Fluor Corporation Q1 2023 Earnings 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 investors Dot, Florida Dot com.
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 on fluor's website at Investor stop Florida Dot com.
At this time for opening remarks, I would like to turn the call over to Jason Lang humor.
Head of Investor Relations. Please go ahead, Mr Lang humor.
Thanks, Julien good morning, and welcome to <unk> 2023, first quarter earnings call, David Comfortable Force, Chairman and Chief Executive Officer, and Joe Brent enforced Chief Financial Officer are with us today.
<unk> issued its first 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 would 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 can find a discussion of our risk factors, which could potentially contribute to such differences in our 2022 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 Constable forced chairman and Chief Executive Officer David.
Well, thank you, Jason and good morning, everyone.
Thank you for joining us today.
Now please turn to slide three.
Before we get started on operational results I wanted to recognize a special achievement.
That our team recently received for a key milestone.
On the marathon L. A refinery project.
The team comprised of members from our offices in Southern California Calgary.
In Manila, New Delhi in Houston were able to complete the projects turnaround construction work packages.
December 31 2022.
That was considered almost impossible at the time due to an aggressive schedule.
Staffing complications.
Ongoing scope changes.
In the spirit of one floor. Our team worked collaboratively to keep that work going and were able to beat the deadline by nine days.
The team utilized working meetings and obtain feedback from the clients in real time for increased efficiency.
This 24, seven and lean approach by the team.
So use time zone differences to their advantage for seamless handoffs around the clock.
Congratulations to the marathon L. A project team on this well deserved recognition.
Now, let's turn to slide four.
Q1 revenue was $3 $8 billion.
Representing a 20% improvement over a year ago.
Our increase in revenue was led by energy solutions as they continued to deliver strong execution performance on LNG projects and refinery activities in North America.
New awards for the quarter were $3 2 billion.
Aligned with our expectations.
And on track relative to our full year plan.
New awards were 81% Reimbursable.
And our total backlog is now up to 64% Reimbursable.
Our optimism for the future of Fluor is further supported by a robust prospect pipeline.
We are currently working on.
Recently, we completed feed and study packages that represent an estimated $290 billion of installed cost high quality New award prospects.
In the near term, we are tracking key EPC and EPC prospects totaling approximately $51 billion across the company.
Moving to our business segments, Please turn to slide six.
Urban solutions reported a $20 million loss for the first quarter as a result of additional costs on our legacy infrastructure project.
More on this in a moment.
New awards for the quarter were $1 $8 billion and ending backlog is now 58% reimbursable.
Moving to slide seven in mining and metals, we continue to successfully execute and deliver on our nearly $4 billion backlog.
Over the next 18 months, we're either working on or a direct line of sight on $7 billion of opportunity.
This includes de carbonization of metal production facilities.
For projects in South America, and lithium work in the U S.
Please turn to slide eight.
We're off to a good start this quarter as our advanced technologies and life Sciences business continues to support a broad range of opportunities that align well with our strategic priority of driving growth across the portfolio.
During the quarter, we received a significant award for a large automated distribution center program in North America, and additional work for an existing semiconductor plant in Malaysia.
Looking ahead, we have been engaged as a key project delivery partner for several new biopharmaceutical facilities, including both brownfield expansions.
And new Greenfield campus developments.
These projects are in their early stages and will ultimately produce life saving and quality of life improvement treatments for diabetes.
And oncology patients.
Combined these projects will represent an additional 1 billion in new awards in the second quarter.
In addition to our significant advanced technology work in Asia. We also continue to position ourselves for large semiconductor fabrication projects in Idaho and Oregon.
Now turning to slide nine.
I'd like to spend the next few minutes addressing execution challenges in our infrastructure portfolio.
During the quarter, we recognized $59 million and reduced margin on our Elas automated people mover project.
This increase in cost as a result of a rework associated with sub contractor design errors.
Schedule impacts and systems integration testing timelines.
The client has been working collaboratively with us in last week saw securing an extension of time agreement.
Construction on this project is now 88% complete.
Our progress on the I 635, LBJ East Freeway project continues to track our Q4 forecast and is now 53% complete.
This quarter, we brought in additional craft labor and we continue to work on formalizing our claim submission against our designed subcontractor for retaining wall deficiencies.
Progress on the Gordie Howe International Bridge project now stands at 47% complete.
Progress in the first quarter was as expected with no material changes from Q4.
We continue to hold productive conversations with the client as it relates to cost and schedule relief.
Moving on to slide 10.
Looking across our infrastructure portfolio, a few common themes emerge, including legacy contracts that did not provide appropriate protection for supply chain and labor escalation costs labor availability and the tempo of claims recovery negotiations with clients.
To address these issues over the last few months, we marshaled additional resources into infrastructure to strengthen leadership and execution at the project and management level.
This is driving a more robust organization with a rigorous control and oversight at the business line and project levels.
We also work with our joint venture partners on these projects to align on our strategy for managing potential claims and we are encouraged by the progress we're making on this front.
