Q4 2019 Earnings Call
Good morning, and welcome to Fluor Corporation's fourth quarter, 2019 year and confidence God.
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A question answer session. The following management's presentation.
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Please go ahead Mr. Lucky.
Thank you good morning, and welcome to force fourth quarter 2019 conference call with US today are Allen Bradley Force Executive Chairman Carlos on Andy Worst Chief Executive Officer in much to work Force Chief Financial Officer.
Fourth quarter announcement was released earlier. This morning, we have posted a slide presentation on our website, which will reference while making prepared remarks.
Before getting started I'd like to refer you to our safe Harbor notes regarding forward looking statements, which are summarized on slide two.
During today's call a slide presentation, we will be making forward looking statements, which reflect our current analysis that existing trends in information, there's an inherent risk that actual results and experience could differ materially.
You can find a discussion about risk factors, which could potentially contributors such differences in the company's filings with the FTC.
Given the company, it's not finalized and filed its full year financial result information provided in todays preliminary unaudited.
The effective by subsequent events or determinations.
During this call it may discuss certain forward looking non-GAAP financial measures reconciliations of these amounts to the comparable GAAP measures are not practical given the nature of the potential adjustments for additional information C or at least from this morning.
Well now turn the call over to Hollenbeck reinforce executive Chairman Alan.
Hey, Jason.
Good morning don't you.
There are certainly important business update you would like to share with you. This morning.
Ashton rushing investigation W. reported in today's press release.
Hey, before the FCC is conducting an investigation of the company's past accounting and financial reporting.
As requested documents and information related to projects for which the company reported charges.
Second quarter 2000 Nike.
In the course of responding to she's data requests and conducting our own internal review.
Looking at each player revenue recognition charges and regain control environment.
We've seen initially on the Radford contract.
Well, we currently believe to be paid a dollar it now.
Sounds good charges taken on this project was correct.
Reviewing whether the accounting and financial reporting.
There's limited number of additional project was recognized in the important reporting period.
Let me make it stayed about the we we do not believe it. This time, we have had mature layers that is the tip of the investigation.
To accomplish this special committee of the board of Directors has been formed.
Six liter review with you just can't keep external advisors and we have informed yet she she will that change.
You didn't the on ongoing internal review.
The recent developments into projects, we will not be able to complete and filed on form 10-K player getting into their board.
In addition, this means that any financial information we provided today is preliminary.
<unk> inch subject to change.
Well what is disappointing to delay the filing of audited financial statements.
Yeah, <unk> company and onboard are on the right path.
Complete their review and French that incomprehension manner.
Looking forward.
Our tireless efforts to put this company solidly on the path to profitability.
Our strategic review, let the meaningful changes here.
Including significant organizational and management changes.
Board refreshment and establishment of a risk committee and board level.
We will continue to selectively pursue lump sum work.
We now feel better positioned than beginning with our revised for shoot criterion.
And more disciplined execution with our enhanced board and management oversight.
I'd like to get the moment.
To reinforce my conviction and humorous plan for long term success.
We expect to work off the majority or problem projects this year.
Hi, good backlog that consists mainly of projects did under the proper conditions.
Our cash position is strong.
But your risk management is unwavering.
And we will remain vigilant and disciplined in our pursuit of projects.
We firmly believe that floor will emerge 2020 in a position of strength.
Poised to succeed so the next decade and beyond.
And with that Carlos will now talk about our end markets and what we expect to accomplishing 2020 to deliver value for our shareholders and customers.
Thanks, Alan and good morning, everyone.
Three main topics I'd like to cover today.
But before I begin I want to briefly address the pro forma players.
While we recognize the impact of the virus is widespread.
Our health safety and environmental group has taken that lead and putting procedures in place.
Our employees and their families.
None of our employees for their families have contracted the virus.
Our major offices in China are now open and we expect the ramp up normal staffing levels over the next several weeks.
Our fabrication yard is also open and most of the local staff and craft are we trying to work.
Workers from other provinces will be subject to a 14 day pointing period before they commence work.
We're currently assessing the impact that quanta virus has on our project and I've already made for submitted for some of your notice is where appropriate.
Now the trending topics I'd like to discuss today are one an update on the unequaled in government businesses.
To our new lift profiling criteria.
And three high level, we view of our segments and prospects.
If you were please turn to slide three.
Last fall as part of floor strategic review to improve its financial position.
