Tutor Perini Corporation (NYSE:TPC), a leading construction company, reported mixed financial results for the year 2023. Despite facing challenges such as adverse legal judgments and write-downs, the company achieved a record operating cash flow and saw a significant increase in its backlog, which rose 28% from the previous year to $10.2 billion.
Looking ahead, Tutor Perini anticipates resolving most legacy disputes by 2024 and expects to return to positive earnings with a double-digit revenue growth forecast.
Key Takeaways
- Tutor Perini reported record operating cash flow and a backlog increase of 28% to $10.2 billion.
- The company experienced losses in the Building and Specialty Contractors segments due to legal issues and unfavorable adjustments.
- Revenue growth is expected across all segments, with the Civil segment showing the strongest improvement.
- Tutor Perini plans to reduce debt and complete refinancing, aiming for a normalized level of costs and excess of billings at 5% of revenue.
- CEO Ronald Tutor expressed confidence in winning bids for large projects with limited competition, citing a 50% win rate for projects over $1 billion.
Company Outlook
- Tutor Perini anticipates double-digit revenue growth in 2024 and a return to positive earnings.
- Initial EPS guidance for 2024 is set between $0.85 and $1.10.
- The company expects to resolve most remaining legacy disputes in the coming year.
- Over $75 billion in project opportunities are in the backlog, with significant prospects like the Brooklyn Jail project and the Puget Sound Naval Shipyard dry dock project.
Bearish Highlights
- Losses were reported in the Building segment due to an adverse legal ruling and in the Specialty Contractors segment, albeit reduced from the previous year.
Bullish Highlights
- The Civil segment reported a substantial increase in income.
- The company has seen a growth in revenue in the fourth quarter across all segments.
- Tutor Perini plans to continue deleveraging by paying down Term Loan B and refinancing its senior notes.
Misses
- Earnings were negatively impacted by adverse legal judgments and write-downs.
Q&A Highlights
- CEO Ronald Tutor clarified that disputes and negotiations make up about 5% of their projects, with the majority being disputed claims.
- The company is able to influence changes in owners' contract terms due to limited competition.
- Tutor Perini has a 50% win rate for bidding on projects over $1 billion.
In conclusion, despite a challenging 2023, Tutor Perini Corporation looks forward to a stronger financial performance in 2024, with an emphasis on growth, profitability, and reducing debt. The company remains optimistic about its ability to secure large-scale projects and improve its market position.
InvestingPro Insights
Tutor Perini Corporation's (TPC) financial landscape presents a unique profile according to the latest data from InvestingPro. With a market capitalization of $568.6 million, the company's valuation reflects some intriguing aspects.
A notable InvestingPro Tip highlights that TPC is trading at a low Price / Book multiple of 0.37, suggesting that the company's stock might be undervalued relative to its net asset value, which could interest value investors.
The company's revenue for the last twelve months as of Q4 2023 stands at $3.88 billion, with a modest growth of 2.36%. This aligns with the company's reported increase in backlog and anticipated revenue growth.
Additionally, the gross profit margin is relatively low at 3.62%, which aligns with another InvestingPro Tip indicating weak gross profit margins. This could be a point of concern for investors looking at profitability and operational efficiency.
Despite a challenging year, the stock has shown resilience with a 1-year price total return of 13.93%, nearing its 52-week high at 97.57% of the peak value. This performance may give investors some confidence in the stock's recovery potential.
Moreover, with liquid assets exceeding short-term obligations, TPC appears to be in a stable liquidity position, which is critical for future operations and growth investments.
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Full transcript - Tutor Perini Corp (TPC) Q4 2023:
Operator: Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation Fourth 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 Instructions]. I will now turn the conference call over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed.
Jorge Casado: 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-K, which we are filing today. The company assumes no obligation to update forward-looking statements whether due to new information, future events or otherwise other than as required by law. Thank you. And I will now turn the call over to Ronald Tutor.
