Q4 2020 Fluor Corp Earnings Call
[music].
Please standby we're about to begin.
Good morning, and welcome to Fluor's fourth quarter and year end 2020 earnings Conference call. Today's conference is being recorded at this time all participants are in a listen only mode. A question and answer session will follow management's presentation. A replay of today's conference call will be available.
At approximately 10 30, a M. Eastern time today accessible on Fluor's website at Investor <unk> Dot Fluor Dot com.
Replay the web replay will be available for 30 days.
Telephone replay will also be available for seven days through a registration link also accessible on fluor's website at investor that floor Dot com at this time for opening remarks, I would like to turn the call over to Jason Lang Taylor Director of Investor Relations. Please go ahead, Mr land camera.
Thank you good morning, and welcome to the Fortune 2024th quarter Conference call with US today are David Constable Fluor's, Chief Executive Officer, Jason <unk> Chief.
Chief Financial Officer.
We released our earnings announcement earlier this morning.
A slide presentation on our website, which we'll reference while making prepared remarks before getting started I'd like to refer you to our safe Harbor net regarding forward looking statements, which is summarized on slide one day.
Today's presentation, we'll be making forward looking statements, which reflect our current analysis of existing trends and new information.
An inherent risk that actual results could differ materially.
You can find a discussion of our risk factors, which could potentially contribute to such differences in our form 10-K filed earlier today.
During this call we may discuss certain non-GAAP financial measures.
Conciliation for Ethernet to the comparable GAAP measures are reflected in our earnings release interest you give me the Investor Relations section of our website at Investor day for Dot Com.
I'll now turn the call over to David Constable Force, Chief Executive Officer, David.
Yeah.
Thank you, Jason and good morning, everyone.
Let's turn to slide two.
Yet started my first.
Two official months back in Florida have been extremely busy.
The immediate priority was to reset and communicate our longer term strategy.
And the corresponding organizational structure.
As you know, we announced a new Fluor management team in January.
Our collective focus is on the end markets.
Wherever you have the right technical expertise to add value for our clients.
While earning a suitable return for our shareholders.
The recent changes that have been implemented aligned our business around the strategic priorities identified for fluor in the near term.
As a reminder, our four strategic priorities are to number one drive growth across the portfolio.
Sue.
Pursue contracts was fair and balanced terms.
Three.
Foster a high performance culture with purpose.
Yeah.
And for reinforced financial discipline.
On today's call.
I will review our 2020 results.
And discuss our views on how 2021 is shaping up.
For a longer term view of fluor's opportunities and key focus areas.
Please tune into our strategy day from last month, if you haven't had a chance to view it yet.
Strategy day kicked off one of the more exciting areas of change and growth in floors long history.
And we are confident that the strategic plan as outlined we will deliver a directional earnings range between $3 and $3 50 per share by 2024.
Now to 2020.
Please turn to slide three.
We ended the year with a backlog of $25 $6 billion.
And full year, New awards of 9 billion.
New awards, clearly reflected the impact of the pandemic.
And its pressure on our clients.
They also reflect our stringent pursuit criteria and strategy to reduce risk.
Across our end markets, we saw clients delayed capital spending plans, while the weighted for uncertainty from the pandemic to subside.
Based on conversations with our clients.
We're starting to see positive momentum.
And expect to see New awards pick up in.
In the second half of 2021.
We continue to see good prospects across our portfolio.
Andrew completing front end work scopes to populate our future backlog.
However, lower awards in 2020.
We will create a headwind for 2021 earnings.
Before talking about what we're seeing for 2021.
I want to reinforce that the people of Fluor has tackled the challenges of 2020.
With a resilient and energy that was unmatched.
These challenges have made us all more adaptive.
And I believe the new organization is truly motivated to successfully take the company forward into its next chapter.
Now, let's turn to our business lines and how we are aligning our priorities with new opportunities ahead.
Turning to slide four.
As we move into 2021.
Our urban solutions end markets are gaining momentum.
Specifically in mining.
We're seeing high demand for metals, such as copper and iron ore.
Last year, we booked a significant north American steel project.
As well as several Triton studies that we expect will convert to follow on <unk> Awards in late 2021 and beyond.
Late last year.
Keith Bachman completion for the BHP Spence copper project in Chile.
We've had a long term relationship supporting Bhp's capital efforts and we are proud to be completing another successful project for them.
We are also encouraged by the opportunities we are seeing in our advanced technologies and life Sciences end markets.
Here, we are pursuing data centers and semiconductor opportunities.
In North America.
A major life sciences prospects in Europe.
In addition.
Florida has just been selected for a large biotech project in Europe.
We are finalizing contract details now.
This confirms our strategy to leverage front end technical solutions into full EPC Awards.