The company announced that it was initiated plans to sell substantially all of the kind of business.
As we work through Q4 and realized some of the early benefits of the restructuring plan.
We gained confidence in our satellite liquidity position and our viable options for generating cash flow.
That we no longer deemed it necessary or advisable.
Proceed with the sale of this important and attractive asset.
As a result, we have decided to retain this business, which will cease to be reported as a discontinued operation in the first quarter Twentytwenty.
On the an equal fraud.
Transaction continues to progress in our plan to salvage business remains unchanged.
He did not like tends to have made significant progress with one or more potential buyers by the end of the second quarter.
Now turning to our risk profile.
As Alan mentioned.
Balance has proven to be a challenge for our industry.
As a result, we continue to pick it taking actions to enhance our this profile and internet stronger unfolds.
These risk mitigating actions, including the alignment of our engineering procurement and project management disciplines, which now report directly into the business units.
Providing improved oversight.
As an example of I knew discipline around project pursuits.
We recently participated in a bit proposal.
I think like watching to see with unreasonable scheduling prosperous assigned to the contractor.
When you go she Asia set aside in line with decline, we were able to come from conformed to contract to meet our revised pursue criteria and we outlined that we outlined last year.
Let me tell benefit at both the plane and fuel.
Oh, please turn to slide five for an update on our segments.
In energy and chemicals, we booked new awards at 1.7 billion in the fourth quarter.
An ending backlog is expected to be $14.1 billion.
New awards include BPC phase for manufacturing facility for clinical use by to make nylon polymers fibers and other specialty materials for investor in China.
We also flipped it probably all petrochemical project in India for brought sodium Corporation limited.
The contract includes a detailed design engineering.
Alright, and construction management services intended to help because India dependence on petrochemical imports.
Recently won the E. P. S C for Canada wait before them corporations PDH Sino project.
Which we get booked in the first quarter of 2020.
Instead, what he was under our current guidelines and we have dealt fleet PDH plants with the same technology.
I'd like you can't that project and take a Mac is well underway.
We started planning activities in the fourth quarter.
Which will continue into next year.
Well fabrication yard recently celebrated the first okay. So the west Yale and yeah portions of the project.
We continue to monitor our progress and are focused on achieving our next major milestones of completing 90% model the views.
Moving to our offshore project. This project is staying relatively close to its revised forecast.
New awards for 2020 will be led by the Mozambique LNG project.
We expect to book this project this year and are currently executing this project under a limited notice to proceed.
Yeah sure along with our partners K T C and technique.
Well they strong team that is designed to execute this project on schedule and on budget.
Last quarter, we talked about the promotion Sunshine project in Louisiana and remain optimistic about this project forward.
We now expect to see the various PPC packages.
This project awarded in the second half of Twentytwenty and aim to 2021.
We also see a number of refinery and petrochemical project in Europe, North America and Asia Pacific.
Now turning to mining and industrials on slide six.
We expect end the year with it backlog of $5.4 billion in fourth quarter, two awards for about half a billion dollars.
Fourth quarter awards was driven by EGPC contracts for data centers in our advanced manufacturing and technologies group.
Money awards have been like in 2019 as anticipated.
We expect to see the feed work, we had been completed convert into EGPC awards in the back half of 2020.
Our prospects continue to be led by copper oxide and lithium opportunities.
Our market position remains very strong we have great relationships with the industry leaders and are working with them to successfully execute complex projects around the world.
Or infrastructure and power.
Backlog at the end of the fourth quarter was $6.9 billion.
New awards in the fourth quarter were modest.
While we expect to have a lower level of new awards for infrastructure. In 2020, we can see any continued to see interest at the state level on improving it disruption.
We are confident we're focusing on the right stage, we have the right track record when the right projects.
Now please turn to slide seven.
The government we ended the year with an expected backlog of $3.8 billion.
Last quarter work in our joint venture partners were selected to lead the central Plateau cleanup contract.
At the Department of Energys, Hanford site near Richland, Washington.
Well with previous that site and 1996.
1009.
Youre is also pursuing the hanford, thank you closer contract.
And we expect if your decision towards the end of February.
Diversified services, we expect any year with a backlog of $2.5 billion.
Our sports restructuring is almost complete.
And well positioned for 2020.
Now turning to slide age.
Other segment includes part to fixed government projects.
Right.
Morning.
And I'm definitely didn't move scale.