Ronald Tutor: 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 Tutor Perini, and that Gary is expected to succeed me as CEO effective January 1 of next year. 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 $10.2 billion figure. We generated $308 million of operating cash in 2023, compared to $207 million in 2022, with both years setting records as the highest results of any year since the 2008 merger between Tutor-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 sustain modest revenue growth in the Civil and Building segments mostly offset by lower revenue in the Specialty Contractors segment. 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 million. 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 million, bringing its balance to $276 million compared to its original $425 million. This pay down was not required until the first week in April, but we decided to pay it down early to capture interest savings over the next few months. Following this pay down, 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. As I mentioned, our year-end backlog stood at $10.2 billion, up 28% with strong growth largely driven by the award of the $2.95 billion Brooklyn Jail project in New York. Other significant new awards and contract adjustments in 2023 included $788 million of additional funding for certain mass transit projects in California, $287 million of additional funding for two large healthcare projects in California, $222 million military facilities project at Tinian International Airport in the Northern Mariana Islands, and $127 million 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 $1.2 trillion Bipartisan Infrastructure Law that was passed in 2021 for which funding is now flowing. We are tracking more than $75 billion of opportunities over the next three years to four years and $32 billion of which are expected this year and next. Some of the most significant near-term prospects include the $6 billion dry dock at Puget Sound Naval Shipyard in the State of Washington, the $2.6 billion DTX Transbay Transit Center project in Downtown San Francisco, the $2 billion Honolulu Rail Transit project, which we had previously been the low bidder in 2020, the $2 billion Sites Reservoir project in Northern California, the $1.8 billion South Jersey Light Rail in New Jersey and again the $1.5 billion Newark AirTrain, for which we had also been low bidder some two years ago. And the $1 billion Inglewood 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 costly endeavor of all the facilities, which will bid an award in the third or fourth quarter. I could go on and on and I'm only talking about the megaprojects. However, others worth of note are an $800 million Kensico Tunnel, the $800 million Amtrak East River Tunnel rehab, which we've already bid and should hear the results any day. The $500 million Palisades Tunnel in New York and the $750 million 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 2024 in the range of $0.85 to $1.10. 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. Thank you. And with that, I'll turn the call over to Ryan to review the financial results.
Ryan Soroka: 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 fourth quarter. Then I'll provide some commentary on our balance sheet, our 2024 guidance assumptions, and our refinancing effort. As Ron mentioned, operating cash is one of the major highlights in 2023. For the second year in a row, we achieved a record operating cash flow and more impressive is the $308 million that we generated in 2023, was an increase of nearly 50% compared to the prior year record of $207 million 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 had 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 solved 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. 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 million, a payment that was not due until the first 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 $3.9 billion, up slightly compared to $3.8 billion 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 $1.9 billion, up 9% compared to last year, primarily due to the absence of certain prior year unfavorable adjustments, 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. Building segment revenue was $1.3 billion, 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 million for 2023, mainly due to decreased activities on the electrical and mechanical components of a completed transportation project in the Northeast. We reported a reduced loss from construction operations of $115 million in 2023, compared to a $205 million 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 million, up substantially compared to $21 million in 2022. 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 million in 2023 compared to income from construction operations of $7 million in 2022. The loss in 2023 was largely attributable to an adverse legal ruling in the first quarter of 2023 on the completed mixed use project in New York that resulted in a non-cash pretax charge of $83.6 million, of which $72.2 million impacted the Building segment and $11.4 million impacted the Specialty Contractors segment, as well as an unfavorable adjustment of $14.6 million in the 2023 fourth quarter 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 million in 2023 compared to a loss of $168 million 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. We were significantly challenged once again in 2023 by charges in the Specialty Contractors 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 and 2022 in our 10-K, which was filed today. Note that the majority of the remaining larger disputes are expected to be resolved in 2024. Corporate G&A expense was $75 million in 2023 compared to $62 million 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 million compared to $7 million last year, primarily due to a gain on sale of property in 2023. And interest expense for 2023 was $85 million compared to $70 million 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 million in 2023 due to our significant pretax loss for the year and an effective tax rate of 30.1% compared to our larger tax benefit of $75 million, with an effective tax rate of 28.1% in 2022. As we return to profitability in 2024, and in future years, the net operating losses generated in 2022 and 2023 will help reduce our cash outlays for future income taxes. Net loss attributable to Tutor Perini for 2023 was $171 million or loss of $3.30 per share, compared to a net loss of $210 million or loss of $4.09 per share in 2022. It was certainly another disappointing year for us in 2023 from an earnings perspective, but as Ron mentioned, we anticipate double-digit revenue growth and a return to positive earnings in 2024, with substantially stronger earnings expected in 2025 and 2026. Now, let's turn to the fourth