Q4 2023 Fluor Corp Earnings Call
Good morning, and welcome to Fluor's fourth quarter 2023 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.
A replay of today's conference call will be available at approximately 10 30, a M. Eastern time today accessible on fluor's website at Investor <unk> Xu our dotcom.
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 Dot Fluor Dot com.
At this time for opening remarks, I would like to turn the call over to Jason Lang Kimmer head of Investor Relations. Please go ahead, Mr Lang humor.
Thanks, Rob Good morning, and welcome to Fluor's 2023 fourth quarter earnings call, David comfortable <unk>, Chairman and Chief Executive Officer, and Joe Brennan <unk>, Chief Financial Officer are with us today.
<unk> issued its fourth 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.
Can find a discussion of our risk factors, which could potentially contribute to such differences in our 2023 Form 10-K, 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 <unk>, Florida Dot com.
I'll now turn the call over to David comfortable <unk>, Chairman and Chief Executive Officer, David.
Well, thank you Jason and good morning, everyone. Thank you for joining us today.
Please turn to slide three.
David: To get started today, let me highlight the impact that floor is made in local communities. This past year.
First through floor cares, that's our employee, giving and volunteering program.
We donated $4 million to worthy causes in 2023.
That represents a 17% increase over 2022.
In addition, the floor foundation contributed $4 $2 million to community initiatives and programs with much of that funding going to support underserved groups.
Floor employees donated more than 33500 volunteer hours in 2023.
David: And that's an increase of 49% over our efforts the previous year.
We provided nearly 1 million hours of science technology Engineering, and math instruction to 237000 students and we provided 706000 meals to those in need.
As part of our commitment to sustainability, we plan at 29000 trees.
The reconstruction of the mangrove forest on the Philippines Coast, plus a large scale multiyear tree planting effort across four continents.
These are just a few examples in the past year of the generosity of our employees and the company, which is helpful to continue our audible and long history of giving back.
Please turn to slide four.
It has now been three years since the launch of our new building, a better future strategy and the unveiling of our long term financial targets.
2023 was a pivotal year in which we achieved some significant milestones.
Continued focus on operational excellence has allowed us to move past the inflection point in our path to creating significant shareholder value.
I'm extremely proud of the results we've achieved.
And very thankful for all the efforts put forth by our employees worldwide.
We'll discuss more about our future view of floor, including our prospects and financial outlook in just a moment.
In 2023, and we were successful in converting our high quality prospect pipeline into New awards a trend we expect to continue in 2024.
Revenue for the year was $15 5 billion up 13% from 2022.
Our full year New awards in 2023 totaled $19 $5 billion with a book to burn ratio of 1.3.
Through our disciplined pursuit of contracts, 87% of our New awards were Reimbursable and our total backlog is now 76% Reimbursable a full year ahead of our strategic goal.
This is a significant improvement from 41% two years ago.
And importantly, the current project mix across all business lines is the most diverse it has been in years.
Now, let's look at an overview of our fourth quarter highlights please turn to slide six.
Beginning with urban solutions segment profit for the quarter was $147 million up from 38 million a year ago <unk>.
Results include a $69 million effect from a settlement on long standing claims on the Gordie Howe Bridge project.
And a favorable determination on another legacy infrastructure project.
At Gaudi the team made tremendous progress this past year on the bridge and both ports of entry.
We're on track to complete the bridge span this summer and will then start the handover process for the ports of entry.
We are very pleased to have a resolution on gordy that defines our cash funding obligations and solidifies a path to project completion in 2025.
Our infrastructure group continues to focus on legacy project completions as its top priority heading into 2024.
New awards for the quarter totaled $5 1 billion and included a multibillion dollar Reimbursable award from BHP for stage two of their Jansen potash project in Canada.
In addition, we booked a $1 $7 billion Reimbursable award with Ht Green steel.
This will be the world's first renewable hydrogen based integrated steel mill.
The site is expected to reach 5 million tons of sustainable steel annually by 2030.
Ending backlog for the full year improved to $14 8 billion from $10 3 billion a year ago and is now 71% Reimbursable.
Moving on to slide seven.
Mission solutions reported a segment profit of $31 million in the fourth quarter compared to $20 million a year ago, New awards were modest in the quarter and ending backlog was $3 9 billion compared to $5 7 billion a year ago.
During the quarter. The mission solutions group took steps to enhance our technical service offerings to better serve customers in the national security market.
David: Moving to energy solutions, please turn to slide eight.
