Q3 2022 Fluor Corp Earnings Call
Good morning, and welcome to Fluor's third quarter 2022 earnings conference call.
Today's call is being recorded.
At this time all participants are in a listen only mode.
A question and answer session will follow management's presentation.
A replay of today's conference call will be available at approximately 10 30, a M. Eastern time today accessible on fluor's website at the investor that floor a dotcom.
The web replay will be available for 30 days.
A telephone replay will also be available for seven days through a registration link also accessible source web site at Investor that Florida come.
At this time for opening remarks, I would like to turn the call over to Jason Just said Glenn Kevin.
Oh, good Investor Relations. Please go ahead, Mr. La Quinta.
Thank you Julie Wilson the floor is 2022 third quarter earnings call, David Constable, Florida, Chairman and Chief Executive Officer, and Joe Brennan <unk>, Chief Financial Officer are with us today.
<unk> issued its third quarter earnings release earlier this morning, and a slide presentation is posted on our website that we will 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 will 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 can find a discussion of our risk factors, which could potentially contribute to such differences in our 2021 Form 10-K, and our Form 10-Q, which was filed earlier today.
During this call we will 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 <unk>, Chairman and Chief Executive Officer, David.
Thank you Jason good morning, everyone. Thanks for joining us today.
Please turn to slide four.
Yeah.
Before we get started on operational results I want to share insights from floors supply chain summit in.
In Greenville, South Carolina on September 14th.
This high energy event brought together senior leadership from Fluor, our clients suppliers and contractors across the globe.
Ongoing industry trends, new business ideas and solutions to current supply chain challenges.
Discussed and this event gave everyone an opportunity to meet and interact with fluor clients and senior Fluor business line and supply chain leadership.
For committed the proceeds from the event to nonprofit organizations, including the Carolinas, Virginia minority supplier development Council. Thank.
The Houston minority supplier development Council, the Greenville Chamber.
Fluor cares.
Councils and chamber.
I'll use the donation findings to impart training and certification.
Minority owned businesses, helping them get ready for relationships with larger corporations.
Please turn to slide five.
I wanted to start by addressing the legacy infrastructure charges incurred in the quarter.
Clearly the impact of these projects weighed heavily on our otherwise great results in the quarter.
The $107 million in charges include 64 million for additional rework and schedule delays on the I 635, LBJ East freeway project.
22 million for cost growth and delay mitigation costs on the Gordie Howe project.
$21 million for sub contractor cost escalation and productivity estimates on the L. A X automated people mover project.
Over the past 21 months, Florida leadership team has taken action to improve the progress and execution of our legacy projects.
Specifically in infrastructure, we have completed six of the nine challenge projects in this timeframe.
We continue to strengthen the leadership on the three remaining legacy infrastructure projects in support of our joint ventures.
Yeah.
In the last three months.
We have shifted resources from across our organization, including claims management project estimators procurement.
And field execution personnel.
This is not only support our specific efforts, but also reinforced the performance.
Our joint venture partners.
Finally, we are actively engaged in formalizing our entitlement positions on these three legacy projects to seek relief for cost growth and schedule delays.
This has taken some time to perfect due to the complex nature of the projects in question.
We expect to validate the substantial positions in.
In the next few months.
Please turn to slide six.
Building upon the positive momentum from the previous quarters, one to one book to burn for New Awards Q.
Q3, New awards were $9 $7 billion with a $2 seven book to burn ratio.
Q3 was the second largest new awards quarter in Fluor's history.
Importantly, these new contracts are accelerating fluor's strategic priority of fair and balanced terms.
With Reimbursable work, representing 91% of total awards for the quarter.
The majority of our backlog is now reimbursable.
New award margins continued our year long trend of being above our internal plan.
And we have a robust prospect pipeline that demonstrates the value of that floor can provide to our clients.
We are currently working on or recently completed feed and study packages that represent an estimated $131 billion in high quality New award prospects.
We are also tracking feed and feasibility prospects in the next 18 months that.
That represent more than $163 billion in capital expenditures.
Of that amount, 40% is related to energy transition.
Moving now to our business segments, Please turn to slide eight.
Urban solutions reported a segment loss of $54 million for the third quarter.
Results for the quarter reflect infrastructure cost growth on the legacy projects, we just discussed.
New awards for this segment approach to one to one book to burn ratio at $929 million.
Of Reimbursable work in mining and ATM Pos.
This quarter, we made the decision to retain storage North American operations.
Starting next year this new business line plant and facility services.
We will be in our urban solutions segment.
Yeah. Some of you may recall this represents the original floor operations and maintenance Baseload business that supported North American clients before the acquisition of Stork.
The new plant and facility service business line will promote our strategic priority of driving growth across the portfolio.
This will extend our relationship driven business model beyond the initial EPC project execution contracts with existing clients.
