Jorge Casado - Vice President of Investor Relations and Corporate Communications Ronald Tutor - Chairman and Chief Executive Officer Gary Smalley - Executive Vice President and Chief Financial Officer.

Brent Thielman - D.A. Davidson & Co. Alexander Rygiel - B. Riley FBR Tahira Afzal - KeyBanc Capital Markets Inc. Steven Fisher - UBS.

Good day, ladies and gentlemen, and welcome to the Tutor Perini Corporation Third Quarter 2018 Earnings Conference Call. My name is Rob, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following managements prepared remarks we will be opening the call for question-and-answer.

As a reminder, this conference call is being recorded for replay purposes. [Operator Instructions] I will now turn the conference over to your host for today Mr. Jorge Casado, Vice President of Investor Relations. Please proceed..

Hello, and thank you all for your participation. Joining us today are Ronald Tutor, Chairman and CEO; and Gary Smalley, Executive Vice President and CFO.

Before we discuss our third quarter results, I will remind everyone that during today's call, we will be making forward-looking statements, which reflect management's current assessments of existing trends and information. There is an inherent risk that our actual results could differ materially.

Please refer to Tutor Perini's most recent 10-K and 10-Q filings for disclosures about risk factors that could potentially contribute to such differences. 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.

With that, said, I will turn the call over to Ronald Tutor..

Thank you, Jorge. Good morning, or I should say good afternoon, and thank you for joining us. Our revenue and earnings per share results for the third quarter came in below expectations due to, once again, slower-than-expected progress caused primarily by the continued delays on the High-Speed California Rail project in Fresno County.

We confirm that these project delays will continue to impact us through the current fourth quarter. That by year-end, they should largely be behind us, consistent with the agreed commitments that I've reached with the project agency and its management.

And the fact that we're finally getting executed right-of-ways and easements, so we can rebuild our field force, and again, build our revenue base.

I expect that we'll see significantly improved operating results in 2019, as certain projects, including Newark Airport Terminal 1 stations, and tunneling for Purple Lines 2 and 3, High-Speed Rail, CQ33 and the I-74 Bridge in Iowa contribute more meaningfully as their production ramps up.

For instance, the original High-Speed Rail contract of approximately $1 billion was set to complete in March of 2018. The adjusted contract value is currently at approximately 1,450,000,000 with $800 million remaining to bill over the next two years.

So essentially, the project will run two more years with almost the revenue of the original contract remaining to bill. To the positive, we had another quarter of double-digit year-over-year backlog growth, with total backlog at $8.5 billion at quarter end, up 14% compared to the third quarter last year.

Our backlog growth was broad-based across all three segments, and it was driven by significant volume of funding on various building projects in California at Rudolph and Sletten as well as new awards in the Civil segment, the details of which I will provide later.

And market demand continues to be very strong across all our businesses with further strengthening continuing over the next several years. Setting aside the obvious that the U.S.

economy is healthy and our infrastructure group continues to explode, the long-term trend for our backlog continues to be very favorable as reflected by our year-to-date book-to-burn ratio of 1.38 through the end of quarter three.

A further reminder to the potential increases to a record $8.5 billion backlog, we are sitting and waiting for an award on the $800 million Minneapolis Southwest Light Rail, which is only awaiting federal funding and release, as well as we are awaiting a notification of who is the low bidder on the Purple Line 3 project, which is over $1.6 billion, for which our joint venture team submitted its bid in August of 2018.

Earlier this week, we were the low bidder on the $253 million Culver Line Communications-Based Train Control project in New York City for the New York City Metropolitan Transit Authority.

In addition, WDF, our New York City mechanical subsidiary, expects to book something in the range of $100 million of new project contract awards in the fourth quarter to add to their backlog.

Some of the larger new awards that we booked in the third quarter include the $121 million tunnel project in Los Angeles for Los Angeles County and Frontier-Kemper, our subsidiary, and $82 million aircraft maintenance facility in Guam for Black Construction, a $68 million industrial facility project in Mississippi for Roy Anderson, and a $43 million expansion at the Fort Lauderdale Airport for Tutor Perini Building Corporation.