Energy solutions reported a fourth quarter segment profit of $26 million compared to $124 million in 2022 segment profit for the quarter reflects the impact of a large project nearing completion and $33 million in cost growth and schedule extension on a large upstream legacy project, which is scheduled to complete this quarter.
This charge does not reflect additional opportunities.
For cost recovery from subcontractors for the client.
<unk> also included a $6 million gain on embedded foreign currency derivatives.
<unk> to $1 $3 billion Reimbursable contract for a chemical project in Poland.
In addition, our Eagle Ford joint venture booked extra work on a large EPC project in Mexico.
We also received an award for Engineering services on a major middle East chemicals project ending.
Ending backlog was $9 $7 billion up from $9 1 billion a year ago.
LNG, Canada the price is 90% complete overall in his transition into the systems completion phase we.
We expect to begin a safe startup activities later this year.
Before I turn the call over to Joe I want to provide an update on our investment in new scale.
With respect to new scale monetization, we continue to be engaged in an exclusive diligence process with a strategic investor that would provide an accelerated path to commercialization and does so in a way that maximizes returns for fluor shareholders.
We expect to have an update in the first half of this year.
With that let me turn the call over to Joe for the financial update Joe.
Thanks, David and good morning, everyone I'd like to discuss an overview of our financial performance and provide an update on the progress we have made in strengthening our capital structure and share details on 2024 guidance. Please turn to slide 10 for.
For the full year <unk> reported revenue of $15 $5 billion, and net income of $139 million or.
Or <unk> 54 per diluted share results for the year include a $93 million loss on the sale of Historic Latin America that was transacted in the fourth quarter.
Segment profit for the year was $537 million and adjusted EBITDA was $613 million on an adjusted basis, our 2023 results for $2 73 per diluted share.
Corporate G&A expenses for the year were $232 million compared to $237 million a year ago.
For the full year, we reported net interest income of $168 million as our cash management team invested in U S treasuries and other interest bearing assets to more than cover the $60 million in fixed rate interest expense on our outstanding debt. Please turn to slide 11, cash and cash equivalents combined with marketable.
Charities, where $2 5 billion, which excludes the $118 million in cash held by new scale, our operating cash flow for the year of $212 million was positively impacted by cash settlements in the fourth quarter from project claims and disputes as well as cash distributions from two of our largest proportionately consolidated joint ventures.
Results for the year also reflect $129 million in funding of legacy projects for 2024, we expect cash funding amounts between 100 and $200 million.
As it relates to our significantly improved capital structure I wanted to recap the progress made during the year.
Last January we reiterated our outstanding we retired our outstanding 2023 Euro notes in February we extended the maturity of our revolving committed credit facility by one year, thereby extending the maturity date to 2026.
In August we executed a very well received convertible debt offering to address our December 2024 Senior notes. These notes were extinguished in late December.
These transactions have reduced our stated interest rate on outstanding debt by 100 basis points to a weighted average rate of two 7%. In addition, we have no debt maturing before September of 2028.
In September we converted our outstanding convertible preferred stock into common shares which significantly simplified our capital structure.
We also made considerable progress in divesting noncore businesses to allow greater focus on end markets with the highest returns last year, we exited all of Mako equipment rental operations sold Stork, Latin America and reached an agreement to transact store to European operations, which is expected to close near the end of quarter one.
We are currently marketing Stuart's UK operations.
Before we open the call to Q&A, David and I want to take a few moments to summarize our strategic outlook and provide details on what you can expect from us in 2020 for David.
Thanks, Joe, Let's turn to slide 13.
In the fall of 2020, we began to think about a new strategy for the company.
As we did that we kept the aspirations of our core stakeholders in mind.
These include building trust with our clients.
Creating a great place to work by our employees.
Becoming an attractive investment for shareholders and.
And continuing our tradition of having a positive impact on society and on the communities in which we live and work.
As part of the strategic development process, we evaluated the overarching market conditions impacting the industries of our clients and the competitive environment.
From that work, we identified four mega trends.
To achieve our aspirations that take advantage of these trends we developed our strategy building a better future.
With the strategic intent to be the preeminent leader in professional and technical solutions, while maintaining our global engineering and construction expertise.
In order to achieve the strategy, we developed four strategic priorities.
First reinforcing financial discipline.
Which focuses on deleveraging the balance sheet.
Pursuing a fair and balanced contract terms, which is focused on de risking the backlog.
Third driving growth across the portfolio is about diversifying revenue into growth markets.
And fourth.