quarter results. Revenue for the fourth quarter was $1 billion, up 13% compared to $907 million for the fourth quarter of 2022. Civil segment revenue was $459 million, up 5% compared to $440 million last year. Building segment revenue was $376 million, up 15% from $327 million last year, and Specialty Contractors segment revenue was $186 million, up 33% compared to $140 million last year. The revenue improvement across our business was largely attributable to fewer charges in the fourth quarter 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 fourth quarter of 2023. Civil segment income from construction operations for the fourth quarter of 2023 was $28 million, up substantially compared to $9 million 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 $7 million for the fourth quarter of 2023, compared to a loss of $2 million for the fourth quarter last year. The larger loss in the fourth quarter 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 million in the fourth quarter of 2023, compared to a loss of $86 million in the fourth quarter of last year, as 2023 had fewer unfavorable adjustments than in the prior year. And corporate G&A expense in the fourth quarter 2023 was $19 million compared to $17 million for the same quarter last year. And other income for the fourth quarter was $5 million compared to $2 million last year. Interest expense for the fourth quarter of 2023 was $21 million compared to $20 million last year. Income tax benefit was $3 million in the fourth quarter of 2023 compared to an income tax benefit of $28 million for the same quarter last year. Net loss attributable to Tutor Perini's for the fourth quarter of 2023 was $48 million, or a loss of $0.91 per share, compared to a net loss of $93 million, or a loss of $1.80 per share in last year's fourth quarter. Now, I will address the balance sheet. Our net debt as of December 31, 2023, was $519 million, down $180 million or 26% compared to our net debt of $699 million at December 31, 2022, with a significant reduction due to our record cash flow in 2023. As of December 31, 2023, we were in compliance with the covenants under our credit agreement and expect to continue to be in compliance in the future. Next, I'll provide some assumptions regarding our guidance. G&A expense for 2024 is expected to be between $265 million and $275 million. Depreciation and amortization expense is anticipated to be approximately $54 million in 2024, with depreciation at $52 million and amortization at $2 million. Interest expense for 2024 is expected to be approximately $83 million, of which about $10 million 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 million and $65 million. And we expect approximately $53 million weighted average diluted shares outstanding for 2024 and capital expenditures are anticipated to be approximately $25 million to $30 million with about $5 million to $10 million of that being project specific and owner funded. 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.
Ronald Tutor: 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 2025, 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 a 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. We believe there will be even significantly higher earnings in 2025 and 2026, 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 billion 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. 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. [Operator Instructions]. Thank you. Our first question comes from the line of Steven Fisher with UBS. Please proceed with your question.
Steven Fisher: Thanks. Good afternoon. Good to see the balance sheet continuing to improve and Ron, hope you feel better soon.
Ronald Tutor: Thanks.
Steven Fisher: Wanted to just maybe start with unpacking the fourth quarter a little bit. We still had losses in two out of the three segments. And can you just maybe breakdown for us how much of that was projects that had some new charges on them versus what 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.
Ronald Tutor: 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 newer job by both our mechanical and electrical subsidiaries. And Gary, if you could elaborate on anything beyond those that were specific to the fourth quarter that's what I recall.
Gary Smalley: Yes. Ron, I'll. Yes. To go on top of what Ron said, we did continue to struggle in the Specialty Contractors segment. There was also a mechanical project in the Northeast that also took a charger in the fourth quarter, and that's also specifically disclosed in Form 10-K.
Steven Fisher: 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, or is there anything else in that segment [indiscernible] margins in the quarter.
Ronald Tutor: We're just coming back from COVID and two 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 billion 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. So we think our backlog is going to break every record and our revenue will go back to where it was and more.
Steven Fisher: 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 guess he says more back end weighted but maybe just starting with the segment level.
Ronald Tutor: I'll give you my sense first, and then Ryan, you can chip in with your knowledge of the numbers that I'm sure 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 Rudolph and Sletten 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.
Steven Fisher: Perfect. Okay.
Ryan Soroka: Yes. I agree with Ron on that.
Steven Fisher: 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?
Ronald Tutor: 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.
Gary Smalley: 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. 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 wanted 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.
Steven Fisher: Thanks, Gary. Are you expecting to be profitable in the first quarter?
Gary Smalley: Yes. Our plan is be profitable in each quarter. And when you asked Ron, he -- 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. 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.
Steven Fisher: Terrific. I'll turn it over. Thank you very much.
Operator: Our next question comes from the line of Kevin Lee with Western Alliance (NYSE:WAL) Bancorp. Please proceed with your question.
Kevin Lee: 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. Is there a number by any chance, for those non-cash charges or project impairments for Q4?
Ryan Soroka: 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&A, I think we touched upon the two largest earlier related to that, the Building segment project in Florida and a mechanical project in the Northeast.
Gary Smalley: And as far as like the aggregate total, we do that for the year, but there's no fourth quarter disclosure that's best 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.
