Q3 2021 Fluor Corp Earnings Call
Good morning, and welcome to <unk> third quarter 2021 earnings Conference call.
Today's call is being recorded.
At this time all participants are in a listen only mode.
Question and answer session will follow management's presentation.
Today's conference call will be available at approximately 10 30, a M. Eastern time today accessible on Fluor's website at Investor <unk> got floor dotcom the.
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 got Florida Dot Com.
At this time for opening remarks. It is my pleasure to turn the call over to Mr. Jason Land Kinner, Sir please begin.
Thank you Chelsea and good morning.
And welcome to <unk> 2021 third quarter conference call with US today are David Constable Flores, Chief Executive Officer, and Joe Brennan, <unk> Chief Financial Officer.
We issued our earnings release earlier. This morning, 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 two.
During today's presentation, we'll be making forward looking statements, which reflect our current analysis of existing trends and information.
There is an inherent risk that actual results and experience could differ materially you.
You can find a discussion of our risk factors, which could potentially contribute to such differences in our 2020 Form 10-K and in 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 in the Investor Relations section of our website at investor that floor Dot com.
I'll now turn the call over to David comfortable Flores, Chief Executive Officer, David.
Great. Thank you, Jason and good morning, everyone and.
Thank you for joining us today.
Before we move into operational results I'd like to start by pointing out some of the more interesting events.
And notable items our employees are currently involved in.
This quarter I wanted to highlight melvina Stacy R. H S E Deputy director in Canada.
Two months ago. She started the series on social media, where she showcases women in H S E rules that floor.
In her introduction to this series.
She acknowledges the challenges are being seen and heard and recognized in what is traditionally a male dominated construction industry and how the company has positively responded.
Floor is committed to our D N I program and ensuring that everyone can be seen heard and recognized for their hard work.
Thank you Tim Melvina for your efforts.
Encourage all of you to fall a floor on linked in for future installments of her series.
Let's begin by providing some perspective on what we're seeing in each of our major end markets.
Starting with mission solutions.
Please turn to slide three.
In mission solutions, we experienced quite a bit of activity during the quarter.
To begin with margins for the quarter reflect increased execution activity on U S Department of energy projects higher than forecasted performance based fees and the release of COVID-19 cost reserves.
This strong performance was somewhat offset by the Logcap for Afghanistan program that was completed in July.
New awards for the quarter was strong at $1 6 billion.
Our largest award in the segment was the $789 million 12 month extension to our management and operations contract for the D O S. Savannah River site.
Our other major awards for the quarter was a contract with $495 million to.
Humanitarian support at Holloman Air Force base in New Mexico for Afghan evacuees as a part of operation Allies welcome.
This award was under the Air Force contract Augmentation program.
Florida has been a part of since 2020.
Specific to this effort.
We received a call from the Air Force in late August.
Within a week, we had temporary housing food medical and other critical humanitarian assistance for 1000 evacuees.
And then increased total capacity a few weeks later to 5000.
Currently more than 4000 men women and children call. This newly created facility home.
Florida will continue to provide assistance until the operation concludes.
Likely next spring.
When I personally thank all of our employees that mobilized so quickly to support this important effort.
Last week, a joint venture, including Fluor was awarded the Savannah River site integrated mission completion contract.
This indefinite delivery indefinite quantity award is valued at up to $21 billion over the next 10 years.
Work will include liquid waste stabilization and disposition among other requirements. This is a great award expands our presence on the Savannah River site in South Carolina.
Our next major pursued emission solutions is the Y 12, Pantex management and operations contract in Tennessee and Texas.
We anticipate hearing about potential selection for this multibillion dollar award in the next few months.
Now, let's turn to our urban solutions group on slide four.
In mining, we booked a copper project in Indonesia, with a valued long term client.
And our conversations with mining clients, we continue to see a disciplined approach to project analysis and final investment decisions.
Mining clients are aware of the critical role they play as the world focuses on energy transition and electrification.
Same time, they were taking a fresh look at their own portfolio of assets and identifying how they can significantly reduce energy and water consumption with a specific focus on increased use of renewable power.
Our feed pipeline of future mining work remains steady.
And we continue to work on our slate of projects that had limited notice to proceed contracts.
Over the next four quarters, we expect to book opportunities that support a broad range of commodities, including copper nickel alumina lithium steel and phosphates.
Please now turn to slide five.
In infrastructure.
We booked $316 million in revenue for our share of the <unk> 35, a phase two expansion project in Dallas for Txdot.
This $6 five mile long design build project includes full reconstruction and expansion of the existing general purpose lanes as well as the reconstruction of two managed lanes.
Before talking about prospects in this segment.
Wanted to provide a quick update on our legacy infrastructure portfolio.