Finally for the past two years, we have deliberately narrowed the focus of our infrastructure business to state Dot's.
Our select regional opportunities as was the case with <unk> 27 in the Netherlands.
Staying away from large signature projects and focusing on traditional roads and bridges fully aligns with our 2021 strategic plan.
We continue to have a selective mindset and a view that any prospects must conform with our strategic priority pursuing contracts with fair and balanced terms.
For the balance of 2023, we only see one major infrastructure prospect that meets these criteria.
Although it is not always easy to see Florida made good progress on reducing legacy risk in our backlog in $2023 6 billion of our backlog represented projects in a loss position today.
Today that has been cut by more than half to $1 7 billion.
With the vast majority of the backlog consisting of reimbursable contracts with higher than historical margins.
Please turn to slide 11.
Mission solutions reported segment profit of $7 million for the first quarter compared to $58 million a year ago.
Results for the quarter reflected $21 million charge for government directed change orders on our legacy that'd be worn Air Force base project in Cheyenne Wyoming.
When construction commenced in 2019 the.
The contract included specific construction activities in the awarded scope of work.
Some of these scopes were suspended by the client at various times between 2020 and 2022.
While others have impacted the project due to incomplete client designs.
Okay.
In Q1 of this year the client directed us to restart construction activities that had been suspended at their request.
And to proceed with work that could not be negotiated our initial estimate to complete this work and the inefficiency arising from these late stage changes as reflected in this charge.
Since we are required to accept these government directed change orders. We are now finalizing the total cost and schedule implications and will pursue revenue recovery for this claim in future periods.
The project is over 70% complete with handover expected in the third quarter of next year.
New awards for the quarter include a six month extension for our efforts at the Portsmouth Decontamination and decommissioning project in Pike County, Ohio, and an Engineering award to support the class two estimate for new skills customer you apps on their carbon free power project.
Our outlook in mission solutions is increasingly positive as we start to convert our prospect pipeline.
Last month floor, along with our joint venture partners <unk> technologies, and our Mentum, one the Hanford tank disposition contract.
The contract scope includes the operation of the Hanford tank farm facilities.
And operation of the waste treatment and in mobilization plan among other responsibilities.
For some perspective. The project includes 177 underground tanks, holding approximately 56 million gallons of radioactive waste, resulting from the production of plutonium.
The U S defense program.
This contract has a ceiling of $45 billion over a 10 year ordering period.
Since we are a minority partner this program will be reflected as equity income with no increase in backlog or revenue.
We anticipate starting the project in the second half of this year.
Next mission.
Emission solutions recently signed an Mou with long view fusion energy systems to serve as its engineering and construction partner for their revolutionary laser fusion technology.
At full capacity their plants are slated to provide up to 600 megawatts of carbon free safe economical and sustainable energy.
Looking ahead last quarter I mentioned, our pursuit of a multibillion dollar operations testing opportunity with the U S Air Force.
In addition, we expect that the NSA will be releasing the RFP for pantex in Q3 of this year.
Moving to energy solutions, Please turn to slide 12.
Segment profit improved to $88 million from $54 million a year ago.
<unk> reflect increased execution activities on refinery and LNG seat LNG projects in North America, partially offset by $39 million for our embedded derivatives are eager floor in Mexico.
New awards of $712 million include work on two EPC projects for Pemex.
Our compressor modernization project in California.
And an incremental award for our new fortress energy fast LNG program.
We also received an initial feed award for a new lithium chemicals conversion plant in the United States.
Moving to slide 13.
At the LNG, Canada.
Canada project our team continues to have success in delivering modules to kitimat.
At the end of April 205 of 215 modules have been shipped and.
And 196 modules have been delivered to site.
The SPL or inside battery limit modules for trains one and two have been installed.
All remaining modules will be on site by the end of June and we are pleased with the final results achieved in the module fabrication yards.
As this phase of project risk moves behind US we look forward to the next phase of construction and our focus on construction progress and pre commissioning at the Kitimat site.
We expect resolution.
Resolution of Covid related impacts on fabrication and construction during the course of this year.
Yeah.
I'm also very pleased to report that we are in the final stages of finishing off another legacy project and more specifically an offshore platform for shell was moved from China to the European Transit yard in Q1, where.
Where we will be finishing the final punch list startup and commissioning items.
As I mentioned in our earnings call in February in Q1, we received the initial awards.
For the <unk> of Dallas path to zero ethylene and derivatives chemical complex in Canada we.
We anticipate a full EPC award release in Q3.
In addition to the Dow project, we are tracking significant opportunities with Pemex and with other chemical for clients in the second half of 2023.
Turning to slide 14.
Okay.
Energy solutions continues to capture opportunities in the energy transition space with 40% of New awards in the quarter being energy transition related.
Last month energy solutions signed a licensing agreement with Federated Cooperatives Limited F. C. L for the renewable diesel facility in Regina Saskatchewan.
<unk> will be deploying <unk> proprietary economy, FG plus carbon capture technology.