Well see the raptor and worn projects are continuing to progress and do not expect to take any additional forecast conditions in the fourth quarter.
As for Nuscale It cleared a major milestone in December when they actually completed phase four we view of it design application with no open items.
It's still remains on track that we see this final design cool in September of this year.
One thing in the second half 2019 was provided by third party investors.
We are actively engaged in discussions with additional potential investors.
Also earlier this month the department of banking approved up to like 350 million in cost saving financial assistance.
Now I'll turn the call over to Mike to provide a few highlights for plucky 19, and our outlook for 2020, Mike.
Thank you Carlos.
Please turn to slide nine.
While we are unable to announced or final financial results. We can provide key preliminary unaudited highlights for 2019.
Cash flow in the fourth quarter.
Second to be strong benefiting from a $150 million close out of the completed project.
Where's cash plus marketable securities at year end, because $2 billion slightly from a year ago.
Our available domestic cash balance at year end represents 40% total cash.
Corporate gene extends for 29 team, it's expected to be 167 million from 180 million a year ago, primarily driven by foreign exchange losses as compared to gains a year ago.
For the full year 2019, we paid $118 million and dividends and given our announced isn't reduction and that's for 20, Tony will be approximately $56 million.
Primary cost impacting our performance in 2020 are expected to be the following.
Structuring and other exit costs of 202 million 84 million of wish this non cash.
Non cash write off of our deferred tax assets 668 million.
Non cash impairment charges of 305 million I.
In a non cash expense of 138 million associated with the settlement of the UK pension plan.
Before I discuss our 2020 outlook I want to provide an update on a few of the financial initiatives. We addressed on are strategically do call in September Please turn to slide 10.
For a pixthree martyrdom monetization initiative, we are seeing significant interest in our assets, including those in there.
We have also received indications of interest for North American assets.
We're continuing to make progress in reducing overhead expenses across organization. The past few months, we've started to reduce or real estate footprint and related overhead expenses, we expect to achieve the previously the scope disclose runway for $100 million.
Savings by the fourth quarter this year.
We are the process of examining other transactions that will along with the sale when Nico continued to.
Allow us to strengthen our balance sheet.
And our financial position through debt reduction and enhancing our cash position.
Our goal remains to generate substantial cash from asset sales out of the receivable collections sufficient to maintain our investment grade rating.
I will conclude by commenting on our guidance for 2020, which is on slide 11.
We are establishing a 2020.
Adjusted earnings per share guidance range of $1.40 $1.60 per share from continuing operations.
We are excluding the restructuring expense or other special nonrecurring items from our guidance.
We are also excluding nuscale expenses from our guidance as we expect additional funding will be provided by third party investors.
Our guidance also excludes any earnings from our Alico business.
Expected the best this year this year.
Our reporting as discontinued operations.
Our assumptions for 2020 include modest revenue growth over 2019.
Adjusted GP gene a expense of approximately $40 million to $50 million per quarter.
The tax rate of approximately 20% and across approximately $60 million restructuring cost.
Reflecting our revised for certain criteria.
Spec in my here improvement rewards and 2020.
Sure and 2020 backlog modestly down compared to 29 team.
I also want to comment on cash flow 2020.
Fourth quarter, we utilized approximately $100 million of cash to fund our previously announced challenge project.
Well, what we anticipated.
We have approximately 500 million that cash requirements for the remaining relating to our loss projects two thirds of which we expect to funded 2020. Unfortunately. This funding has already occurred so far in the first quarter.
Moving to slide 12.
We anticipate full year margins in the energy and chemicals group.
Approximately 3% to 5% improving as we are progressing.
Mining and industrial margins.
Cost of two or 3%.
Infrastructure and power margins for approximately 1%.
<unk> margins of approximately 2.5% to 2.5% and finally diversified services bargains.
3% to 4%.
Before we turn it over to gene a QNX using.
What I note that there's no additional information.
Can share regarding the delay in our financial filing beyond what we provided today in our remarks in our press release.
While the FCC investigation may not be concluded in the near term anticipate filing our form 10-K.
These are complete.
With that operator, we're ready to say questions.
Thank you if he would like to ask a question may signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. What's your mute function is turned off too and I are significantly Jefferson again started one to ask a question.
First question from Steven Fisher from you'll be please go ahead your line is cool.
