Q4 2021 Fluor Corp Earnings Call
Semiconductor work is really picking up.
As you've read Intel and a number of other chip manufacturers are looking to deploy capital to alleviate supply chain concerns.
We are encouraged by our client conversations.
Last year, we won a large scale biologics manufacturing facility in Europe with Fuji film and are well positioned for the next phase.
First.
Second we.
While these opportunities are somewhat smaller in nature and early stages. They are consistent with the deliberate approach of our clients in this market.
Examples include our ongoing work to support renewable fuels efforts in California.
And our work with another client as they develop the world's largest carbon capture storage facility also in the U S.
During the fourth quarter, we approached 60% completion mark.
Up from 50% last quarter.
As we mentioned in November we have begun to ship modules to the site and in December the project took delivery of its first process module.
Thus far we have shipped 28 modules with 'twenty, one having been received that the kitimat site and another seven on route.
When complete.
The project will have received 215 modules from eight fabrication yards.
For 2022.
Our milestones are primarily related to the delivery and safe installation of modules at the Kitimat site in British Columbia.
Our operations on this project continues to be impacted by Covid.
The Omicron variant is also increased local quarantine and testing requirements across the project, including our primary fabrication yards and our job site in kitimat.
We are monitoring our progress on our procurement fabrication logistics and construction activities.
And are working collaboratively with the client to mitigate COVID-19 related delays and costs.
Now, let's turn to new scale on slide nine.
We've had quite a run of good news and developments since our last call.
In December <unk>.
<unk> announced their merger agreement with Spring Valley acquisition Corporation.
This transaction will bolster and accelerate the path to commercialization and deployment of new scale industry, leading small modular nuclear reactor technology.
This month the conditions around samsung's $30 million pipe investment we're satisfied.
The total committed pipe investment now stands at $211 million and is in addition to the $193 million in capital contributions from outside investors, which <unk> received in 2021.
The transaction is progressing well and the amended S. Four was filed on February 11th.
Currently the deal remains on track to complete the <unk> process in the second quarter.
When complete <unk> will own approximately 60% to 70% of new scale.
We will also be in a preferred position to execute new skills SMA projects.
On that front for recently completed the field work required to support the combined operating license application for <unk> customer you amps at their site in Idaho.
And last week, new scale power and <unk> signed an agreement to initiate the deployment of new <unk> in Poland.
Under the agreement the first power plant can be deployed as early as 2029, which.
Which would help Poland avoid up to 8 million tons.
<unk> emissions per year.
To wrap up I'm pleased with the progress we've made in 2021.
And I can confirm that the management team and broader organization are.
We are excited and energized about what 2022 holds in store.
And finally two weeks ago.
We announced an executive chairman Alan Beckman would not stand for reelection at our shareholder meeting in May.
Alice contributions to floor and to me personally have been invaluable.
We are all indebted to him.
And happy to report that he will continue to be in our corner serving on the board of new scale power.
Now I'm going to turn the call over to Joe to cover our financial results.
In 2022 guidance Joe.
Thanks, David and good morning, everyone. The main topics I will discuss today are one an overview of our 2021 financial performance to an update on our capital structure and financial position.
Three an update on our initiatives, including project fit our cost optimization program and for our outlook for 2022, Please turn to slide 10.
For 2021 floor reported a net loss from continuing operations of $144 million or a loss of $1 46 per diluted share.
Excluding the Dutch pension settlement and certain other adjustments we are reporting adjusted EPS of <unk> 94 for 2021.
In our earnings release and in the appendix to today's presentation. We show a reconciliation of GAAP EPS to this adjusted number.
Consolidated segment profit for the year was up 12% to $374 million compared to $333 million in 2020.
Corporate G&A expense for 2021 was $216 million up from $202 million a year ago.
The increase was primarily due to the impact of our performance and stock price driven incentive compensation that was partially offset by a gain on sale of real estate.
During the fourth quarter, we settled substantially all of our obligations for our largest defined benefit plan, which provided retirement benefits to certain employees in the Netherlands and recognized a pre tax loss on settlement of 198 million substantially all of which is noncash over the past few years.
Years, we have now settled our pensions in the United States, the United Kingdom, and the Netherlands, I'm pleased to say that we do not have any material pension obligations remaining.
As David mentioned, we made significant progress towards improving our capital structure in 2021, our balance sheet.
It is stronger today, having reduced outstanding debt from $1 7 billion at the start of the year to $1 2 billion.
Our strategic goal was to reduce our debt to capitalization ratio of below 40% by 2024, and we are well on our way to reaching that goal.
We continue to improve our capital flexibility in 2022 and.