To help them meet their commitment of a 40% greenhouse gas emissions reduction target by 2030.
Finally, we continue to have positive discussions with Romania for the front end engineering and execution management of two conventional nuclear unit at an existing facility.
We're also supporting new scale and Romania, as we execute a front end engineering package for our six reactor <unk> nuclear power plant.
Both of these opportunities will be executed on a reimbursable basis.
Before I turn the call over to Joe I want to reinforce that our strategy continues to serve us well.
While the challenges in our legacy portfolio are frustrating for us and for our shareholders. We believe that the experienced resources resources. We've deployed on these projects will put us on the best path to resolution.
Our diminishing portfolio of legacy projects conceal some tremendous performance from the rest of our backlog.
While early the $20 billion in New awards booked last year are ramping up and will provide considerable EBIT in the years ahead.
When you include our awards in the first quarter, where we captured double digit margins I'm confident that we will be able to deliver on our earnings expectations for 2023 and 2026.
With that let me turn the call over to Joe for the financial update Joe.
Thanks, David and good morning, everyone. Today I will review our results for the first quarter provide an update on divestitures and go over key financial outlook assumptions that support our guidance. Please turn to slide 16.
As David mentioned for the first quarter of 2023 revenue of $3 8 billion came in as expected and represented a 20% increase from last year revenue for the quarter was driven by increased execution activities across our portfolio, including mid scale LNG chemicals in projects in our advanced technologies and life Sciences.
Businesses.
Our consolidated segment loss for the quarter was $15 million and included approximately $80 million of legacy project charges previously discussed.
$60 million for the negative earnings impact associated with the sale of our remaining <unk> assets.
I will note that we are seeing solid improvement in energy solutions when normalized for the eco fluor related embedded derivative.
Adjusted EBITDA for the first quarter was $71 million compared to $90 million a year ago our.
Our adjusted EPS was <unk> 28, compared to <unk> 16 in 2022.
Excuse me, our adjusted results exclude $80 million for the income effect of FX and embedded derivatives.
G&A expenses for the quarter were $62 million down from $71 million a year ago. This was driven by a decline in our stock price driven compensation.
Net interest income in the quarter was $41 million compared to $31 million last quarter, and an expense of $9 million a year ago. Since our outstanding debt is at a fixed rate I expect to trend for positive net interest income to continue throughout the year.
New awards of $3 2 billion in the quarter drove our ending backlog balance of $25 6 billion.
Turn to slide 17.
Our cash and marketable securities balance for the quarter was $2 3 billion.
Total cash includes $268 million held by new scale.
As a reminder, our cash and marketable securities balance excludes cash for proportionally consolidated ventures that do not come onto our balance sheet as cash until distributed to us at the appropriate time.
Our operating cash flow for the quarter was an outflow of $161 million and reflects increases in working capital needs on several large projects and the usual timing of annual incentive payments we.
We still expect cash flow to be modestly modestly positive positive. When you include approximately 200 million for legacy project cash needs in 2023 of which 15 million was recognized in quarter one.
We anticipate legacy projects will have similar cash needs in 2024, but no significant cash contributions are expected in 2025.
On to slide 18.
During the quarter, we sold our remaining <unk> operations in South America. This transaction represented the end a floor providing equipment rental services.
This is notable as it is essentially eliminates our need to provide capital for rental equipment and allows our management team to focus on our core business segments. Since 2019, we have received $144 million in cash proceeds from the <unk> makeup amico portfolio.
We also expect to complete final divestiture negotiations for storage European operations in the second quarter.
Operations and Stork, UK will be going to market in early June and we are having ongoing conversations with select buyers for stork operations in the Middle East and Latin America.
Finally in regard to our majority ownership of new scale, we have committed to working with strategic investors that provided an investment thesis that supports our monetization of this industry, leading small module nuclear reactor.
Excuse me clean power business based on the pace of these conversations we anticipate a strategically aligned <unk> transaction by year end.
Please turn to slide 20, we are affirming our 2023 adjusted earnings per share guidance range of $1 50 to $1 98, and our adjusted EBITDA guidance of $450 million to $600 million.
Our assumptions for 2023 include revenue growth of approximately 10% adjust.
Adjusted G&A expense of approximately $45 million per quarter, and an effective tax rate of approximately 40%. This may vary vary depending on the countries in which revenue is generated we expect tax rates to moderate as revenue in our tax advantaged location start to increase our expectations for 2023 full year.
Segment margins are approximately five 5% and energy solutions, approximately 3% and urban solutions and approximately three 5% in mission solutions. Finally, we also affirm our 2026 guidance as indicated in our earnings release this morning.
Operator, we are now ready for our first clinical.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
The interest of time, we ask that you. Please limit yourself to one question and one follow up question. Thank you. Our first question comes from Andy Wittmann from Baird. Please go ahead. Your line is open.
Great Good morning, and thanks for taking my question.
I guess.
I wanted to ask about the Hanford win here.