Great. Thanks, Good morning, I did have some further questions I'm asking see investigation of I guess, we'll have to hold off on those so maybe starting with I guess to what extent are you seeing your revenues being delayed relative to what you would have thought a few months ago, because it seems like the government business could be.
Contributing something like 35 to 40 cents earnings and 2020, which is now a meaningful part or the 2020 guidance.
Which would have been there before and the margin for the M.C. segment isn't too far off I think expectations worse. So are the revenues and you had seen now much lower than what we would have been thinking about a few months ago. I think you said there were gonna be up a little bit, but maybe just talk a lot about what you're seeing on a revenue front and how how pockets are proceeding.
Yeah, Steve I mean, thanks for that question.
What's happened as you can tell from the a new awards in 2019 is there have been several projects that have been canceled a couple of methanol projects that have been canceled couple of projects that had moved into 2020 lumet being one of them. So so that's I think part of the reason why the revenue is not as high we do still expect a little bit.
Just.
Well modest growth in revenue for 2020, but the there has been to move into the right in a number of projects.
Okay and then in the release you talked about you know some recent developments on two projects.
Can you just talk a little bit more high if I didnt Miss it and what your prepared remarks were what well those projects what are the recent developments that you're talking about there and then maybe the bigger picture is that they clearly are you're making progress on the turnaround, but a quarterly results.
Yeah, I still have some big negative surprises here, so I guess to what extent now going forward do you have some more visibility too I hear your arms around what's going on and cleaner later quarters. Thank you.
Yes, let me, let me answer that question or in a few different parts.
Because of investigations ratable profile foreign Secretary and as a result, our books remain open for subsequent events on various projects and that's why we use the word we're expecting a lot of the financials and can be a little bit more precise.
Your turns out.
That's in large part driven because our percent complete computer counting that requires us to do adjuster estimates for subsequent events that occur prior to our filing date.
That impacts all projects that are there a couple that.
He said that he does that perhaps a little more sensitive to those changes than others and that's what that's why we made that comment that that really impacts all all of our project for the or.
Certainly we had some unusual costs in the fourth quarter or nonrecurring UK pension adjustment, which was a good thing for floor and allowed us over the past year to really.
Well.
Actually caf and reduce our love liabilities on the on future pension expenses, we've had some restructuring costs out of it as I indicated we expect as some of those restructuring costs continuing into 2020 Oh we.
We do expect the performance of the company to improve as we move through 2020 I made that comment in terms of E. C. And we think we'll see that in other sectors as well or segments as wells as we move to the or so its operational we.
We are seeing improved performance, that's going to be gradual throughout 2020.
Okay. That's that's helpful. But just again, if I could I know, there's some sensitivity here the developments on the two projects is this.
Projects that are are.
Deteriorating in a in their performance or is this something different.
No it's not to perform security. She is your per se, it's that that.
Weve left those projects as all the projects open for subsequent adjustments well have to see how that transpires actually moved through the first quarter.
Before we file or our form 10-K.
Okay, I'll turn it over thanks.
And now we can go next question, Jamie Cool some clarity.
Go ahead.
Hi, Good morning, I guess my first question Mike is on the cashless side I understand you said you know the 500 million of cash flow drag I watch t. surgeon in 2020, but what's your expectation and terms that's cash generation, if Fannie Freddie year in how we think about first half first to second half.
Then I guess my second question is is you know I guess on that asset shelves did you do we know what do we have an updated proceeds number given we're just selling a mikko now and then it sounds like there's other assets that could potentially be up for sale.
I'm just trying to understand how big how material if that is and what are the decision striving other potential asset sales if I'm reading it right is it Cherokee cyclicality and that we still want to get to the billion and proceeds I'm just trying to understand the thought process. There given governments now off the table. Thank you.
Okay, Let me address Castro Seesawing, our first quarter cash flow somewhat negative that strengthens as we've moved through the year, but but as you have you seen where past our says cash lepton bigger can be substantially variable, it's up and down quite a bit Hudson city or he would actually moved from month to month depending on.
Advances on projects and then they how we bring to the advances that we receive as well.
Well, we do expect our tassler strengthened as we move through 2020, I do expect your cash flow generation from operations.
On the substantial portion of the cash that we were getting lead to fund the loss projects that we've talked about in the second quarter 29 doing well. So we should we expect to see our.
Right now for our plan or cash flow generation to fund the major part of the losses on those projects 2020.
