Good day, ladies and gentlemen and welcome to the Tutor Perini Corporation second quarter 2020 earnings conference call. My name is Victor and I will be your coordinator for today. At this time, all participants will are 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 over to your host for today, Mr. Jorge Casado, Vice President of Investor Relations. Please proceed, sir..

Hello everyone and thank you all for your participation. With us on the call are Ronald Tutor, Chairman and CEO and Gary Smalley, Executive Vice President and CFO.

Before discussing 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 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 most recent Form 10-K which has been filed on February 26, 2020 and in the Form 10-Q that we are filing today.

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.

The appropriate GAAP financial reconciliations are incorporated in our earnings release, which we issued earlier today and filed with the SEC and which is also posted in the Investor Relations section of our website. With that said, I will turn the call over to Ronald Tutor..

Thank you Jorge. Good afternoon and thank you all for joining us. We experienced a very solid momentum following our strong first quarter results, which enabled us to deliver very good results for the second quarter as well.

This was despite a full quarter of adverse COVID-19 impacts which, though not inconsequential, did not prevent us from achieving budget expectations so far this year, Gary later on will talk about that impact and the impact of a poor ruling on a litigation that hurt us in the quarter, but in spite of it we were able to maintain almost a full budget and be ahead of budget for the first two quarters.

Our revenue grew 13% year-over-year in the second quarter, driven by strong growth in both our civil and building segments as we continue to advance several large projects including the three Purple Line projects in Los Angeles, the California High-Speed Rail and the Minneapolis Southwest Light Rail, amongst others.

On a year-to-date basis, we have delivered strong double digit revenue growth across the entire business.

Extraordinary operating cash of $92 million was the most noteworthy aspect of our second quarter results, an outstanding accomplishment that was the second highest quarter results since our merger in 2008 and the fifth best quarter of operating cash across all quarters since that time.

Our performance was largely driven by strong collections on major civil projects, but also by progress made on settlements which brought in approximately $40 million of cash. Our excellent cash generation in the second quarter puts as well ahead of budget expectations for operating cash through the first half of 2020.

Importantly, we anticipate even stronger operating cash generation in the second half of the year specific both to earnings and other settlements teed up and in the process.

Our operating income for the second quarter was up an impressive 51% but compared to our adjusted operating income for the same quarter last year, which excludes the impact of the goodwill impairment charge that we took that quarter.

The significant increase in operating income was the result of continued progress on several higher margin civil projects that I mentioned earlier, I will point out here that none of our major civil projects have been thus far materially impacted by the COVID-19 pandemic and the impact on certain projects in other segments appears to be largely behind us at this point.

Our operating income this quarter would have been significantly higher had it not been for a $13 million charge we were required to take in the specialty contractors segment due to that adverse arbitration result I spoke about earlier on an electrical project in New York in our specialty group, which will still result in the collection of $3 million of cash despite that same ruling.

Despite operating in a COVID-19 environment, our civil and building segments delivered profits ahead of budget for the quarter which helped to overcome the shortfall we once again experienced in the specialty contractor segment, mostly a result of the charge I mentioned on that appropriate arbitration.

Gary will provide you with all of the financial details of the quarter in a moment, including specifics around the COVID-19 impacts but I will reiterate that our results for the second quarter were very good and particularly outstanding for operating cash.

I remain confident that we will produce even stronger results over the remainder of this year and into next year as our major projects continue to advance. I mentioned last quarter that the vast majority of our projects have been deemed essential services, which has allowed project activities to continue despite all the issues COVID-19.

Because of this and particularly since our higher margin projects have not been significantly affected by the pandemic, we still expect that it will not prevent us from achieving our plan results for 2020.

However, I will caution as I did last year that there is still considerable uncertainty about the duration of the pandemic and how it could eventually impact our business.

Our backlog was still $10 billion at the end of the second quarter, still at a high level that will continue to provide for revenue growth and strong profits/ As expected, our backlog is lower this year compared to the same period last year due to our strong revenue burden in 2020 and a relatively lower volume of new awards in the first half of this year compared to last year.

The second quarter of 2020 included $717 million of new awards and adjustments.

The most significant of these included more than $300 million of additional funding from recently approved change orders in our civil group, over $235 million at Rudolph and Sletten for various building projects in California, the largest of which was a $69 million education building and another $67 million at Lunda Construction in the Midwest for various civil infrastructure projects.