I'll also contributing new awards and growth opportunities.
Joe will address the remaining stork operations portfolio in his comments a little later.
Now turning to slide nine.
In mining, we continued to make progress on converting our near term prospect pipeline.
In Q3, we received an incremental award for one of our key projects in South America.
We are currently working on a limited notice to proceed for multiple clients and have $5 billion of near term prospects to support demand for copper gold lithium and metals for several clients that should be converted to full awards in the upcoming quarters.
Now please turn to slide 10.
Our advanced technologies and life Sciences business continues to expand.
In advanced technologies, we have several projects and prospects.
<unk>, the battery and data center markets.
Semiconductor opportunities continued to develop with many clients.
Specific to Intel.
We continue to receive incremental awards.
We are supporting their efforts to re prioritize investment plans.
In life Sciences, we were selected by a leading biologics company for a multi hundred million dollar reimbursable contract to perform procurement and construction management for a large scale biologics drug substance manufacturing facility located in Scandinavia.
This project and over $3 billion and prospects in Europe , and the U S next year.
Also supports our strategic priority of driving growth across the entire company portfolio.
During the quarter, we received work from a new client that provides cutting edge robotics and automation technology for some of the largest retailers and wholesalers in North America.
Our initial contract is for the installation of racks and automation equipment into five Mega distribution centers.
As these locations are completed we see the potential to significantly expand this relationship across the United States.
Please turn to slide 11.
Yeah.
Since we already reviewed the challenges this quarter I want to elaborate on our expectations for urban solutions and specifically the infrastructure business line.
Two years ago as part of our go forward strategy, we narrowed the focus of our infrastructure business to state departments of transportation moving away from large signature projects and focusing on regional road and bridge work.
After we narrowed our focus.
We further refined our strategy by adjusting our selectivity criteria.
Simply put this means saying no to projects.
The clients or no to joint venture arrangements that do not provide an equitable balance of risk.
I can confirm that this selectivity strategy is working well.
As an example.
Over the past 18 months, we have declined to bid on approximately $28 billion in infrastructure work, where we could not see a path to mitigate risk and still deliver an appropriate return.
For projects, we may pursue we expect fair and balanced contract terms. This.
This includes additional contingencies.
The ability to procure equipment and materials early and contracts, where the client has some degree of responsibility for quantities and labor cost risk.
In addition, we did not pursue EPC lump sum contracts, where we are a minority partner.
Moving on to slide 13.
Mission solutions reported segment profit of $29 million for the third quarter consistent with our expectations.
The photo on this slide is from our Ascension Island project for.
The department of defense.
U S space Force.
In the UK Royal Air Force.
Fluor began restoring the exhilarating airfield to its full capacity in 2020.
The eastern side of the runway is now complete and marks the halfway point of the project.
New awards for the quarter include a $4 5 billion four year extension with the U S Department of energy for the Fluor led Savannah River nuclear solutions, LLC management and operations contract near Aiken South Carolina.
Work.
Performed at the Savannah River site includes environmental management, and the cleanup of legacy materials facilities and waste remaining from the Cold War.
The site also supports the U S government's nonproliferation efforts by processing and storing nuclear materials.
Additionally mission solutions has received a one year extension from the U S Army.
Continue supporting work with U S Africa command.
Currently we work at 14 sites in eight countries across the African continent.
The outlook for emission solutions is increasingly optimistic with upcoming renewals re competes and new work.
Okay.
Moving to energy solutions, Please turn to slide 15.
Okay.
Segment profit of $59 million reflects an embedded derivative loss of $5 million.
$4 million impairment related to the conclusion of a project in Russia and.
And declines in execution activity for projects nearing completion.
This was offset by increased activity on recently awarded projects.
New awards for the quarter include.
Included two reimbursable contracts totaling more than $2 billion for SaaS.
Lean oxide.
<unk> glycol and infrastructure off sites and utility packages in China.
Fluor was also awarded a 600 million dollar award for a refinery upgrade in Mexico with our joint venture partner <unk>.
This award is part of the reactivation of a residual upgrading project that was suspended in 2019.
This is a fixed price contract that aligns with our strategy because it was awarded on a sole source basis with a long term client, where we have a strong relationship.
Another major award recently announced as a Reimbursable contract for front end engineering detailed design and engineering and procurement services for Imperial.
This project will use our renowned expertise to develop a world class renewable diesel complex that the clients strapped Kona refinery near Edmonton, Alberta, Canada.
The facility is expected to be the largest renewable diesel facility in Canada and will produce approximately 20000 barrels of renewable product per day from locally sourced feedstocks.
Turning to slide 16.
At the LNG, Canada project. This month, we celebrated our four year milestone from receipt of the project's full notice to proceed.
Our joint venture scope is approaching 75% complete.
At the end of the quarter 137 modules were shipped with 124 on site.
