Q2 2021 Fluor Corp Earnings Call
[music].
Good morning, and welcome to Fluor's second quarter 2021earnings conference call. Today's call is being recorded at this time all participants are in a listen only mode. The 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 Day at Florida Dot Com the web replay will be available for 30 days.
A telephone replay will also be available for 7 days sort of a registration link also accessible on fluor's website at the investor that Fluor Dot com at this time for opening remarks, I would like to turn the call over to Jason land camera head of Investor Relations. Please go ahead, Mr linked camera.
Thank you Hannah and good morning, and welcome to Fluor's, 2020, 1 second quarter conference call with US today are David Constable Force, Chief Executive Officer, and Joe Brennan <unk>, Chief Financial Officer, We released our earnings statements earlier. This morning, and we have posted 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 note regarding forward looking statements, which is summarized on slide 2.
During today's presentation, we will be making forward looking statements, which reflect our current analysis of existing trends and information there.
And there's an inherent risk that actual results and experience could differ materially.
You can kind of discussion of our risk factors, which could potentially contribute to such differences and our 2020.10-K and and our form 10-Q, which was filed earlier today.
During this call we may discuss certain non-GAAP financial measures.
Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted and the Investor Relations section of our website at Investor Day at Florida Dot Com.
I'll now turn the call over to David comfortable Fluor's, Chief Executive Officer, David.
Well, thank you, Jason and good morning, everyone and thank.
And for joining us today.
Before we move into operational results I want to acknowledge the passing of Jay Robert Fluor The second.
Bob was the great grandson of our founder and worked at Fluor for 42 years before retiring in 2009.
For 27 years, he led the Fluor Foundation.
Our charitable and community involved and organization that was established by his father and his uncle Si Fluor and $19.52.
Throughout his career, Bob broad, meaning and value to the act of giving back.
Inspiring thousands of employees across the company and across the globe to commit time and resources.
To bettering their communities.
And the company will continue to build on Bobs legacy of.
The supporting stronger more sustainable communities around the world.
And a few minutes, Joe will walk through the financials of our business and each of our segments.
So let me first provide a high level overview of what we're seeing and each of our major end markets.
Starting with urban solutions.
Please turn to slide 3.
Yeah.
And mining work is tracking broadly to our expectations for the next 18 months.
We've seen a few large projects shift to the right as.
As detailed estimate reviews and scrutiny of projects by our clients.
Prior to and investment decision being taken.
It's higher than we have seen in quite some time.
In addition to those projects.
We are of steady slate of feed and limited notice to proceed work.
Where we are of high level of confidence and conversion to full price awards and the next couple of years.
Our prospect list is incredibly diverse.
And we are not dependent on any 1 region or any 1 commodity.
To see significant growth in.
And this business.
Backlog from mining declined by approximately $1 billion and the quarter that was due to the cancellation of the steel project in North America.
Moving to infrastructure on slide 4.
The bipartisan bill continues to gain momentum and.
And we are optimistic.
And then it will focus on more traditional infrastructure projects, including.
Including roads and bridges, which.
Which we believe will provide some upside to fluor.
And more importantly funding certainty to our clients and the coming years.
Importantly, we are starting to see shifts and contract structures.
And collaborative models are being applied to the infrastructure sector as well as other sectors.
And that allow contractors to compete on capabilities and qualifications and.
Net of solely on price.
This is a positive development and we are encouraged by this approach to risk mitigation.
On a particularly promising note we are seeing advisory institutions, acknowledging the challenges and countered and executing public works projects.
This has led to the development of more collaborative procurement models to.
And to support their public sector clients.
Last week, we were notified by Txdot.
And that our co led joint venture was selected to design construct and.
And maintain.
The 6 and half mile long 35 phase II project here in Dallas.
And while a portion of the work will be booked and the third quarter.
We're excited about this project and look forward to supporting Txdot on this and other capital programs and the future.
Regarding our legacy infrastructure portfolio I want to provide and update on the Gordie Howe Bridge project.
And the $138 million charge, we announced today.
The project is experiencing significant COVID-19 related delays.
As well as overruns due to procurement and the subcontractor cost growth.
This charge includes additional reserves for delays and disruptions and the schedule.
Fluor is not the lead operating partner on this contract.
It's important to note that these cost growth factors may be at least partially recoverable under the contract.
We expect that it will require several quarters to analyze recoverability and negotiated with our client before the accounting standards allow us to recognize incremental revenue for these amounts.
While we are disappointed on the performance of the project. We believe we have of solid estimate on the cost at this point.
Design is essentially complete.
And we have procured approximately 85% of the materials required.
We have been revising the forecast along the way and this contract was previously included in our zero margin projects and backlog.
As the Noncontrolling partner and this JV, we continue to work with our partners to help them get this project and to the best possible position.
We have just under $1 billion of backlog remaining for this project.
And anticipate substantial completion by the end of 2024.