Couple of questions I guess, just because it's not going to be consolidated your minority joint venture.
Little bit harder I think for us on the outside to understand what the earnings impact could be the floor with no revenue that we can see obviously or backlog that's going to go in but but maybe Joe or David you can just help us with what the I guess, you would say that the ratable share of what your revenue could be on something like this on an app.
Annualized basis, just so we can try to get a sense of how this could affect your earnings and maybe if you could also just talk about any expectations over protest in time starting on that thank.
You mentioned that on the prepared remarks.
Good morning, Andy ill turn to Joe to start on the earnings impact or at least give color and then I'll take the protest question, yes. Thanks, David Good morning, Andy.
The way I would look at.
The Hanford tank contract as I think we've laid out what the value over a 10 year period would be and our percent ownership in that and I think if you were to view that in the context of what we laid out what we have laid out relative to guidance for mission solutions in terms of our earnings margins for the upcoming year.
I think maybe with those data points, you could probably construct what would be flowing through our other income and expense line.
Sorry, I didn't I didn't I didn't see the percentage.
Clothes or hear you say that on our guidance for emission solutions.
Through that contract is how I would view that we haven't given obviously guidance within the specific project itself relative to.
But I think the way contextually the way I would look at that Andy relative to what we provided you in terms of guidance for for margins for mission solutions relative to a $45 billion spend over 10 years with our ownership percentage included in there.
We'll give you a sense of I think what that would have what impact that would have on our P&L.
Okay.
On the.
Go ahead.
You want to finish off the job.
No I was going to go out to different topic actually so if you have any other comments on hand for go ahead Bob.
Just on the protest I think you asked about.
Protests seem to be the order of the day and flavor of the day right now.
<unk>.
In government contracting and this is the second time, we won this award.
So.
At the same time.
It's very possible that a protest can come in on this work and.
And delay us.
No.
No.
Up to three months, so I'll just I'll just put that out there right now.
We'll see how that goes.
Okay.
Thank you for that detail I thought I'd switch over to LNG, Canada for my follow up and the numbers that you put here on the slide about the number of modules that are needed in total.
Having almost all of them having shipped them a variety of arriving on site here in the next 60 days.
It seems like there is pretty good.
Very good progress on it.
I don't know Joe I mean, I know you guys have to kind of recognize some called the project as you see it but but you've mentioned in the past that once the modules are on site and they start getting <unk>.
Installed, particularly given the high percentage of completion that you're at right now, but have you will have to be able to youll look at the contingencies that you have held so far and I was just wondering if you could just comment.
On the potential here this summer.
Hit some of these really key milestones and what that could mean for your profit recognition as you finish off that last I guess, 15% to 20% or so.
Yeah. Thanks, Andy I don't think I will get into the profit recognition, maybe what I'll talk a little bit about is the risk and how we view that we have signaled that getting the modules decided as one of the key.
Risk items that we need to clear off I would suggest though that that was probably the most significant milestone now as you get the site you still have a lot of activities that need to occur in order to get the facility to mechanical completion. So it is not a panacea when you look at all of the risk being cleared up but but we do that view that as a positive milestone.
Within the overall execution of the project. It has a significantly positive milestone, but that does not in any way shape or form clear.
The challenges that will still be required in order to deliver the project, but what we can say definitively today is that there is a significant chunk of that risk that has been addressed in an appropriate timeframe.
Okay. Thank you very much thanks, Andy.
Our next question comes from Jamie Cook from Credit Suisse. Please go ahead. Your line is open.
Hi, Good morning, first just a clarification Joe on the guidance at year for me today, the adjusted EPS, The EBITDA and net margins does that include.
The $80 million does that include the first quarter results that included the $80 million and problem project charges.
Jamie and yes it does.
So then my question is if you are able to.
Keep your guidance.
Given the charges that you had in the first quarter. It implies the core profitability of your business is probably better than I guess I would've expected. So could you just.
Confirm and then give a little color on.
How you were able to affirm your guidance with charges I'm, assuming you didn't expect so just help me what's performing better maybe you can talk to sort of.
And the margins the asphalt margins in your backlog give us an update there I know what you said about the first quarter, but just holistically I'm just trying to understand the core profitability. Thanks, and then I have a follow up.
Good morning, Jamie It's David Good morning, David Hi.
So yes, let me start here and Joe can chime in.
Back in 'twenty, one and we reinforced our commitment.
To be transparent and measure in our view are.
On product performance and our ability to execute and that still holds true today and the $80 million charge right now does not account for any future claim recovery. So we expect to see certain claim recoveries in the near term as well.
And then also in 2023, we're seeing upside based on the prospect pipeline.
And the strong execution platform deployed we're very pleased with the execution.
And then.
And then hitting as sold so the.
The margins to your question on margins margins on New awards have been at or above plan for the last five quarters, you'll remember that we are 220 basis points above plan in 2022 on 20.
<unk> 20 billion.
Award year, so thats driving an extremely healthy.
Healthy backlog.