Contract signature is expected by the end of Q1, 2021, and we look forward to sharing more specifics at that time.
Yeah.
Advanced technologies and life Sciences is well positioned to support our clients for advanced manufacturing projects.
This includes opportunities arising from the U S governments executive order that is focused on the domestic supply chain for critical materials, including semiconductors batteries pharmaceuticals.
Rare earth elements.
Moving to slide five.
In infrastructure.
We are well positioned for select opportunities in the U S due to urbanization and an aging infrastructure system.
Furthermore, we believe these opportunities could be enhanced with the introduction of a federal infrastructure spending bill.
As a reminder.
And as messaged previously infrastructure margins will be under pressure as legacy zero margin projects are worked down through the year.
Ultimately, 35% of our infrastructure revenue will come from zero margin work in 2021.
As we discussed your strategy day, we'll be very selective in the infrastructure projects, we pursue in the future.
Each pursuit must have the right scope.
The right clients.
Right location, the right contract terms.
The right size.
And importantly, the right execution team and resources.
Our goal is to deliver predictable earnings and not chase top line growth.
This will be especially apparent.
Our infrastructure proceeds going forward.
Turning to slide six.
The management team is very excited about the work we're doing in mission solutions and new opportunities, we see in supporting our government clients going forward.
As you know we are keenly focused on growing our presence in the intelligence cyber and mission critical infrastructure and operations markets.
Furthermore, we continue to support the Doa and.
And the National Nuclear Security administration, with its nuclear security environmental remediation and energy projects and operations.
We expect that work to be a strong baseload for fluor in the coming years.
Please turn to slide seven.
While we are optimistic about our prospects in energy solutions in 2021, we don't expect our clients to resume capital spending at a meaningful pace until later in 2021 and beyond.
We are having productive conversations with our energy clients and.
Well positioned to meet their growing needs.
Importantly here new.
We're living in an ever changing world and four continues to enhance its capabilities in the energy transition space.
We fully expect this market to become a larger part of our prospect pipeline is key.
Clients pivot themselves toward a lower carbon economy.
Next.
Our chemicals clients see recovery in key sectors of the market, which are anticipated to translate into additional capital expenditures.
This includes the specialty chemicals market, where we continue to see positive signs of investment with our existing clients and significant activity with ongoing pursuits.
Also.
Future consumer demand in the battery market is translating into additional plan investments associated with lithium.
And the related battery chemicals.
Now let me give you a brief update on some of our key projects starting with LNG, Canada.
Moving to slide eight.
At our strategy Day project Director, Phil Clark give a full update on the good progress.
And LNG, Canada in Kitimat.
Earlier this month the <unk>.
<unk> received approval for its construction ramp up plan from the office of the public Health Officer and Northern Health.
We are coordinating with government and health authorities.
Workforce on site increases and we focus on our spring and summer construction program.
Moving onto the Purple line project.
As mentioned on the third quarter call. A settlement was reached between our critical line JV and the Maryland Transit authority.
We received the first payment in the fourth quarter and expect the second payment in the second half of 2021.
This month the.
The design build team for the Tappan Zee Bridge filed a lawsuit against the New York State Thruway Authority for unapproved change orders.
As a team we agreed we have exhausted all other options for resolution and believe we rode compensation.
Well, we don't have a timeline for the resolution to these legal actions, we will keep you updated as the situation proceeds.
Please turn to slide nine.
Okay.
With respect to our two challenge government projects.
I'm pleased to report that on the rapid project, we've turned over all 113 systems to our client and we are essentially complete.
The GAAP being worn project continues to make steady progress.
Finally, we remain confident in the viability of our new scale initiative.
As stated last month.
We are currently evaluating new investors looking to reduce our ownership stake and capitalize on this clean energy investment.
I am very encouraged by the levels of interest we are seeing and believe that new scale.
To provide sizable returns for fluor overtime.
And now I'll turn the call over to Joe for the financial update Joe.
Thanks, David and good morning, everyone.
The main topics I will discuss today are.
One an overview of our 2020 financial performance.
Date on our liquidity and financial position.
An update on our initiatives and for our outlook for 2021.
You'll see that today's results are presented in alignment with our old reporting segments and include store as part of continuing operations.
Starting with our Q1 2021 results, we will be presenting our financials aligned with our three new business segments Urban solutions mission solutions and energy solutions.
At that time, we also expect to reported storage as discontinued operation.
We will maintain an other segment mutual principally represent new scale.
Our Radford and Warren projects will move back into mission solutions as David said Radford is essentially complete with all 113 systems turned over to be while we're Warren will flow through zero margin until its completion.
Turning to slide 10.
For 2024 reported a net loss from continuing operations attributable to floor of $294 million or a loss of $2 90 per diluted share.
During the year, we recognized the following significant charges most of which were recorded in quarter one.