Project bidding opportunities remain significant and we continue to be very selective and disciplined in our bidding. Our pursuit efforts are focused on supporting owners with larger complex projects opportunities.

Some of our larger opportunities in our civil business include the $4 billion West Santa Ana line for Los Angeles Metropolitan Transit Authority, which bids midyear 2019, the $1.4 billion Portal Swing Bridge replacement in New Jersey, the $750 million Harry Nice Bridge replacement in Maryland, the $400 million Amtrak Tunnel Phase 3 at Hudson Yards, the first two phases of which we built, and the $350 million 8th Avenue Communication-Based Train Control project.

In addition, the $250 million JFK runway projects now bids on Friday, the 9 of November, and $200 million New York City Sanitation District Garage on the 16 of November.

The Building segment's larger potential opportunities include a $325 million hospital and gaming project at Table Mountain and a $200 million hospitality and gaming project on the East Coast as well as a $250 million educational building at the University of California.

In addition, we are in the process of building a – or bidding a $200 million building renovation in New Jersey. Also, the Building segment has more than $1 billion of various pending building awards and contract negotiations in both hospitality and gaming that we've been selected and are in contract negotiations.

I will next discuss some of the more significant projects that contributed to our third quarter results, beginning with the Civil segment.

In the Northeast region, out of our New York City office, our most active civil project included CM007 and CQ33 for the New York Transit Authority, as well as breaking ground on a $1.4 billion Newark Airport Terminal 1 in New Jersey. In British Columbia, Frontier-Kemper has been active in their work on the Kemano Tunnel 2 project north of Vancouver.

In California, we are progressing on the high-speed rail project. As I pointed out earlier, in spite of its significant delays in going forward into 2019 and 2020, expecting to complete in the first quarter of 2021.

The owner has finally achieved the release of adequate right-of-ways and easements to where we will ramp up significantly, commencing in the first quarter, probably January of 2019, and all the deferred work that should have been done in 2017 and 2018 should be performed through 2019 and 2020, with the projected final completion between the end of 2020 and the first quarter of 2021.

In the Midwest, Lunda continues to work on I-74, Bridge project and awaits hopefully an award on Minneapolis South rail, which is imminent. And finally, in Seattle, our work on the SR99 project is complete and been accepted as substantially complete by the Washington DOT with the highway tunnel expected to open to traffic in the early part of 2019.

For the Building segment, major project contributors for the third quarter include the El Camino Hospital, integrated medical office building in the Precision Cancer Building at UCSF Medical Center as well as two other health care projects in California for Kaiser and Sutter Health.

Other significant contributors were the Rosewood Miramar Beach project in Montecito, California, the completion of the Pacific Palisades Village Mixed-Use project in Southern California, a new technology campus in Silicon Valley, and of course, the aforementioned $1.4 billion Newark Airport Terminal, which incidentally concludes – includes more than $360 million of subcontracted electrical and mechanical work to our two wholly-owned subsidiaries, Five Star Electric and WDF.

While the Specialty Contractors segment experienced a particularly notable revenue decline in the third quarter as compared to the same quarter last year, it was largely due to project timing differences as various legacy projects complete or have completed and a substantially larger volume of newer, high-margin work is anticipated to commence heavily in 2019.

Now let me speak to our unbilled receivables and claims. We have a pending mediation November 13 on the Shasta Bridge project will – with the California DOT where they have evidenced a very strong commitment to resolve that dispute. We would hope that out of that November 13 mediation, we will have an agreed resolve with payment to follow.

In addition, we are very close to settlement on the St. Croix bridge crossing in Minnesota, and we are projecting a settlement of that – of those issues in the fourth quarter of 2018, namely December.

Furthermore, we're in the midst of an agreed dispute review board with the New York Transit Authority as a means of resolving a very significant request for change as filed by Frontier-Kemper on the CM006 subway project.

Based on our results to date and current expectations for the remainder of this year, we are lowering our guidance for 2018 with diluted earnings per share now expected in the range of $1.50 to $1.65. With that, I'll turn the call over to Gary..