All 215 modules are expected to be delivered by the middle of 2023.
We continue to work with the client to resolve our COVID-19 related impacts across the primary job site and fabrication yards.
Florida is well positioned to support the increase in demand for LNG.
During the third quarter, we announced a full notice to proceed on the new fortress energy fast LNG two projects as a follow up to the LNG one project from Q1.
We also see opportunity for additional Reimbursable awards with this client.
Early next year.
Not only do we have prospects in the pipeline for LNG work well.
But we also have prospects to support our chemical clients.
This includes a significant reimbursable prospect for our major chemical facility in North America.
Moving to energy transition on slide 17.
We are seeing ETE activity across all of our business lines, including a project for a major automotive client.
They involve subject matter experts from energy solutions.
And mining and metals.
In addition to this automotive award.
Carbon capture incorporated a U S climate Tech company recently selected floor to provide engineering and project integration services for project Bison in Wyoming.
This will be the first atmospheric carbon removal facility to use class six wells for permanent storage and it will be the first scalable direct air capture Mega projects in the United States.
Moving to slide 19.
New scale.
In September new scale, and K G. H M assigned a task order to initiate deployment of the first small modular reactor in Poland.
Under this task order new scale is working with K G. H M to identify and assess potential project sites and develop project planning milestones and cost estimates.
It is anticipated that fluor will engage in these activities early next year.
On October 20th.
The nuclear regulatory commissions Advisory Committee on reactor safeguards issued a letter agreeing on new skills methodology for determining their small modular reactor emergency planning zones.
The approved methodology will permit a smaller planning zone, thereby opening up a wider range of potential sites for new scale plant locations, including for example, coal fired plants scheduled for decommissioning.
Finally, the U S trade and development agency awarded a grant to Romania's ROE power nuclear a subsidiary of the National nuclear energy producer nuclear electric.
For a feed study to develop new skills first SMA plant.
In Romania.
Joe will talk more about this in the financial update but I'll just mention as a reminder, that floor remains the largest investor in new scale with 57% ownership and we are still considering the appropriate time and approach to begin monetizing our investment in new scale.
With that let me turn the call over to Joe for the financial update Joe.
Thanks, David and good morning, everyone.
I will review our results for the third quarter provide an update on our divestitures and capital structure plans and go over the key financial outlook assumptions that support our 2022 guidance.
Please turn to slide 21 for the first for the third quarter of 2022 revenue of $3 6 billion increase from the ramp up of execution activities on refinery projects in Mexico.
Recently awarded Reimbursable LNG project in the chemicals project David mentioned.
Segment profit decreased to $31 million from $116 million a year ago.
The decline stems from the $107 million in legacy infrastructure project charges previously discussed.
Adjusted EBITDA for the third quarter was $26 million.
And our diluted adjusted EPS for the quarter was seven.
Results reflect a $16 million foreign exchange impact across a number of projects in energy and urban solutions.
Corporate G&A expense for the quarter was $30 million down from $45 million last quarter. This improvement included $12 million of incentives reversals associated with the project charges taken in the quarter net.
Net interest income in the quarter was $14 million compared to a $1 million expense last quarter. The increase in income as a result of the positive impact of rising rates on our global cash balances.
As we anticipated New award revenue for the quarter was $9 7 billion.
This improved our backlog to $25 4 billion.
Which also improved our reimbursable backlog $2, 58%.
Our cash and marketable security balances for the quarter was $2 6 billion.
With 23% of this amount domestically available total cash includes 348 million held by new scale.
Let's turn to slide 22.
Our operating cash flow for the quarter improved to $118 million as working capital levels remained stable for the year, we expect our cash balance to be roughly flat when normalized for the impacts of the new scaled these vac consolidation.
Regarding the monetization of Stork and Amigo, we continue to make progress we have reached an agreement to divest stork operations in Australia, and New Zealand and this transaction is expected to close at the end of November .
Although this transaction is not material. It is however, an important next step in our journey to refocus the business.
As David mentioned, rather than selling the stork North American operations, we have decided to retain the operations as part of urban solutions. This will we will be reflected in our financial results starting in the first quarter of 2023.
With respect to store to European operations, our conversations with the preferred bidder has progressed and we will provide more details in the near term.
Please turn to slide 23.
With the positive developments at new scale, we continue to be asked about our ownership strategy.
As we said on our last call and during our strategy day in 2021, our long term intention is to own approximately 20% to 25% of new scale the.
<unk> related lockup period ended at the end of October we are currently evaluating our options and we will move forward as market conditions allow.
At the end of the quarter, we had $1 $1 billion in outstanding debt, including $145 million maturing in March of 2023, our debt to capital ratio was 36, 5%, we intend to retire our 2023 notes using available cash.
With respect to our capital structure, we remain committed to our plans to reduce outstanding debt to a more appropriate level and use existing liquidity.