$298 million for impairments of goodwill intangible assets and investments and other assets.
$60 million for current expected credit losses associated with energy and chemicals clients.
146 billion for impairments of assets held for sale included in discontinued operations of which 12 million related to goodwill as well as significant forecast revisions for project positions due to COVID-19 related schedule delays and associated cost growth.
Corporate G&A expenses for 2020.
Was $241 million up from $166 million a year ago.
For the full year 47 billion was due to foreign exchange currency losses, predominantly driven by the weakening of the U S. Dollar and 42 million was attributable to professional fees associated with the 2020 internal review.
Our incurred increased compensation expense of 2020 was primarily due to the impact of a higher price on stock based compensation.
As our share price increase from the date of the grant to the end of the year.
We achieved an estimated run rate savings of $140 million annually and our overhead expenses due to actions taken in 2020.
It's important to note that these savings are spread across the business lines and in corporate overhead.
As I mentioned last month, we expect to achieve an additional $100 million of annual savings over the next three years as we rationalize overhead to the new shape of our business.
During the fourth quarter, we exited two of our European infrastructure P. Three investments and received cash of approximately $20 million.
We also have two north American joint ventures that we expect to exit later in 2021.
Moving to slide 11.
Our ending cash balance was $2 2 billion up from 2019.
Mastic available cash represented 32 percentage that's total.
We expect to see our cash holding steady around $2 billion through the year with debt retirement being offset by divestitures and the liquidity improvement measures. We have discussed in the past.
Operating cash flow for the full year was 186 million, which included approximately $375 million of cash to fund our legacy projects.
As you saw in our earnings release. This morning, Flor successfully renewed its lines of credit and entered into an amended and restated $1 65 billion credit facility, which matures in February of 2023 and replaces the previous revolving loan and letter of credit for.
<unk>. Additionally, our debt to capitalization requirement on this amendment facility was expanded to six five ex which gives us more flexibility and current borrowing capacity as we assess our capital needs moving forward.
We believe this is the appropriate sized facility, we need to support our business given the shift in our strategy as well as another. Good example of our efforts we are making around the organization to make floor fit for purpose.
In 2020, we continued the process of monetizing their investments and it may go.
And equipment rental business.
Earlier in the year, we sold our operations in Jamaica closed their operations in Mexico and sold the equipment rental business owned by store.
We announced on our strategy day calls that we have received a letter of intent for our North America business and are now reviewing options for the remaining South America business.
Please turn to slide 12.
Our two main financial priorities in 2021, or further stabilizing our capital structure, which we plan to primarily due with debt retirement and divestitures and booking a pipeline of work that fits our revised pursuit criteria and our strategies.
We are introducing our 2021 adjusted EPS guidance of 50 to 80 cents per diluted share for continuing operations.
This excludes new scaled related expenses and any impact from foreign currency gains or losses restructuring or impairments.
This also reflects store being a discontinued operation.
As David said, we expect to see New awards begin to pickup in the back half of 2021 with significant EPS growth in 2022 as we begin to work these projects.
So we do not give quarterly guidance Q1 results have historically reflected higher G&A expenses.
While we are seeing green shoots around the business the lingering effects of the pandemic will continue to keep awards compressors for the next few months.
Are there more.
Our existing backlog is still being impacted by the pandemic, though our projects are back online for the most part government restrictions have slowed down our progress and the rate at which we are able to bill our clients.
Turning to slide 13.
Our assumptions for 2021 included a slight decline in revenue as compared to 2020.
Adjusted G&A expense of approximately $40 million to $50 million per quarter, and a tax rate of approximately 28%.
We anticipate average full year margins of 2% to 3% and urban solutions.
And a half to 3% in mission solutions and margins of two and a half to three 5% in energy solutions and improving as the year progresses. These margins included the remaining impact of zero margin work flowing through the business.
Also anticipate 2021 capital expenditures to be below $100 million as we divest our <unk> business this year.
As David reaffirmed we maintain our long term guidance of $3 to $3.50 of EPS by 2024.
We are taking the necessary first steps by strengthening our balance sheet and focusing our growth on end markets, where we see the best opportunities for revenue and margin expansion with.
With the Covid headwinds starting to subside, we will see a resumption of project awards to drive our profits over the next several years.
And now I'll turn the call over for questions operator, we're ready for our first question.
Yeah.
To ask a question. Please press star followed by the digit one if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment our voice product.
Okay.
And once again, please hit star one will start out with Steven Fisher with UBS.
Hi, Thanks, Good morning, guys.
Mentioned, David B, the life Sciences plant by the end of Q1 can you just maybe give us a sense of what are the other big milestones or things, we should be looking for that you want to achieve.
In the next couple of months up to the next earnings call, which would really kind of round out your first 100, plus days give or take.