In February we expanded and extended our credit facility, increasing the total capacity from $1 65 billion to $1 8 billion and extended the maturity to February of 2025.
In addition, we added into our agreement the ability to set ESG performance goals to reduce future borrowing costs and added three new lenders to the facility.
Please turn to slide 11.
New awards for the year were $8 8 billion up from $7 5 billion in 2020.
As anticipated backlog for continuing operations declined from $23 1 billion to $18 9 billion. Our backlog includes approximately $1 1 billion in legacy projects. We anticipate that we will be substantially complete with these projects by the end of 2023.
As a reminder, pantex Y 12 is not in backlog at this time upon contract Finalization of majority of our backlog would be reimbursable.
Moving to slide 12.
Our ending cash and marketable securities balance improved to $2 3 billion domestic available cash represented 31% of this total we expect our cash balance will hold steady at these levels for 2022.
Operating cash flow in the fourth quarter improved by $180 million and reflects the timing of cash flows between Q3 and Q4 operating.
Operating cash flow for the full year was $25 million, which was negatively impacted by increases in working capital on several large projects offset by settlement payments on purple line.
For 2022, the cash needs for legacy projects will be approximately $200 million.
Early last year, we committed to a plan to sell our storage and our mutual businesses. The sale of the North American portion of the <unk> equipment business was completed during the second quarter of 2021, we continue to be actively engaged with interested parties on the remaining portions of amigo.
As it relates to storage in the fourth quarter, we took an additional impairment to reflect market conditions based on the feedback we are receiving from interested parties or sale of Stork may result in more than one transaction.
We are on a path.
To resolve the sale of storage and the remaining <unk> operations and the sale of <unk> investment in the first half of 2022.
We believe that the aggregate value of stork, and Mikko MRP three investment being marketed as rough at roughly $250 million to $300 million.
Last year, we announced the implementation of project that which is our cost optimization program for 2021, we realized our run rate savings of $52 million for 2022, we anticipate a full year run rate savings of $97 million.
We continue to look at ways to optimize our real estate footprint.
At the end of the year, we had owned and lease space of $6 6 million square feet, which represents a 15% reduction from 2020.
We will continue to optimize our footprint as part of our ongoing process.
As a housekeeping item, we will file an S. Three shelf registration statement later today this filing will give us flexibility and speed to capitalize on opportunities in the future.
Please turn to slide 13.
We are introducing our 2022 adjusted EPS guidance of $1 15 to $1 40 per diluted share from continuing operations adjusted.
Adjusted EPS excludes new scale related expenses, and any impact from foreign currency gains or losses restructuring or impairments.
Guidance for 2022 assumes increased opportunities for new awards across all segments and continued progress on the company's cost optimization program.
Our assumptions for 2022 include an increase in revenue of approximately 10% adjusted G&A expense of approximately $50 million per quarter, and a tax rate of approximately 28%.
We anticipate average full year margins of approximately 5% in energy solutions, three five to four 5% and urban solutions and margins of three 5% in mission solutions.
These margins include the remaining impact of legacy work flowing through the business. We also maintain our long term EPS guidance of $2 50 to $2 90 by 2024.
And now I'll turn the call over for questions operator, we're ready for our first question.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal.
Questions.
We will take our first question from Jamie Cook with Credit Suisse. Please go ahead, Pat Hi, Good morning, I guess two questions.
One how much was that a reversal of the reserve and in energy solutions, how much did that impact the profitability of that at the margins in es because the margins were pretty good and obviously that implies.
You're implying good margin performance in 2022, so just trying to understand the dynamics. There and then my second question is how much of the guide is dependent on sort of New awards and to what degree are New awards.
Deferred because of just macro concerns or is it more just a function of.
Floor being more disciplined on the terms and conditions Frank Thank you.
So I'll take the first question a question good morning, Jamie.
On the reversal of the reserves it was <unk>.
Approximately $28 million in the fourth quarter and overall for the year it was $60 million.
Okay.
Thanks, and just what's implied in the guidance for 2022 Es margin because they continue to be at a.
5% is pretty good for four.
Yes.
Well from our perspective, I think we continue to see strength coming from LNG C.
<unk> continues to to close out very strongly and positively and I think David touched on it in his opening comments relative to the quality of earnings that we continue to put into backlog in terms of where we are in the mix right. As you look at the feed activity converting into.
Detailed design detailed engineering as these projects become to maturity and get into an EPC.
Space there the margin profile is different through the segmentation of the activity around those projects. So we would continue to see the strong margin performance I think in energy solutions through the balance of 2022.
Thank you Amy on the new.
Yeah, No worries sorry go ahead good.