The proceeds from new scale and the monetization of our noncore units to address the needs of our business.
Looking forward at options to distribute cash to shareholders either by share buyback or dividend, we must be diligent in addressing these known uses of cash we look forward to discussing future capital structure options at the appropriate time.
Please turn to slide 24.
For the fourth quarter, we are setting an adjusted earnings per share guidance range of 50 to 60.
We anticipate adjusted EBITDA in the fourth quarter to be in the range of $125 million to $150 million.
This range is driven by strong performance in energy solutions and improved performance from urban solutions and supported by over $15 billion in New awards year to date booked at higher New award margins than our internal expectations.
Our assumptions for the fourth quarter include revenue of more than 4 billion <unk>.
Adjusted G&A expense of approximately $40 million and an effective tax rate of approximately 34%. This may vary somewhat depending on the countries in which revenue is generated.
Our expectations for segment margins in the fourth quarter or approximately four 5% in energy solutions, approximately 4% and urban solutions and approximately 3% in mission solutions finally, as it relates to our 2024 adjusted EPS and EBITDA guidance. We are currently in the process of <unk>.
Finalizing our 2023 operating plan and our long term strategic plan, we look forward to providing an update on our year end call in February operator.
Operator, we are now ready for our first question.
Thank you. Your first question comes from Mike <unk> from vertical research.
We ask you that you limit yourself to one question and one follow up. Please go ahead.
Thank you good Friday morning, everyone.
Mike.
Morning, Mike.
First question, David maybe you could share a little bit more detail on your thoughts on all three areas with perspective.
Award potential over the next several quarters, one progress on semiconductors in the United States into your international exposure with Intel Secondly, the timing and pace of some of the mining.
So we may see and a third from a.
From an energy standpoint, there's a lot of momentum obviously, you got some big projects in China, but that U S. Large chemical projects is that a.
Near term medium term type of opportunity or are there any ones.
Behind that could hit in 2023.
Thanks, Mike.
Good morning again.
So semiconductors.
<unk>.
I'm talking about specifically with Intel.
Where we built up a great relationship with them and you know you've probably been hearing about.
What they're up to as far as Capex.
They had 27 billion outlined for this year drop that down last quarter to 23% now at 21 billion for for.
For 2022, but jumping back October $28 billion in 2023, so like I said on the in the prepared remarks, there re prioritizing and looking at their plans and how to proceed and continue to.
Award is incremental work to to make sure they're they're putting on.
The effort and all of them.
Assets appropriately, including in the U S.
And internationally. So that's what we're working on now we see.
That type of Capex going forward, we see we.
We see that work coming on.
And they are keeping us busy but it'll be a little further out in 'twenty, three and 'twenty four for the for the larger the larger events, if you will and that kind of lines up with with the likes of Samsung who.
So we've seen a bit of a slowdown but going forward they see their capex is.
Had no change in 2022 and is at $38 billion going up to 39 billion in 'twenty three.
And their feeling is that they see the.
Their demand picking up in the second half of 'twenty three for high performance computing computing and in the automotive sector. So.
Yes, it seems like it's just a bit of a.
A pause year.
And then and then it picked back up in the second half of 'twenty three is the word.
I would classify that and I'd also say that it is like you said U S and international.
Both in Asia.
For us and into Europe is what Theyre looking at.
Mining.
We've got these.
It's starting to pick up rights.
We had our strategic planning session share recently and talked about minor.
Mining being in a really sweet spot right now and seeing a lot of new work come in and these limited notices to proceed I mentioned the $5 billion.
And how the straight now just on.
The front end.
Limited notice to proceed that will.
Converts timing wise to your question I'd say in the next.
Next quarter this quarter, we're talking about plus.
Into <unk>.
Into the first half of 'twenty, three and maybe into the third quarter that type of timeframe, but.
And the next nine months, we expect to see see some great full notices to proceed in mining.
Energy Chemical project I talk to is in North America, I'll, just clarify that.
And very exciting.
And it's a I would call it an energy transition project.
It's a it's a path to zero project for them for the client that's.
We will be.
Leading edge and.
We want to certainly be involved with it too.
To help that client, but also help others with that low carbon footprint with our chemical facilities.
So.
We expect more of that as well chemicals is is one of our targeted business lines right now, where we see quite a bit of growth.
Coming down.
Down the pipeline as well.
Okay.
<unk>.
And I think that.
Covered it is that right, yes, okay. Thanks, Mike.
Excellent and can I, just follow up quickly with our new scale.
And is there any indication thoughts on.
Given the monetization of such a large stake any private investors private equity other vendors or other folks that are government, there, maybe looking where it could possibly take it off of pig.
Take a position from you guys in that transaction. Thank you.
Yeah. Thanks, Mike Yeah, just a great great spot for us to be in right now with with different Optionality that we're looking at and I'll ask Jodi to comment Mike Good morning.