Good morning, Stephen.
Thanks for that.
The question, Yeah, we were very encouraged.
By the <unk>.
Award in Europe, a big biotech facility.
World scale facility that's.
So we're just finalizing now like I said, so that was and I said it is very encouraging because it does.
It does confirm or are.
Our move up the value chain and are working with their customers on front end conceptual work and then into.
Into a front end design and then moving into EPC.
Services so that's.
That's very encouraging.
As far as Saturday's goes we I think we set ourselves up well, we've also been working really hard on.
The.
The new strategy with you, which you heard about in January.
Putting new structure together.
And and getting that communicated externally, but also internally so we're working hard on.
You indicated the strategy and getting everyone lined up for for.
Going to market across the three business segments. So I think the focus area right now will be engaging with customers.
Engaging with customers.
And.
So, making sure that our strategic priorities and matching up which Uh huh.
I can give you encouragement on that front as well we've had good discussions across the segments.
With customers and what we're what we're rolling out so.
I think a key focus area right now is part 100 day plan.
Additionally, those.
And those achievements I, just mentioned will be a real focus on cost optimization.
And we've got that that kicked off.
To optimize costs and make.
Make sure Fluor is fit for purpose.
Going forward, so that's a big exercise.
I've had some experience with that in my previous life and we're leaning on that specifically.
Specifically.
Two.
Basically simplify.
The organization and drive some <unk>.
Some of the complexity out as much as we can and are and go after our overhead where we where we feel we can be we can be more effective and efficient so that cause.
To me that's going to round out the 100 days. The official 100 days. If you will at the end of March we're expecting I mean, the executive sponsor for that our cost optimization program Jos on the steering committee, along with Mark fields, who runs price execution. So.
I'd say those are the.
Critical areas right now that we're focused on Stephen.
That's very helpful. And then you mentioned completing some front end work scopes that are going to lead to those bookings you have planned for the second half of new Europe can you just talk about.
Some of the incoming.
Front end scopes in it.
So that we could then.
That's up for further.
Backlog growth and do you think the awards in the second half new will be strong enough to have a book to bill over one.
Thanks again.
You know if you look at the prospects as we said.
Yeah on strategy day on here in the prepared remarks.
Obviously, a COVID-19 hangover into 2021.
But certainly everything we see that here at the company and talking to our customers our clients, but also.
Just in the in the markets and the.
The GDP comments and the balance if you will in the second half.
Really looks strong.
<unk> estimates as far as sorry, six 8% this year based on the second half a.
Six 8% the growth in the U S alone.
In the second half so we're encouraged by that but again it's.
Timing is somewhat uncertain as you've heard in the past there are projects out there.
Our prospects have moved to the right, obviously in 2020 and and so we're expecting a pick up in the second second half.
Specifically.
We're working on a variety of projects even in the first half, we see a potential potentially with upstream.
International upstream projects.
It's close to award.
In the first half.
In mission solutions work with the Doe.
<unk> is also getting close to fruition.
The obviously the buy.
By biotech facility I've already mentioned.
We have a chemicals project in the U K that is shaping.
Nicely for energy solutions quite a bit of mining work in the second half I must say when you asked about that front end work a lot of front end work in mining right now leading to E. P. C. M work all Reimbursable work.
In the second half and that cuts across the U S.
Asia.
Africa.
And a couple of jobs in Africa actually and then.
And then more a second half work in data centers.
Specifically in data centers and and another chemical project in the U K. So it's kind of across the board across all three segments, but definitely.
Focused on the second half more than.
More than the first half David if I may just add Steve.
Steve.
Your question around book to burn, but we would expect to be closer to <unk>.
Flat, meaning that that we would be pushing that one point out book to burn by the end of the year that obviously is contingent upon.
Some of this overhang that we continue to see from from Covid and when the capital markets will we'll kind of jump back in and we will start seeing the release of some of the projects that David just outlined but it.
In our in our modeling we're looking to be close to that one Plano book to burn ratio.
By the end of 'twenty one.
Terrific. Thank you both.
Thanks, Steve.
And next we'll move to Jamie Cook with credit Suisse.
Hi, good morning.
I guess two questions. One you know in the 'twenty 'twenty, One guide I think for energy solutions, you implied margin path.
And a half to 3%, which I think when we were you know how to call. Following the third quarter conference call you implied margins potentially any ask it could run rate, 5%. So I just want to make sure I'm understanding that correctly and if so what's driving the lower margin trajectory versus what we thought a couple of months ago and then.
And my second question, you know back to the three to $3 50 in earnings power you guys talked about you know last month.
Now in particular, given the base of earnings that we're talking about in 2021 I was hoping you could help us better understand the bridge on how you think we should get there in terms of how much is coming from cost takeouts versus the potential sell down of new scale versus you know what you see them in and sort of market growth like any.