Thank you, Ron, good afternoon, everyone. I'll first discuss our third quarter results, then I will provide some brief remarks about our balance sheet, cash flow and our guidance. Revenue for the third quarter was $1.1 billion compared to $1.2 billion in the third quarter of last year.

The decrease was due to an overall reduction in project execution activities as revenue from new projects did not fully offset reduced revenue from projects that have completed or nearing completion.

The single most significant factor contributing to the decline was the completion of a large technology office project in California that we have spoken of many times on prior calls. In addition, revenue was lower due to continuing delays on the high-speed rail project that Ron mentioned.

Segment revenues were $431 million, $455 million and $236 million, respectively, for the Civil, Building and Specialty Contractors segments.

Civil segment revenue was up 9% compared to the third quarter of last year, primarily as a result of increased activities on the Kemano Tunnel project in British Columbia and the Newark Airport project, partially offset by reduced activities on the Verrazano Bridge project in New York, which is nearing completion.

Building segment revenue was lower compared to the third quarter of last year because of completed technology office project, I just mentioned, and the Specialty Contractors segment revenue was lower mainly due to reduced activities on certain electrical projects in New York that are wrapping up.

G&A for the third quarter was $64 million, down 8% compared to the third quarter of 2017. The decrease was principally due to reduced compensation-related expenses. Income from construction operations for the third quarter was $47 million, down 4% and in line with the overall revenue decline for the quarter.

Civil segment income from construction operations was $41 million in the third quarter, up 8% on the higher volume compared to the same quarter last year with an equivalent operating margin of 9.6%.

As we've discussed previously, we expect operating margins to gradually increase with the Newark, that we have recently been awarded and our expectations for margins and opportunities that we see before us. Building segment income from construction operations was $9 million compared to $14 million in third quarter of last year.

The decrease was largely due to lower profit contributions from the completed technology office project in this year's third quarter. This resulted in operating margin of 1.9% versus 2.9% for the comparable quarter last year.

Specialty Contractors segment income from construction operations was $12 million compared to $15 million in the same quarter of last year, reflecting the slightly lower volumes.

The segment's operating margin was 4.9% this quarter, slightly better than the 4.7% margin reported for the third quarter of last year, and at the lower end of the 5% to 7% range we have been pointing to as acceptable for the segment.

Interest expense for the third quarter was $16 million, which is also about level with the prior year's third quarter. Tax expense for the third quarter was $7 million, which reflects an effective tax rate of 22.5% compared to tax expense of $9 million, and an effective tax rate of 26.4% for the same quarter last year.

We expect that our effective tax rate for the full year will be around 28% to 29%, reflecting the impact of the 20% federal statutory rate, offset by the loss of certain tax deductions.

Net income attributable to Tutor Perini for the third quarter was $21 million or $0.42 per diluted share compared to $24 million or $0.47 per diluted share for the third quarter of last year. Shifting gears, let's discuss our balance sheet and operating cash.

Our project working capital grew slightly in the third quarter, principally, because of an increase in both accounts receivable and costs in excess of billings of what we, of course, refer to as our unbilled costs or unbilled receivables. With these increases largely offset by an increase in billings and excess of cost with our advanced billings.

Although our unbilled costs have increased, our actual net costs in excess of billings have declined for the past six consecutive quarters due to larger increase is in our advanced billings. We remain focused on reducing our unbilled costs, and as Ron noted, we have some key dates on the horizon that we hope will help in this regard.

The increase this quarter in our unbilled costs was, again, due to additional costs incurred on certain projects that have some of the larger unbilled positions as these projects advance closer toward completion. We generated $28 million of operating cash in the third quarter of 2018 compared to $37 million in the same quarter of last year.

We still expect to close the year with a strong fourth quarter of cash generation and are still targeting operating cash flow in 2018 to be in excess of net income as it was for both 2016 and 2017.

Our total debt as of September 30, 2018, was $801 million compared to $736 million at the end of 2017, reflecting an increase in our revolver from its zero balance at year-end. It should be noted that our total debt as of the end of the third quarter of 2018 was $85 million less than at the end of the same quarter last year.