During the quarter, we recognized $19 million in forecasted adjustments on a light rail project that is experienced schedule delays and productivity challenges.
The project is approximately 90% complete and we anticipate project completion next summer.
There are no significant changes in estimated costs to complete the remaining legacy infrastructure projects now.
As a reminder, we expect to receive the final settlement payment on the Purple line project next month.
Our infrastructure clients continue to express interest in the pending infrastructure Bill.
While we remain disciplined in our approach we see some near term opportunities in roads and bridges as well as project management only prospects.
Yeah.
Turning to slide six and advanced technologies and life Sciences, we are starting to convert some of our initial enthusiasm around semiconductor manufacturing into New awards.
During the quarter one the front end scope of a large semiconductor project in Arizona.
This is the first of many awards that we were tracking for this facility over the next 12 months.
We're also winning new work to support food packaging clients.
Overall momentum continues to build an urban solutions.
While we expect to see lower New awards in the fourth quarter, we are well positioned to convert our existing feed pipeline into full EPC contracts next year.
Moving to energy solutions on slide seven.
For the quarter was more in line with our expectations with segment margins of five 3%.
These positive segment margin results included an $18 million gain recognized on an embedded derivative inside of an equity method investment, which is excluded from our adjusted EPS numbers.
New awards in the quarter totaled $644 million compared to $141 million in the third quarter of 2020.
And included refining and LNG work in Mexico.
Turning to slide eight our work on LNG, Canada continues to advance positively.
During the third quarter, we crossed the 50% completion, Mark and we continued to drive scheduled progress through fabrication and construction activities.
On October 30th we also celebrated a three year milestone from the receipt of the project's full notice to proceed.
Engineering on the project is essentially complete and all major procurement has been awarded.
Remaining procurement efforts are centered on top ups of bulk materials, such as pipe and cables.
Accordingly, the project has mitigated inflation concerns on the equipment and materials for this project.
We are operating in a COVID-19 restricted environment, there last quarter, we announced an agreement with the client for Covid related delays and cost for engineering and procurement through February 26 2021.
We continue to monitor our progress on our procurement fabrication and construction activities.
Working with the client to mitigate any additional COVID-19 related delays and costs.
I'm pleased to say that our first 16 modules of ships and.
And we expect to receive them at our marine Offloading facilities, starting next week.
The first of 192 modules weighing a total of 256000 tonnes, they will be fabricated and shipped to the site.
And finally, we began our heavy lift mechanical equipment program with the installation of two pre coolers and the main cryogenic heat exchangers for train one.
This reflects the site moving towards substantial above ground construction activities.
As you can see on slide eight.
Now please turn to slide nine.
Our efforts to support the energy transition needs of our clients continues to accelerate.
During the quarter, we received work to support renewable biodiesel and lithium production projects.
Interest in our ability to decarbonize existing assets is coming primarily from Europe and the U S.
This includes fluor's proprietary carbon capture technologies.
Renewable driven E crackers.
Electric drive motors and increased demand for hydrogen based power.
We also see increased activity in battery chemicals to support the expanding needs of the automotive industry.
When you look at our opportunities across the energy solutions landscape.
We see that our clients have resumed investing in sustaining capital and small capital projects.
Larger projects other than what we see in chemicals remained on the drawing board.
Although competition.
Continues to be brisk, we remain disciplined in the projects and clients we pursue.
Now, let's turn to new scale on slide 10.
As we mentioned last quarter, we received considerable interest in our carbon free nuclear power solution with $193 million received an outside investments this year.
We continue to receive positive feedback from Guggenheim Securities.
Which new scale retained six months ago to accelerate the funding of its path to commercialization.
During the third quarter, new scale signed Mou with entities in Poland, and Ukraine, they're seeking to move forward with small modular reactor deployments.
New scale also reached an agreement at Cop 26 to advance clean energy development in Romania.
And Flor signed an Mou with Bulgarian energy holding.
We look for opportunities to convert their existing coal fired fleet to as Mr's.
New scale also announced the building out of its manufacturing supply chain with a key partner in Canada.
Finally, fluor received additional work from Utah associated municipal power systems to develop the NRC combined construction and operating license application and the initial site specific plant design for the new scale technology facility to be built at the Idaho National Laboratory.
Now please turn to slide 11.
Since September floor has been working to meet vaccine deadlines on government projects that are covered under president binds executive order.
In mission solutions, where a majority of our government contracts have received the mandate contract language. We will continue to work towards complying with the vaccine mandate and encourage our employees to meet the corresponding deadlines.
Our nongovernment business lines are also encountering vaccine mandates being issued by a few commercial clients.
We are carefully considering such mandates to ensure they are properly addressed and contract modifications are.
Are implemented in a legally compliant manner and keep our projects productive.