Our other infrastructure projects continue to make solid progress, including the lack of people mover.
Each crossed a significant milestone in early July 1 of the joint venture placed the first floor trusses.
For the elevated pedestrian walkway.
Turning to slide 5.
And advanced technologies and life Sciences were successfully wrapping up some of our large data center projects in Europe.
We also see opportunities for semiconductor manufacturing facilities, both domestically and internationally the.
These projects are a mix of brownfield and Greenfield.
And provide a lot of opportunity for add on work as these facilities grow.
And life Sciences, we continue to see of good list of opportunities as our world class technology capabilities and support our strategy of getting front and work.
We have been awarded a few front and projects this quarter with the goal of converting them into EPC contracts.
Overall, we still see the Tls and markets as an area for growth and our business and.
And we are focused on deploying our teams on the projects, where we can grow our market share with contract terms and conditions.
That we find favorable.
Please turn to slide 6.
In mission solutions.
We experienced strong margins this quarter due to increased execution activity on projects.
And then forecasted performance based fees.
And the release of COVID-19 cost reserves.
The strong performance was somewhat offset by a decline and execution activity on army logistics and life support programs and <unk>.
Ghana, Stan and Africa.
In June we fully demobilized our people and successfully completed our assignment and in Afghanistan. After 13 years.
At its peak, Florida at 26000 employees from 65 countries.
Speaking 39 languages at 76 sites and supporting over 100000 troops.
This included 191000 meals prepared per day.
And the establishment of the first ever biodiesel program for the U S military deployed overseas.
Under this program, we produced over half of 1 million gallons of fuels for the basis.
It's been a great on it for Fluor to support our troops in Afghanistan, and I want to thank our employees for their great work on this assignment dating all the way back to 2009.
We are now continuing to support the army through our Logcap 5 task Order Award in Africa.
Next please note that on the rapid project, we have moved into the warranty period.
This project is now essentially complete.
Our major pursuits for the second half of this year in this group.
Include the Savannah River management and operations contract extension.
And the Y 12, Pantex management and operations contract in Tennessee, and Texas.
Moving to energy solutions on slide 7.
We had a particularly strong quarter due to certain favorable events driving up our gross margin.
This reflects the negotiations of change orders scope increases and.
And cost improvements across numerous projects.
Furthermore, margins also benefited from <unk> benefited from the release of credit loss reserves. After we receive payment on a significant longstanding past due receivable.
These positive segment margin results were partially offset by a $20 million loss recognized on an embedded derivative, which is excluded from our adjusted EPS numbers.
Turning to slide 8.
We remain pleased with the progress on our LNG, Canada project and Kitimat drew.
During the quarter, we saw significant easing of public health orders that had slowed progress earlier this year.
And we are now fully staffed on site.
Per our plan.
And the second quarter, we achieved several major milestones.
First.
We drove the loss of the phase 1 plant piles.
This program started in January 2020, and includes the installation of nearly 6500 piles, if late into and the piles of would extend the 130 miles.
Secondly.
The projects and material Offloading facility is now operational receiving and unloading the first 3 major pieces of process equipment.
<unk> via Ocean going vessel.
These pieces of equipment for train 1.
Include the 345 ton.
50 meter long main cryogenic heat exchanger and.
And 2 pre cooler units each weighing over 280 tonnes.
We are scheduled to erect these pieces this fall.
The site has gone vertical with the steel erection of the non process building, including the central control and administration buildings.
During the quarter, we completed the LNG storage tank wall pores.
The LNG tank group and suspended debt raising is scheduled for next week.
Module fabrication has commenced for all facets of the price across the Asia and European module fabrication centers prep.
Preparation and planning of commenced for the first module deliveries from Asia, which are on target for Q4 of 2021.
We have formalized the term sheet with our client.
Which outlines principles of cost and schedule of relief related to delays, including Covid engineering and procurement impacts through February 26.2021.
We are targeting and finalization of a formal variation of this month.
Please turn to slide 9.
We continued to enhance our energy transition portfolio and believe that fluor will be of vital contributor to a lower carbon future.
We're seeing success in several markets such as renewable fuels carbon capture clean hydrogen.
The battery chemicals and asset de carbonization.
The first.
And the renewable fuel market Fluor is focused on brownfield or revamped capabilities with the geographic focus in North America were low carbon fuel standard credits are available demand for liquid fuels continue and feedstock selection is broadly based.
Next and the carbon capture market.
The floor can perform projects with any technology globally.
This includes our own proprietary technology for both pre combustion and post combustion for solvent and economy of FG plus respectively.
We are also seeing further opportunities for carbon capture on new and existing LNG facilities.
Our clean hydrogen and efforts include both green hydrogen and blue hydrogen.
<unk> relying on US 50 years at the forefront of the gasification of industry and has executed more than 30 pre feed and feed projects.