Several major bid opportunities over the next year have been temporarily deferred while public agencies await federal supplemental funding. However, we continue to be extremely busy working on our other bids that have not been affected.

Last week, we submitted our bid for the Honolulu Rail Transit P3 project and we anticipate a team selection award of that project in the fourth quarter of this year. Recall that only one other team is competing for this project.

In August, we will be submitting our proposal to the LAMTA for the initial planning and design services of what will eventually be the $8 billion Sepulveda Transit Corridor P3 project.

As a reminder, this project will be executed under a design support, general contractor framework through which design support and preliminary design can ultimately lead to a negotiated general contract at the end of the design period with approval process.

In August, Lunda Construction will be bidding on the $850 million I-69 project in Indiana with an award expected later this year or early next. In addition, our bid for the LAMTA's $400 million LAX Airport Metro Connector is expected to be submitted and awarded in the fourth quarter of this year.

Other major upcoming bids include the $2 billion Newark Airport AirTrain with selection award expected in the second quarter of 2021, a $2 billion JFK airport Landside Roadway Development project, which we believe will be awarded later next year, the $1.4 billion Portal bridge replacement in New Jersey, which has recently been funded and we expect to bid early next year and the $1.2 billion Metro-North Penn Station Access Project in New York for which we are one of only three teams shortlisted.

We expect to bid that project early next year. In Northern California, we continue to talk to the owners about the $2 billion Bay Area Rapid Transit or BART Silicone Valley Phase II extension which is anticipated to bid in the third quarter of next year with an award in the fourth quarter of 2021.

Black Construction, our subsidiary in Guam already has a substantial $500 million backlog, which we have spoken to at great length with the Marines moving from Okinawa and that $10 billion program now finally in place and accelerating.

We will be bidding on over $2 billions of opportunities on the island of Guam over the next 18 months, a substantial portion of which is for the U.S. Navy and that Marine transfer.

Other sizable civil opportunities that we are tracking for bids further down the road include the $4 billion West Santa Ana Transit Corridor and a $1.5 billion East San Fernando Valley Corridor, both for Los Angeles MTA.

The $3.5 billion Port Authority's New York City bus terminal, a $2.5 billion Dumbarton Bridge Rail Corridor in Northern California and the $2 billion LaGuardia AirTrain Project. As we have been pointing out for sometime, the volume of prospective civil opportunities of significant size remains unprecedented.

However, while COVID-19 has impacted the funding and timing of these prospective projects, there are still a significant number of opportunities considered critical that are likely to be funded and prioritized for completion.

It is widely expected that the federal government will approve a substantial supplemental funding package aimed at supporting state and local transportation agency's critical infrastructure needs which we hope should help backfill any the funding gaps for the more complex projects we are pursuing.

Our building segment's larger prospective opportunities include an $800 million new hospital in Northern California, the $500 million Burbank airport terminal replacement, the $350 million Harbor UCLA Florence outpatient facility, a $350 million hospitality and gaming project in New Orleans, the $300 million Hudson County Courthouse in New Jersey upon which we have already proposed and are awaiting results and a $265 million veterans home facility in Northern California.

Our specialty contractors group remains focused on supporting our large civil projects and also continues to experience solid demand for the electrical and mechanical services from our customers, particularly in New York and Texas.

The specialty contractors workload is accelerating alongside the progress of our major civil projects and I expect that while we will see improved and sustained and better operating results from the specialty group this year and beyond as new work in this segment is more profitable and more consistent without the disputes that have plagued them from the past.

As mentioned earlier, we have made some notable progress this quarter on certain settlements which helped contribute to our strong operating cash. We continue to be persistent and determined in our efforts to collect the monies owed to us.

Though the COVID-19 pandemic has caused delays with our owners where many of them have gone home and still not come back to work, these delays have started the ease as certain of those COVID restrictions have been lifted and we have numerous mediations and dates in place over the next 60 to 90 days that should allow significant progress for the balance of the year and concluding several of these claims and collecting the cash that's appropriate.

We remain confident in the cash flow going beyond the second quarter all the way till the end of the year.