Plus we've got that Ghansham.
<unk> gone from $3 6 billion in challenged projects in 2020 down to $1 7 billion in Q1 here.
<unk>.
<unk>.
We continue to book high quality, New awards and.
We're successfully executing on approximately.
800 projects in backlog right now.
And again importantly, the majority of our projects are delivering at or above our sold commercial terms. So.
With significant opportunities taking shape across our business segments.
Coupled with that.
An existing healthy backlog driven.
Driven by that $20 billion.
From last year that are starting to ramp up and strong execution performance, we're quite comfortable.
Maintaining guidance for 2023.
No I guess, the only thing I would add is one of the other indicators that we're looking at to is you're starting to see that revenue growth.
Kick in which is really a function of what Dave is laying out the high quality backlog and it's it's.
Not just the $20 billion that we booked in 2022, it's really 30 billion over a three year period, which all fits into the same pursuit criteria, which we would consider to be healthy backlog. So I think we're starting to see.
I firmly believe I think we're starting to see that inflection point, where the quality of what we're putting into backlog is starting to dictate what the future is going to look like for US now these margins James Jamie are higher than historical margins as we look back in time.
We've got clients.
We've got clients lining up a teams with not not fully having the scope in place, but with coming to us.
And getting teams on board getting ready for further capex. So.
And that just gives you an idea of.
How things are looking right now on the margin side.
Well, then I guess my follow up question.
Because obviously the award prospects out there are tremendous and youre talking about cost plus.
Better margins I guess the other question is you know once we get past these legacy projects.
I'm just trying to understand can free cash flow conversion also improve relative to history.
Its terms and conditions improve and I'm just wondering.
At what point do you get more comfortable where you want to be.
Utilize the balance sheet, a little more of the free cash flow can improve and what would be the capital allocation priorities in particular as you're thinking about your long term margin targets that my guess is the street isn't giving you credit for so what are your capital allocation priorities given that backdrop. Thank you.
Joe Yes, thanks, Jami so in terms of cash flow.
I think what we're seeing is that as you get out into Q3 and Q4, we'll start to see some appreciable growth in that cash flow. We continue within the cash flow that we're generating paying down debt.
Getting back to some fiscal discipline that obviously has impacted our cash flow up to this point.
Our ability to maintain a neutral cash flow to slightly positive cash flow in the face of all that I think is very promising but I would tell you that the inflection point, we believe is going to be towards the tail end of this year, where we start to see real true appreciable growth that's going to be a function of a couple of things. One is we're starting we continue to work off the legacy projects and that new backlog is starting to generate.
Great.
Good quality.
Free operating cash flow in terms of what our capital allocations are we still are focused on really.
A bit of this recovery on our cap structure as it relates to the debt and moving to an asset light model. So we will be focused on our 20 fours in 'twenty three.
We will be focused on looking at.
Forcing the conversion on the preferreds as an alternative and ultimately the unstated would be getting back to dividends and having the.
The potential to invest more in the business either through discrete M&A activities or just organically, which we think both add significant value to supporting the growth of.
Floor going forward and just a footnote on project fit right.
Ryan.
And the overhead cost savings that we've been very successful with Jamie we've put a target out there of $100 million.
We got 100 annually and we got 110 in 'twenty, two and we're out looking at I think about $123 million in cash savings annual savings. This year. So that's also helping support all of those.
Strategies that Joe just spoke to.
Thanks. Thank you I appreciate it thank you.
Our next question comes from Sean Eastman from Keybanc Capital markets. Please go ahead. Your line is open.
Hi, Tim.
Kind of a.
Guys good morning.
First one is kind of a clarification question the comment on the higher margins relative to history or are we talking relative to historical cost reimbursable work or are we talking relative to just the overall.
Margin performance of the business, yes, just on the portfolio is.
<unk>.
Looking at that Sean.
So yes, so I mean, how is it possible to have higher.
Producing higher margins on lower risk work I mean are we just talking about not having charges in the mix or.
The question makes sense and I was like lower risk higher margin how is that possible I think I think we've got a very tight market.
Like I said, we've got clients coming to us without scopes being fully baked in actually.
Actually bringing us onboard early just to give you an idea of how tight the market is out there. So that's.
That's what I was trying to.
To get to.
Two there and there is less competitors right theres less folks in the EPC industry right now and our clients are very pleased.
When you look at their Capex plans.
Across.
Traditional oil and gas and chemicals and mining and metals.
<unk>.
I'm not sure if you've looked at them, but they are obviously, making a lot of money right now and their capex plans are not going down they're going up. So they are very glad that Florida is still in the in the EPC space.
We are grateful.
As they start to around Capex, and then you've got energy transition on top of that which is extra capex thats coming coming through and we're very well placed for energy transition. This cap. These capex numbers run well through 2030 and so that's that's what I think I think we're we're trying to signal there.
And where.
If you think of our strategic priorities.
Fair and balanced.
Contract in commercial terms.
And providing solutions right get into our strategy is get in early with solutions get in early and stay late through the full EPC or <unk> PCM and get paid for the value we provide.
We're really driving that and we've got good value propositions against the competition that can command a premium in many cases with that strategy.
Very interesting thanks, David I'll turn it over.
Our next question comes from Michael Dudas from vertical research. Please go ahead. Your line is open.
Good morning, gentlemen.
Morning, Michael Michael.
Just a quick clarification on the $1 7 billion in lost backlog that's at the end of Q1.
Is that all going to be how does that could be burned off over the next several quarters and I guess you indicated maybe by the end of 'twenty four youll be through that or maybe you could just clarify that for me Joe.
Yes, primarily but all are all OLED.
Joe maybe talk to that and also talk to the remaining.
Cash required for that $1 seven that will flow, yes, good good morning, Michael.
I would start with where we are relative to completion on the three projects that were talking about were over 50% on the LBJ and Gordy projects and were.
Pushing 90% complete on lax.
So we're starting to get clarity on as we kind of open. This conversation we're getting clarity on on what it's going to take to complete these projects that's been a bit of a grind we understand but we do have with the amount of work over the last couple of years and some of the additional resources are getting very comfortable of what that cash outflow is going to look like to complete these jobs and so we don't.
See really much cash requirements outside of <unk> 24 in order to fund these challenged projects at this point.
Hey, guys. Thank you for that my follow up is.
And certainly there's a lot of noise and discussion amongst the investors in the market.
On federal funding.
Its act.
Hey.
Clients are very exciting.
The energy transition semiconductors, maybe you could yes, how do you how are you guys putting into that you mentioned you called out a couple of projects.
For semiconductors is a lot of others.
Actually even some of those and that Youre wondering if something billion that you've had.
I believe that within the next few years.
And maybe some of the other of your clients are they starting to move forward and project, where it can get engaged in a later this year and into 2004 to a ramp up some of those.
<unk> energy solutions, our urban solutions.
Okay.
Yeah, Thanks, Mike I'll start.
Yeah, a lot of angst out there.
When you think of the energy infrastructure in an inflation reduction in chips.
And even the Science act funding opportunities that we're looking at.
And obviously also very tricky right. If you just take the chips Act as an example.
With the application process now out there.
If you received more than $150 million in subsidies you need to share.
Percentage of profit back to the government.
Not allowed to invest in China, or what is it 10 years.
Share buybacks are discouraged and obviously union constructions required and.
Good evening.
To come up with childcare as well so there's a lot of things at least on the chip side.
Are causing.
Some pause or some concerns with the manufacturers, but having said that.
Where we're playing right now in Asia with the likes of Intel.
Very strong market.
And we also see clients here in the U S.
Going forward with major builds we're supporting them, where we can.
Two.
To help them with their subsidies, but the projects we're involved with.
Our right now proceeding.
Proceeding forward couple I've mentioned in.
In Idaho, and Oregon that we're close to so.
Uh huh.
It is.
It's something that we.
Sure.
Certainly interested in but it's not holding us back if you look at even transportation right.
We're dealing with Txdot, primarily who has got about 18% to $19 billion, a year and their budget and independent of any.
Any act coming out of.
Out of Washington, So that's very helpful.
<unk>.
On the Dod side, you know they've got a couple of offices.
They've pulled together implement 62 billion in investments from them.
Remember the bipartisan infrastructure law.
So we're staying close to that.
Theres something in hydrogen that we're looking at in.
And supporting clients in hydrogen plant opportunities.
About 8 billion there.
Carbon capture sequestration, we can play obviously because of our two technologies proprietary technologies.
It is helping us in nuclear.
And grants for commercial nuclear plants.
So I.
I think.
More to come I mean, even on the inflation reduction Act.
Theyre looking at funding and they need to fund infrastructure for domestic.
Domestic.
Hi assay uranium.
Low enriched uranium production.
Where we are playing as well so theres a lot going on.
Including fusion right, where I've just mentioned that we will be looking into fusion with long view and also working with general Atomics.
But we're not letting it affect our forecasts and we don't see it as a.
As a detriment to our.
Our strategic plan financials through 2026.
And we're not.
Having to.
Some other contractors.
We're not betting on any of this coming to fruition anytime soon.
Yeah.
It was about the details in the regulation for sure and I. Appreciate your color there. Thank you very much thanks Michael.
Our next question comes from Brent Thielman from D. A Davidson. Please go ahead your line is open.
Hey, great. Thanks, good morning.
I had a question just on the legacy infrastructure projects.
Folio.
If you look at that portfolio outside of La <unk>, I guess I 635, Gordie Howe.
What about the performance.
And the rest of the portfolio or are there others go in stages that they could be proved to be a future risk or <unk> effect that we represent that portfolio at this stage.
Good morning, and thanks for the question as.
As we see it right now and as I've said we.
We.
Our very as we laid out in 2021, very clear and transparent with our project forecasting and.
Currently.
We are.
Very comfortable with the.