The floor can differentiate and this market with our ability to act as integrator and OSB L contractor.
Another energy transition market, we are exploring as battery chemicals.
We are expanding our lithium capabilities and are pursuing the growing market of electric vehicle battery production.
In asset de Carbonization, Fluor is leveraging our design experience for refineries and petrochemical facilities, including steam and electrical systems.
We have global execution capabilities from conceptual front end design through EPC for both electrification and energy efficiency projects.
Aside from these markets. We are also pursuing projects and green ammonia chemical recycling.
Based chemicals long duration of energy storage waste to energy conversion and bio LNG.
Most of our energy transition work is in the United States and Europe.
And based on our differentiated technical position and we continue to view of growth in this area as a driver for increased revenue and earnings in the coming years.
Now, let's turn to new scale and related energy transition offering on slide 10.
For the first 7 months of this year new.
New scale has received $192 million in outside of investments from J GC <unk> energy do saw on Samsung and IHI among others.
These infusions not only eliminate the need for fluor to provide additional funding.
But also accelerate new skills path to commercialization and demonstrates third party investor interest and new scales business prospects.
Additionally, we continued our positive and productive conversations around nuclear power as a necessary base load clean energy source, both in North America and abroad.
We believe that our new scale product will become a vital part of a cleaner energy future.
Before handing the call over to Joe on Slide 11.
I want to share a few observations as we head into the second half of the year.
First we.
We expect to see some inconsistency of Lumpiness and New awards as the optimism and post pandemic capital spending from clients is partially offset by concerns about cost growth for labor and materials.
We're also keeping a close eye on the impacts of the Delta variant of Covid as it relates to our exposure to global supply chains.
While these dynamics may shift certain projects out in time somewhat and impact the near term.
There are longer term trends and our business that I view as very positive.
First as mentioned and my infrastructure remarks, we are starting to see a better balance of risks sharing and contract structures.
Projects are increasingly structured as pre development agreements, where clients and contractors worked together to identify and mitigate risks before bids are finalized these.
Of these collaborative models are being considered.
Clients are seeing contractors declining to bid on large projects as terms and conditions have shifted risk allocation too far away from the owner.
Also we continue to see a robust pipeline of steady pre feed and feed work to support future growth.
We are currently working on or of recently completed pre EPC work that represents over 150 billion and total installed cost.
Additionally, we are pursuing another 200 study and feed projects, representing almost $200 billion.
And TICC over the next several years.
So while we are seeing some near term headwinds in 2021 with New awards Lumpiness, we have considered the considerable opportunity to capture projects that are and the pipeline.
And they are well suited for fluor.
Yes.
Finally regarding our cost savings initiative.
We are making solid progress and have identified significant opportunities to improve processes and reduce costs and create an organization that is competitive and fit for growth.
Our various work streams are taking specific actions.
And to ensure that our resources are tailored to what we need today.
And we are establishing new protocols. So we can efficiently scale as our markets ebb and flow.
And now I'll turn the call over to Joe.
For the financial update.
Joe.
Thanks, David and good morning, everyone. Please turn to slide 12.
For the second quarter of 2021, we are reporting a diluted adjusted earnings per share amount of 32.
And our press release and and the Appendant appendix to today's presentation. We show a reconciliation of GAAP EPS to this adjusted number which excludes the following after tax items.
$19 million of new scale expenses.
$14 million of eco fluor embedded derivatives and associated taxes.
$23 million of currency exchange losses, and $1 million of investigation costs.
Our diluted share count was $156 million for the quarter up from $140 million and the first quarter.
This includes the additional shares from the convertible preferred offering we completed in May.
And the third quarter, we expect our diluted share count to be approximately $170 million as the effects of the issuance will be for a full quarter.
For the for the quarter and the year to date, the offering is anti dilutive under GAAP due to the net loss so common EPS and diluted EPS results are the same.
However in terms of guidance and results, we will discuss EPS, including the aforementioned adjustments as well as using the larger diluted share count going forward for comparison purposes.
Our financial statements will continue to conform to GAAP and we will provide the required reconciliation.
But we will use the larger dilutive share count for all periods as appropriate.
I will walk you through that a little more clearly when we talk about guidance.
Turning to slide 13.
Specific to our convertible preferred offering we saw it as a necessary and positive step towards reinforcing financial discipline for the company.
This offering allowed us to make a significant change and our net debt profile and not have to wait for proceeds from outstanding transactions that do not have and establish closing date with.
With the expected debt retirement, our debt to total capitalization ratio will decline to below 40% by year and fulfilling the goal that we set on strategy day.
The positive feedback we've received from the credit rating agencies and the credit providers shows that they are supportive of our efforts to drive fluor to its historical leverage profile.
This ensures we have the capital strength to maintain our position to bid and win the projects to support the growth within our stated strategy.
Since completing the offer we have retired $26 million and debt to date and anticipate additional substantial retirements by the end of 2021.