Finally, our year-to-date earnings per share results are ahead of budget expectations for the first two quarters and we have thus far been able to offset the adverse impacts of COVID-19 with strong continuing contributions from our large higher margin civil projects, being mindful of the uncertainties around COVID-19 and its potential to affect our business.

However, based on our current assessment of market conditions and our forecast for the remainder of the year, we are maintaining our 2020 earnings per share guidance in the range of $1.80 to $2.10. With that, I turn the call over to Gary Smalley to present the details of our financial results..

Thank you Ron. Good afternoon everyone. I will begin with a discussion of our results for the second quarter followed by some commentary on our balance sheet, cash flow and then our 2020 guidance assumptions.

In my discussions today, comparisons to last year's results will be on a pre-goodwill impairment basis to better compare the normal operating results of each segment between the two periods.

As Jorge mentioned earlier, a reconciliation of these non-GAAP financial measures to the most nearly comparable GAAP measures is provided in the press release we issued earlier. Revenue for the second quarter was $1.3 billion, up approximately $150 million or 13% compared to revenue of $1.1 billion for the same quarter of last year.

The growth was driven by increased activities on the large infrastructure projects that Ron mentioned earlier, as well as on certain building projects in California and Oklahoma.

Our revenue grew in spite of the COVID-19 pandemic which impacted our revenue by an estimated $130 million in the second quarter, mostly due to some project suspensions or delays that lasted through the middle to latter part of the quarter. Note that very few of our projects are currently delayed by COVID.

The COVID revenue impacts by segment for the second quarter were as follows, $15 million for civil, $80 million for building and $35 million for specialty. Civil segment revenue for the quarter was $569 million, up a strong 20% compared to the second quarter of last year, driven by contributions from the projects I just referred to.

Revenue for the building segment was $473 million, up 10% compared to the same quarter of 2019, predominantly due to increased activities on various newer projects in California. Specialty contractor segment revenue for the quarter was $234 million, up 5% year-over-year.

Income from construction operations for the second quarter was $58 million, an increase of 51% compared to adjusted income from construction operations of $38 million for the same quarter of last year.

The significant increase was mostly due to contributions associated with the significant volume growth we experienced this quarter in the civil and building segments.

Income from construction operations was negatively affected by $9 million for the quarter due to COVID with the segment breakdown as follows, $2 million for civil, $2 million for building and $5 million for specialty contractors.

As Ron mentioned earlier, we took a charge of $13 million in the specialty contractor segment due to an adverse arbitration ruling on an electrical project in New York but will still collect $3 million from the decision. So our income this quarter would have been $22 million higher had it not been for the project charge and the COVID-19 impacts.

Civil segment income from construction operations was $65 million compared to adjusted income from construction operations of $46 million for the same quarter of last year. The segment's income grew 43% year-over-year primarily because of strong contributions from our large mass transit projects in California.

In addition to the $2 million COVID impact in the quarter, the civil segment's income was also reduced by nearly $8 million of incremental non-cash amortization expense this quarter related to an increased equity interest in a joint venture that we acquired in the fourth quarter of 2019.

Even with the additional amortization expense, the civil segment's operating margin was strong at 11.5% for the second quarter of 2020, compared to an adjusted operating margin of 9.7% for the same quarter of last year. Civil segment operating margin was at the high end of the 10% to 12% margin range we typically see for the segment.

We expect to remain at the upper end of this range or even higher for 2020. Building segment income from construction operations was $18 million, up an outstanding 84% compared to adjusted income from construction operations of $10 million for the second quarter of last year.

The strong increase was mostly driven by contributions from certain projects in California, Oklahoma and the Northeast. The building segment's second quarter operating margin was 3.8% compared to an adjusted operating margin of 2.3% for the second quarter of 2019.

The elevated margin for this year's second quarter reflects contributions from certain higher margin projects. Building segment's operating margin for the full year of 2020 is expected to be in the 2% to 3% range.

Specialty contractors loss from construction operations for the second quarter was $11 million compared to an adjusted loss from construction operations at $4 million for the same quarter of last year.

The larger loss in this year's second quarter was principally due to the $13 million charge related to the unfavorable arbitration ruling that Ron and I mentioned earlier. We are optimistic that as the segment's newer higher margin projects continue to accelerate, the group's operating results will improve substantially.

Interest expense for the second quarter of 2020 was $16 million compared to $17 million for the same quarter of last year with a reduction primarily due to a lower average interest rate this year on our line of credit.