Okay. This is there it's just too.
Let me just to add one more thunder like Mike said exactly right.
And you look at the comment as part of certainly keep the government group I'm really pleased.
The new Swift implementation of this team on all the actions you came out of our strategic and operational use so the <unk> and maintaining investment grade credit rating. If you'll recall is a primary objective and we believe data we have strengthened our financial position and we see additional needs to generate cash to make this possible.
I'm extremely pleased with where we're out in this regard.
Yeah, let me just add something to that because.
You know, we've always known that government business to be very valuable business. It's got a reliable earnings and cash flow and so it's actually reimbursable. The in for that reason, we had very strong interest from many well funded buyers both strategic and financial.
Most desired approached us.
When we announced that we were going to divested business.
But.
As John stated, we're so we're so pleased that you're going to be able to keep the significant contributor.
For a of earnings and cash so and the reason that we're able to keep government is a credit to our organization.
Our efforts in our people have been very focused on cash conservation and generation.
As a result.
As of the ended 2019, we had $2.0 billion.
In the back which is more than we had anticipated.
We have been successful and monetizing a number of claims and expect to do more of the same this year and next year.
We're encouraged by the interest in our PC investment and directs this real estate.
And we've reduced the annual dividend by more than half.
The cost savings or the cost reductions efforts will be resulting in cash savings.
And of course, we're proceeding with the an eco sale, which were raised significant cash and with EBIT Debbie.
So see it capital expenditures of that business. So the combination of these factors really drove our decision to keep Devin.
And as Mike stated, we're going to maintain a strong balance sheet support our objective.
Maintaining an investment grade rating and I've I've just to keep the benefits at the government and it's very talented people.
But do we have an updated how to think about a range for the makeup business if you're willing to provide one I'm just because you provided a range before when government and make our together and then the other assets that you're contemplating as it gets real estate and teach reinvestment says I'm thinking about floors.
What will remain strategic to Florida portfolio.
Jamie we haven't we're not going to get regular <unk> individual transactions on this but we do we get to think that the combination of sell them. They go the sale of real estate, so somewhere a p. three investments will give us the amount of cash necessary to maintain our are investment grade rating.
Two.
The modest to reduce our debt and enhance our domestic cash position.
Okay, Thanks, I'll get back and camps.
And now we think of next question from end to a couple of me.
Please go ahead your line is open.
Hey, guys knives, and really off high Andy Kaplowitz. Thanks for taking my question starts for the first question in terms of how you're talking 20, I'll look for margins for the different segments.
Comparing that's true our 29 to Q4 guidance.
Mark it seemed a little bit lowering here out years, <unk> infrastructure and power and <unk> Congress are hard to services. So can you just talk a little bit of other difference. There I mean, you to just seasonality or the the lower than expected revenue like versus a few months ago or is there anything else that's driving that.
Well, let me, let me start with that and answered part of that Andy maybe I'll ask Mike to follow up.
We have we set in the past it 2020 is gonna be a transition year for us.
And we're still working off some of the a problem projects and so when we gave guidance. So we are we're trying to regain or credibility in the marketplace. So we are giving the guidance that we believe we're going to make it a understanding that there's lot of I know and skill and 2020, but we are going to be seeing progress.
Through the year as as we go.
Thank you want to add something.
We all see also commented.
The charges, we took a last year Paul on the infrastructure projects that we will have a number of lower you remodeling projects and that's impacting the outlook for margin infrastructure to this year.
Okay got it and.
And then secondly, I'll then on new scale I think when you guys mentioned I guess I'm hopes to find and utilize investors photo to from the new scale.
How how likely is it true find a I didn't necessarily in Rochester, especially as a foundation ourself ultimately.
Oh This is Alan let me respond to that we're in discussions with potential investors right now that give us significant confidence.
In our statement the.
Party investors, who will provide the funding to cover the overhead costs of industrial.
Carlos matching be coming through the NRC approval. It was good for that is probably the most critical gave you that entire process. The rest is for is fairly well wrote process to get through into September we actually think that they maybe improve.
It's that milestone plus the opportunity for several projects starting to attract investors and we're seeing a significant response. So yeah. We are very good question I'm glad you asked it no we do believe.
So this isn't <unk> well on its way to route to commercial realization.
Okay got it thanks profitable separately.
[noise] from Andrew Smith <unk> Baird. Please go ahead your line is open.
Yeah.