Now let me review our latest assumptions related to the revised 2018 guidance. We anticipate that the Civil segment's operating margin for the fourth quarter of 2018 will be in the normal range of 10% to 12% and that the Civil segment's margin will remain in this range, if not higher, in 2019.

The Building segment's operating margin for both 2018 and 2019 should be 2% or better. For the Specialty Contractors segment, we believe that the operating margin should continue at the lower end of the 5% to 7% range in the near-term, but is expected to improve in 2019.

As I mentioned, earlier, we anticipate an effective tax rate of 28% to 29% for 2018. We also expect that there will be approximately 50.5 million diluted shares outstanding. Interest expense for the year is now estimated to be around $63 million with about $12 million of this amount being non-cash.

Capital expenditures for 2018 are now expected to be approximately $80 million to $85 million due to purchases of equipment for certain newer civil projects. As I have said in the past, these large equipment purchases are fully funded by the projects. Depreciation and amortization expense is now estimated at $47 million.

We expect that our G&A dollars will be modestly this year compared to last year, and that our G&A margin will be either flat or slightly lower than it was last year. And finally, we now anticipate that non-controlling interest in 2018 will be approximately $12 million to $16 million. With that, Ron, I'll turn the call back over to you..

Thanks, Gary, while we are certainly disappointed with our earnings missed and the reduced guidance for the year. Our disappointment is far outweighed by the enormity of the backlog and the quality of projects that we have. With the awards that are pending, and frankly, the overwhelming level of prospects before us, as we look to 2019 and beyond.

Let me be particularly granular about this as this really is the long-term story for Tutor Perini and how we view the future. First, our backlog is extraordinary and by the end of this year, we expect it to be at the another record level and growing.

Moreover, we see no reason why this explosion in our backlog will not continue since there has been a significant reduction in the number of companies, both able and bidding on $1 billion plus jobs and even fewer that have the both, capability and capacity to execute these projects.

On prior calls, I indicated there was a ceiling on the growth of our backlog due to shortage of the human capital at the project executive and project management and project engineering levels.

While this issue continues to be a challenge, we are now finding our self inundated with an unprecedented number of resumes from capable and experienced people, who want to join the Tutor Perini team as they believe the growth prospects are best enjoyed in our company.

As we continue to interview, bring these people aboard, and integrate them into our company, I have begin to change my attitude that our ceiling can be increased and our growth can continue beyond that, which I earlier contemplated.

Said another way that our people challenges are abated, and they will allow us to continue our backlog and earning beyond any previous limits that I stated. Secondly, the project margins on the new award over the last year are now in our backlog on average, considerably higher than the already healthy margins that constituted our backlog a year ago.

In simple terms, we are continuing to increase margin in an industry where competition continues to diminish.

So as the old work burns off and is replaced by the new work with its higher-margin and at an accelerated pace, it only stands to reason that we've determined there will be a significant increase in operating income, and as such, earnings per share.

Therefore, when we combine our exploding pipeline with enhanced margins and our continuing strengthening of our human resources, we believe, we have a formula for unprecedented earnings growth starting in 2019 and continuing for years to become consistent with exploding growth of major projects in our industry.

I have been in this business for over 50 years and cannot recall a time during that period where the future of our industry has been brighter than it is today. And as such, I'm extremely pleased as we look forward. With that, I'll turn the call over to the operators for questions. Thank you..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question..

Great. Thanks. Good afternoon..

Good afternoon..

Ron, did any of the other large jobs you've been awarded have the same sort of permitting or start up issues, I guess, to the level the high-speed projects had. I'm just trying to be comfortable with some of the other work as this starts to fall in....

All the other projects, bless their souls, acquired the right-of-way and easements prior to contract awards.

This is the only job that we've ever bid where they had not acquired the right-of-ways at contract award time and they gave us a schedule that on a four-year project, they would acquire all the right-of-ways and easements within the first 18 to 20 months. Here we sit five years later, and we're still waiting for right-of-way and easements.