Tax expense for the second quarter of 2020 was $10 million with an effective tax rate of 23.7% compared to a tax benefit of $43 million for the second quarter of 2019, which largely resulted from the goodwill impairment charge recorded in that period.

Net income attributable to Tutor Perini for the second quarter of 2020 was $18.7 million or $0.37 per diluted share, compared to adjusted net income attributable to Tutor Perini of $9 million or $0.18 per diluted share for the same quarter of last year.

The doubling of net income and EPS in this year's second quarter was due to the factors I mentioned that drove the increases in revenue and income from construction operations.

As Ron indicated earlier, on year-to-date basis, our EPS of $0.71 is ahead of budget and this is even after a $0.17 year-to-date EPS impact from COVID-19 and a $0.19 impact from the adverse arbitration ruling in the second quarter.

Though we cannot be certain as to how and to what extent COVID-19 might affect our business in the future, we believe that barring any significant worsening of the pandemic, the largest impacts could hopefully be behind us at this point. Next, let's discuss operating cash, clearly a bright spot in the quarter.

Our second quarter cash generation of $92 million was simply outstanding. It was the highest second quarter operating cash result since our merger in 2008 with the next best second quarter result being $73 million.10 years ago.

The $92 million of operating cash is a significant improvement over the $30 million that we generated in the second quarter of last year.

In this year's second quarter, strong cash contributions associated with increased project execution activities on certain higher margin projects, driven by our near record backlog at the end of last year were enhanced by progress made on the resolution and collection of disputed balances and a modest decrease in working capital.

As Ron noted, progress on certain settlements for the quarter resulted in the collection of approximately $40 million that contributed to our second quarter cash flow.

Our excellent second quarter cash flow combined with better than expected operating cash result in the first quarter of this year resulted in positive year-to-date operating cash flow of $58 million, which is well ahead of our budgeted expectations and nearly $170 million better than the operating cash performance through the first six months of last year.

For the first half of this year, the $58 million of operating cash resulted from the strong cash contributions associated with the same increased project execution activities that we mentioned as well as the progress made on the resolution and collection of disputed balances which more than offset a working capital increase of $69 million.

In other words, the quality of our cash generation this quarter and in the first half of this year is very high, driven mostly by collections on improved project performance and to a lesser extent on the settlements. It is evident that what we are now seeing is the fruition of our concerted efforts to significantly improve cash generation.

Although we have had strong operating cash generation so far this year, we expect that it will be even better over the remainder of the year. We are tracking favorably to achieve our goal of generating operating cash that exceeds net income for 2020, which will mark the fourth time in the last five years that we have done this.

As a reminder, last quarter I mentioned that our operating cash generation for the remainder of 2020 will also be positively impacted by the CARES Act, which allows for the acceleration of the refund for our 2019 net operating loss and the deferral of the employer portion of FICA payments for the last three quarters of 2020 with half of this amount payable at the end of 2021 and the other half payable at the end of 2022.

We estimate that operating cash for last two quarters of 2020 will be enhanced by approximately $35 million by the CARES Act, $15 million for the NOL and approximate $20 million for the FICA payment deferrals.

Our total debt as of June 30, 2020 was $836 million, level with the balance at the end of 2019 and down 13% compared to $956 million at the end of the second quarter of last year. During the second quarter of this year, we paid down the revolver by $75 million. So it was down to $100 million as of June 30.

As many of you know, our credit facility includes a spring forward maturity provision whereby it will mature on December 17, 2020 if our convertible notes are still outstanding at that time. We continue to explore available options to address the spring forward provision and the outstanding convertible notes.

Once we have firmed up a path forward, which we expect will occur in the current third quarter, we will make an announcement. We remain well within the limits of and in compliance with our debt covenants at the end of the second quarter and in fact have the lowest bank covenant leverage ratio that we have had in nearly nine years.

We anticipate that we will continue to be comfortably within our covenant limits going forward. Ron mentioned earlier that we are maintaining our EPS guidance range for 2020 at $1.80 to $2.10 per share, given our strong results through the first half the year.

We still believe that our guidance factors and the inherent uncertainties that are common in our business, such as unanticipated delays in project awards and project execution and unfavorable adjustments to our estimates to complete projects that may occur from time to time.