We have.
<unk> kicked off kind of a parallel path here relative to looking at strategic and looking at maybe some public.
Activity we.
We do see a significant amount of value in terms of bringing in a strategic and a lot of cases, those strategics have divested interest not only in the technology, but in some cases looking to apply that technology. So they may become a very critical and important partner as we look at the valuations of new scale moving forward, but.
At the same time, we are also looking at some public opportunity.
<unk> transaction, but I will say is that we're going to do it in a very measured way such that we maintain not only the integrity and the valuations that are in new scale, but also the required liquidity that fluor will need as we move out into 'twenty three and into 'twenty four.
Okay.
Thanks, gentlemen, thanks, Mike Thank you Mike.
Your next question comes from Andy Wittmann from Baird. Please go ahead.
Great. Thanks, good morning.
I just thought we check in on the three.
Infrastructure projects here.
Maybe David you could or Joe if you could give us the updated POC.
And completion dates on those three projects to get us going.
Maybe I'll take the detailed question on that.
And then we can talk a little bit higher level relative to how we are addressing.
The challenge as we move forward with the caveat to Andy when you think about this.
What we had in our prepared remarks relative to the development of claims and other things that are really.
Right in right in right in right in front of us as we get into Q Q4, but in terms of LBJ.
We're 50% complete as of Q3 Gordy is 41% complete in Lax's, 73% complete.
And so with that maybe David if you wanted to.
Yeah, Andy good morning.
So just falling on those percent completes it looks like right now were forecasting.
LBJ 635, completing in the second quarter of 'twenty five.
Gordy.
Completing in the second half of 2025.
And L. A X further along as Joe said, 73% complete completing at the end of the second quarter of 2024.
Andy if I could just add and kind of reinforce where we are relative to the development of claims.
Their entitlements as we move forward based on understanding cost and the cost impacts within these projects. We are recording those when they are made available a known to project teams and it takes time to develop your claim positions and.
Potential variable consideration around that that that is all starting to come to ahead as we get into Q4 and into Q1 of next year. So I would expect as we move out youll start to hear a little bit of the flip side.
What has been a difficult story to not only present, but to hear but I think you'll you'll begin to understand some of our positions us fluor in terms of how we support.
Our overall eac's going forward.
Okay. So that's why I wanted to go next I, just want to be a little bit more clear on that because you actually mentioned some of this in the 10-Q as well that in the fourth quarter you are having some of these discussions.
Around them, so I guess why now.
St Joe that like you've taken reserves on some days and youre trying to reclaim that or is the $215 million balance of unapproved change orders that in your 10-Q is that's what's being discussed.
So I just want to understand which way any outcomes from these discussions could go as they get recognized on your on your income statement here wanted to be clear about that as possible. Yes, Let me let me suggest that.
In terms of what we've recorded in cost and then potential recovery of variable consideration is a smaller component of the overall claims that we will be putting on the table.
And those claims are significantly larger than our current positions not only as it relates to variable consideration, but we have recorded 100% of the cost associated with that so what youre seeing in our in our Q3 presentation. Today is really what we consider to be the <unk>.
<unk> side.
Pending all of these additional.
Claims and discussions that will occur and I will suggest to you it's not across just <unk> and it's not across the board it's across.
A significant portion of the IND for our portfolio.
Nominally five Brian .
Going forward.
Alright, that's helpful context, Thanks Scott.
Thanks, Andy.
Your next question comes from Andy Kaplowitz with Citigroup. Please go ahead.
Good morning, everyone.
Good morning.
David Obviously, you pointed to a really strong quarter of bookings you gave us good color I think regarding individual end markets with a lot of possible potential bookings coming up.
Given some of the concerns you mentioned from some of your customers.
Can you continue your recent bookings momentum and ultimately do you see backlog continuing to rise from here call. It in the near to medium term.
Okay.
Hey, good morning, Andy and thanks for the question.
I think we've talked about it a little bit before we've got.
Some recessionary.
Pressures.
<unk>.
We're seeing in the marketplace. However.
Even with the.
The mild recession that we're expecting in the U S.
And.
Maybe more so in Europe .
The global recession is.
Probably going to be I think the GDP forecast right now is for $2 72, 9%.
On average and you throw in what China's may or may not do as far as how they get back on track.
After there are zero Covid policy gets finished up so.
That could rapidly give a lift to the global economy, but having said all of that are you know from our perspective in talking to our clients and looking at their Capex plans there.
Generally speaking if you take a kind of a sample of our some.
Some of our key clients across the three business segments. The Capex plans are generally heading up.
170, you don't take the top 10 clients under $75 billion in 'twenty, two up to 195 billion in 2023, and a lot of well a good piece of that let's call. It 30 billion is energy transition so.
These are decade long decisions on the projects, we work on and not really impacted by the.