And we're probably at about the 85% to 90%. So it appears from my continued meetings and harangues, they will finalize the right-of-way and easements between the end of December and the end of January. To give you an idea how damaging that is to us, it shifted half of the contract revenue from 2017 and 2018 to 2019 and 2020.

We didn't lose it, it just got shifted on us and we could not overcome in our earnings $250 million in each of those two years of joint venture revenue shifted out of those periods into the periods forward.

The good news is, of course, that they will be in the 2019 and 2020 years, but I simply couldn't overcome it during the last two years and particularly this year.

But no, there are no other projects with these kind of right-of-way issues, and we're very reluctant to bid work today where right-of-way is an issue because you bid a project based on earning revenue and profits over stated period of time.

And when that time doubles, no matter how good they are, and they have been very good at paying all our additional costs, you can't overcome the loss of earnings when it shifts two years to the future..

Okay, that's helpful.

And then do you need a couple of the sort of key collections you talked about to get to the cash flow outlook for the year? Or are there some of the moving pieces to it?.

No, this is Gary. No, we don't. We certainly would have far improved cash flow if we get some of these large collections that Ron talked about, but we do not need to get there in order to achieve what our target is..

Okay, and then, I guess, just lastly, any update on the time line to completion for those large jobs, the unbilled costs increases are attached to?.

The Shasta job is finally over. We got a letter from the Director of the California Department of Transportation in writing, stating she'd like to reach a global settlement with us. We have a mediation on Thursday with Caltrans over that very significant claim.

I don't think there is any question they recognize, we're entitled, it's just the matter of do they give us the money that we demand to make us whole. And we'll know that on Tuesday the 13.

In addition, we're in the midst of final conclusion on a very large set of changes on a Minneapolis bridge job that is a very significant set of issues in that they've been entitled this change orders, but we have not yet adjudicated or agreed on their value. And that is potentially $30 million to $40 million more for Tutor Perini.

And we believe that will come to a conclusion next week. In addition to that, we're in the midst of a disputes review board agreed to by both us and New York transit on the CM006 project, which is another one of our very large claims, which the parties have agreed to abide by the findings of the disputes review board.

And we think there's no chance they won't find for us. But that conclusion will probably be pushed back to somewhere between March and April of next year.

Meanwhile, although they don't put a big dent in it, we've settled a number of $2 million, $3 million and $5 million claims, and we are on a very much of a mission to get a significant number of these done by the end of next year..

And then if I could add, just further to your question. A lot of the growth that we've experienced in our unbilled costs, this should be declining because the projects that have been causing this growth are wrapping up or already wrapped up. So they're less and less of those contributors to that increase..

Got it. Thank you..

The next question comes from the line of Alex Rygiel with B. Riley FBR. Please proceed with your questions..

Good evening, gentlemen..

Hi Alex..

Ron, a couple of questions.

First, can you update us on the timing of the Purple Line award? And then talk about the time line of revenue coming through the P&L for the Newark Airport project?.

Sure. I don't recall. We did inform you although we we're awarded the Purple Line 3 tunnels at $420 million to a Tutor-Saliba joint venture in-house with Frontier-Kemper. We are now awaiting $1,600,000,000 Purple Line 3 stations. We're going for our interview a week from Monday. We are very optimistic that there were two other bidders.

We'll have to wait and see, but we're optimistic about that. But we should learn prior to Christmas on a Purple Line 3 stations. And the $800 million in the Minneapolis Light Rail is simply waiting for the federal government to agree to fund their share. And the rest of our awards are pretty straightforward and ongoing..

And then the timeline of the New York airport project?.

Excuse me. New York airport, we've started, we're in a major mode, we're pouring foundations. We commenced steel erection on the north concourse at the end of November. We believe steel will be fully elected by August or September next year. And the job is scheduled for a completion, the end of the summer of 2021..

And Gary, can you help us to appreciate directionally the revenue outlook for the fourth quarter? I'm having a hard time kind of getting back to the implied EPS contribution in the fourth quarter based upon the margin guidance without a pretty big uptick in revenue in the fourth quarter from the third quarter.