Our decision to maintain our guidance also assumes that the vast majority of our projects will continue to operate during the balance of the COVID-19 pandemic and our hope that the worst of COVID-19's impacts are behind us. Now let me provide an update on a couple of the assumptions in our guidance.

G&A expense for 2020 is now expected to be approximately $260 million to $270 million. Capital expenditures for this year are expected to be approximately $50 million of which about $35 million will still be for owner-funded project specific equipment. Apart from these, all of our assumptions remain unchanged from what I indicated last quarter.

With that, Ron, I will turn the call back over to you..

Thanks Gary. To recap, despite the impacts of COVID-19, we delivered a very good second quarter result, highlighted by the extraordinary cash generation as well as solid earnings and margins that are tracking favorably against our budget on a year-to-date basis.

For the most part, things continue to be business as usual on our projects, except for new enhanced health and safety measures that have been implemented on most of our major projects, particularly in New York and New Jersey due to the pandemic.

I am still confident in our ability to achieve our guidance for 2020 and look forward to reporting even stronger results in the second half of the year as we usually do. In that second half of the year we fully expect to have significantly stronger cash flow.

I will conclude by commenting that it's an exciting time to be at Tutor Perini, whether as an employee, an executive or otherwise invested in our future.

Fortunately, amid the havoc being wreaked by COVID-19 across the various industries, we continue performing well and are well-positioned as an industry leader and fortunately an industry that has not been severely impacted by COVID-19. Our backlog is as robust as ever and our market opportunities have never been better.

Excelling best where project complexity is greatest and the size is significant. We favor working on the largest, most complex infrastructure projects in the country, which offers significant long term career opportunities and an intellectually challenging work environment.

We believe we are in a multiyear period of solid growth and increasing profits with extremely limited competition for the largest opportunities ahead. And we are now also begin a period of strong and significantly improved cash generation, something that we have been waiting too long for and working hard to accomplish. That said, thank you.

And with that, I will turn the call over back to the operator for question..

[Operator Instructions]. Our first question comes from Steven Fisher with UBS. Please proceed with your question..

Thanks. Good afternoon guys..

Hi Steven..

Hi Steve..

Hi. Very nice to see the cash flow coming through. I will get to that in a minute.

I just want to ask you, maybe Gary, can you just bridge the first half versus the second half implied from an earnings perspective, since you are implying about $0.53 of higher earnings in the second half versus the first half and I think you get maybe $0.15 to $0.20 from the absence of that $13 million write off? And then I am not sure if you would, I guess add back to $0.17 of COVID impact.

If that's all correct, what's the rest of the other $0.20 to get to the second half to the midpoint of the guidance?.

Yes. We continue to see in the second half progress being picked up in the larger higher margin civil projects, infrastructure projects that Ron noted. Keep in mind that we are always out of the gate slow with weather and we pick up momentum as the year progresses. So we just expect more and more volume as the year progresses..

That's just a matter of fact, Steven. It's always been that way. If you look back over the years, first quarter is the worst, the second quarter is usually mediocre and the third and fourth quarters are always the biggest, revenue and profit..

Okay.

And are you anticipating getting that $190 million and $0.17 fully back in the second half of the year?.

What are you talking about? You are talking revenue at $190 million?.

Yes.

Wasn't that where you said the impact was in the first half of the year?.

Yes. The impact of COVID in the first half of the year, that's what you are referring to, was $190 million..

Yes..

Keep in mind that our budget is what we measure ourselves against and also how we project where we are going to be with respect to the end up for the year. And through the first six months, revenue is nearly on track even with the impacts.

It's almost dead on even with the $190 million impact reflecting some of the conservatism I guess that we factored in. And we are comfortably ahead of EPS where we were in the budget for the first six months..

Okay..

And to be very direct, all of this large civil work, design, build, the $3.5 billion at Purple Line 2 and 3 in Los Angeles, the New York Terminal, the California High-Speed Rail, there are six major projects all of which are big, are accelerating in revenue that are high profit. They are all maintaining their margins.

And that's where the increases are coming from that are able to frankly pick up any glitches or settlements or anything that affects the short term because the revenue and costs from those major works are what's driving everything.