The temporary slowdown or recession.
And economic activity.
Our head of strategy was telling us.
In a recent conference Board CEO survey 136, Ceos, 98% of them.
And are planning on a on a recession in the next 12 to 18 months, but 86% of them said that they are maintaining our increasing capital spending so.
The money is there it's coming.
Obviously you have to.
Really sharp on our estimates unfortunately, the supply chain.
Forecasts for softening of prices generally speaking.
And that will help.
With our estimate center.
Rate of returns for our clients. So yes I think.
So I think we will continue.
We said last quarter that we feel we're at an inflection point for backlog.
And thinking that our book to burn ratios can stay.
At or above one for certainly and.
And based on the strategic plans, we've just gone through.
You've got this this these headwinds on new awards and backlog continuing across our business lines Joe.
Maybe maybe I would just add that the.
The pipeline that we were.
Communicating over the previous quarters was pushed to the right slightly but as we start to see.
This inflection point in our New award ramp what I would suggest to you is that pipeline that we were looking at thats driving to some of the release of this capital into our into some of the project activity that we've been able to put into backlog has not fundamentally changed as we look forward.
That those opportunities still exist it'll be a little bit chunky because some of these opportunities are multibillion and others are more strategic but the pipeline itself has not fundamentally changed in terms of what we're looking at and how we're viewing our business moving forward.
I think the expanding of the really good news is that we are.
The new strategy has us.
It really pushing on Reimbursable work and that is not <unk>.
Slowed or cut us out of opportunities. It's in fact, it's we're seeing improving margins as we've talked about.
The last several quarters, we've been talking about and trademark margins since Q4, So Q4 'twenty one so.
Yes, we are quite bullish on on on the markets in front of us.
Very helpful guys, and then maybe kind of a similar question on the earnings side.
You talked about the revenue ramp up to over 4 billion in Q4.
I know that you have the 24 targets out there I think when you've talked about maybe an EBITDA target in 'twenty, 470, 900, which would require a pretty big step up next year.
You know again without saying probably too much about 23, how is your visibility toward that step Bob do we is it more back end loaded to get to 24 do we see sort of a ratable step up here in 'twenty three as we go through.
Given the higher revenue in Q4.
Yes.
It's something we're looking at right now like I said on our in our strategic plans and we're doing our operating plan for 'twenty three here.
Second week of December Joe.
And a general comments on guidance and how we're going to be handling that I think my general guidance is that we had signaled to the market that we were probably closer to maybe two quarters earlier into these types of backlog.
Improvements.
So that two quarter impact in terms of how it flows into the overall burn for the P&L.
We'll have a little bit of an impact on where we are in 'twenty four we haven't finalized all those numbers, but we're not seeing a drastic departure at this point it does support what we've laid out back at the beginning of 2021.
I think the delay is going to be what we're working our way through in discussion right now, but certainly not the quantum of new awards to support a real robust.
Growth trajectory into into the outward years.
Helpful guys. Thank you.
Thank you.
Your next question comes from Jamie Cook from Credit Suisse. Please go ahead.
Hi, good morning.
First question, just trying to understand what drives the sequential revenue increase from Q4 to Q3 that the four plus billion.
And what's implied in operating margin and urban solutions, just because that market has the margins in that business have been challenged so what do we need to get to that I think four 5% margin or so and then my other question Joe obviously the run rate in the fourth quarter, you know what I mean in EBITDA, you're saying 125 to $1 50.
Is that a good base quarterly base to think about as we're going into 2023, assuming we don't have execution issues.
25 times for them.
Just trying to frame 2023 with that earnings base in just with some of the success you've had on the recent bookings. Thank you.
Yes. Thank.
Thank you Jamie the growth that we're seeing in revenue is the fact that we had led into this over multiple previous quarters that when we were taking.
These.
Projects into backlog as New awards they werent.
So they werent projects that were.
Issued through an ATB not all of them.
The majority of them, we had been working on and we had.
A percentage of progress on those projects that now that they are in the backlog they will be generating higher revenue at a quicker rate.
Just based on percentage of of progress in completion, So I think thats why youre seeing an uptick in.
In Q3, and we would expect that to grow in your second question Jamie.
Margin margin carbon solutions, just given what we've seen the challenges so far this year yes.
Yes.
Sorry go ahead, Jamie Yes go ahead I was just like the fourth quarter margin on our rigs relations confidence level there.
We're very confident in the in the 4% that we've laid out relative to Q4.
But what's driving it.
What's driving it well clearly we're not having the challenged projects that we're having if we strip out the challenge projects.
I can get back to a normalized run rate that is in that 4% range just based on the backlog that's flowing through the through the segment.
Okay and then my last question was the you know what can make for 2023 can I sort of say your fourth quarter. EBITDA was 125 to $1 50 is that a good base quarterly base to think about it as we're coming into 2023.