Good morning, Jamie.
Yeah, So new awards.
2022 plan is.
Strong I'll say, even without pantex. So we've got good line of sight.
On.
Significant new awards that cut across.
And the top 15 awards, they cut across chemicals production in fuels.
Mining.
<unk> and government so very exciting.
Uh huh.
Significant prospects for us.
And as far as when you think about inflation.
Supply chain and logistics.
Certainly in the government sector, it's all about mission the mission in mission solutions.
Somewhat.
Separate from.
From.
The inflationary challenges that were looking at.
Also in the consumer products area ATM Pos.
Time to market is critical.
And they are being incentivized to manufacturer.
Various countries with.
Which helps them with their capex costs thats going in a very good direction. So it depends on what business line you're looking at.
As far as the effects of.
What we're seeing in the macro on the macro side so.
I think.
It's more on the natural resources side that.
The New awards, obviously, youre doing a little more due diligence to make sure that returns are are going to be there, but we still see.
Mining projects.
Going forward.
In 2022, and a good a good chunk of them so.
That's an update on new awards.
I add a little bit.
Yes, Jamie I, just wanted to add a little bit to that maybe give you a little sense of where our book to burn heading into the end of 2021 is below one.
And not suggesting that <unk> is not going to come into our backlog into 2022, but even without pantex coming into 2022 will be well above one relative to our book to burn so that will kind of give you a sense of the broad based view of the award opportunities and <unk>.
Backed opportunities that we're pursuing today.
Okay. Thank you that's helpful I'll get back in queue.
We will take our next question from Michael Dudas with vertical research. Please go ahead.
Good morning, gentlemen.
Good morning.
David first on mining.
You highlighted in the past some of those proceed some awards in that sector.
Oh, the delays or push the second half just driven by which you mentioned before re costing reef figuring things out because of inflation and such are there still issues with some of the government and some of the legislation that could be happening in Latin America. Some of these projects and then away from that you highlight.
On Sundays and Intel.
What type of opportunities and how involved.
Across the board on the different customers in the United States that are certainly are looking quite aggressively at some of this investment is floor involved in and could we see some bookings out of that area.
As we move through mid 2022.
Sure.
Thanks, Mike.
Yes, specifically on mining.
As we've talked about in <unk>.
<unk> calls.
<unk>.
The estimates and the accuracy.
Around.
The cost and schedule delivery, obviously very important to to.
To make sure that the clients are rate of returns are where they need to be.
Going forward so they are definitely.
Looking more closely at those that's driving again.
With this.
With some uncertainty still around inflation and supply chain logistics labor availability, they're doing a little more homework and like I said on the natural resources side.
Host governments.
Have the reserves and.
It's a little different and then being incentivized by governments come and manufacturer.
Ireland the U S. So it's.
Certainly quite a difference.
Dynamic that they are dealing with so.
That's part of it but yes to your point I would say.
The political.
Challenges political risk in Chile, and Peru.
And even somewhat into Argentina is also giving the mining houses some pause.
And that's also playing into into.
Their decision making.
And in.
And how that will rollout and so a bit of wait and see on some of the.
Some of the opportunities, but again overall.
When you think about the copper required.
And other and other minerals required to drive the low carbon economy.
These projects are going to be coming and not just in South America. So with.
With that pause you can think about commodity prices.
Going up even higher so thats mining on semi conductors again, we're very very excited about what <unk> has been able to achieve with their customers in the.
In the advanced manufacturing.
Advanced technology space and.
Our building building relationships, we do have work with Intel now I think we've got five projects with them.
And we will continue to see to your question.
Can you just see awards not only with I think Intel, but other chip manufacturers.
In the U S and and also abroad. So, yes, I guess I'll say stay tuned on that front Mike.
Thank you Dave Thanks, a lot David.
Thank you.
We will take our next question from Sean Eastman with Keybanc capital markets. Please go ahead.
Hi team. Thanks for taking my questions I just wanted to go back to Jamie's question. So it sounds like there's line of sight on on a lot of New award activity, but but I'm just curious how much backlog coverage do we have on this 10% revenue growth guidance for the full year today I just want.
To understand exactly.
What kind of New award activity, we need to be CN coming out over the next couple of quarters to hit that number.
Well.
Thanks, John maybe David and I will tag team it, but the way I view it as it's so broad base.
As we as we look at.
Here's one of the key indicators that I look at when I'm viewing.
Viewing a plan.
And operating plan in general is how much of your work is identified and how much of it is somewhat unidentified relative to the development of a plan and I would suggest to you. This year as we look at 2022 that amount of unidentified prospect.