And I focus more on the profitability of those jobs and the higher margins as we evolve from much of the lower margin work into the higher margin work, given the same revenue. So long and the short of it, barring anything unforeseen, we are still supportive and believe in our projections..

Got it. That's helpful. And then on the cash flow. So it sounds like second half will also be stronger than the first half. You have got $35 million, you mentioned Gary, of NOL and FICA benefits.

What other specific settlement payments do you have in the expectation there versus just sort of collection of regular receivables? And are there any specific project advance payment that you have embedded in there?.

We have a number of them and I am not sure I want to get into the specifics. But we have a particularly large job where we have a milestone we hit where we get paid $58 million. Now that occurs in September.

We have a mediation in next week on a large claim we have where the owners essentially admitted entitlements and we are now haggling over how much they pay, which has a value of $30 million. We have another mediation on $60 million worth of entitlements admitted. It's a matter of whether we can agree on cost.

There is a whole slew of specifics, including a final release of retention that has been delayed two years. That's all our money and exceeds $30 million. That's why both Gary and I remain confident that we are confident that our cash flow for the balance of the year will even be more significant..

Okay. And then just maybe in terms of the actual DOT process. Obviously there has been some strain on some state level budgets.

And I am curious what you are seeing and how that may be affecting or not affecting the bidding timeframes, the nature of the projects or how they are choosing, whether they need to prioritize things differently/ So how are budget and any constraints affecting project timing and planning for the DOTs?.

Well, there is no question and I talk to all our major owners regularly about these. All of these significant jobs that I mentioned earlier, specifically in the budgets for, we are talking to them all the time. They are calling us for information. We are guiding their budgets. And things have been pushed back without a question.

Until we see action from Washington, until the government puts together another bill that takes the pain away from the New York transits, the port authorities, the LAMTAs, all of these major agencies that affect the U.S. transportation. They are simply putting them back 90 and 120 days. We just bid the $2 billion-plus job in Hawaii.

We are about to turn in that large MTA job. Many of these that were ticketed to bid the latter part of this year, first year have been put back six months in anticipation of another bill providing that support to all the cities and states.

On top of that, there is the infrastructure build that both the Republicans continue to talk about, but the Democrats have been very specific in their support of the $2 billion infrastructure bill. So there is just a lot in place to try to fight through the issues of the pandemic by feeding money into infrastructure.

But the short of it is, yes, it has pushed back bid opportunities. They are not gone because they are all funded, designed and ready to go out but until they get their houses in order financially, I think most of our major owners are just wait and see with Washington DC..

Okay. Thanks Ron. I appreciate it..

Sure..

Thank you. Our next question comes from Alex Rygiel with B. Riley FBR. Please proceed with your question..

Thanks and nice quarter gentlemen..

Thanks Alex..

Ron, can you touch upon the state of the market from a competitive standpoint right now.

Are any peers getting concerned about the future? And does it appear as if they are getting more aggressive on bids, possibly driving down the margin opportunities in advance of maybe some uncertainty?.

No. I think it's quite the opposite. There are so few what I would call peers. Let me be charitable and say we bid against one other company on the Honolulu Rail Project. It's over $2 billion and that company consisted of a Spanish company and two Japanese companies in joint venture.

We have of one other proposer on the $8 billion LAMTA job which we are very confident in and that is a U.S. firm owned by an Italian company. Everywhere we are bidding, there is one other bidder, may be on occasion two other bidders. And the one thing that's universal is that our peers have not done well on the large complicated work.

As a result, you saw Granite withdraw from all major work. You saw Fluor withdraw from all major work. You saw Skanska with their U.S. operation some 2.5 years ago withdraw from all major work. Although with the lack of competition, I fully expect them to come back in at some point after their reorganization is complete.

Either Bechtel or Fluor have ever been a factor and it's no surprise. If anything, it's quite the contrary. I think most of us who see how we operate have raised our prices and the attitude is most of the results on these very large jobs have been very poor.

So with our exception and I will get into why we have done extremely well and we continue to raise our margins and the way I read the marketplace, nobody is dropping margins. They are more afraid of losses than they are of procuring backlog. Margins are up everywhere. Nobody is cutting fees..

And Gary, maybe can you remind us what your options are to settle your converts by year-end? And what the timing looks like?.

Yes. We have one thing. We have got a lot of cash that has come in and we continue to expect more cash to come in. That is certainly an option. We are looking at just everything you can imagine, Alex. We are looking at doing different types of refinancing as well.