Yesterday in addition, osha.
Osha released the new emergency temporary standard that will require companies with 100 or more employees to mandate that their staff be fully vaccinated or get weekly testing.
Our teams will be working closely together to ensure we respond accordingly.
On the international front, we are starting to see clients in government signaled moves in a similar direction.
On slide 12.
I want to share a few observations as we head into the final quarter of 2021 and provide a look ahead into 2022.
In the near term, we expect to see variability in new words as clients continue to weigh the timing of capital expenditures against the impacts of supply chain disruptions labor availability and inflation.
Currently we are working on or have recently completed several hundred study and feed projects representing over $170 billion in estimated total installed cost.
Looking ahead, we are tracking over 200 study and feed prospects in the next 18 months representing over $150 billion in TICC across the markets we serve.
Overall, I'm very pleased with the speed and the direction, we are moving the company.
We are well into creating an organization that aligns with the needs of our clients and the expectations of consistent returns for our stakeholders.
This includes a healthier backlog.
This is coupled with our efforts to improve our processes and permanently reduce cost throughout the organization.
During the quarter, we finalized our path forward that includes overhead savings of over $160 million annually when fully implemented.
For more details on these savings and our financial results for the third quarter I will turn the call over to Joe Joe.
Yeah, Thanks, David and good morning, everyone. Please turn to slide 13.
For the third quarter of 2021, we are reporting a diluted adjusted earnings per share amount of <unk> 23.
In our earnings release and in the appendix to today's presentation. We show a reconciliation of GAAP EPS to this adjusted number which excludes certain items, such as FX and embedded derivative gains as well as debt retirement costs.
We continue to make significant improvements to our capital structure.
Using the proceeds from the convertible preferred offering we successfully tendered for our notes maturing in 2023 and 2024. When you include the open market purchases in July we were able to reduce outstanding debt by $509 million were 30% from the $1 7 billion in total debt outstanding.
At the end of June.
When we laid out the company's strategic goals in 2024, we included a target debt to total capitalization ratio of 40% I'm pleased to report that we were able to accelerate this process and we are now below that target at 37%, which is a significant improvement from 55%.
Back in January.
Although we are ahead of our three year plan as it relates to our capital structure. We will continue to look at options for the remaining outstanding indebtedness under the 2023 and 2024 notes in a way that supports a longer term credit facility.
Please turn to slide 14.
Our overall segment profit for the quarter was $110 million or three 5% and included the $18 million gain for embedded derivatives in energy solutions and quarterly new scale expenses of $8 million.
Excluding these items our total segment profit margin is three 2% in line with our guidance for the year.
To give more perspective year to date segment profit margin was three 3% driven by energy solutions at five 8% in mission solutions at five 3%.
Our ending cash and marketable securities balance was $2 2 billion and reflects cash deployed from the convertible offering to reduce outstanding debt.
Fight the incremental cash demands on legacy projects, we've been able to keep our cash balance at these levels for the past three years.
Our operating cash flow for the quarter was an outflow of $66 million.
This outflow was driven by the timing of cash inflows, we expect full year operating cash flow to be neutral to slightly positive.
Our G&A expense was $42 million compared to $31 million last quarter. This increase is due primarily to ongoing investigation costs. Please.
Please turn to slide 15.
At the end of the quarter, our backlog contained $1 $1 billion in legacy projects that are in a loss position $900 million of which was related to the Gordie Howe project.
We anticipate cash contributions to these loss projects in the fourth quarter to be more than offset by the final settlement payment for purple lines.
Moving to asset divestitures in our last call. We shared that we had a high interest in store with over 50 parties, signing an NDA and receiving an information information memorandum. Since then non binding offers have been received and due to this high level of interest the divestiture divestiture team worked through.
Two steps of selections since late September we were pleased to have down selected to a few strong bidders who are doing their due diligence and submitting binding offers later this month we.
We remain on schedule and are planning to close the sale by the end of Q1 2022.
As it relates to the <unk> South America reported in discontinued operations, we are holding productive conversations that support our strategy of transacting. This business in the next few months as well.
On the P. Three front, we are making progress on transacting or interest in a completed infrastructure project in North America, we expect to receive additional proceeds early next year.
As David mentioned, our cost reduction initiative has started to accelerate we now identified over $150 million in annual savings and have started to implement our plan to fully realize this run rate savings by 2024, while we're not prepared to discuss specifics on this call we are expecting overhead savings.
<unk> of $100 million in 2022.
As part of Florida focus on managing internal cost the company has implemented a plan to right size, our global real estate footprint when fully realized in 2024. This represents an additional $20 million in annual savings.
Please turn to slide 16.
Based on current trends, we are raising our adjusted EPS guidance from 60 to 80.
Up to 85 to $1 per diluted share.