Color you could help us sort of bridge that.
You know accelerated earnings growth in particular off of the space. Thanks.
Jamie Thanks, I'll jump in on the first question relative to the margins in energy solutions, we still still are maintaining our four to six guidance in the outward years driving to that $3 to $3.50. What's occurring in 'twenty. One is we're seeing some drag realm.
Due to Covid and starts and stops a day.
Are you able to get folks on site to really drive that volume in and get the progress in and specifically on a couple of very large projects as we see them today and those volume impacts are having.
And overall impact to you know how our overhead is impacting us.
The volume itself meeting.
We got to get the machine cranked up as we get back into fabrication in the middle of the year on our largest energy solutions project, we'll start to see those revenues jump in the margin to increase as well. So if you looked at the trajectory of that two and a half to three and a half.
Percentage for energy solutions in 'twenty, one you would see a significantly lower number in quarter, one and quarter two.
And really ramping up closer to that three 5% towards the end of the year and as we start booking new and more profitable work under the new bidding guidelines. When we would expect that to so that'd be a more linear approach back to that 4% to 6% range as we progress out into 'twenty two.
Yeah.
Clarify Joe.
Just for clarification on that there's no understanding there's COVID-19 and when projects start starts yeah, or whatever but there's no degradation in the core profitability of the projects relative to where we werent there third quarter for Es just to be clear.
No not at all that's an absolute.
True statement from the standpoint that we've had.
There are some small areas that were still negotiating with clients and we've taken some conservative positions. If you will relative to.
Covid impacts that day that they have not been significant relative to the impact to our overall margin percents.
As they relate to those projects now theres going to be a long discussion to get to conclusion on some of these items, but we do not see it having any impact as we crossover the middle of the year the capital markets return and we can start adding some some more.
More profitable backlog into into the pipeline at this point in time.
Okay. Thanks, and then just help us bridge to the three to $3 50 versus where we are today.
So on 350 came in were still still as I said in the prepared remarks, we're still at that level, we're comfortable with our modeling on on that type of projection and as Joe said the blended margin corridor at group level is 4% to 6%. We've got obviously more front end <unk>.
Your margin work in that mix that will drive to that to that higher level of the range that we're projecting so I think that's that's how you should think about it and and revenues too.
To get there.
That type of growth to.
To get right is there implied revenue number implied.
From some of the cost savings you know what I mean like just the bridge for it just I understand 46%, but I'm, assuming some of the cost take outs to be incremental just or is it too early in the game to do that.
One of your questions earlier was about new scale new scale.
Side on that is not non modeled into this at all the $100 million is obviously with the additional $100 million of savings we're going after that that I spoke about the Joe and I are working on so that is in that mix, obviously and so yeah. That's how that's how we get there.
Okay. Thank you.
Thank you.
And next we'll move to Andy Kaplowitz with Citi.
Hey, good morning, guys.
Good morning, Andy Good morning, David So in your initial conversations with customers could you talk about their acceptance of just sort of the strategy to reduce risk you know focusing on cost reimbursable projects.
Ex that you mentioned that you can win later in 'twenty, one and you know more in energy and 22 day can.
Can you tell if they're satisfied with your risk parameters, where you could actually record that 4% to 6% margin on this new work, but you know more classroom basketball or lower risk.
Yeah. Thanks for the question Andy.
All of those prospects I, Iran ran through.
With Stephen.
Little earlier those are all Reimbursable projects, I mentioned and one with one G. Max.
But again that's G. Max in a in a Tls datacenters, where we we close the books very late in the game and the risk is very low so we're comfortable with that type of a car.
Contracts are.
Where they should be enforceable contract up to a maximum and we share in the in the underground so.
Yeah talking to customers, it's been very encouraging I think they're.
They're there the first thing is they're relieved and grateful that we're staying in the EPC business and.
And being a leader in engineering construction for them around the for for all our customers around the world. We've got really good feedback from that standpoint, and they also agree that.
For us to stay in that in the game, but a balanced and fair terms. So those discussions have been going well.
In all the different business segments.
And so again as you know.
No real changes.
So after our infrastructure work.
And we're comfortable and we've got a track record.
On those road and bridge Regional Road and bridge projects.
And then be very selective very very selective with a stringent pursuit criteria in for example, energy solutions, where we we know the customer and we negotiate.
The risks that are appropriate but.
Having been on the other side of the fence as a customer and having to take multiple <unk> zone multibillion dollar projects in the new oil and gas downstream and petrochemicals marketplace.
Have a heart to heart discussions because they've been in their shoes and and what you.
We're talking about driving two after you get safety and quality and fit for purpose lined out and your scope next thing you look at when you take out Friday and get you get your internal rate of returns as high as possible is his project cost and project schedule, so talking to customers about driving to the lowest price.