But really, I would just rather not comment further on what we are doing other than we are looking at options. We are zeroing in what we think is the best option. We will move on something or we expect to anyway during the third quarter. And as soon as we decide on something, then we will make an announcement..

I would also add that what I said earlier, I remain confident with the knowledge of the issues we are dealing with and the cash we are collecting. I believe irrespective of any third-party transaction, we will have the money in-house to pay off the converts without a doubt..

Excellent. And then Gary, one last question from a modeling standpoint.

How should we think about depreciation and amortization for the full year of 2020?.

Yes. There is no change there. We are still looking at $109 million for the two together..

Perfect. Thank you very much..

Thank you. Our next question comes from Brent Thielman with D.A. Davidson. Please proceed with your question..

Great. Thank you. Ron, I appreciate the color on sort of the bidding environment and state and local budgets.

I was just curious, as you got deeper into this sort of COVID environment, you look at your own backlog of business in civil, anything in there to cause a few concern, just from a funding perspective? Or do you feel like that's pretty solidified?.

No. I talk to all our owners. All the existing contracts are fully funded, whether it's the Port Authority in New York on the New York Transit or LAMTA, they are fully funded at the inception of the contract award and there has been no sense of any issues even with extra work and funding extra work.

It's really the new work that has just been deferred until they get stabilized..

Okay. And I was a little surprised that I would have thought with traffic down, it might have been a net benefit to the civil group. But it sounds like COVID overall has been a bit of a headwind.

Has that just been confined to a few projects overall? It's just their more of a headwind for civil?.

Well, it's affected us dramatically in New York, to be candid. Now that New York appears to be out from under it, we have jobs that basically lost half their crews and efficiencies. In the tunnels of New York transit, we lost a number of people and revenue associated on the New York Terminal.

Even though we maintained a large field force, we lost probably 100 people on the job due to COVID. So we have had impact. It's just that the owners have been supportive. The jobs have continued. We have literally monitored fevers in New Jersey. We have monitored individuals. We have taken whatever steps it took to keep the jobs going.

And it appears, everywhere but Los Angeles, the worst is behind us. Now Los Angeles has reared its head. But all our work is going in Los Angeles and candidly if we have 300 to 350 people in the field driving tunnels and stations, maybe we have eight or 10 instances of COVID and COVID related quarantine.

So it's always there and it always has some level of impact, but not demonstrably in the big picture. But you wake up and you lose $100 million revenue and $8 million or $9 million of deferred margin and it affects you when you are looking at earnings per share and that sort of thing. But overall, we continue to work..

Yes. Ron, I just interject this. Brent, keep in mind that the COVID impact for civil for the quarter was only $15 million of revenue and $2 million of pretax income. So all the things Ron said are correct but we worked around it so that the financial impact has been very minimal..

Okay. Maybe just one for the buildings group. Ron, I am just thinking about some of the sectors there, convention centers, lodging that might be a tougher spot to be in, in the years ahead.

I am just curious kind of your thoughts and outlook for that business group and how you think about moving those resources over the next few years, just given that backdrop?.

As you know, the building group is not a large contributor to our income. They are a large revenue generator but not large income. And a significant part of their income is in our fixed price building work which we continue to do. I don't see too many hotels and casinos going to be built in the next few years.

We have the one that was shut down in South Carolina and mothballed for the time being. That was $190 million project that was well underway, but stopped. I see the building business having a difficult time sustaining the revenue and profitability.

Let's say, after next year, for the next few years and until the country decides what it's going to build and what it isn't. Obviously everything to do with airlines as well as hotels is virtually frozen. So I don't have a crystal ball to tell you when it can get back to normal. I assume at some point it will. When that point is, I can't tell you..

Okay. Well, thank you and congrats on the quarter..

Brent, one thing. In the meantime, it's a blessing to have the $10 billion of backlog that we have so that time as things settle down with COVID-19 and the impacts are fully known, we will continue to work off that fully funded backlog..

Yes. Thanks Gary..

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing remarks..

Nothing further to add. Thank you everybody and we will catch you next quarter..

Ladies and gentlemen, this concludes today's web conference. You may now disconnect your lines at this time. Thank you for your participation and have a great day..