Fostering a high performance culture with purpose is.
Among other things about improving project execution.
Taken together these strategic priorities are delivered and will continue to deliver on our drive to maximize shareholder returns.
Moving to slide 14.
This slide shows the results of executing against our strategic priorities.
Starting with reinforcing financial discipline. The upper left chart shows our debt to capital ratio, which was 63% at year end 2020.
David: This ratio has significantly improved to 37% in 2023.
We are already within the 2024 range as set out in 2021.
2026 target set last year is to be at less than 30%.
Pursuing a fair and balanced contract terms the lower left chart shows our reimbursable backlog.
We've increased our reimbursable share backlog from 40% in 2020% to 76% today.
Achieving our 75% goal one year ahead of schedule we.
We intend to maintain a reimbursable backlog above 75%.
Driving growth across the portfolio. The upper right chart shows the mix of non traditional oil and gas revenue.
We set a target of 70% by the end of 2023.
You'll see from the graph we are currently at 65% when.
When we set the target we expect to start to be fully divested by now.
Removing starts oil and gas revenues from the analysis, the number jumps to 71%.
More importantly, we see significant prospects in front of US in addition to opportunities in mission solutions in mining and metals, we have key prospects in chemicals.
Advanced technology, and life Sciences, and energy transition programs across the business portfolio.
Fostering a high performance culture with purpose the chart on the lower right shows our performance and strength in project execution for New Awards.
81% of ending backlog includes projects awarded since the beginning of 2020. These.
These projects are performing at 116% of our salt.
We expect to continue this performance by adhering to our stringent pursuit criteria.
By applying our proven project execution methods procedures and risk processes and by enforcing our guiding principles for financial forecasting.
Moving to slide 15.
To share some insight on how the execution against our strategy looks in 2024.
Here are just some of the opportunities we have on our radar.
For our urban solutions segment.
In advanced technologies and life Sciences, we continue to strengthen our footprint and are well positioned for some exciting new opportunities in the semiconductor datacenter and pharmaceutical space.
In mining and metals, we anticipate a full notice to proceed on a copper project in South America in the first half of this year.
Looking ahead, we see additional sizable opportunities in battery metals and iron ore.
And infrastructure as mentioned earlier, we remain focused on executing our legacy portfolio.
We also anticipate an award for the next phase of our significant motorway project in the Netherlands that we are currently working on.
Within energy solutions, we have a robust pipeline of prospects.
<unk> multiple feed awards supporting Mega liquids chemicals programs in the Middle East.
Other opportunities in energy solutions include refineries in Mexico, and the U S Gulf Coast and in the energy transition space, a large renewable diesel project in Canada.
In mission solutions, we are well positioned for Recompete scopes of work, including the strategic Petroleum reserve renewal.
In addition, we were recently selected for an extension on the Portsmouth decontamination and decommissioning program.
We anticipate this extension to be funded later this year.
Next we expect to hear the NSA is decision on <unk> in the second half of 2024.
We also have opportunities in the nuclear fuel space.
And we continue to pursue nuclear work for conventional and small modular reactor programs.
Finally, we continue to see strong interest in our capabilities to support the intelligence services market.
These projects represent over 75 billion in total installed cost with a good number of our opportunities based in the United States.
Now please turn to slide 16.
Specific to energy transition, we see this as a driving force behind the shift from traditional energy to.
To lower carbon energy sources.
Fluor is well positioned across the spectrum of ETE markets.
In 2023, we had over 200 active energy transition projects, many of which are front end technical solutions scopes of work that position us well for <unk> conversion.
Here, we are focused on five areas that spread across the clean electron clean molecule spectrum.
We have work and are pursuing opportunities in clean power and energy storage the battery value chain carbon reduction hydrogen and renewable fuels.
And importantly, we are industry leaders in subject matter experts in each of these areas.
Turning to slide 17.
To summarize.
The strategy is working and.
And we continue to see reflected in our results.
Our strategic priorities taken together, our deleveraging the balance sheet and de risking the backlog they are driving revenue growth in new markets and improving project execution.
We continue to restore trust with our clients and build confidence with our shareholders.
As we look to continue improving our reputation through solid project execution. We are confident that our strategy is meeting our stakeholder aspirations and creating a business that generates consistent earnings and cash flow.
I'll now turn the turn the call back to Joe. So he can provide details on how our efforts translate our strategy in the financial performance for 2024, and what this means for capital deployment Joe.