I believe Jamie that as a good launching point to think about a very simplified linear run rate moving forward.
As we go through the operating plan over the next couple of weeks in.
Are able to provide you a significant significantly additional color in the Q4 earnings call, but I don't see the 125 being the bottom of our run rate moving forward I see it.
As more of a launching point and the starting point as we as we begin to put in you got to remember too Jamie we just put in $15 billion nominally of good high quality backlog and that is going to start flowing through the books.
Okay. That's very helpful. Thank you.
Thanks, Jamie.
Your next question comes from Steven Fisher from UBS. Please go ahead.
Thanks, Good morning, I, just wanted to follow up on the.
The urban solutions margins and performance.
And really ask about the expectation that you want to set for the segment.
Obviously, you just talked about Q4 in some detail, but more curious about the next couple of years as you go through the completion process on those projects.
Should we.
Should we assume that.
There is just going to be some noise on more charges going forward I know typically once you get in the position.
Position that kind of gets hard to fully have no charges until completion. So just kind of curious what expectation do you want to say that I know you said that when we might start thinking about flipping the other way and getting some some claims recovery but.
Just curious.
How you want to set the expectation over the next couple of years on how this may influence sort of clean quarters or not.
Stephen Yes, I'll take that question.
We believe as of today, we have.
We've captured with the facts and circumstances as we know them in the forecast.
Obviously, it's difficult to say that we guarantee that there will not be additional challenges on projects that have a couple of years of.
<unk>.
Execution to complete but as of today. We believe we are starting to make enough progress to where we are getting more comfortable.
With Dougherty and with <unk> and I think we've ring fenced LBJ, we had talked about penguins in the past and we feel very comfortable we've got a deal to get to conclusion on it. So as time passes we'll obviously get get more assurances on our deliverability within the framework of the forecast that we've laid out today, but as of today.
We believe we've captured the appropriate forecast to get to conclusion as we worked some of what we're talking about in terms of variable consideration in change orders and claims that are rolling out in fourth quarter, we'll be on the public nature. So you will hear some of that coming through news releases and others.
As we issue some of these claims, but but I don't want to get out in front of exactly what all the moving pieces of that but it does apply to about five projects across the infra business line and we'll be we'll be able to provide a lot more transparency around that as we get into the Q4 earnings call. Steven I will just add to help help us along here.
Joe talked earlier about the percent completion when you when you're in a $50 to 75% complete range like we are 45% to 75% say right now since we are into Q4.
Almost bought out completely on these these these projects as you know over 90% bought out.
From an equipment and supply standpoint, so also very helpful, but thats behind us.
And I guess, maybe I'll add one other thing because these are the challenges that we're dealing with.
We'd Marshall.
A significant amount of the resources around the company and the best.
We have relative to a number of changes have been made through the branded the project management side. The construction management side, we continue to shift resources across.
Through estimating.
Through procurement through Prime contract administration very key roles on all of these jobs and so we have we are laser focused on being able to deliver these projects. They are significantly challenged projects in <unk> and.
And not to be repetitive they clearly would not have made it through our pursuit criteria and backlog today, but we are laser focused on getting these projects to conclusion and completion.
Great and then I guess, just a follow up similar sort of question specifically related to LNG, Canada.
How is the ongoing inflation.
In the marketplace affecting that project in particular, and obviously you have some discussions going on on that one as well, but I think that's more related to.
Covid impacts, but maybe the inflation gets baked under that umbrella how should we think about inflation on that project.
Yes, I think Thats procurements completes all bought out really were.
Putting.
Actually in fabrication and construction mode Stephen so.
That's all behind Us and as you said, it's more of a.
Of the Covid and scheduled discussion that we're having.
Working on right now or any any additional inflation exposure that youre going to have is around the labor, but theyre covered off with DLA agreements project labor agreements.
So for the most part we have some containment within.
What we would what we potentially could see in that labor escalation, but but as David said most of that risk has been cleared off and most of that risk would run through your material and equipment accounts and to the extent that were bought out and all of those pieces of equipment are either at site or in our fab yards in China we.
We feel like we've limited.
Substantially our exposure to any type of price escalation to get to completion on this project.
Yes, it was mostly about the labor, but you addressed that so thank you very much.
Thanks Steven.
Your next question comes from Sean Eastman from Keybanc capital markets. Please go ahead.
Hi, guys. Thanks for taking my questions Joe Joe When you were talking about being diligent around known uses of cash.
Obviously, the 2023 notes that you'll pay down as defined.
What else are you talking about there.
In particular, I'm curious beyond the 100 million.
Cost to fund loss projects, you highlighted for the fourth quarter whats whats that number going to be for 2023.
Yes.
In 2023.
2023, we're looking Sean.
At a number.
That hasn't been.
<unk> bye.
By the variable consideration in the claims and how we view those if I look at it on an <unk>.
Tradeoff without without considering the variable consideration in our discussion around claims.
It's probably a little higher number than we than we would expect it to be at this point in the $2 million to $250 million range in 2023, but again, we have not layered in all of these discussions as we start submitting claims in and looking at potential claw back. So at this point theres going to be a.
A fair amount I don't see upside variability in that but I do see some downside variability as we mature some of these discussions with the clients. So really it's running through the maturities in the 2020 threes in 2024 and challenged projects as we see them today.
Okay. Thanks for that Joe and then along similar lines.
I mean the.
A key turning point for the story here is sort of marking this material improvement in operating cash flow generation is the message still that that's a 2023 event.
Yes, I believe Sean you will begin to see.
Improved cash flow slightly improved cash flow as we still the 20 threes are coming out. So we'll have some some headwind there youre going to have some.
Challenge projects, but there are other sources of cash that we will be able to access as we.
As we as we get further progressed on a couple of key projects that have an opportunity to be pulling cash back in the form of dividends, but I don't want get into too much of the specifics around that but there are sources of cash that as we tick off some of these risk items will allow us to begin to repatriate some of that back into <unk>.
George Flores banks.
Okay. Thanks, Thanks for that I'll turn it over.
Your next question comes from Brent Thielman from D. A Davidson. Please go ahead.
Hey, great. Thank you.
On the urban solutions, when you think about where the award opportunities are coming from and then also sort of this deliberate transition them.
<unk> portfolio over the next few years, how do you think about what the end market exposure. It could look like sort of between call. It mining metals advanced technologies Amendment.
Additional sort of infrastructure projects I guess I'm, just wondering does the infrastructure stuff Ulta.
Ultimately become a much smaller piece of that pie.
Yes.
Yes, good morning, Brett.
Again as I've mentioned here a few times, we've just gone through the strategic planning process that has taken us through 2026.
And I'd also mention that.
Mining and metals is.
Really just.
We couldnt have a better market right now for mining and metals and and also for Etfs with all of the opportunities they have in front of it both domestically and internationally.
Those are two really strong growth engines for.
For the company.
Going forward and based on what we're seeing in actually line of sight on prospects quite far out in time actually as you will have with mining so.
Looking at it in your specific question, we see infra being.
Being about probably 10% of the urban solutions portfolio.
Going forward into the <unk>.
The planning period that we're looking at through 2026 and sooner.
Yeah.
And then between mining and <unk>.
You can think about it probably like I said, because it is so powerful in mining right now youll, probably see mining at 65%.
The business segment and <unk>.
About 20%.
And then we've got other we've got the Trs HR agency staffing.
Company and.
And we're just building up the the plant facility services business as well so that'll sit in other in the near term about 5%. So 65 mining 20 HOS.
Shannon intra and five in other I think that's about right.
That's really helpful. I appreciate that and then on mission solutions and particularly the strong awards how much how much was associated with Savannah River this quarter versus some of the other activities in the segment and then any update on.
And tax I know customers, maybe deliberating splitting that out but potential any potential timing to get back involved with that.
So yes, $4 5 billion of that award of the New award totals for mission rolled through the savanna project.
And as it as it relates to pantex and Y 12, we know that we've split those two contracts.
<unk> will come out towards the middle end of 2023 in the form of a bid and we will go that go through that process. We've done a lot of internal work to reposition.
Our pursuit.
The criteria and strategy around how we're going to two.
Attack, the pantex opportunity and then how will pursuing attack. The Y 12, whitewall will be further out into the strategic planning cycle more into the end of mid to end of 2025.
Four we have an understanding of but we will be pursuing both of those opportunities as they are split but the construct of how we will be pursuing them.
Strategy around those proceeds will look slightly different.
Okay I appreciate it.
They're sort of meaningful opportunities along the way in that segment.
Beyond those two.
Yes, we've got lots of re competes.
Ongoing in the nuclear and civil space and Bo <unk> Bowl.
Actually so.
Yes, we just see see that continuing.
<unk>.
On a good trajectory.
Like we had and then and then feather in obviously the larger <unk>.
Pantex and Y 12 opportunities in the 'twenty four 'twenty five timeframe.
Okay, great. Thank you.
Thanks, Brett.
This is all the time that we had for today's question I will turn the call back over to David for closing remarks.
Thank you operator, and thanks to everyone for participating on the call today.
And just to conclude we're very pleased with the pace and timing of New awards in today's.
<unk> environment.
Floor is a great company with exceptional people and we are well positioned to meet the ever growing needs of our clients.
Finally be assure that.
These three legacy project challenges the company is working through this quarter's Norway are in no way a reflection on the overall health in very positive direction that Fluor Corporation is heading and so we appreciate your interest in the company today and thank you again for your time.
This concludes today's conference call you may now disconnect.
Sure.
Okay.