And is a very very very small percentage over the of the overall operating plan and it's across all of our business lines.
Obviously across all of our segments at the end of the day, So I get a very good level of comfort, even if pantex Y 12, and we believe pantex Y 12, as going forward, let's let's be realistic there, but even taking that out there is a significant amount of growth that we're seeing across the ATM Pos that we're seeing across the mining side of the <unk>.
<unk> that we're seeing across other aspects in areas of mission solutions.
And into energy solutions, specifically in the chemical side of the market.
So like I said I think my key indicators on developing an operating plan how much uncertainty.
Through an unidentified view of how you build a plan is a very very small component of that I think timing will will the timing and the pace of these awards will probably be the one risk factor that that we'll have to we'll have to.
Kind of marry into this calculus of what our guidance is for 'twenty two yes, Sean just to your question.
If it hasnt been mentioned.
We're looking at burning about 50% of our ending backlog.
Drilling at the end of 2021, so 50% of that will be burned in 'twenty, two and then that could give you an idea of.
What we'll be doing to get to our 10% revenue growth.
Well on top of that obviously.
Okay Fantastic, Thanks, and then moving over to Pantex y 12.
Okay.
What exactly then the outlook for 2022.
I'm trying to figure out when you've assumed that starts to kick in.
How much tailwind is implied there going into 2023 at a full annual run rate.
And perhaps just what the next step on the protest is in.
Whether there's a good chance that is going to go into backlog in the first quarter.
So Sean I know, it's a good question. The plan is built on our Q3 <unk>.
Resolution two the protest of favorable resolution so when I say favorable we're looking at <unk> being in at a 100 hundred probabilistic view.
The actual impact because of the transition period and when the award is assumed.
Is very small in terms of its.
Bottom line impact to the 2022 numbers.
Both from a topline and from from an earnings perspective, and will really begin to ramp up into 2023.
I don't know David do you want to comment on the status of the protests still I think we're talking with the business segment.
We are in pretty good shape, where we're looking to transition here.
When we get the Green light.
It looks it looks good but we'll have to wait for the NSA to give us the final go ahead.
And I think I don't want to.
One other thing that I would add too to give you a little bit better perspective, our guidance that we've laid out the $1 15 to $1 40 would assume.
Whether pantex gets pushed a little bit to the right based on the protest or it.
Doesn't go forward, which again, we don't believe that to be the case, but we've I think we've accounted for that in our guidance either.
And either respect.
Okay Super helpful I'll turn it over there.
Okay.
As a reminder, if you would like to ask a question. Please press star one.
We will take our next question from Andy Kaplowitz with Citi. Please go ahead.
Good morning, everyone.
Hey, Andy Martin and Andy.
David go ahead.
A follow up on your guidance for 'twenty two for one second I mean can you just give us a little more color where that revenue growth is coming from I assume it's because if you look at Q4 year down still a little bit is that LNG, Canada continuing to ramp up I know you just talked about Y 12, pantex and as the year sort of backend loaded if we think about EPS.
Yes.
Yeah.
So from Andy.
Andy ill kick it off I think maybe David and I can tag team a little bit there is growth across energy solutions I think.
Underpinned by some of the activity that we're seeing on the front end of the year relative to chemicals.
And some of those investments.
Getting to market sooner.
Mission solutions has booked a significant amount of work and extensions and so there is a good base load of activity that's moving into some of the larger awards pantex, obviously being the elephant in the room here as we move into the tail end of the year and then urban solutions I think David laid it out relative to what's.
Going on into the semiconductor chip side of the business through mining.
And ultimately the infrastructure Bill and how it is supporting.
Additional investment in the markets, where we're really focused which of the Dot's through Texas, South Carolina, and Florida were starting to see that that investment in that capital spend probably come to market quicker than it has been because of the infrastructure Bill itself. So again, it's broad based.
But if I broke it down.
There is there is growth across energy solutions urban solutions, and although there's a little bit of a reset.
In mission solutions as <unk> come out.
And we've concluded our activities there we would certainly expect that to start.
You looked at the trajectory of emission solutions. It would start to ramp up in Q4, and then as we move into 2023 with with the <unk>.
With the kickoff of past FY 'twenty.
And I'm just looking at the 'twenty two plan here it really as Jos mentioned.
Really broad based so you can kind of roll it to 10% across all all our segments and it isn't backend loaded it is pretty.
Pretty constant across all four quarters.
For energy solutions in urban solutions and picks up.
A little bit in mission solutions in Q3, Q4, so it's not back end loaded.
Sure.
This year.
That's very helpful guys and then on LNG.