Checked lifecycle cost.
Gets their attention, obviously and the way to do that is to share risk appropriately and not put a massive amount of coverage.
On the contractor side of the fence and pay more pay more for your project in Houston, you really need to so we're having really good discussions.
Yeah.
That's helpful. David and so Joe you you mentioned that you know you were working on $100 million cost out program. I know, it's you know through 2024 now that's on top of the last one but what if anything is baked into your guidance for 'twenty and 'twenty, one I imagine a small amount and 10, new accelerated at all or maybe just give us an update on what you're doing here.
In 'twenty one.
Yeah no. Thanks for the thanks for the question so.
As David outlined.
We are.
Been pushing with a with an external.
Pfizer in and the methodology I think I laid out during strategy day is we're working across the entire organization through corporate G&A into the business lines. We've conducted nominally 100 separate interviews.
What we're calling this is somewhat of a diagnostic phase or the diagnostic days, which is a six to seven week period.
We plan on taking our findings.
For the.
The implementation phase of this to David within the next three to four weeks and we will then begin to.
We will begin to kind of ramp up that that process.
Two two to get the optimization that we're looking for I would suggest that there's very little of that in 'twenty. One due to the fact that we were able to to.
Identify $140 million of that over the last 18 months. So what we're now looking.
More closely at is aligning you know the strategy with them with the with the footprint of the company.
And and how the two really need to marry up and how the the new users and the suppliers within the company you can get aligned and how that all comes back to a.
How much lower a footprint and a more optimized model. So that's a long winded way of saying, we're probably going to see very little of that in 'twenty, one, but you will start to see that really start to kick in in the first half of 'twenty two.
I appreciate it guys.
Thanks, Andy.
And next day move to Jerry Revich with Goldman Sachs.
Yes, hi, good morning, everyone.
I'm wondering if.
Can you talk about the revenue contribution net of your green energy or carbon capture products today and the booking cadence that you expect over the course of.
21, just curious can you just give us a rough sense for the size of the business as it stands now and based on what you are looking at for 'twenty, one what what could it look like over the course of 'twenty two 'twenty three.
Yeah, that's a that's a.
Great topics for Fluor right, we are well positioned.
For energy transition energy transition, meaning yeah. That's it so dual energy challenge we got it.
Support.
Global energy demand growing energy demand globally, while at the same time driving towards cleaner energy and making it sustainable and affordable.
Hence the term energy transition and if that is right in our wheelhouse.
Putting with R. R.
Our proprietary technology and carbon capture and storage the economy, plus technology and we're working on a.
A variety of front end projects right now in carbon capture and storage so.
It's early days, it's all primarily front end work right now not just in carbon capture but in Biofuels.
Well fuels are some early early working hydrogen as well and so it's.
As far as projecting.
When the when the larger programs will drop.
That's further out in time I would say I think it's very early days and.
I was just watched that play out and hopefully we can give you a little more color on that as as these projects take shape I will say that the early I think I've mentioned this to some of you in the past.
If these early early customers are first in the door had been more on the development.
If you will the development side of things from a client perspective, but we're starting to see the big self financed.
<unk> customers come in as well as they also have to pivot.
To a lower carbon economy and in there.
Obviously looking at how to Decarbonize their assets, which we bought from.
Some work there as well, but I just don't have the exact figure those are actually EPC jobs were working on inefficiency in decarbonization.
Again, it's early days generally speaking one energy transition and we will will give more color in the in the calls ahead.
Okay.
And then.
Can we shift gears and just talk about infrastructure with a change in focus for you folks.
How are you thinking about the addressable market.
For infrastructure for you today versus the revenue rate that we're running at now August you mentioned, a third of the business is being run through with zero margins.
What should the size of the segment look like as we get the new bids go it gives it a topline a third smaller than it is today or do you think there's scope to.
Book and replace that business with good margin work.
Yeah.
As you know working off our zero margin remaining at projects in the legacy infrastructure portfolio.
Most of that being this year and next so that's.
That's coming along nicely and we are keeping a close eye on that and in working with her.
Clients are.
Making sure where we are.
I have a surgery rights, if you will for Covid done.
<unk>, Missouri.
And change in law on all our projects including infrastructure.
And.
The real focus here is on.
Going forward is where we really want to.
Make progress is in regional roads, and bridges and transfer our successful business model here.
Here in Texas.
There are states around the country, that's that'll be the primary focus but also.
Terry <unk>, our group President there and and urban solutions is also focused on.
On PMC, plus where program manage contracting plus potential.
Work on the project.
Bruce will basis. So that's also something that's making headway.
Headway getting traction as well in managing these big programs.
And as you know, we expect to see more spending infrastructure falling going forward certainly in the U S. And that's we're primarily focused on the U S and Canada and infrastructure. So.
That's that's where we're at right now and.
Obviously it'll it'll.
Dip somewhat in revenues based on the new.
The new strategy.
But you can expect to see that come back.
Come back in.
Drive with this additional type of scope, we're going after and get back to.
Historical levels and infrastructure.
With us today.
Like higher predictable delivery, sorry, Yep Yep.
For sure.
I appreciate the discussion thanks.
Thanks Jerry.
Yeah.
I'm going to move onto Sean Eastman with Keybanc capital markets.
Hi, David Thanks for taking my questions and sorry, I just wanted to.
This advanced facilities and market is really interesting I'm, just trying to get some perspective I mean.
Could you tell us roughly how much revenue is baked in there for advanced facilities in 'twenty, one versus sort of where it's being at historical peaks and you know, perhaps if you could comment on the prospect pipeline and advance facilities, how thats shaping up relative to.
Do you know kind of the prior peaks we've seen from floor.
In that business.
Okay.
Thanks, Sean.
<unk> you know it.
It's Pat.
It's a really heating up right.
In.
Across a T. L. S. Yeah, so just not only data centers and semiconductor work in advanced technologies.
Obviously life Sciences, and biotech and pharmaceuticals, and contract manufacturing advanced manufacturing packaging food and beverage.
So cross ATM, Pos and the advanced facilities like you say.
Or are starting to gain traction so.
You saw the executive order this week.
We view that as good news.
Going forward, if it aligns with our industrial.
The industrial industry 4.0, Megatrend, we mentioned during strategy day right.
You saw that the administration is focusing on addressing the supply chain shortage, which again is further supporting our target market. So you know that trend.
Connects the physical and digital World in Fluor's Advanced Technology group.
Is.
And urban solutions is well positioned.
To meet the to meet that demand.
For data data processing semiconductors storage of data centers. So.
And along with a large capacity batteries for electric vehicles. So.
You know we've got the cake really experienced there it's early days here.
Here in the U S, but they're getting that supply chain localized in the U S. Just plays right into our into our wheelhouse and so.
That's where we're at right now and we expect growth in that I'd say that growth is built into into the projections.
That we've got in our strategic plan.
But with I would say based on this focus.
And the attention, we're seeing two to localize manufacturing capabilities.
We could see upside in a in a T L S.
Okay, Great that's helpful and and you know just looking at the 2021 guidance 50 to 80 cents, obviously, a lot of growth baked into that fiscal 'twenty four target of three to $3 50 could.
Could you give us a rough idea on sort of the cadence of where we are now versus the fiscal 'twenty four target I mean is that growth more front.
Front end weighted within that timeframe more backend weighted.
Rough idea there would be really helpful for our models.
Yeah.
D a.
The modeling we've done first strategic plan, obviously because of the as we talked about that.
The 2020, Covid impact and the hangover here in the first half Ah, Yeah, obviously, where we're gonna see flatness, if you will across 2021.
But then.
You know.
Things really start to pick up in 'twenty two.
And and by 'twenty three where.
We are you know.
At a much higher level revenue wise and earnings as well, so I'd say by 'twenty three years, you're really going to start to see things cooking at that point, that's kind of how we see it coming along.
You know, there's with the accounting change in the last couple of years the way you'd take up projects now you've got to take it up on total project progress. So obviously that also.
<unk>.
Pushes the earnings to the.
The second half of this strategic planning period.
David we're looking at as we start this booking with the diversification that we have across our segments that we would expect to see that more on a linear basis theres not going to say I see the cyclicality.
<unk> I think from year to year.
Based on where we are investing.
In our in our growth strategy moving forward and so I would I would expect that more to be on a linear basis and probably with less cyclicality.
Okay very helpful. Thanks, Thanks, gentlemen, I appreciate it.
Thanks, Sean.
And we'll move on to Michael Dudas with vertical research partners.
Hi, good morning, gentlemen.
I'm wondering like in one of my.
Hum.
As you can see but is your target in 2021 your outlook for new business and certainly you can see the second half weighted from a price per pound.
It's much surprise.
All but three of the urban of your free we revise lines of business, which ones. You think are the ones that have the best opportunity to exceed one times book to bill or how would you rank them. How you want to get their flat items of organization, which ones could have the momentum going into the end of the year and could lead to a further.
Further growth above one one times as we move into 2022.
Yeah, I guess I'd have to.
I guess I'd have to lean on urban solutions are that's probably the first.
First choice.
That's probably where I would I would put it Mike. However, we've got some great opportunities in mission solutions and some massive opportunities if they.
If they are hopefully they hit so.
I think that's probably emission solutions than urban.
There have been solutions, and then mission solutions and followed by energy solutions, which again is doing a lot of front end work.