Sorry, just like I just wanted to clarify.
On the on the restructuring charges here it looks like.
The $180 million of cash that are planned to go into restructuring actions just want to understand a little bit more about what that is in.
That does that extra hundred 80 million needed to accomplish the hundred 100 million dollar run rate savings that you previously talked often talked about on the call today or should we expect that that extra cash that you're putting into restructuring deliver incremental savings a cost saving for the bottom line.
Some of the restructuring costs are hard to reduce or real estate for third and generate savings going forward than others restructuring costs or to.
To reduce headcount and also we do savings Delta contributed to the $130 million run rate.
<unk> and overhead and as we've mentioned before the majority that overhead savings is going to occur in the business units as opposed to corporate and even the ones that are that are resulting in corporate.
I'll be in part reflected in lower allocations for the physicians. So you won't see at all you want even.
How much of it and corporate numbers going forward, but rather in the business margins.
It's a wide range of thing some of it the cash amounts on cash.
So it's a wide range of of actions taken to improve our improve our cost structure across the company.
Okay.
[laughter] did you expecting that you'd be able to exceed the previous targets that you outlined on your cost 30.
Yes, we do.
He said, we expect there too.
We expect it to see EUR $100 million from cost savings.
And that business by the fourth quarter of this year.
Okay, and I guess.
A lot of that will be in the business units. This year margin as opposed to in the corporate GNSS.
Right.
Okay, and then I guess my second question was just somebody awards.
Well I guess in the quarter.
See like one of the larger ward I don't know this but maybe if you could comment on the on the Chinese EGPC job here for the pet Chem job for nylon isn't the product here, but that seems like one of the large awards in the quarter if not the largest swore no I just wanted to understand is that one of the fixed priced up on some job and how are you.
Going to manage the risks.
No that you've been in China, obviously, the fabrication yard you're in China.
I can't recall seeing NEPC job of particularly the size for awhile and just wanted to get a sense of how you're going to execute that on the rest terms on that child in particular.
Yeah. Thanks for that question, you know that that project as all our projects now meets our criteria and.
One of the way could lead can get comfortable with with the lump sum projects is for us to do.
Do a a a reimbursable feed and development test phase and then at some point and we're comfortable that we had a this defined scope adequately and have adequate information with respect to see procurement and the vendor information converted to a lump sum and that's exactly what's happened with this one we have been.
Executing that project on a reimbursable basis and at some point.
We will convert it to lump sum.
Got it and then but just kind of a clerical question here. The 150 million dollar close out it's a very nice close out I was wondering I'm like if you just give us a little bit more detail about what job was that.
We're not disclosing that.
Okay. Thanks.
Oh no. They take our next question from Michael do that.
That's the kind of sense. Please go ahead your line is okay.
Good morning, gentlemen.
[music].
I guess for a.
Carlos you looking at you indicated in your prepared remarks, or maybe now some delays and certainly projects moving to the right. Maybe you could add a little bit more insight relative to given you know what's happening here all markets given the virus into patients what you're hearing here on the ground with the clients or how does your pipeline look.
You know looking towards 2020 aside from the projects that you're you called out in your prepared remarks that you anticipate happened later this year relative to get to that ramp for a slight decline a backlog and give you some confidence for a reasonable transition them 2021.
Well, our pipeline and E C.
We pretty much identified some of that pipeline. It looks very solid at this point I think what we have we're going to see in mining is a more.
CPC work picking up in mining and steel feeds that we've been working on developed into.
Fully PC work so.
I can't say that our pipeline is.
It's going to result in a new awards that.
Exceed.
20.
19 by a lot, but we'll definitely going to exceed 29, Im sorry, 2019, but we're definitely can exceed 2019 awards.
But on the energy side is there a sensible, but kind of caution relative going into 2020, given where oil price virus or you're sensing from your clients benezra visibility that could maybe inflect the bid as we move into the second half year.
Well as we talk to clients.
They are obviously concerned about the grown of ours, but I don't they don't I don't I don't see that as a long term impediment to going forward with their capital expenditure plants. So obviously, a our clients are much more disciplined now than they have been in the past about that but I don't expect that the plants are going to be contracted anymore than it would be in previously announced.
Terrific and then my follow up I mean, I'm on the government side now that it's kinda back into the fold like the floors of business model.
Maybe a little bit more <unk> view on.
What you have what recompetes or what booking opportunities I get the <unk> Patel contract is very very supportive of that you see through government and how that can play out for even you know improved cash flow to the bottom line as some of these revenues clicking and and the risk is model changes actually moving towards later 2020 to 21.
Well if you know we have a very very strong position in the deal he stays with a number of Oh labs that we're managing we have.
This is not the predictable business side of the business, but we are very strongly with FEMA as well.
And and Logcap.
Businesses is gonna be changing but I think we're well positioned in those areas for additional awards and the government.
And any color, obviously, obviously are the prospective buyers that his thoughts as well.
Because we had a lot of lot of interest in that business.
Well a lot of this when did the bridesmaids I appreciate comes back here yeah.
Thank you Mike.
Thank you I'll just take on next question from Janney.
From Goldman Sachs. Please go ahead your line is open.
Yes, hi, good morning, everyone.
Is there.
All of the $500 million are expected cash outflows to complete legacy projects. It can you just give us a sense for how many projects where.
Looking about and does that include Radford Warren as well just so there's some context around the scope of what that 500 million dollar dresses would be helpful.
Oh, yes.
It really includes.
The 16 projects for the second quarter that we could charges on now all all of those don't represent cash whether there's a handful of those that are settlements that actually generated cash.
Some of them they'll just accounting adjustments that were non cash but of the ones that that do have cash requirements going forward.
That's that's what the 501 represents and again, we expect about two thirds ethic occur this year and then in some of that some of the funding.
In subsequent 2021 and yes. It does include Radford War.
Im sorry did you say it does include Radford I'm wondering how many projects and total does not include appreciating. The fact that a a bunch of projects identified on Q2 had non cash charges.
Right. It doesn't include Radford, Andrew on yes. It does.
I don't have the exact number at hand, but I was I would say, perhaps eight to 10 of the other 16 I will represent a material cash outflows.
Okay, and lastly, what will your percentage of completion be on those eight to 10 projects exiting 2020, if you hit the current schedules.
We expect.
To complete a lot of those are the ending 2020, a fewer roll over into 2021.
Some of them or recent ones such as one that was that we just started in 2019.
But the majority will be complete as as we had 2020, that's why we're saying most of the funding all current 120.
And answer I will let me address one more planes you know considering the time range on these projects continuing into 21 can you just folks talk about what gave you the confidence to retain the government services business considering looks like there's substantial wood to chop still on a number of these projects are exiting 20.
Well, let me mention we have we have a number of way to generate cash.
The largest one is a niko, which I will be Oh, we expect to sell.
Maybe into Q3 cabinet buyer by cute, but you had a few two and half savings in Capex, We're gonna have.
<unk> lead that we're going to be selling.
And you know monetization of a number of claims for example, the one that we've just recorded in the.
Fourth quarter as one of them. So we have we have increasing confidence that we're going to be able to generate the cash that we need to cover the 500 million.
And then some of the a project charges.
Thank you.
And now they take on next question from check these are from Deutsche Bank. Please go ahead your line.
Hi, good morning, guys.
Good morning.
So I just want to make sure I had my arms around all the cash conversions for spring training. So I was hoping you get a top provide a bridge from net income to cash flow. Yeah. I think you guys talked about yes stuff around $35 million or projects that have a cash burn, but just want also understand a cash portion restructuring kovack from capital swings calls out.
So the Capex and ultimately I was sort of leverage target I'm expecting to achieve anything 2020.
[laughter].
Given where we are about power lasers are our statements for the 2019 and having to beginning balance it's really hard to go through a very detailed.
Cash flow reconciliation for you from from earnings although down the cash it's very complex for floor. Because every single project is different has or has it it has a different cash.
Profile.
That's why.
I would give earnings guidance.
This is where the first time given Castro guides itself, it's something that we managed very aggressively manage it on our popular project basis. After most of our projects. Our intent is to be cash positive now obviously or Hello, Patrick has won or lost additional fee analysis second quarter those problems over their cash.
Positive position that we aggressively pursue that it's also very complicated by the fact that lot of our projects on a JV basis.
Partners that impacts the cash that we pull out the project for active and overtime and I've got that really complicated complicated, but as we go through this year will provide additional.
Insight on cash flow right now.
We're just getting high level guidance in terms of our expectation that cash flow from continuing operations.
Including the benefit from retaining our government gives us will follow suit there most of them project losses that we expect that are required to fund and 2020.