Please turn to slide 14.
Our overall segment profit for the quarter was $67 million or 2.1% and.
And included the $20 million charge for embedded derivatives and energy solutions and quarterly new scale expenses of $19 million. Excluding these expenses and the effect of the embedded derivative and improves our total segment profit margin to 3.3% in line with our guidance for the year.
Our ending cash balance was $2.7 billion and includes the Unutilized proceeds from the convertible offering and the completion of of <unk> sale and North America.
Cash flow from operations was $77 million for the quarter and we expect cash flow generation to be positive for the second half of this year.
Operating cash flow improved from the first quarter due to decreased funding for COVID-19 costs on projects lower cash requirements for G&A and tax payments as well as the decline and working capital.
We also completed the sale of Amico, North America, and the second quarter and received cash proceeds of $71 million.
We have shifted our focus to the divestiture of of mutual South America, and stored and have confidence we will transact. These divestitures prior to Q1 of 2022.
We continue to consider small M&A opportunities as previously discussed, but given current valuations and the market we remain extremely selective.
Our G&A expense was $31 million compared to $66 million last quarter.
The decrease was due to the impact of stock price on our incentive compensation and the second quarter.
Before I provide details about our outlook for the balance of the year on want to provide a bit of insight into our current portfolio.
Please turn to slide 15.
At the end of the quarter, our backlog contained $1.2 billion and projects that are in a zero margin or loss position.
Outside of the Gordie Howe project, we have just over $200 million and backlog remaining for projects and the loss position virtually all of which will complete by the end of 2022.
All New awards since we tightened our bidding criteria of 2 years ago remain profitable. Furthermore, looking at this slate of more recently awarded projects project gross margin and all 3 segments is about 40 basis points higher than household gross margin, which shows that our more disciplined approach to bidding is resulting in more predictable and <unk>.
<unk> results.
And now turn to slide 16, and for our outlook for the rest of 2021 or.
Of our previous adjusted EPS guidance of 50 to 80 per share was based on a share count of 140 million shares and thus implied net income of 71 million to $113 million for 2021.
Based on the performance, we see and the businesses and considering the additional shares related to the convertible preferred offering.
We are raising our adjusted EPS guidance to a range of 60 to 80.
Which correlates to an adjusted net income of $94 million to $128 million for the full year.
Hitting this target is dependent on many of the currently identified projects being awarded in a timely fashion and our ability to convert them into revenue and the next 2 quarters.
And as David mentioned, some projects may be delayed by owners until there is more certainty regarding near term concerns around cost growth for labor and materials.
We continue to monitor these headwinds through our supply chain group and we are making sure the team remains aligned with our bidding process.
And in the appendix of our slide presentation today, we provide a reconciliation from previous guidance to current guidance and GAAP EPS to diluted adjusted EPS. Despite the anti dilutive nature of the offering at this time, we will continue to report adjusted EPS, assuming a fully diluted share count for measure ability and will provide.
Reconciliations as necessary.
We are also adjusting our segment level guidance for the second half of the year and expect segment margins to be approximately 3% to 4% and energy solutions, which excludes any fluctuation from the embedded foreign currency derivative.
3% to 4% and urban solutions, and 2.5% of 3% and mission solutions.
These margins also underpinned and Q3 and Q4 performance to support the updated diluted and adjusted EPS range of 60 to 80.
On our strategy and strategy day in January we provided long term 2024, EPS guidance of $3 to $3.50.
This range was provided using our 2020 share count of 140 million shares.
Adjusting for a diluted share count of 170 million shares in 2024, we are updating our long term EPS guidance to a range of $2.50 to $2.90.
To reinforce we are not changing our income assumptions just adding the 2 the denominator operator, we are now ready for the first question.
Thank you if you would like to ask a question. Please signal by pressing star followed by the 1 on your telephone keypad and you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
We request that you please limit yourself to 1 question and 1 follow up question again press Star 1 to ask a question and we'll pause for just the moment to allow everyone an opportunity the signal for questions.
Okay.
And we will go from 2 Steven Fisher with UBS.
Thanks. Good morning, guys. Just wondering if you could talk a little bit more about the inflation that you're seeing how broad is it is it more labor or materials and what are you.
Of your customers, telling you about what they would have to see to move some of these projects forward.
Hey, good morning, Steve.
Good to be with you.
I think what we're seeing specifically and the mining group is just.
And as I said just.
Some extra kicking of the tires on the estimates and making sure that the pricing.
Is is firm and as we go out of those are obviously very long term projects and getting a good handle on on any escalation.
And inflation on.
On labor and materials so.
On the current existing projects, we are and I want to say that we're in very good shape.
No problems, obviously on Reimbursable cost projects, but we've also scrubbed, our our remaining fixed price.
The contracts and backlog and are in good shape. There. So I think it's the matter of just making sure.
And that that what we've seen here recently.
The COVID-19.
And we're seeing and come back down actually.
Lessening.
The inflationary and.
<unk> and.
So.
And I believe it's more of a timing challenge right now.
Some of these projects of this needs a little more time to get debt that comfort, Joe and maybe ask you to comment as well on the inflation, yes, no way and certain of our contracts to specifically our largest award and quarter..1 we have provisions and the contract for extraordinary inflation adjustments that that are allowed to the <unk>.
And on tractor.
So yes.
I would concur with David I think we've we've accounted for a significant portion of that in our current backlog and clearly we as we proceed and bid on work moving forward, we will we will make sure that the.
The.
We're working to account for any of those impacts and as Steve were not seeing projects being canceled I guess I'll put it that way as well.
These price again.
Ensuring that the the.
And the internal rate of return that the clients required before taking up idea are solid and they're doing that type of scenario planning right now.
Thanks, and thanks.
To clarify this is mainly just and mining youre not seeing this broadly across the portfolio.
Yes, that's where it's most prominent right now and of course as we've talked on the past mining Israeli and fronts.
As we look at our growth markets.
Mining and and I guess I'd put the chemicals right up there as well.
Which is primarily mining where the teams have been talking to me about that debt.
Issue.
Okay, and just a quick follow up on Gordie Howe I guess, just how confidence with investors be that there won't be more charges here and of what's in the 15% of materials and I've bought out yet.
It sounds like it's the loss projects so.
Much room is there for air on construction and I guess the bigger picture question is you know, it's the legacy project, but what would be different under the current system.
Okay.
We will end of the current system, we would not of.
With not a bid that project it would not have gone through our pursuit of new pursuit criteria. So that's the first thing this the K that as of late.
This is the legacy project was awarded in September 2018.
As you said, it's the zero margin projects. So it's accounted for that way, we're not and the lead on the project and Thats also.
CEO of approval requirement.
The we take very seriously and that's not how we'd like to execute projects. So that would have changed as well. It's the design build project right now where 40% of the.
Again not in the non.
And operating.
Partner construction.
Both self perform.
Doing the bridge and Michigan interchange of about 70% of self performed and and the U S and Canadian port of entries of 95% sub contracted so as far as are we in good shape. I think we are we better I believe.
It's been scrubbed, the second quarter, where we found.
The significant increase and procurement and subcontractor cost growth.
We've had our teams in their scrubbing hard and making sure that forecast that came across from the partner.
And is reasonable and I think we've got a reasonable estimate at this point and we do have as I have mentioned.
And some potential recovery of revenue revenue recognition as we.
Perfect our claims on the projects so.
If you think about the $1.2 billion and our backlog at zero margin projects.
<unk> done a good job of working off of these fixed price contracts and Gordie has like I.
And I think its $968 million of the $1.2 billion as Gordie Howe. So were really working off all of those loss projects and this is the really the last major 1 that.
We do have a good estimate on and.
Designs of 99% complete procurement, yes.
Not much left and that 15% I think we're comfortable we've scrubbed that as well to give comfort to your question.
And so overall, we're just about 20% complete overall and the project so.
That's where we're at I think.
Joe on.
Guiding principles, the forecasting that we're doing and and maybe comment on cash flow impacts.
Part of the first of all I'll take the cash flow.
We're sitting on a fairly robust advance on that project. So we would not see really any of the cash flow impacts from.
The current.
The financial position until the 'twenty 3 time frame.
What we've been able to kind of and still with the new kind of guiding principles that we've implemented within the company as we identified the cost first.
And are still in the process of identifying what our entitlements are under the contract relative to Covid and client delays and and what that May mean in terms of revenue and until we have that perfected and we feel comfortable and are.
And our position.
And we took the cost when we knew the cost and and we will look at the variable consideration we have put a significant claims team together.
And Theyre all around that project too.
To develop the debt.
And that the potential recovery.
But until they do their work and until we receive their feedback we wont know what that debt looks like.
I appreciate the color thanks very much.
Steve.
We'll go next to Andy Kaplowitz with Citi.
Hey, good morning, guys.
Hey, Andy on it.
Did I just wanted to follow up on the project environment and the sense that you know on the past you said book to book could get closer to 1 by the end of the year you just talked about mining customers taking their time.
But given that $20 billion of mining prospects that you have obviously commodity prices have gone through the roof on the metal side.
Our discussion of starting to heat up at this point and then do you also see bigger energy solution projects, starting and again and lease discussion and so you get to that higher book to bill by the end of the year or is that really sort of pushed down from 22 now.
So.
We had a good first quarter of good up.
No.
Upside surprise in Q1 for New awards were.
We're a little light and Q2 I will say it was close we could've had quite of Q2, but there was some of it fell on the other side of the fence and Q3. So I can tell you that Q3 awards.
As of the end of July are equal to all of the Q2 Q2 full Q2 awards. So we've got 2 months to go and Q3 and we're already at.
At the level, we booked in Q2, so thats very positive I just want to I think as we've been messaging.
For the past.
A couple of times, we've talked with you.
And that the back half of 2021 should start to see.
New awards coming in at a higher level and definitely into 2022 and I still believe that so I think Q3 is going to be better.
Getting to book to Bill 1 to 1.
And.
Probably not quite there yet.
But we will be seeing that.
And the certainly in 2022, I believe we will get to that.
That level.
And of the booking we just have the.
Just to give you some color on.
We talked about in the in the prepared remarks, and all of the feed and study work and about.
$160 billion and the in house right now of TICC and.
And and chasing.
Another couple of hundred dollars dollars and the next 6 quarters of front end work that we the.
We want to convert and it's in the.
The big the big.
Chunks of that.
The chemicals right up in addition to mining obviously like you said, we've got $20 billion and mining.
And actually about $28 billion.
If you add and the additional step.
The study work that we're working on and we're chasing 64 billion of.
Feed work and mining as well, but then you add and chemicals, we've got $44 billion in house and front end work and chasing 55 billion and the next 6 quarters.
And even traditional oil and gas right.
$30 billion of feed work in house, and chasing 46 billion and LNG is very strong with 53 billion and Houston.
And then another $12 billion.
Through the next 6 quarters energy transition as well I should mention.
And the repaired prepared remarks, we're on we're covering all of the basis and energy transition.
And we've got $11 billion and house already and front end work and and looking at $16 billion and prospects in 2022, if you look at the full EPC and <unk>.
The near term prospects and this is greater than $50 million projects. So there is.
Another several billion dollars and less.
S and $50 million, but the near term prospects for EPC EPC on prospects.
Through Q4, 2022 totals just under $40 billion and.
And the energy solutions of $9 billion of that mission solutions as a $11 billion and urban solutions of 17 billion and full full EPC Aerie PCM work so.
To your point on your question.
And I'm feeling pretty.
Optimistic about where new awards are going to start start.
Landing and coming in certainly in 2022 of the markets are starting to come to us.
And as the uncertainty of Covid and the Covid variance subsides.
It's not as I've said before it is not if but when and and that's where we're at with Joe well No I was just going to add Andy that.
And to David's point, we're not seeing cancellations were just seeing.
On a significant amount of additional due diligence being done relative to market conditions and.
And COVID-19 so it may push from Q4 into Q1.
But again the positive thing is that we're not seeing those cancellations.
Very helpful color guys and then just can you give more color on to the positive change orders and cost improvements that you recorded this quarter with day in energy solutions. I know you mentioned they were on numerous projects. So why all of the sudden did you record such a big positive revision. This quarter and then you mentioned you increased the underlying margin of the business is debt.
I'm kind of just LNG can and ramping better underlying execution something else any more color there would be helpful.
Yes, there is a.
A lot of puts and takes and there.
There.
And I want to get into the specific projects necessarily but.
There's been some some additional scope.
That was added to a particular project.
We have.
Come to terms.
On a number of different COVID-19 related.
Activities and.
And I think that's driving a significant portion of that offset.
By the embedded derivative and then you include the fact that.
The.
And aged receivable from a client and Mexico.
And that had that was nominally 2 and half years old.
Was was was received during during the quarter or all.
Very positive.
<unk> for for Us.
I appreciate it guys.
Thanks, Andy.
We'll go next to Sean Eastman with Keybanc capital markets.
Hi, guys. Thanks for taking my questions Sean.
Sean Good morning.
Good morning and morning so.
So David I mean, you're talking some big numbers in terms of the pursuit pipeline and.
Pre EPC.
Activity levels.
I mean, historically what percentage of pre EPC work is translated to EPC bookings.
I'm just struggling with those numbers relative to.
Capex and updates we've seen from.
From the project sponsors so I'm, just trying to reconcile that and.
Understand how likely this pursuit pipeline is.
Yes, obviously.
Not everything and study.
And study and pre feed.
And even and feed.
All of the way through the screens right because of the project economics, Sean So point taken.
And.
And <unk>.
That would be at the tough question to answer specifically.
And when we're when we're in a full feed and and working economics with the clients.
And then.
And we could see upwards of 30% 40%.
Conversion.
Of that but I haven't I haven't broken the numbers down for you between study pre feed and feed so.
That would be a more detailed analysis that we'd have to take a look at.
Okay. Thank per.
I was just going to add to that John I think if you look at it from an industry perspective that those those are the.
The conversion rates would look different for example, clearly within the mining and mining is going to be more like 90%, but I was given an average of media and that $20 billion.
Solid and mining is going to be of based on our market position and.
As of as much higher conversion, obviously, but again I was giving it and average across all of 11 business lines.
Okay, Okay fair enough and.
I just wanted to ask on mission solutions.
On a lot of moving parts, there as well just with Logcap transition.
The projects completing a feel like we've seen maybe 1 or 2 doughy prospects go to competitors could be wrong there but.
Is there kind of an air pocket over the next couple of quarters here.
The revenue.
Growth trajectory like and emission solutions.
The mission mission is we're excited about mission solutions and moving up the value chain.
At mission solutions, and doing management and operation contracts.
I think.
Some of the prospects and we do have a dip we do of a dip as I talked about.
Coming off of Logcap, 4 and Afghanistan, obviously as of.
Huge huge program to.
To fill that bucket back up and that's what the team's focused on by moving up the value chain.
And I say that Q3.
And as already reached Q2's.
Full full Q2, New award levels, it's due in large part to very.
Very large emission solutions awards that youll be hearing about very soon so and we're also chasing.
Massive.
Progress for the the Doj here.
And that so that could really.
Put mission solutions way way up on the on the revenue burn curve and and so we're pretty excited about the trajectory of emission solutions revenue and earnings through the planning period, I think Thats Thats. How you should look at it you also saw that we had a nice award with the Navy on and on a multi multi contract awards.
And they're going to be spent $5 billion of year here for the next several years that we will be able to participate in that that also is.
And more of a.
The value adding of.
<unk>.
Technical Solutions program Engineering program management that we can help support the navy as well so.
And Im pretty bullish on on mission solutions right now, yes, so much on and I was just going to add that.
It's hard to replace the Logcap at the end of the day and the other on a revenue that's flowing through that but the.
The notable awards Thats coming in and Q3 and there are some very significant awards that we're expecting to have announced at the end of this year.
And as you know and the Dod space These awards or <unk>.
<unk> 20 billion dollar type of awards that we feel like we have very good opportunities and we're very well positioned so.
It will see a bit of a smile relative to revenue recognition, but we believe that you'll see.
The fairly significant growth and backlog.
And you look at the spending right I mean, the Doa Sean is they've got through our planning period anyway.
And we spent 43 billion or will be spending over $40 billion annually.
And the Dod.
The way above that.
750 billion and so there's lots to lots of support.
Lots of the.
The value, we can add to both of those agencies and others.
Okay, alright, thanks, Jens I'll turn it over.
Okay.
We will go next to Jamie Cook with credit Suisse.
Hi, good morning.
Just 2 questions..1 can you just comment on sort of what youre seeing from stork with the.
The economy is starting to improve and getting somewhat back to normal weather.
Whether you're starting to see whether we should start to see any acceleration and business and just wondering if that's the case how that impacts the timing of our valuation associated with the divestiture there and then.
And my other 2 questions just on the implied guide and the back half of the year for mission solutions is there anything.
Or do we just take the first half and to get to here.
And the back half the cause of so it implies the margins and that business are falling and the back half of the year. So I'm just wondering if I'm missing something and then as well on energy solutions I know, we're adding back the embedded derivative and but if we again take the first half run rate relative to your guide for the full year and implies margins too and I think are and like the 2% range or so and so I just want to make sure.
Adjusting for.
And at the add backs or lack of correctly. Thank you.
Thanks, Jamie and good morning all.
And Joe to comment on on.
On mission solutions margins and the back half and also energy solutions and the embedded derivative question on stork.
There the process is coming along nicely, where we've got a lot of interest I think over and over 50 different.
The interested parties.
Signed up on NDA so.
Really good interest on on historic.
To the business itself I think.
From the from and awards perspective, they are seeing.
The challenges with respect to Covid uncertainty.
And you think about stork being internationally.
Located and.
And obviously COVID-19 is impacting.
The rest of the world much more significantly than it is and the U S right now so.
They still are seeing some softness due to COVID-19 uncertainty, but.
Sure.
From what the <unk>.
President of Stork tells me, they're looking to to stronger performance on New Awards later this year, so with that I think.
As I said of the process is running well and and.
And we're excited about that transaction later in the year, Yes, Doug and add historic they're.
There is a surprisingly.
The large amount of folks that are and the data room today. So there's there's a fair amount of interest there.
On mission solutions, we after the Logcap and some of the the.
The 1 off events that we saw in Q2 relative to some COVID-19 releases and some incentives.
And that were earned we would expect that range to get back to its historical norms of between 2.5% to 3% moving forward.
And I think what you're referring to and energy solutions is and if you kind of take out all of the noise for the quarter.
We would of been on a normalized basis about 3.7%.
And our counsel.
For energy solutions and going forward, we're upping the range from 3% to 4%.
Okay. That's helpful. And then just 1 last question.
You know I guess with with a lot of people.
The strategic decision to sort of exit sort of the EPC business and understanding you have good prospects ahead, even if the theyre slightly delayed.
Do you think your win rate potentially and some of these markets would be higher than what we would see and a normal cycle just with you staying committed to the business and a lot of your peers walking away and is that reflected and your sort of long term EPS targets of higher potential debt.
Win rate.
Jamie from.
And from a win rate of perspective, we did not.
Adjust that upward for our for our earnings power through the period.
Hi.
And I will say we've talked about these these contracting models coming.
Coming to us favorably coming more favorably to us and the different businesses.
Pursuits right now we.
And we took a look at it with the board this week, 85%.
Of our pursuits are now reimbursable reimbursable contracts with incentives, so really much better place to be as far as our strategy to go after fair and.
A balanced contract terms and commercial and commercial terms so.
I think that's that's telling and and.
The thing we need to be careful of is as these markets I'll come back.
And really pick up that.
The need to be very disciplined that we don't jump jump all over the first few and and make sure that we keep our margins where they need to be so just.
Costing the teams to be very measured and just follow of our processes that we put in place and.
And drive drive.
The fluor value and getting paid for the value of that we're bringing to all of these projects. So I.
I guess I would say there's potential upside to to what we're looking at as far as win rates because we are differentiated.
We bring all of that front and a capability that I talked about for example, and energy transition.
But you can just stay with us and and.
And we can the bill.
And design and build and commissioning of the plants for all of these customers at all and are focused on net zero.
Across our 11 business lines.
Okay. Thank you that's very helpful. I appreciate it thanks Jamie.
Yeah.
And our last question comes from Michael Dudas with vertical research.
Yeah.
Hi, good morning, everybody.
Good morning, Mike.
David maybe you could share some further thoughts on new scale, certainly a lot of progress first half on investment and project and development opportunities. What are some of the milestones. We can look forward to in the second half of the year and all of the various funding and hopes and proposals out of Washington with regard to nuclear and clean energy.
The et cetera.
Early on as there is this could be helpful for FMR.
The floor or is it.
So far down the road you still have just the opportunities because of your lead and having the design approval from the NRC.
Yes, the new scales very exciting and it continues to heat up Mike good morning.
We've had a great.
Great first half and through July with with the.
All of the third party investments we've got a.
Guggenheim on board looking at our different options.
2.
To sell down fluor's equity and extract value for fluor shareholders. So.
Everything is on track I can I can tell you that and.
And we're looking at some sort of interesting.
Activity in that space as far as getting too.
Ultimately 2.2.
And the minority ownership, where we still have exclusive rights to execute and program manage all of the.
The projects are small module reactor projects domestically.
Domestically and internationally I must say internationally.
The activity has really picked up and could surpass.
The U S and in terms of timing and that NRC approval from last year really really has everyone focused on on new scale, leading the way in small module reactor technology, and it's getting a lot of attention globally from governments and from from customers.
<unk> outside the U S. So that's also very positive.
So that's that's where we're at with respect to do good discussion and the newest secretary of got home a couple of weeks ago with her.
And and.
And youre seeing the numbers coming out of Washington, and I think.
Think last night talked.
Talked about the legislative package Targa.
Targeting new small modular reactors I think they've got about 6 billion set aside.
4.
On nuclear facilities to be shut down and trying to figure out how to go forward with small modular reactors. There and then and then another $6 billion for for SMS themselves. So.
That's to me very positive and from what we're hearing.
Out of Washington.
We'll support and.
Full steam ahead with with new scale.
And.
And starting to deploy too.
Through the lower low carbon future of that.
And that's being required.
Globally so.
That's that's what I had on new skill like.
Yes, and just 1 follow up on that is there.
Any additional investment expected.
What needs to be triggered and the next several weeks months or quarters.
For the new scope to get to the level, where monetization can happen or whether there's a breakout and some new business development opportunities are accelerating some of the potential that new skill has there anything to that we should think about here as we move through second half of the year.
But I think we are.
These are very long projects, we're certainly working with you and very closely on the on the standard design of their facility.
<unk>.
And that's that's.
Moving along as well as we're in discussions with confidential.
The confidential customers and deployment of multiple.
<unk> to support their low carbon.
The initiatives.
Domestically and internationally, so I think thats.
Something.
To keep an eye on.
In fact that.
Debt.
Some of those of confidential of projects.
Feature and Guggenheim's financial modeling and analysis too to take new scale forward and with respect of valuation and.
And so that's I think of very positive development. So it just.
And more to come and stay tuned I guess I'd say.
Excellent. Thank you David.
Thanks, Mike.
And that concludes today's question and answer session. At this time I would like to turn the conference back to David comfortable for closing remarks. Thanks.
Thanks, operator, and many thanks to all of you for participating on the call today.
I'll say the Fluor management team remains focused on achieving our strategic goals and continues to have positive conversations.
With all of our stakeholders, especially our customers.
And as we.
And continue to improve our financial and operating operational position. So until next time. We appreciate your interest in Fluor Corporation and thanks again for your time today and please stay safe.
And that concludes today's conference. Thank you for your participation you may now disconnect.
And.
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Yeah.
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