In energy transition and so that'll.
Probably follow up as in third place, we've got chemicals projects that are that will also.
<unk>.
Health Energy solutions here in 2021, so I think that's that's how to look at it energy solutions. This year is gonna be a lot of you know not a massive size projects, but the more of the medium sized projects that they can.
You know bring in and certainly mean more projects hopefully.
In a small kind of smaller size or smaller relative size. If you really did assume.
Multi hundred million dollar projects, but not so.
Not all in the you know the.
Multibillion dollar range.
Yeah.
That's a good point to follow up so how are we in the new business model New Fluor.
The size of projects.
Linked to projects or are they more are they.
Probably some medium size or is your cost structure new basis, a lot either.
Books, and small to medium work with book to burn work to achieve these targets.
How much is it.
Do you still need to depend on.
Multi billion dollar orders to kind of me too.
Business model work out how should we think about that as we see some of your project announcements and progress going forward.
Thanks, Mike I I would definitely say that we are still going to be organized and have a global footprint to execute.
Very very large complex.
A multibillion dollar reimbursable.
Projects are going forward.
You know.
Hopefully if the oil oil.
Price in oil demand is as we're seeing we will see a return to traditional oil and gas work here in upstream and downstream.
In the near future based on again.
The forecast that are currently coming out so we want to be ready for that are our customers.
Our clients are are depending on us to be able to continue to do those large projects. However.
At the same time I must say that.
The clients are advising us that.
Their track record generally speaking.
On Mega projects has not been that stellar if you will and and I think a lot of the work going forward will be in more manageable.
Phase to phase two.
Programs with expansions.
To follow up so I think.
You can expect to see the the midsized projects.
Come to fruition here.
Basically what I'm hearing.
But at the same time there'll be there'll be large mega projects.
From time to time, David Notwithstanding what you just said what.
If we go back and look over time floor on a total project basis Mike.
And I'm not talking about revenue.
Would see that.
And don't quote me on these numbers would have to go back and bear, but at 80% of the projects that we execute are in that mid to smaller size range.
And it's it's really so we've always had a focus on that and as we go through this optimization and get to a more fit for purpose, we're just going to make ourselves more competitive in that market.
We may have shifted away from it over the last three or four years and the integrated solution period.
But from my perspective.
Medium sized project, which has got a new definition in today's parlance has always been a staple of our floors are revenue and profitability over time I'll, just Mike just to give a little more color on that those prospects I went through with Stephen earlier.
I can give you the.
The revenue the total installed cost of T. I C on those ranges.
The largest is $1 9 billion, there's a 770 million $600 million 280 million 750, yeah.
500 million 900 million in that range for 'twenty 'twenty, one and again I think you'll see some of the mega projects coming back as a as the oil price forecast start to firm up and I fully expect.
To see Capex flowing in the upstream downstream arena.
Is that a start at that demand takes off and in traditional oil and gas.
Yeah.
Good day.
Any kind of color and just a final quick follow up for Joe.
In the guide for 2020 earnings.
So it doesn't include store.
And no new scale.
Maybe moving.
The sense of what would've been the contributions with the radios store, what you still would have paid or relative to what we've been seeing.
On the income statement.
How much of the zero margin work through the P&L in 2021 on a revenue basis percentage of profit basis is running through the 2021.
A little trouble hearing Matt let me take the last question first because I didn't hear the.
The historic contributions are very minimal would've been very minimal let's say.
Single million dollar digit returns.
I think your last question was in terms of these zero margin revenue projects that are flowing through the books.
Of the one 8 billion that we have that we've laid out we were nominally going to push about $700 million of that through in 'twenty, one and another $700 million of that in 'twenty. Two so by the end of 'twenty. Two we will live accounted for about 85% to 90% of the zero margin projects.
Our new scale, we are a part of the question like what would have been 21.
New Zealand in 'twenty, one nominally the about the same run rate as 20 somewhere in the $80 million in expenses, you're talking about the P&L side.
Right cause is that I'm sorry.
Guidance include new scale in 'twenty one.
No I'm sorry, it does not.
It's been a little bit or anyway.
But I appreciate that yeah, that's perfect. That's it. Thank you thanks guys.
Thanks, Mike.
And that will conclude today's question and answer session. At this time I would like to turn the call back over to David comfortable for any additional or closing remarks.
Thank you operator, and thanks to all of you for participating on our call. Today again 2020 was a challenging year for the company and the industry as we started to implement our strategic plan and drive reliable.
And profitable growth across the portfolio.
We will remain focused on increasing shareholder value while at the same time delivering world class projects for our clients. So.
We appreciate your interest in Fluor Corporation and thank you for your time today.
And that will conclude today's call. We thank you for your participation.
Yeah.
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Uh huh.
Yeah.
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