Kevin Lee: 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 -- there were quite a few projects, namely the one, the toll road in Maryland that got broken up. 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, it's -- what the timing of those should be like and when we might anticipate hearing of awards of such sort. Thanks.
Ronald Tutor: We're bidding all the time, and we're waiting any day for the $800 million Amtrak Tunnel that we bid two months ago. We're going to be bidding the Inglewood billion dollar transit project in the second quarter, the heart job at $2 billion at the end of the second quarter. We are just -- we're bidding these major jobs as significant with never more than two 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.
Kevin Lee: All right. Thanks.
Ryan Soroka: Thanks, Kevin.
Operator: Our next question comes from the line of Michael Odell with MidOcean Partners. Please proceed with your question.
Michael Odell: 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 overbuilding. Has something structurally changed in the business, or should we expect this portion of working capital to reverse to more normalized levels?
Ronald Tutor: 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, stay ahead of the owner's money. On the theory that 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.
Michael Odell: Okay. You don't expect that to reverse?
Ronald Tutor: No.
Michael Odell: And then, just as you think about the refinancing, what do you think the optimal leverage is for the business in the near-term, then more over the intermediate term? Just given a lot of your peers have delevered to net cash or very little leverage positions. How does that go into how you structure a refinancing?
Ronald Tutor: Well, we hope to reduce the bond issue principle significantly. We've reduced the term loan, and from what we're projecting in cash flows over the next two years to three 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 two years, I can't think of a better way to use it than the reduced debt further, particularly at these absurd interest rates.
Michael Odell: Okay. Great. Thank you.
Ronald Tutor: 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 (NYSE:BAC). Please proceed with your question.
Abe Landa: Good afternoon. Thanks for taking my questions, and also thanks for that update on finance. And 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. Maybe can you just talk 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 expect to be strong this year and next year.
Ronald Tutor: You want to speak to that. I assume that means currently in the second quarter refinancing as opposed to future.
Ryan Soroka: Yes, so --
Ronald Tutor: You're looking at --
Ryan Soroka: Abe?
Abe Landa: 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, et cetera?
Ronald Tutor: Well, in the short-term, we paid the term loan from $420 million to $260 million give or take a million. We intend to reduce the bond issue when we reset the bonds be it private or public, significantly less than the $500 million, 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.
Gary Smalley: And as far as how that looks structurally, Abe, it really depends on. We're -- it's a little too early for us to know that right now, we're looking at all options and we're progressing down different paths. And so we'll know a little bit more in maybe a couple of weeks. 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.
Abe Landa: 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 and excess of billings. Good to see that trend lower. Longer-term, where do you expect those? What's like a normalized level of costs and excess of billings, and when do you expect to reach those levels?
Ronald Tutor: Assuming we get our revenue back up to $5.5 billion or more, which was where it was and should be back there hopefully within the next 12 months 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 million to $300 million of costs in excess, disputed matters, however you want to classify them, would be something reasonable. Ours got out of control, exacerbated by a two-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. Everything's 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.
Gary Smalley: Yes. So Abe, the -- 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 unimproved change orders that are not being disputed.
Ronald Tutor: There's three components to it.
Gary Smalley: So the 5% is really the disputed bucket that Ron mentioned.
Abe Landa: And then it's expected something on top of that. So maybe like 10%, something like $500 million, $600 million, something like that, maybe --
Ronald Tutor: No, no, no.
Abe Landa: No, thus [ph] far.
Ronald Tutor: 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 million on top of $250 million to $300 million that should be the maximum.
Abe Landa: That's very clear. And last one is just you kind of mentioned that there's $32 billion of projects out there with limited competition. You're kind of saying typically you only see one to two 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, et cetera, anything help us think about the company going forward.
Ronald Tutor: One of the things that has happened in the last three years and unfortunately, we got practically everything we bid over a period of 14, 15 months, it resulted in $11.5 billion 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 billion there's only two or three 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, if you have any owners' terms, you either change them or you won't bid. And they're usually faced with two 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. Adhere to four in the past when they had four or five bidders on every job, the owner's attitude, well, then don't bid, if you don't like our contract. Well, the worm is turned.
Abe Landa: And do you have like a typical win rate or is it given two to three, it's 50 to a third, something like that.
Ronald Tutor: I can't give you a win rate. I would say if we took all the billion dollars and up that we bid, I could probably dig it out, but I'd guess we're a 50% win rate or better.
Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to CEO, Ronald Tutor, for closing comments.
Ronald Tutor: 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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