Got it and then just a question on you didn't see margin guidance. It's.
Certainly well wider than what's been historically, so I was hoping you could just talk about just you know what each of the bookends represent them and how to think about that.
But even see margins again, just reflects that how some of these projects.
So throughout the year, obviously, the first party they were looking for for lower margins as some of our other projects kick in like rewarded and and.
20, lighting and as we progress some of the other projects such as LNG see throughout the year. So it's really the margin development and 2020.
There are highly impacted by health, how the specific projects progress throughout the year. That's a impacts are our quarter to quarter slayings, that's sort of tax affected that we expected for the margins as you move throughout the year.
Thanks I'll pass on.
Thank you Ms. Kim next question from Michael Feniger from Bank of them anything. Please go ahead your line.
[noise] Mr. Feeney guarantees on means your line.
Yes.
I'm afraid.
Selectively.
Our next question. So so when he Smith from Keybanc capital markets. Please go ahead your line.
Hi, gentlemen, thanks, taking my question I'm, just going back on the cash flow or your comments around operating cash.
It's being able to fund a substantial portion of a what's needed to fund the loss projects.
I would be helpful to get a little bit of contacts that possible just around how much claims are driving that dynamic and and just what gives you confidence around the line of sight around those claims given you know those are things that that seem to be tricky to pin down and up into July.
Here in terms of getting the cash in the door.
Sure I mean your observation is correct that that it's it's tricky are difficult to fourq cast claim revenue.
It's complex.
You'd have to rely on lawyers to get your monies difficulties involved.
But looking at our at our cash flow for 2020, if stock based on any significant claim revenue. We don't factor that I can tell how imagine how we manage the business going forward because it is it is so spotty and so I guess the forecast and some of the claims can take years to resolve.
[laughter].
Okay, that's helpful and ER and then.
The targeted domestic readily available cash balance of 1 billion you guys had laid out post the divestitures.
We didn't see that balanced pick up fairly meaningfully in fourq versus Threeq you. It seems.
But I'm just wondering you know the timeline on on achieving that 1 billion now with.
Retaining government and then.
You know whether that's a you know a goal we see achieved at some point here and Tony.
Well, that's that's certainly remains my personal goal.
And we're working toward that going forward, but you know as we move through.
2020.
Asset sales alico or other potential asset sales and collection of various receivables that are outstanding on our balance sheet all contribute to that as you know to the or.
Okay, and then in terms of impede three and real estate sales is there any kind of rough thought on whether it's the first half versus second half kind of timeline.
Oh, yes, it's gonna be Gulf.
And we are.
Given our for nationalism sort of different given our financial position.
We are going to be very very deliberately in terms of hobby proceed with those sales or we're going to use that to maximize value as opposed to try and do something crazy I just kept the cash right up front.
Got it Okay last quick one from me, noting several articles.
Written about it you know pausing and work at five yards in China, and not surprisingly I'm, just curious where there.
You proceed any kind of delays or or issues around some of the module deliveries to LNG, Canada.
Right as some of this a crown the virus outbreak a impacting the five yard there.
No I got back to work every Catherine.
And at this point, we don't see any delays, but obviously, we'll wait and see.
Let me wrap up completely.
Okay gentlemen, thanks, thanks for the time I appreciate it.
Thank you.
It appears that are no further questions at this time Mr., Mike So, yes, I could turn the confidence back to you for any of the smell.
Mike.
Before we conclude I just want to reiterate that we are in a period now where the books are still open that because of our accounting processes. We are subject to future changes that could impact the financial statements or subsequent events and that's why we did mention that two projects that were there because.
They are.
Large projects that perhaps are somewhat more successful.
To to changes as we go through.
The completion of all reviews that we hope that occurs as you know as soon as recent reasonably possible.
And that's that's why we did mention though two projects and that that is impossible I had a forecast what's going to happen well everybody just has to be a word but at the books are up and as you go through the remainder of the smoker next month.
Okay, Mike Thank you and with that thank you operator, and thanks to all of you for participating on our call today.
Last year, we started down the path that making tangible and actionable changes to our business strategy.
And structure position fewer for long term success and as we look ahead now driven by our talented workforce. We will continue to act with a sense of urgency to drive our business forward delivered positive results to our clients and our shareholders.
So we greatly appreciate your support the soon thank you.
This concludes today's call. Thank you for your participation you may now be.