We're also adjusting our Q4 segment level guidance and expect margins to be approximately 4% in energy solutions, which excludes currency exchange fluctuations and the embedded foreign currency derivative approximately four 5% and urban solutions and three 5% to 4% in mission solutions.
Our guidance for the remainder of the year remains modest assumes modest revenue increases in mission and urban solutions full year, corporate G&A expenses of $185 to $195 million and a tax rate of approximately 35%.
Finally, I want to point out a little administrative housekeeping that you will see in our SEC filings over the next few days, we will be filing an S. Eight to register the CEO equity awards granted in December and separately, we will file several amendments to deregister shares under a <unk> related to our 401K plans and such.
Some of our prior compensation plans that are no longer active.
Operator, we are now ready for our first question.
Thank you Sir.
At this time, we will open the floor for questions.
If you would like to ask a question. Please press.
Pressing star one on your telephone keypad.
If you are using a speaker phone please make sure Alex.
Alan is turned off to allow your signal to reach our equipment.
Again that is star one to ask a question.
Our first question comes from Steven Fisher with UBS.
Great. Thanks, good morning.
David You mentioned that energy transition projects are on the drawing board at the moment can you maybe just more broadly discuss potential for energy bookings from year end and what you think the backlog trajectory could be and then how you see those energy transition a potential prospects filling in the pipeline over the next cut.
<unk> of years.
Hey, good morning, Stephen.
And thanks for the question.
<unk>.
The energy transition.
Work is really starting to two.
Ah gained momentum as.
As we see R.
Our traditional.
Clients.
Moving forward.
With those activities.
You see the big oil companies setting up.
Specific business units.
New energy low carbon energy businesses.
And.
The likes of Chevron and Exxon Mobil, putting in I think.
Chevron has about $10 billion put in there through <unk>.
2020, eights and Exxon Mobil with similar numbers, so I think.
Energy transition is really going to pick up.
<unk>.
As far as your question around backlog I think we're about 21 billion right now overall.
And we see we see energy solutions start to to gain the gain momentum across not only just energy transition, but the entire energy solutions business segment.
And we're tracking $45 billion and prospects.
Greater than $50 million EP EPC <unk> projects over the next 12 months and a good portion of that sits in there.
It's sometimes difficult to breakout because all of our all of our.
Clients are focused on energy transition so it's just not.
With the with the traditional customers, but it's across all all.
10 major business lines that we've got so when you think about it when you've got Martin we're chasing 15 billion in mining.
Projects in the next.
12 months.
A good portion of that is the energy transition.
As it is in chemicals, where we've got $5 5 billion that we're we're going after in the next 12 months energy transition itself, including new scale and SMS.
Right now the prospects.
In 2022 are at about $2 5 billion. So.
We see the backlog I think from a backlog perspective, we are turning a corner.
At the company, we're really excited about the first half of 2022.
Talking with our head of corporate development Al Collins, who has been around the company for a long time.
He says we haven't seen these type of these types of numbers in a long long time it is.
A list of prospects goes here in the first half so.
Yes, turning a corner and.
And really excited about what's starting to book.
Healthy backlog with good margins.
Thanks Steven.
Thank you for that color and then just maybe on LNG, Canada can you talk about what the next steps are.
Any further change orders and you mentioned inflation mitigation action, we think about the risk of of labor inflation over the balance of the project.
Yes, I think.
We're really in good shape.
As I say, we as we announced in the second quarter.
First COVID-19.
Agreement for engineering, and procurement was successfully collaboratively signed with the customer.
We're also tracking now to the <unk>.
Fabrication and construction impacts of Covid and working again with the same team in place to.
To make sure that we are.
Get to a fair and balanced position with the clients.
For the rest of the projects on that front, so that's all coming along nicely.
And more on that in subsequent quarters on the project itself.
Probably best to look to what the clients, saying about the project.
The declines in their call recently at shell.
It feels the project's going very well.
I mentioned that we've reached 50% complete.
And they said that there was they were very pleased with the performance not only in Canada, but outside of Canada in terms of the.
The supply chain.
And we think Canada, particularly during this pandemic really pleased with the overall progress from their standpoint. So it's.
Good to have the the client weighing in on that front, so I think.
All in all it's it's.
It's going well and we continue to see.
To keep a close close eye on it on the escalation side.
We.
We feel we're in good shape on inflation.
We've got it well in hand, obviously were bought out.
Labor.
The labor rates are.
Taken care of and accounted for in our estimates so we don't see any issues on that front either so.
Yeah really good really good going with the with the modules being starting to ship over over and obviously as I've said in past calls.
Focus still on the module mod yards and the progress there and we're taking action and implementing.
Good good.
Execution plans in the yards there to ensure scheduling.
Progress and productivity continues in the right direction.
Thank you very much I appreciate it.
Alright, thank you.
Next question comes from Sean Eastman with Keybanc capital markets.
Hi, guys nice nice update here and thanks for taking my questions.
Maybe it'll be helpful. Just to understand the bridge from the previous EPS guidance to the new EPS guidance, obviously at a very healthy rate.
I just want to understand what we can extrapolate from that as we look into 2022.
Maybe part of that mission solutions upside as some fast burn work that's going to be contained this year.
Yes, maybe some of that as you know the.
Right up through change orders, but maybe it doesn't help us next year.
Think about think through that that'd be helpful.
Yes, John.
Good morning, Sean Joe is going to take this one yes, thanks Shawn for the question.
What we're really seeing is.
I think the first step of this is we are starting to get the the challenge projects behind us.
Although we have had some noise and some friction this year.
With principally gordy, but as we continue to progress that we feel like we're going to get on top of it but I think what we're seeing in through a lot of hard work. This year is we're starting to really reap the benefits of the new strategy in terms of improved performance.
And discipline around our investments and our project execution group.
We've implemented a very rigorous overhead reduction program, which we are.
Starting to reap some of the benefits of that in 2021, and we will reap a significant portion of that in 2022.
Our new awards that we're booking in.
Would suggest to you that they are leaning towards a significantly higher quality of earnings.
As we look forward on how those will burn.
And I think it's also important to note that if we look at the backlog and how it's performing and we compare that to where we are from a challenged loss project perspective, and I've said this on previous calls it represents less than 5% the challenged projects of our overall backlog.
And clearly with the bidding principles and.
And the diligence with which we're putting.
Work into backlog.
We would expect to see higher higher returns and better performance moving forward. So it's a combination of a number of different things both on the cost front cost front and how were performing projects and clearly what we're putting into backlog.
Okay helpful.
Just a higher level kind of theoretical question here.
But obviously the results are good.
I just wanted to understand.
Uh huh.
How do we get comfortable.
And the broader fixed.
Fixed price.
Project portfolio that floor as kind of protected from this sort of unprecedented volatility in inflation in input costs and ramping wage inflation, maybe we can just level set on that and just kind of understand how that portfolio of projects.
Behaves in this operating environment that'd be really helpful sure.
Sure Sean Yes, we are very comfortable obviously.
<unk>.
Got all the right processes and procedures in place through our operating.
System requirements and.
Pursuit criteria going forward.
We're very comfortable with with how we are bidding work in the <unk>.
Again, the governance and screening of those prospects and what we're bidding.
Who will be working with going forward. So.
From a go forward, including the risk committee at the board level, which provides oversight and.
On all the all the risk projects that we're considering so going forward a very comfortable.
Currently all contracts in house right now are well protected through the contract and escalation clauses and indexing for inflation, including the lump sum work down in Mexico, and we're in good shape.
But to LNG in Canada so.
I think from that standpoint, we're in good shape and we've been able to.
Make sure the contract.
Protects us going forward.
Just looking at the prospects that I talked about.
Thats.
That $45 billion of work that we are again not not steadier feed work upfront and work just real real projects to $45 million next year.
91% of those are reimbursable cost prospects.
And 90% fixed price, but again of a <unk>.
Size and with customers and locations that we feel very comfortable going forward.
In our supply chain group.
Is all over all over to your comments on volatility and an inflation, we've got not only our supply chain.
Covering that but our our head of industrial relations keeping close tabs on labor labor inflation wage inflation and volatility so.
I think we're in really good shape.
Okay terrific. Thanks, a lot thanks, Sean Thank you.
Thank you. Our next question comes from Michael Dudas with vertical research partners.
Good morning, gentlemen.
Michael <unk> Michael.
Our first.
When you're just thinking about.
Getting on top of them following up on John's question on supply chain et cetera.
What are your customers coming to ask you to do even with the contracts that you have are you.
Our solutions fairly readily available do you get the sense that these trends in <unk>.
Little bit less than transitory going forward and how that plays into your ability to secure some of the 45 billion of work that you have on the board over the next 12 months to secure your fear about better share of project bookings.
Yes, I think.
On the current working houseware like I said, we're in good shape, Michael and working with customers too.
To make sure that we.
<unk>.
Okay.
Baseline re baseline estimates and schedules as we see impacts on supply chain and on labor.
So that that's a collaborative process and continue to work work through those.
Going forward.
We do see.
Just.
I guess I call it a pause or more scrutiny.
Across our client base right now.
Obviously optimism you see all the capex numbers coming out I can rehearse them for you if you like but there's capex growth across our client base.
Into 'twenty, two and further out in time. So that's very very that's why I feel so positive about next year and the New awards in the direction, we're going in as I said turning them.
Turning a corner.
But to to to your point.
There is more project analysis and <unk>.
And review to ensure that.
Whether it's transitory or long term these issues that we're facing right now working with.
The clients too to make sure they're comfortable that when they pull the triggers.
Triggers that we have.
Most likely P 85 type of.
Probability in place on <unk>.
Again, most of these over 90% Reimbursable.
Cost.
<unk> that we're chasing so that's how I see it.
It started in mining, but we're seeing it.
Chemicals.
And the other.
There are big Big business lines.
Have.
And the lion's share of the New awards coming right now.
So it sounds like demand is increasing but the supply is the issue just can't get the customers to come through but everything seems to be especially with regards to commodity prices in the marketplace. I mean these projects are being the market color, but we have to go through so I'm assuming that gives you some additional confidence in booking some of these like mining projects.
And the next several quarters.
No most definitely I mean.
They are coming.
Again, the Capex the Capex numbers are pushing up.
Very nicely.
No.
And then we've got all the feed work as well.
We've got.
I think it's 177 billion that we've just as I said on the prepared remarks 170.
Over 170 billion.
Front end work that we've completed and 39 billion of that was mining and so.
And we're chasing 42.
$42 billion in front end work for mining projects in the next 18 months and the rolling forecast so.
There's a lot of worst case, and it's not just mining chemicals, obviously as well.
And energy transition within the energy solutions business.
So again, it's it's it's coming and just with a little more scrutiny involved done on the analysis of the of the cost and schedules.
I appreciate it and then just finally on the encouraging news on the semiconductor opportunities in Arizona.
How significant can that be going forward and on semi used electronics life science.
A market that still has burgeoning opportunities for sort of for you guys to gain some share in bookings there.
Yes.
Very pleased with with the progress in Arizona and is a very very large very large program that we're just.
Tip of the iceberg, right now and getting in and working with.
Client, there and obviously as a long term build out of.
A major.
A major operation So we see we.
We see good things happening in.
DNA Tls.
Not only in the U S in that space, but over in Europe. We are opening a new technology hub for <unk> in Copenhagen on December 2nd and.
And the clients are very excited to have us working locally with them in Europe as well on the similar types of projects Datacenters as well as semiconductor work back here. So.
In APAC.
Pos.
See about.
In the next 12 months about over $3 billion in prospects that Theyre looking at.
Excellent David Thank you very much thanks, Michael.
Thank you.
Our next question comes from Jamie Cook with Credit Suisse.
Hey, Good morning, I guess, David one question for you and then Joe for you.
Given the amount of work that's out there in the competitive environment, but are we getting to a point where customers are coming to you sort of do the feed.
Sophie versus like a dual feed so that your potential.
Win rate.
The cycle could be higher just because of the lack of competition are players that have exited the market I'm. Just wondering if those dynamics are more favorable and then in particular as people are worried about labor and then my second question Joe.
A question on the margins a little imply margins in the fourth quarter are probably better.
And then what I would've expected and I'm just wondering.
It's like we can think about that is that a good base for how to think about 2022.
And then my last question you made good progress.
The debt reduction this quarter, but you did say you're exploring options.
Now to reduce debt further on the 2023 2024 notes.
And elaborate on that is that can we pay that down through cash flow from operations are we exploring.
Any potential for equity.
Good morning, Jamie.
So yes on the.
All our front end work.
Feasibility and feed work.
So sole source versus.
All the way up to dual feed competitions like you mentioned.
It's still competitive out there.
And we're going up against contractors, who may not have the same.
Resume in that space as far as subject matter experts are concerned and all of the the value that we add.
From evaluating technologies for our customers.
Front end and coming up with the best solution, but they are out there and there.
Making runs at it with.
Yeah.
Quite low pricing and so we've got a battle that.
Effectively and so.
So I'd say thats. The main issue right now on on that front. So we're still seeing a lot of competition.
To put our best foot forward and the way we do that is in fact, we hit a recent example on our renewable diesel project where.
It was going in one direction because of Cogs because of pricing and we.
We.
Went in and added value with.
Technical capabilities and pull that rate right back to Florida, So great win.
So we love to see that because getting paid for value is what we expect so.
It is a bit of a mix, but it's still very competitive but.
Like I said.
We're chasing about.
150 billion.
NTIC over the next 18 months in this type of front end work and we will definitely pull into a good portion of that.
But still it's still competitive in.
<unk>.
And have to put our best foot forward and convert ability.
I've looked at that and I'd say in the non government businesses conversion of these these are front end front end jobs here in the.
Anywhere between 40, and 50% for energy solutions in urban solutions.
<unk> solutions is a much higher convert ability right.
Most of the 75%.
Conversion of <unk>.
Prospects.
Based on repeat ability.
Repeat clients repeat agency clients at the government.
Joe ill turn it over to you on on the other questions. Yeah. Thanks, Jamie on the margin guidance.
We had signaled in previous calls that we were looking for that corridor of 4% to 6% I think you can expect.
Margins similar.
To the Q3 margins for energy and mission.
Slightly normalized.
Within reach of what we had achieved in the quarter and I think as we start to execute out the challenge projects through urban solutions.
We will be well within that 4% to 6% range.
As as we would look to look to Q4 and beyond.
And on the debt side no. We're not at this point, we believe that there is strength.
Within the cash flow generation within the business. The timing of that is obviously very very closely aligned with the release of the New awards.
And what we're up against a little bit as our credit facility renegotiation, but whether we do that through cash on hand.
Or some other.
Or some other.
Are there other view of it.
Not at this point to point in time.
Contemplating any additional equity raise.
Okay.
That's helpful. Thank you.
Thanks, Jamie.
Hi, Thank you again, you would like to ask a question you may do so by pressing star one on your telephone keypad.
And our next question comes from Andy Kaplowitz with secret.
Hey, good morning, guys.
Adding in.
David So it doesn't seem like you've received additional outside investment for new scale over the last couple of months, but obviously you never see it did before.
$90 million before that could you update us on your progress, though with Guggenheim maybe what is the thought process at this point around your new scale investment or whether it has changed at all given perception regarding nuclear power seems to be improving globally, and then could you remind us what the remaining percent stake in the company you have left.
Sure.
Good morning, Andy Thank you.
And thank you for asking about new scale, because we are very excited about new scale going forward.
And Guggenheim as I mentioned has been working with new scale and ourselves for the past six months doing it.
Doing a great job for us putting all the options on the table and we're making.
Really good progress in and how to move forward.
And.
And get to commercialization and the rates and the right financing options for them.
For the <unk>.
For the organization so.
Bob.
I'd say were getting closer to.
Two are final.
Outcome on that end.
In the fairly near term I think we'll be able to talk to you more about that about how we plan to.
Extract value for the shareholders.
Based on the new scale offering and what we're seeing in the marketplace and extreme interest.
And the fact that we're getting.
Getting started on.
Getting further into the Utah amps or the <unk>.
Project with the with the standard design and the and Nicola.
Operating license so yeah.
Yes.
Going in a great direction and.
And like you said $193 million.
It was very strong and.
And more to come on that front as well, so I think I'll leave it at that and just.
Just let you know that we're making really good progress.
Okay, and then maybe like.
Sort of a big picture question, David you've been in the seat now CEOC for a few quarters.
You raised EPS this quarter and you've got those 2024 goals still out there. So it seems like you're pretty enthusiastic about 'twenty, two but you do need a nice step up to stay on track where does that step up potentially come from within your segment is it all of them is it one in particular and the confidence level that you are still.
On that 24 trajectory.
Yes, I'm very comfortable.
With with what we've put out there for the earnings power in 2024.
I think we're ahead of schedule.
No not only on an R.
Performance.
Is driving.
Better earnings through this through the segments.
But also the.
Getting fit for purpose as Joe said on the on the cost overhead reductions. These are permanent sustainable reductions structural reductions that we're making so we're comfortable that that was run rates will continue.
Into the future so.
We're managing everything it was bridging ear as we discussed at the start of the year.
We've been really able to get things within our control.
In a much better place to two.
To get ready for the upturn, which is I think I'd just say, it's coming a little later, we actually we actually youre going to beat our gross margin plans for the year by several percentage points. So.
That's also encouraging.
A new award standpoint, so we're headed we're ahead of plan on that.
Well and like I said.
What we see in the first half of 'twenty two.
These are major major project prospects that will be we'll be going after and so I'd say.
Again, we're comfortable with.
The targets right now is I think it's a little too early to to adjust.
What the earnings power could look like in 'twenty, four we'll stick with with what we've guided for now, but we will be taking a look at that.
Next year during our strategic planning process and update as required on that so.
David the only thing I was going to add as if.
We kind of look back over the last six to nine months I feel extremely.
Excited about the quality of earnings and the New awards in the markets that we're chasing so David has laid out a fairly significant robust pipeline of work that we're pursuing.
But it does fit our bidding principles and criteria and therefore, we believe it will be reflected in truly what flows through our pipeline and becomes our quality of earnings moving forward and as far as as far as where is it coming from it's coming from the like we sit on strategy day.
We've.
Really focused on.
<unk>.
The 10 business lines that we're going to drive growth across and we see growth in and pretty well every single business line and so.
With I'd say mining leading the charge.
And government as well.
The charged with chemicals right behind it and obviously infrastructure.
A lot of opportunity there coming down the pipe.
And followed up by energy transition.