So is that correct that revenue is going to increase a lot in the fourth quarter? And if so, can you run through one or two of the major contributors to that increase?.

This is Ron. One of the biggest contributors is that same delayed high-speed rail, where we've experienced some positive results. Another one is Purple Line, two revenues that we're generating and were already in November. We started on a major scale the supportive excavation. Excavation with all the appropriate steel deliveries.

It's just across a number of units, but I think, probably, the most significant ones are Newark, California High-Speed Rail and Purple Line 2, all of which are at very significant margins that are contributing to the big pop in the fourth quarter..

Thank you very much..

Thank you. Our next question is from the line of Tahira Afzal with KeyBanc. Please proceed with your question..

Hi folks.

Ron, if you look out at your prospect list, are you sort of staying away? Or are you more cautious on projects that have similar right-of-way issues as you've seen? Or is it a very clean list going forward?.

Everything we're looking at has no right-of-way issues. The owners have procured the right-of-way in advance.

I would be very reluctant to take on another project that's 30 miles long, has 300 different right-of-way acquisitions sites, and gives us the schedule that says start to finish, they'll do it in 18 months, and now we're in the fifth year, and they're not done yet. Now I think that's a formula for failure.

And although we think the job will still make its anticipated profits and the owner has been very fair about paying our damages, how can you get paid for taking money you would make in 2017 and 2018 and moving into 2019 over 2020. In the public world that is suicide..

Sorry. That makes sense. And I guess, Skanska's big announcement and perhaps, that what you're alluding to in your prepared commentary. Obviously, a pretty big decision on – in terms of really shrinking the U.S. risk element going forward.

Can you talk about whether as you go forward, there could be similar other companies that pull back? And what this really implies for your pricing power going forward?.

Well, to really be specific, I think, it's fairly apparent, not only in announcements, but what we know about our peers, that Skanska has taken a position they are simply not going to take the risks of these long-term, design build P3. And as such we see every day, we bid all over the country. They've dramatically pulled back.

They're very large Swedish-owned U.S. operation. They're very good in many places, but they've had more than their share of difficulties on very large civil work. And as such, we think, at least, for the next period of years, they will cease to be a factor in $1 billion plus market that we enjoy, and think is our best market.

There isn't three other contractors in the United States capable in any way of bidding and successfully performing those $1 billion, $2 billion and $3 billion-dollar jobs. So other than our foreign competitors, each one of which is worse than the other, that leaves a very restricted U.S.

marketplace, looking and trying to build tens of billions of dollars of major projects all over the country. And remember, in order to build those, you have to post financial guarantees. So it's not just a matter of saying, let's step-up and do the big work.

It requires you to prequalify with work of a similar size and nature, and you can generate the financial guarantees from the surety companies. If that were not enough, that's restrictive enough. So the competition is, obviously, very restricted and the marketplace is such that those of us that remain should do very well.

Again, I would reiterate, the Newark terminal is a classic example where we were literally the only bidder on heavily advertised and prequalified project of $1,400,000,000, and as the only bidder we we're awarded the project because it had to be built.

And that very same Skanska was prequalified, and opted at the last minute not to bid as well as the Turner Construction Company, a subsidiary of a German company, at the last minute, opted not to bad. So I think, bodes very well for us in margin discipline. And I don't see how things can't get significantly better for those of us that remain..

Got it, Ron.

And for us frustrated LaGuardia Travelers, any chance you can step out and help the project there? Or you just have to let the current contractors perform as is?.

We talk with the port regularly because we're building Newark. And we were really the low bidder on LaGuardia. And we were $200 million or $300 million less than Skanska, but their P3 Lead, their financial lead according to the port gave them far better terms than our financial lead.

So they were awarded the contract, but I always knew from the beginning that would be a nightmare to build, and you'd always have an angry public. And unfortunately, I believe they are well behind their own schedule.

But I'll tell you that's a very difficult job, and it's one of those jobs when you don't get it, you almost breathe a sigh of relief, because it had a schedule and to keep everything in business such that no matter what you did, it would be traumatic until you got done. And I think that's all of you travelers are experiencing there..