Thanks, David Please turn to slide 19, we are establishing our 2024 adjusted EBITDA guidance at $600 million to $700 million or $2 50 to $3 per diluted share our guidance for 2024 fully meets our strategic plan expectations that we shared with the investment community in January 2010.
<unk> one and.
In addition, we are reaffirming our 2026 adjusted EBITDA guidance of $800 million to $950 million, while the company sees a robust prospect pipeline to support our internal strategic plan going forward, we intend to conform with accepted practices and only provide guidance on expected results for the current year.
Our guidance for 2024 is based on our ability to successfully execute our strategic priorities on significant demand for our services across the end markets, we serve and on achieving significant completion of our legacy projects over the next 12 months.
To provide a bit more clarity on guidance for 2024, our assumptions include revenue growth of approximately 15% net interest income of approximately $120 million.
G&A expense of approximately $190 million and an effective tax rate of approximately 35% we.
We anticipate free cash flow plus divestiture proceeds of approximately $350 million to $450 million, excluding cash funding for legacy projects. Our estimate for cash flow is based on the underlying performance, we see from the portfolio receipt of cash from transacting remaining noncore businesses.
And the working capital needs required for Reimbursable projects, our expectations for 2020 for segment margins are approximately 5% in energy solutions, approximately 3% to 4% and urban solutions, which reflects $600 million in revenue for zero margin legacy projects and approximate.
Please turn to slide 20.
We are incredibly pleased with our progress over these past few years as we transform back into one of the leading engineering and construction firms. The entire organization is excited about not only what we have accomplished but also what lies ahead our positive results over the past few years combined with our expectations for 2024 and beyond continued.
To accelerate our journey towards restoring Florida position as a leading solutions provider.
Our primary investment will be to build and develop world class teams to convert our prospect pipeline into backlog our focus on investing in our people supports our strategy of pursuing an asset light model that simplifies investors' understanding of our earnings power by way of example, we added 5000 employees in 2023.
Our dedication and commitment to negotiating fair and balanced terms and getting paid for the value. We provide are evident and ongoing.
We have also shown success in the claims recovery process with the three key settlements reached on some of our legacy projects and we continue to hold productive conversations on other pending claims since a significant portion of these claims arose from COVID-19 related challenges, we see lower claims exposure over the coming years.
As we continue this journey, we expect to arrive at a point, where our funds exceed what is required to support our growth plans and lower risk portfolio. We look forward to providing more details on what this looks like later in the year. Operator, we are now ready for our first question.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. We ask you. Please limit yourself to one question and one follow up your first question comes from the line of Steven Fisher from UBS. Your line is open.
Thanks. Good morning, just looking at your full year EBITDA and EPS for 2023, how that came in and comparing that with your 2024 targets the growth actually looks pretty modest but.
Of course, Youre implied CAGR from 2004 to 2006 outlooks to be much faster in the double digit area. So I guess to what extent is that just a slow ramp up.
The projects in backlog.
The expected or something else and what do you expect to contribute most to the acceleration in 'twenty five 'twenty six.
Steve Thanks for the question I think the way to level set how we view the kind of the growth and the trajectory between 23 and 'twenty four there were a number of <unk>.
Settlements that we were able to achieve during 2023, which created some lumpiness in.
In the earnings flow for the year, the best way to look at that is if you go back and look at the original guidance that we provided in 2023 of $4 50 to 600.
If you take that midpoint relative to the 600 to 700 and guidance in 2024, I think that gives you the apples to apples comparison of how we're seeing growth and we have talked about.
The lessening burden of some of those claims activities that arose during during the pandemic. So from an apples to apples comparison, we're viewing that growth.
Year over year in that in that way.
Okay.
And then can you talk about the cadence of bookings that you expect in 2024 do you think it is going to be more front weighted or back weighted can and should we still expect double digit growth in backlog in 'twenty four and it was nice to see that.
76% and ahead of schedule curious, how you see the kind of the mix evolving in 'twenty four as well.
Yes, Steve it's David.
Yes, it looks like.
We will continue on the on the trough we've been on for the past couple of years.
We have a lot of prospects in front of us across all our business segments.
And.
I would expect when you think about book to burn we've been messaging I think last year, we were messaging.
Or above I think we'll continue to see that.
And.
We've been over performing on our on our go get factored in.
We're pretty comfortable that 2024 is going to be shaping a similar or possibly better than.
'twenty, two and 'twenty three.
And we looked at the results of our hit rates.
At the company in 2003, and they were they were really strong and I think that has a lot to do with our project pursuit criteria, we're going after projects.
78% of the prospects we went after in 2023.
The nominal number.
And note that that is with.
David: Bringing in 140 basis points above our backlog and margin so not only hitting on a lot of them, but improving improving the margin as well expect that to continue its a sellers market right now.
Thanks, Steve.
You.
Our next question comes from the line of Andy Wittmann from Baird. Your line is open.
Yeah, great. Thanks for taking my question this morning guys.
Joe I wanted to just digging a little bit more on.
Some of the comments you had around free cash flow.
And if you could just maybe just drill into this a little bit more I think you said $3 50 450 <unk>.
For the cash burn on the legacy projects, but.
It does not include other cost recovery. So it looks like just looking through the K. It looks like Youre expecting a big tax settlement could you give us some kind of parameters around that and do you expect any other kind of chunkier claim settlements to hit in 'twenty for like I don't know when the cash on your on your Gordie Howe Bridge settlement.
It's coming in and that was obviously a pretty significant amount.
You want to talk about how the the joint ventures, the consolidated proportion.
Joint venture cash.
Factoring in stout look in particular, considering that was large balance.
And those are just some of the things that come to mind for me, maybe there are others, but maybe if you could just give us a little bit more detail, what's what's supporting that that cash flow outlook.
Yes, Thanks, Andy ill give you that.
The range on the tax.
The item itself is.
Approximately $150 million to $160 million, that's what we're pumping in in terms of claim settlements for 2024, I would expect less of those activities because we did clear off a significant portion of of those activities through our legacy projects in 2023, but there still are other opportunities that we'll pursue.
During the year and what we did see come in in 2023 was some of the some of the retained earnings through are proportionately consolidated joint ventures, but really the initial kind of push to repatriate those retained earnings back into the 2020 timeframe. So.
As we move into 'twenty four we will see additional retained earnings flow in from those proportionately consolidated joint ventures, which will help to drive some of the upper end of the guidance that we provided around our cash flow.
Got it.
And then David.
The you referenced adhere the engineering services contract that you have.
In the middle East here for liquids to chemicals, some of the numbers being tossed around for that project for like total installed cost a pretty pretty big numbers.
Wanted to just give you an opportunity to elaborate to the extent you could on this job a little bit.
How how meaningful can this job.
And what's the profitability attached to this job.
At Fluor for you today is as Youre sitting here today, and maybe more importantly.
Given that it's such a megaproject.
David: How much notice to proceed and visibility you have in your backlog on it today in other words the confidence is going forward, we're seeing some signs.
Obviously like Aramco didn't.
Decided to increase its production outlook I don't know if thats, a total reflection of their capital spending or not but I would be curious as to what you are hearing from our customers on these projects as to their confidence in moving forward.
Hey, good morning, Andy.
So having recently traveled there I think I was there in November talking with.
Speaker Change: Various clients.
Sabock Aramco modern on the mining side and.
Very bullish right now in Saudi Arabia, we see this as a as a real growth engine for the company.
And we are extremely well positioned.
Speaker Change: For not only the mining work with modern but liquids to chemicals.
Speaker Change: Our programs, where they are shifting obviously from a lower automotive.
Fuel requirement to two high margin chemicals.
And we are getting started.
With.
With customers over there and you'll see it in a ramp up of.
Massive amounts of home office engineering hours, which deliver.
A good margin for floor.
As we as we help them with our technical their technical solutions, where they really look to us.
That's the value, we're adding here to get these projects off on the right track and then continue and help manage them through this through to completion and they are as you mentioned massive massive programs.
<unk>.
And Thats what were.
Speaker Change: We're looking at getting kicked off right now so.
Speaker Change: Confidence wise.
I would say where we are.
We're very confident that.
That the programs, we're getting involved with.
Are going to be going forward.
There's a lot to say grace over over these projects. So it's not going to be just one contract and there'll be multiple contractors supporting there.
Great. Thank.
Thank you very much.
Thanks, Andy Thanks, Andy.
Your next question comes from the line of Sanjay Jain from Keybanc capital markets. Your line is open.
Yeah, Hi, Thank you so much for taking my question.
Can I ask about the nuclear opportunities if you've been reading about in Bulgaria, and Romania, and how close you may be to finalizing those maybe.
So all good morning.
The nuclear space continues to be something we.
Speaker Change: We are supporting.
Both and supportive.
The new scale small module reactor technology.
But also on conventional.
Nuclear facilities.
Right now and in fact.
The good a good portion of our nuclear opportunities are in eastern Europe.
As those those countries, Bulgaria, Romania, Poland.
Looked.
Speaker Change: Towards energy independence energy security in that that part of the world. So we are busy.
Speaker Change: On opportunities there.
<unk> for example in Romania.
Speaker Change: That.
I believe right now is moving into a feed.
Feed position for us.
Taking the lead there and we're also like I said looking at a couple of conventional units.
In Romania actually on a reimbursable basis so.
You know post cop 28 nuclear.
The focus on nuclear is very high.
And we're as we've previously stated we are really looking forward to supporting new scales commercializing commercialization.
Commercialization efforts on it.
Small modular reactor space and we're excited about our prospects there as they start to come to fruition both.
In the U S and overseas, particularly in Europe and Eastern Europe.
Thanks, Greg. Thank you so much and if I can ask on another end market.
Didn't hear you guys address data centers in your prepared remarks.
Can you share some color on what Youre seeing there and if the momentum kind of helps you in booking more backlog this year.
Greg: Yes, we do have we do have a position in data centers.
Certainly in Asia right now.
Greg: We're doing some big programs and data centers.
And we see that continuing I think I did maybe.
Maybe quickly mentioned data centers as part of the advanced technologies and life Sciences.
Greg: Opportunities.
In my prepared remarks, so we definitely are.
Our focus on data centers.
With everything going on in the World.
Data and data processing via data centers is going to be a big market for fluor.
And also.
Upstream of that the power generation required to drive those data centers. So.
Yes definitely.
Got it.
Start to feature more in our plans going forward.
Great. Thank you so much.
Thank you.
Your next question comes from the line of Michael Dudas from vertical research. Your line is open.
Good morning, gentlemen.
Hey, Michael Michael.
Maybe David can continue your thoughts there on advance facilities maybe.
Maybe the state of your thoughts on the electronics semiconductor area U S and abroad, and certainly the pharmaceutical life sciences, but a lot of activity you've ramped up some business there.
We continue to see that momentum bookings through 2024.
Yes, we do right so.
Key focus.
In addition to Datacenters right as our semiconductor.
Conductor space.
And.
And the pharma space.
I think he probably we've all seen yesterday's news about.
The chips Act.
Funding is starting to flow.
Right I think it was put in place in 2022, but we are.
We're finally, starting to see some some good flow there and.
So we see that as very.
Very positive and I think more than 170 companies have applied for for grants.
And we've got some key clients that we're staying close to.
In that space and.
I think we're probably going hear more.
As you probably read and hear more about.
Money flowing into the chip into the semiconductor space.
And Big awards coming out.
Possibly before the state of the Union address in March so.
We're staying close to all of those key clients who've got current work in Asia. We've got work in semiconductors in the U S and.
And so we're very bullish on.
On that market and pharmaceuticals, just getting really really getting going on on the diabetes drugs and the.
Greg: Key clients that we have.
But we're working with right now and those are.
Those are the size of those those pharmaceutical projects are.
Just dwarf what what the market is with that space has been used to what that industry has been used to these are multibillion dollar efforts that require.
Greg: Project execution skills project management skills.
And then the floor can bring so.
Great time to be in the pharmaceutical space as well and we have a long history. There as you know.
Okay I appreciate that David and my follow up would be you mentioned in your prepared remarks, or maybe you've added 5000 employees to floor.
Professional staff of 23.
Whats that on a net basis, what type of growth do you see you'd need to achieve not only the backlog you've.
The growth you anticipate given the opportunities in front of you and maybe you and following on the OTC question and the Saudis.
<unk> been able to grant up that with professionals and engineering staff to meet those needs because thats I think again going to be a lot of a lot of demand stress in that market for somebody like you guys.
While you're definitely correct. There is the number one focus area for the company Michael.
Michael look across the management team and <unk>.
Getting the right people in the right places at the right time.
Yes, I think Joe said, we've hired about 5000 people in 'twenty three.
Net net it's not that much because we as projects come down in certain regions of the world.
We will have to to let let folks go but overall, we're trying to redeploy as many as possible.
To support.
To support this growth that we're seeing so.
Yes, I would expect to see probably another 5000 higher this year or thereabouts.
And in that continue on that track so now with the sale of with the sale of Stork Youll see our numbers dropping the head count dropping somewhat and which is which is fine but.
With all the puts and takes on the projects.
I would say youll start to see the the head count ramping up again, but we're being very cost effective at the same time as far as overhead.
Overhead count goes so.
I think.
On the Saudi Arabia, specifically on the work in the Middle East.
Greg: The ramp up is spread across various offices not.
We need multiple we need fluor's global strength to be able to execute those types of programs for those for those clients. So you'll see work going into Amsterdam, Youll see work going into the UK youll see work going into it.
Texas in Houston.
Into our execution centers in Delhi in the Philippines to be able to two <unk>.
Handle all of that all those hours that are coming coming at us. So that's where we're at right now.
Excellent David Thank you.
Thanks, Michael.
Your next question comes from the line of Brent Thielman from D. A Davidson your line is open.
Hey, Thanks, good morning.
David I have in the book of business and urban solutions, obviously really picked up here in the last year can you talk about the composition or mix of things in your backlog in that business segment, I guess between ATM Pos 90 infrastructure, maybe how does that inform.
Youre sort of profit margin outlook for the group in the 2024 and I guess in particular is that mix.
I mean, the different practice area, it's more attracted than in years past.
Yes, thanks, Brad it's been just.
It's been so.
Gratifying to see that driving growth across the portfolio strategic priority.
Over delivering.
We want to make sure that we didn't have all our eggs in the traditional oil and gas about basket back in late 2020, when we set the strategy and not that we don't want traditional.
Traditional oil and gas to continue we know it is and we're right there supporting it.
Greg: And doing very well on the traditional side.
Now, obviously on an energy transition across the company, but.
What we said was we really wanted to grow in in the markets.
What we said was we really wanted to grow in in the markets.
Based on those Mega trends that we saw in front of us urbanization and.
Energy transition and big data industry for everything.
Everything with it.
Really being really leaning into the urban solutions space and we've seen that.
Greg: Through <unk>.
Mining and metals with obviously copper being a big play.
Those mega trends.
But also a tls.
As well so.
If you think about the backlog right now.
It's up.
These are approximate numbers right, we've got $10 billion in energy solutions.
$15 billion in urban solutions now right. So.
And then the remainder formula $1 billion or so is in mission solutions to get up to year through 29.
And.
Yes mining of $7 5 billion of that backlog.
<unk> is about $3 billion.
And for US at four and were starting to come along and in plant facility services as well, where we're starting to bring a higher level of service, including digital solutions to our operations and maintenance.
<unk> and we've got some good prospects on the on the horizon. There so as far as margins go maybe Joe can comment on urban solutions margins with that type of backlog and what we're expecting as you know our guidance.
We're putting out there right now.
Since this is the 3% to 4%, but it's as you mentioned, it's the infrastructure that we've got to work through that some of that as well, yes, I think Brett if you look at kind of normalizing out the $600 million of zero margin revenue and where we're heading.
We would expect the three 3% to 4% that we're laying out today as we move forward and progress through the backlog and what we've taken into our pipeline that we would be in that 4% to 6% corridor and we would feel comfortable towards the end of the year, we'll probably be looking at what that guidance looks like but as we move out into 2000.
25, squarely within the 4% to 6% corridor that we've laid out.
Okay. That's really helpful and then I guess maybe on.
Mission solution.
You mentioned kind of a lower level of backlog relative to the other two business groups.
Any update on the timing at the index decisions.
The other opportunities outside of that.
The buildup of the backlog in that business group, obviously that that was a bit lower here this quarter.
Yes emission solutions can be very lumpy with these massive.
Long term 10 20 year contracts.
Course, we hit one in.
Late 2022 with Savannah River that was a very large program. So thats again that was a lumpy year because of because of 'twenty two but.
Those will continue to come around I think on pads next to your question.
Bob.
We're expecting an award.
<unk>.
I'd say second quarter to third quarter 2024.
But before the elections so.
Maybe that's the best timing I can give you there, but we're really excited about mission solutions and the future that we've got.
Being such a strong department of energy.
Contractor.
And picking up speed in the defense space and our Logcap work in Africa and supporting the troops.
Greg: Sure.
Out of Germany.
We see.
Really great opportunities in <unk>, and <unk> and of course FEMA comes along.
We've just been.
The award of that debt.
Eastern U S East coast, FEMA contract as well, which will continue to.
As things occur drive drive revenue so.
I think thats.
Where we're at with mission solutions and like I said were very positive.
Move towards National Security.
And brought in some new management capabilities in National Security.
In the defense and intelligence space.
We're pretty excited about some prospects there as well those are prospects, we don't talk about.
Publicly but they are very exciting and quite sizable so that's where we're headed emission solutions.
Okay I appreciate it.