And energy solutions so.
So it really is including <unk> as well so really it's right.
And all of those business lines that we talked about at the start of the year and that's what we're going to see it across the board, which is a good thing.
In a cyclical with all the different cycles.
We take on.
And then maybe just a quick clarification for Joe.
Is it true mission solutions revenue was up.
Despite you know getting out of Afghanistan. So does the <unk>, where it increased Doa does that sort of fill the gap kill so that revenue you know.
Stays at these levels that youre seeing in Q3 now despite you being out of Afghanistan.
Yes.
It is a significant portion of the replacement for Afghanistan work moving forward.
But I think as David laid out there are some very significant awards that we.
We feel will drop here in the beginning of 2022, which will continue to help not only.
Phil.
Gap exists from Afghanistan, but but.
In essence grow the overall mission solutions backlog as we move forward.
I appreciate it.
Thanks.
Very much Andy.
Alright, thank you.
Our last question will come from Michael Feniger with Bank of America Merrill Lynch.
Hey, guys. Thanks for squeezing me in I, just hope Michael hoping to understand.
I understand on its great that the adjusted EPS guidance is revised up notably I was just curious on the cash flow from ops. I think you guys are guiding that to be positive for the full year now it's neutral to positive just help us understand maybe if there's been any kind of buckets.
What maybe pushed that back from.
In the positive range, two positive neutral or positive.
No. Thanks, Michael let me.
Let me first what we had been signaling quarter over quarter is that we were going to be neutral to slightly positive we will end the year.
And that positive slightly positive range.
What is impacting Q3 are really timing issues.
If I take a look at that $66 million Theres, a very small portion of that thats in there that is to service.
Loss projects.
And as we move into Q4, I am very very confident that we will see that cash.
Those cash balances snapback to the positive range and we will end the year in a in a positive cash flow position.
Good to hear and just on LNG, Canada, you mentioned how cell.
Last result sounded very pleased on the overall progress they didnt mentioned some issue with the pipeline construction now.
I believe thats clearly separate from you guys. In this discussions there I was curious if that had any impact.
On the overall project.
Just big picture, how do you.
Ramp up now.
<unk> side of the LNG, Canada, how do we think about that as it flows through on revenue recognition and margin and cash from ops in 2022.
I'll, let Joe talk about cash from operations with the as we passed the 50% Mark and how that looks from a cash perspective on the project on the pipeline, yes, you're right on on that they that's the coastal gas link feed gas pipeline being develop.
By Trans Canada, So it doesn't have any impact on what we're doing.
Obviously.
We'd have to direct you to the.
To the customer for more.
More color on that but Joe do you want to talk about.
Cash flow on the.
<unk> historically been.
Extremely conservative and our cash.
As it will be.
Distributed through the form of dividends back to back to the owners of the joint venture.
At this stage of the project as we are kicking off fabrication.
We are not looking for dividends or cash inflows at this point.
From from LNG C, but but as we as we get closer towards the third and fourth quarter of 2022.
We will probably begin to open up more dialogue around that there is cash flow that's being generated relative to our floors relationship to the joint venture and a significant portion of cash flow being generated but in terms of dividend not only with LNG, but with all of our <unk>. We've always been very conservative relative to the cash that remains in the joint.
To service the project.
That makes sense.
Maybe on that conservatism I'm, just curious like the cash balance of $2 billion kind of going forward.
Already reached your debt target that you guys were kind of.
And you laid out.
Hi.
Is the 2 billion cost figure or is that going to I know that was a goal to have for 2021.
Is that still the goal to maintain that level of cash.
Do you see that maintaining that level through throughout 2022.
Well.
I believe that we will start as we book in a.
A couple of things one as we work our way through the challenge project.
And we begin to book.
These opportunities that David has laid out today, we will start.
And begin to see those cash balances increase over time.
It'll become a timing issue, even though we may book that $20 billion award under a single performance obligation the generation of that task or engineering and really into procurement and construction look different over the continuum of the project.
So there I don't expect us to see any negative impact to cash flow, but I think it'll be.
It will begin to ramp up in 2022 with a significant ramp up in 2023, as we start to grow our backlog with with the markets as we see them today.
Great. Thanks, guys. Thanks.
Thanks, Michael.
Hi, Thank you I would now like to turn the call back over to Mr. Davis for closing remarks.
Thank you operator.
Thanks to all of you for participating on the call today.
And we remain diligent and focused on achieving our strategic goals and continue to have positive conversations with all of our.
Our clients and stakeholders as we continue to improve our financial and operational performance here a floor.
In the meantime, we appreciate your interest in Fluor Corporation and thank you again for your time today.
Thank you ladies and gentlemen, this concludes today's teleconference and we thank you for your participation you may now disconnect.
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