Thank you for your time..

Not at all..

[Operator Instructions] The next question will be coming from the line of Steven Fisher with UBS. Please proceed with your question..

Hi guys. Good afternoon..

Hi Steven..

Hi. Gary, I know you said the fourth quarter Civil margins would bounce back 10% to 12%.

Can you just clarify why they were down to the single-digits this quarter? Was it really just solely the underutilization related count for a high-speed rail? Or were their other things in there?.

That's a big part of it, Steve. And look, them being down, it was 9.6%, right? And when I said 10% to 12%, we expect the higher end of that range. We also would hope to exceed that range, but we're trying to be conservative with what we're telling you. So we think fourth quarter margins should be very healthy in Civil..

Okay. And then really just want to frame the potential of collections here. I mean, to really get the costs in excess of billings down to the level it was, just at the start of this year you'd need to collect nearly $200 million. And I think, investors would like to see that come down by even quite a bigger amount.

So I guess, what are the chances that you can collect that sort of magnitude, call it, couple of $100 million within the next two to three quarters? Or is this something that we should be thinking about more for the second half of 2019 and into 2020?.

We expect to make that kind of dent in it by the – before the end of the second quarter in 2019..

Okay. And just in terms of....

I always say that, I'm trying to be realistic. I get a letter from one of our owners, the Director of the entire agency, says, "I want to reach a global settlement. We know we owe you money.

We want to immediately meet and take it to our board for approval in three weeks." Well that will lead you to believe since they know what we want and they know our claim, they're going to pay us. But until I see it across, and they tell me, that's the uncertainty..

Got it.

And then, Gary, I don't know if I missed this, but where does the new revised earnings outlook for the year leave you from a covenant perspective? Any changes that you need to make there? Or how much cover do you have there?.

No, Steve, we're fine with the covenants. We were a little close last quarter. We have a lot more clearance this quarter. And we don't foresee any problem going forward..

Can you just gives us the numbers there?.

You see, I tell you what they are for the quarter. Give me a second to locate it in the cue. But you see what we do is we look at the next 12 months going out. We have to provide that to the auditors. And we continue to improve after – even after this quarter.

And where we were with respect to the leverage ratio, we we're at 3.2 – we were at, yes, 3.24 at this point. We have to be less than 3.5..

Okay. And then lastly, just a question about the process of guidance. And mainly I ask this because the next time we have an earnings call, you guys would typically be providing the next year's guidance.

And, Ron, I know a year ago, you're aiming to be more conservative in guidance, such that we'll be able to avoid these guidance reductions, and obviously, we know a lot of this is out of your control. But nevertheless....

Still the same..

How do you now – how do you factor these things into your process going forward having had another year of experience with types of things that are out of your control?.

That's a very good question.

It is such a difficult process for a construction company in the public sector, because in any other world as a private company, you wouldn't care if the project deferred your earnings for a year, if in fact, your earnings are going up significantly, which ours are, but in the public world it decapitates us because we project an earnings per share and just a simple thing like delaying access for six, eight months, defers $200 million of revenue till the next year, you kill our EPS.

So the only thing I can do, which is the constant anguish I face, I either hedge our earnings to such a point it's safe and then a question is to my credibility because we all know it should be significantly higher than that if we have a record backlog, which we do, and increasing it every day at mind-boggling levels and margins.

And I'm telling you in the truth that it's way higher margins and way more backlogs, but yet I put it back because I'm allowing for delays, I'm allowing for major settlements and collections of capital, and If I got to take small haircuts here and there, I will.

Let's just say, it gets very challenging, but it's something we simply got to do a better job of..

We've spoken about this internally a lot. We've spoken about it with our Board recently at a strategic plan meeting. It's certainly something that we are very aware of and we are trying to get better at. And hopefully, we'll get it on to head and – or out of the park or however, you want to describe it for the next year..

Great. Thanks guys. End of Q&A.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Ron Tutor for closing remarks..

Thank you, everyone for listening to us. Until the next time, we'll see you..

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation..