momentum at High Speed Rail so that we can conclude the balance of the work.

50:16 We're approximately 50% complete with 50% to go so you can imagine the kind of revenue that should generate over the next two years.

50:28 Okay. Thanks for that detail. And I guess my last question, I guess with all this work within civil still to come and potentially be booked over the next 12 plus months, Are you able to find the people, or more importantly, the right people to manage all this?

50:45 Well, I and all my executives, I swear I'm like a college recruiter looking for all Americans. I'm interviewing top people every day. The only good news, if it's really good news, is, as you know, many of our peers have exited this type of work, very large, complicated civil work. So all of their managers are available, and I see resume after resume, and I am interviewing, and I have brought in a number of executives, project executives, but I tell them you have to serve an apprenticeship with Tutor Perini where you go out on one of our very large jobs, you're given a section to prove yourself, and you work under one of our project execs, ultimately reporting to me.

51:33 That prove yourself period is approximately one year. So we are recruiting. We've literally infused over a million dollars into our training program. We're doing everything we can to build up our physical capacity because there's no question the market is there for us if we have the people. That's the only really inhibiting factor. But we will grow our revenue as we are. But at some point when you recognize the limited competition, we will run out of gas. Hard to fathom as that is. It's a new world. Okay.

52:16 Thank you. Appreciate it. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing remarks.

52:26 Oh, that's very good. Thank you, everyone. Thank you. Talk to you next quarter. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.