Infrastructure portfolio other than the legacy projects you just spoke to that's really where we are.
Putting our attention fully on execution.
With the new leadership of infrastructure and we are clearly focused on on working off. These these final few remaining legacy projects.
All about execution, that's job, one and not worrying about new awards like I said, there's only one major prospects that we have our eye on that fits our pursuit.
Pursuit criteria this year so at this point.
Comparable with with the the infrastructure portfolio outside the legacy projects.
Okay I appreciate that.
I guess my follow up would be maybe just a question on the overall business I recognized award.
Can it be or the trajectory isn't going to be linear quarter to quarter. New awards were good this quarter, maybe not as strong as we've seen over the past couple of quarters. Your book to burn was a little less than one times, you've got this big pipeline of projects.
Thereafter, So I guess my question is just how do you see the award trajectory over the coming quarters as we build up to 2024. There is some really meaningful opportunities kind of near that bid award stage that can accelerate this award pace yes.
In the coming quarters.
Yes, maybe I'll have Joe start on the book to burn side, just to give you a feel of how comfortable we are.
Going forward and.
And take it from there and I'll, maybe give some color on on what we're seeing overall across the business segments from a from a.
<unk> standpoint, maybe just one point of clarification. The other quarter was slightly below one on a book to burn, but theres a lot of seasonality that goes into Q1, and I think $3 2 billion in New awards for the quarter is a pretty robust quarter. Considering you are coming out of the backside of the holiday so.
From a seasonal perspective, it's within line and within expectations, but.
We do feel pretty confident and strong about the trajectory of New awards for the quarter you may see some lumpiness because some of the opportunities that we're chasing are quite substantial in nature and we will have.
Fairly dramatic impacts on a quarter by quarter basis, you will see some lumpiness, but but we're very confident on the New award plan that we laid out.
In December of last year.
And just where we are seeing that all the action.
A lot of the action in New awards and.
And we've talked about all of those.
Front end I'll, let front end work.
Uh huh.
$180 billion.
Really good prospects coming out of our current feeds.
And we're looking at another 235 billion.
In an upcoming seats over the next 18 months and that really if you look at the big hitters there.
For the next set of.
Front end design work that we are going to be executing it'll be in chemicals. It.
It'll be in downstream.
And it'll be in mining and metals.
<unk>.
And remember energy transition cuts across all of this we had 84 New awards in 2022 and in energy transition.
<unk>.
And again in the first quarter of 'twenty three energy transition awards represented.
Actually 40% of energy solutions.
Solutions Awards so.
And then like I said earlier, we've got $51 billion of near term EPC <unk> full projects.
In addition to this front end work.
And that 51 billion as is.
A lot of it.
The primary chunk of that is is an urban solutions.
And in energy solutions so.
We really have a good robust prospect pipeline that will support.
You know.
That book to burn.
Keeping the book to burn.
At or above one.
I appreciate that.
Thank you.
Thanks.
Our next question comes from Steven Fisher from UBS. Please go ahead. Your line is open.
Thanks. Good morning, just wanted to ask about cash can you just help us to reconcile.
Cash expectations and charges you mentioned I think Joe 15 million out of the $200 million expected was spent in Q1.
Does the $80 million of charges in the quarter factor into that $200 million and can you provide an update on any other sort of major cash ins and outs for the year overall.
Yes.
Yes. Thanks, good morning, Stephen in terms of how that would play out.
And in our cash requirements for <unk> in particular.
We've we've slated about $47 million worth of cash requirements over the year four.
For lax at this point in terms of cash flow can you repeat the back half of your question Stephen sorry.
Yes, just all the major cash ins and out or for the year.
Well I think we've talked a lot about some of the activities that we're seeing in Latin America, specifically through our <unk> joint venture.
And some of the activities that we're seeing in LNG C and our opportunity because we're not we're not consolidating that cash into our balance sheet.
On the proportional.
Proportionately consolidated joint venture so there will be opportunities.
Flow through there and we're starting to see very good cash flow being generated off the back side of this high quality backlog that we've put into the pipeline. There are some offsets in the year. We wanted to address the 20 fours. We wanted to take a significant chunk of those out before we get into the 2004 timeframe we've got.
The conversion.
Of the converts the forced conversion that will play into it and that's why when I'm talking about cash flow I'm talking about.
Reasonably flat to slightly up over the year I could see that that's probably a more conservative view I could see that being more positive than slightly factors like slightly flat to slightly up there are some some things that could occur towards the tail end of the year that would make that a much more positive trajectory for.
For us.
Okay, just to clarify your answer on the <unk> and just the overall $80 million was that not all cash.
But everything you have embedded from those new charges included in the $200 million.
Yes.
It will be cash, but it will be spread out over 23 and 'twenty four.
Okay.
And then if I could just ask maybe you gave it a higher level macro question.
I guess I'm curious how changing macro conditions.
Adding credit tightening.
And commodity volatility are affecting customer decision, making and with regard to inflation.