David I think you mentioned Youre working collaboratively collaboratively with your client on the on the crime related delays could you give us a little more color on sort of what youre seeing there. It seems like you've been able to resolve delays and issues in the past related to the virus.
The overall project timeline slipped at all should we expect to see an update from you on how these negotiations are going with decline. So how does this sort of keep going here.
Yes.
Really good relationship with the clients.
It was demonstrated with the first agreement that that we came to four.
For the engineering and procurement services through February of 2021 that was successfully concluded.
Did give us some relief on the schedule that we are working to and driving hard to improve schedule in productivity as much as possible to reduce the impacts of COVID-19 .
On the project.
And so that's that so I think a good sign signaling that.
Did on the impacts for <unk>.
For fabrication and construction from February 21 onward that we will again come together.
And and.
And come to an agreement that.
That is fair and drives drives the successful conclusion of the project.
The timeline that declines looking looking for so.
Yes.
Uh huh.
I am pleased with the progress.
And the module is coming to site and we've got great productivity on the construction site right now and just.
Just ready for.
Ready for all that.
OLED steel and equipment to come in and get a record so.
Yes, we're looking pretty good right now.
I appreciate it guys.
Thanks, Ed.
We will take our next question from Andrew Wittmann with Baird. Please go ahead.
Great. Good morning, and thanks for taking my question guys, Joe I thought I would start with you and ask about the cash flow, but we heard in your prepared remarks that youre expecting roughly $250 million to $300 million.
Historically, <unk> and the one P three asset and that that looks to that.
But more than offset the cash headwinds from the legacy projects I guess, that's associated with the $1 1 billion backlog that you talked about.
You guys kind of suggested that your cash position will be unchanged today. So I guess the implication is that the underlying business everything besides legacy projects are not going to be delivering a lot of cash flow. This year and I was hoping you could just talk about some of the puts and takes as to why that's the conclusion that there isn't more cash coming out of the the rest of the business.
Good question Andrew Thanks.
We're we're we're looking at as we've transitioned from 'twenty one into 'twenty two when we book these projects.
We are in a phase of the project, which is driven principally through engineering.
And the timeline of getting into some of the higher dollar activities relative to procurement and into fabrication and then construction. When you start to see the numbers ramp up is where youll start to to to see some of that.
<unk> much more significant cash flow.
Creating any real value to.
The company, taking a look at systems that have been brought into the overhead mix.
This in no way should be.
A reflection of a reduced <unk>.
Volume moving forward it should be.
Should be viewed in the sense of an optimized platform in order to service the projects.
Without any.
Without any impediment to being able to service those projects with the same quality that we've done so in the past. It was time to go back and take a housecleaning look at what we had been actually.
Spending our money on and make sure that it was appropriate and supported.
The growth in the investment in the business as we move forward. So I would look at it differently.
This is not overhead cutting for cutting sake too.
To drive.
A lower overhead structure. This is an optimization program that we're implementing yes, just adding on to that.
Andrew It we call it project fit for a reason right.
Fluor in transition and it's also talks about being fit for purpose.
And being lean and streamlined and to Joe's point. These are these are sustainable permanent overhead reductions through structural and decentralized changes in the company.
And to eliminate busy work.
Passage that I'd like to share with the with the listening audience is that we have to get.
Through this financial discipline program that we're that we're currently.
Progressing nicely against.
But we're not looking to go out.
Through any type of additional issuance for an acquisition at this point in time and that we would like to do that through our own organic operating cash flow generation, so that kind of frames.
I think the.
Little bit better sense of the timing of when we would we would be looking at any type of niche acquisition moving forward.
Yeah.
We will take our next question from Zane Karimi with D. A Davidson. Please go ahead.
Hey, good morning, gentlemen.
Good morning, Jamie.
Could you talk about the impact of the energy transition projects on the bookings this quarter and the pipeline overall, and then maybe a little bit more as well around the momentum in mining projects and if youre seeing a movement in feed to full EPC.
Great. Thanks, Jane Yes, I'm glad I'm.
I'm glad you asked about energy transition.
You talked about in the remarks.
We're excited about it and we're focused on it and I think we.
I believe that we're a leader in this space.
We won 76 projects in 2021 and energy transition.
And we've got over 100 prospects on the horizon in energy transition.
Approximately $30 billion in TICC.
And to put that in perspective.
<unk>.
And Thats front end work.
Put that in perspective.
We are.
Uh huh.
Looking at it.
On full projects EP EPC PCM over $50 million, we're looking at about 57 billion.
In projects over the next 18 months.
Led by chemicals.
Downstream energy transition.
Mining and metals <unk>.
Restructure and then government so.
Right right, there, it's really picking up speed with real customers.