And again its star one to ask a question. Your next question comes from the line of Michael Senator from Bank of America. Your line is open.
Yes, Thanks for squeezing me in guys.
Your debt to cap is in your range and you have your target for 2026. It seems like you guys are really making progress on the targets you laid out positive cash from ops in Q4 Youre guiding for for good 2020 for free cash flow. So just with the Mega trends Youre seeing out there.
Are you starting to reinvest in the business should we see you guys, maybe even look.
Greg: Organic investment, but even M&A wise just curious how we should think about that since we're starting to see that where we're seeing the cash flow moves. Thank you.
Yes, maybe I'll take the kind of the cash flow movement up too.
The M&A, what you're seeing in 2024 is not only a servicing of some of the legacy hits the tail the cash flow tail of the P&L.
At the end of the day, but Youre also seeing in there and organic investment in our business.
As resources have become the number one.
Criteria in order to.
Support this this growth trend that we see in front of US. There is there is an investment in the infrastructure and there is an investment in talent development and Onboarding of individuals in training. So that is the organic investment that we're making happily into the business as we see the.
Kind of the demand curve increase for our services.
So there is some of that but we believe that that will become the baseline to support the growth into 25% to 26 and also when you get into a 75 plus reimbursable environment. We're not we're not working off of mobilization payments or big advances that you find through maybe the lump sum.
More risk.
A more risk profile. So there will be some cost to continue to kind of ramp up the reimbursable activities, but it's all done.
Relative to supporting the infrastructure to appropriately address and execute the projects that are coming our way.
So I will just add to that Michael and again, yes, as Joe said organically we are.
Investing in our people right.
And.
Attracting training and developing but also our systems and as by way of example offices with this growth.
We're going to be opening a deli satellite office, we've got three new offices in Houston.
So that will continue.
On the M&A side.
Really just.
Think about it as niche bolt ons too.
To further the business as as appropriate.
Potentially in mission solutions as a first as the first wave so.
That's where we're at right now and yes.
As things continued to.
Two.
We go in the right direction as we've been seeing here is that then we start of course talking to the board about dividends and share buybacks and things like that.
Good to hear and just thematic Lee Theres always a worry with rates still kind of hide that some projects will get pushed out to the right.
Doesn't seem like that's what you're seeing based on where your backlog.
You need to see rates come down so that robust pipeline to convert or do you feel like if rates stay here you guys saw visibility on really some of those bookings that you're expecting to play out through the year.
Yes, the projects that we.
Work on.
Other than maybe some energy transition developers that would it need some financing which.
They've been somewhat successful at.
Greg: But.
Our.
Key client base, if you will.
That we deal with.
<unk> used their balance sheets so.
Our clients look through the short term challenges of economic and geopolitical challenges. They play the long game right. So.
As I look at the client capex across.
SaaS sling of.
Fluor's say 10 clients.
I took a look at tier couple of weeks ago. Their capex for 'twenty 'twenty four is holding strong up some some of them are up but just those tenants are going to spend about $110 billion in capex and they expect to spend 125, 25% annually under 25 billion in the out years. So.
With quite a bit of that $20 billion in energy transition, where again, we are well positioned and are as I said.
We're going to over 200 projects energy transition so I think we.
We're in a very good space.
You take you take BHP. This morning that came on and said well at Nichols.
Doing well for them. So they are pivoting to copper and iron ore and potash, which is right in our wheelhouse, So and then.
They didn't change the capex guidance so I.
I just think that.
Interest rates are less of a concern.
Four four floor.
And our our prospects.
And then you've got of course emission solutions clients.
Theyre spending in our space and Dod.
Ian say Txdot, one of our key infrastructure customers.
$279 million.
Sorry, $1 billion last year, and 292 billion in 2024. So there is so much to say grace over.
We just need to be careful that we don't bring too much work and we have to make sure we've got the resources.
The Atms to execute these projects can be very selective and get paid for the value that we bring in the best opportunities.
Thank you.
This ends our question and answer session I will now turn the call back over to CEO, David Constable for some closing remarks.
Alright. Thank you operator, many thanks to all of you for participating on the call today based on our performance it's evident.
That we are well positioned to leverage the progress we've made over the past three years and we expect that this will drive significant value for <unk> shareholders for years to come.
So again, we appreciate your interest in Fluor Corporation and thank you again for your time.
This concludes today's conference call. Thank you for your participation you may now disconnect.
[music].
Sure.
Sure.
[music].
Okay.
[music].