Are you seeing that flow through kind of customer decision, making is there anymore.
Other scope reductions or value engineering to try and kind of fit projects into budgets. Thank you.
Hey, Stephen good morning.
Yes, maybe we start with credit right.
Obviously.
Tighter credit environment These days and.
Really.
For the most part.
<unk>.
Our key clients.
Have limited need.
To access bank funding or.
Our debt to finance their projects right, there very very well capitalized.
As we speak here.
And especially true when you look at the Capex profiles of our major.
Energy chemicals mining clients, obviously the government.
It is also.
Yeah.
Hopefully in a good place, but certainly on the programs we're working on.
Which are critical to the country, we don't see any pullback there in mission solutions, either so we could see some softness.
With project in projects being.
Advanced by developers, but we don't play in that space very much we really only.
Help out on the front end for the most part where we drive very high margins.
While they are trying to look for financing and then we usually we pulled back so.
I don't see that.
Being.
The big issue for us.
Slight.
Slight recession at Fluor, it really doesn't.
Affect us because our clients.
They are into decade long decisions right.
That are really not impacted by a temporary slowdown or recession and economic activity.
Inflation.
<unk>.
Obviously, we've seen some estimates obviously the estimates in the past cost estimates for projects in the past couple of years of.
Have been quite inflated.
That has been a cause for concern.
And we see.
<unk> or up.
Dating of feed packages to to get the latest and best pricing from the supply chain, which we do see a <unk>.
Softening.
In our construction.
Material <unk>.
<unk> driving estimates down somewhat so I think from that standpoint.
We're still in pretty good shape I guess, another another data point.
And as we talked very positively about the future here.
I think one thing to hammer home just another data point is as the number of people were we've been hiring alright, thats a pretty good bellwether for for a services company.
Fluor.
And just to give you an idea in the last 15 months, we fired almost 4800 people.
And we've got 30, almost 35% of those being rehired, which is very pleasing.
For us as well.
And.
And we've got 2050 open positions that we're working on.
To bring into the company so.
Hopefully that gives you an idea that it's full steam ahead right now.
Terrific. Thank you very much.
Thanks, David.
Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.
Good morning, everyone.
Good morning, Andy.
Can you give us an update on what's going on with new scale. I think you said last quarter that you expected an update on the potential strategic agreement or something like that by the end of the first half of the year and now you're talking about at the end of the year is there any reason why conversations maybe you're taking a little longer than expected.
Okay.
Good morning, Andy Thanks, Yes, new scale, we're very excited obviously about about its future.
Leading technology.
In the semi space.
The excitement.
Not only here in the U S.
But overseas.
Marilee in Eastern Europe , right now, but also in Asia.
We're new skills partners R. R.
Making some advances there as well so.
Timing.
Timing wise, we're also.
Really really pleased with the strategic investment strategic Investor discussions we're having.
And.
Getting traction on that front.
And so like we said.
We hope to see the results of that effort.
Near the end of this year and Thats just timing is as far as.
Going to be a large deal to to button up.
<unk>.
But I think we're making really good progress on that end.
We're looking forward to supporting new scales commercialized.
Patient efforts as well going forward.
As we.
As we move forward, we're very happy with our investment.
And new scale and the performance of the company right now.
Very helpful. And then David I wanted to ask you maybe follow up on Steve's question, just specifically around chemicals Capex you seem pretty optimistic in terms of petrochemical bookings in the second half.
I think we've heard from some software and industrial companies.
<unk> customers are keeping a little bit of a tighter lib tighter lid on chemicals capex in 'twenty, three or you're not seeing any of that.
What we're looking at it as are very interesting opportunities and we're talking.
Mega.
Projects.
When you look over in.
Just in the Europe Africa Middle East region.
And.
Sure.
Potentially the reduced demand or lower demand for.
Combustion engine.
<unk>.
<unk>.
What the companies are looking at.
Going forward Theres, a big play.
A foot.
In liquids.
Liquids to chemicals right. So.
And these are massive massive programs that we're supporting key clients.
Historically key clients that we've worked with for decades.
So that's a big play for us in chemicals, and then the other one we're seeing in.
In Europe and in the U S.
Is.
And recycling of chemicals and these recycling facilities.
We are also very large and so that.
Our front end, our subject matter experts.
At Fluor, a process engineering capabilities.
That's a real calling card for us not just in energy transition.
But in the recycling space in chemicals. So that's that's what I'm seeing right now in the second half of the year to give you a little more color.
Very helpful. Thank you David Thanks, so much.
Okay.
Okay.
We're out of time for questions today, I will now turn the call back over to David Constable for closing remarks.
Great.
Thanks, Julianne many thanks to all of you for participating on the call today.
I'm very pleased with the ongoing performance of our healthy backlog.
And the commitment and support of our clients as I mentioned.
We're well positioned to complete our few remaining legacy projects and we're confident in achieving our expectations for 2023 and 2026.
I appreciate your interest in Flor and thank you again for your time today.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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Okay.
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