Please stand by, we are about to begin. Good morning and welcome to Fluor’s First Quarter 2022 Earnings Conference Call. This 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 investor.fluor.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.fluor.com.

At this time, for opening remarks and introductions I would like to turn the conference over to Jason Landkamer, Head of Investor Relations. Please go ahead..

Thank you, Jake. Good morning and welcome to Fluor’s 2022 first quarter conference call. With us today are David Constable, Fluor’s Chairman and Chief Executive Officer; and Joe Brennan, Fluor’s Chief Financial Officer.

We issued our earnings release earlier this morning and have posted a slide presentation on our website, which we will reference while making prepared remarks. Before getting started, I’d like to refer you to our safe harbor note regarding forward-looking statements, which is summarized on Slide 2.

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 the discussion of our risk factors, which could potentially contribute to such differences, in our 2021 Form 10-K and our Form 10-Q, which was filed earlier today. During this call, we may discuss certain non-GAAP financial measures.

Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the Investor Relations section of our website at investor.fluor.com. I’ll now turn the call over to David Constable, Fluor’s Chief Executive Officer.

David?.

firstly, the expansion of the pipe investment.

The final amount was $235 million with $55 million added since the December SPAC announcement; second, as of May 2, NuScale’s combined cash on hand is approximately $380 million; third, an MOU was signed with Dairyland Power Cooperative in Wisconsin to evaluate NuScale’s small modular reactor technology; fourth, a collaboration agreement with the U.S.

Reactor Forging Consortium was signed to support commercialization of NuScale power modules. And last week, Doosan Enerbility and NuScale Power finalized an agreement to start SMR production. Doosan is set to begin manufacturing of SMRs for our UAMPS project.

They will start manufacturing large forged materials used for SMR manufacturing in 2022 and we’ll get into full-scale manufacturing of SMR equipment in the second half of 2023.

And finally, on April 4th, Fluor announced the Japan Bank for International Cooperation through Japan NuScale Innovation LLC, purchased a preferred equity position in NuScale Power, generating $110 million for Fluor. Before I turn the call over to Joe, let me touch on the 2024 guidance we announced on Strategy Day a little over a year ago.

I’m very pleased with the quality of new award bookings. As mentioned last quarter, our bookings were 120 basis points above our gross margin plan. In this quarter, we were 470 points above our expectations. I remain confident that the 2024 guidance of $2.50 to $2.90 per share set last year is achievable.

And now I’ll 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 our divestitures and capital structure plans and go over the key financial outlook assumptions that support our 2022 guidance. Please turn to Slide 17.

For the first quarter of 2022 revenue of $3.1 billion was lighter than anticipated as we saw some impact from seasonality and COVID-related slowdowns. Segment profit, nearly doubled to $115 million when compared to 2021.

This included favorable contributions from a settlement related to a contract in Puerto Rico for Mission Solutions and increased execution activity on certain energy solution projects in North America. Also included was the adverse effect of additional costs associated with the closeout of an advanced manufacturing project in Urban Solutions.

Our diluted adjusted earnings per share for the quarter were $0.16. Results for the quarter were broadly consistent with our expectations, except for tax expenses. Our tax expense is the result of jurisdictional earnings recognition in the U.S. and certain international locations that are not tax benefited.

This will start to normalize as we increase domestic revenue generation. As we completed the first quarter, we determined that Stork a remaining AMECO business no longer meant all the requirements to be classified as discontinued operations. We have moved these operations back into continuing operations under our Other segment.

As a result, we have re-measured the carrying value of these businesses and reversed $63 million of previously recorded impairment expenses. Since the entities are still marked for sale, we have excluded them from our adjusted results. I will provide an update on this in a moment. Please turn to Slide 18.

Our ending cash for the quarter was $2.1 billion with 24% of this amount domestically available. As a reminder, the rest of our cash is tied up in VIEs and projects are in foreign accounts. We anticipate our cash to reach $2.4 billion by the end of 2022.

Our operating cash flow for the quarter was an outflow of $188 million and reflects the increases in working capital on several large projects and timing of 2021 incentive payments. For the year we expect operating cash flow to be flat to slightly positive. As David mentioned, we received $110 million from Japan NuScale Innovation in April.

Note here that even though NuScale is now a public company, since we remain a 57% owner, we will continue to consolidate their results that will have a lower level of controlling interest. Over the past two months, we’ve been asked about our plans as it relates to our current capital structure.

We made significant improvements over the past 12 months, including the retirement of over $500 million of outstanding debt. In this quarter we expanded our credit facility and extended the maturity to 2025. As part of our liability management program, we believe it’s important to reduce outstanding debt to an appropriate level.

Right now we have $1.2 billion outstanding, including $187 million that matures in March of 2023. Based on our expectations for monetizing our non-core businesses and an increase in cash flow from operations, we currently intend to use existing liquidity to retire the 2023 notes.

We’ve also had conversations about what to expect as it relates to our convertible preferred shares. We have no near term plans to convert these shares to common at this time.

As we start to build our backlog and start to see an improved quality of earnings in cash generation, we will look at all options, including conversion of the convertible preferred shares, retirement of the 2024 notes, reestablishing common share dividends and share repurchases.

For our clients, our employees, and our shareholders, we believe that it is extremely important to maintain a strong, flexible balance sheet that supports EBIT generating activities. Finally, we continue to make great progress on our cost optimization program, which we call Project F.I.T.

We are on track to capture $97 million in ongoing savings in 2022. And we expect to be well above our 2024 strategic goal. Please turn to Slide 19. As it relates to AMECO, we are continuing our efforts to monetize our operations in South America and Mozambique. If we fail to generate sufficient interest, soon, we will look at other options.

Last quarter, I discussed the need to have multiple transactions to accelerate our divestiture of store. I’m pleased to report some initial success and that we now have entered into an exclusivity agreement for the purchase of Stork’s European operations.

If the preferred bidder moves forward, we anticipate closing the transaction in the back half of 2022. We continue to review opportunities for Stork’s, other regions. Finally, last quarter, we mentioned the pending sale of a P3 investment in Canada.

We have reached agreement on terms and will recognize cash proceeds of approximately $25 million in the second quarter. Please move to Slide 20.

We are reaffirming our adjusted earnings per share guidance between $1.15 to $1.40 for the full year, hitting this target is dependent on strong execution on existing projects and the timely conversion of projects in our prospect pipeline.

Our assumptions for 2022 include an increase in revenue of approximately 10%, adjusted G&A expenses of approximately $50 million per quarter and a tax rate of approximately 28%. This may vary depending on the country in which revenue is generated.

We are also maintaining our previous segment level guidance and expect 2022 full year segment margins up approximately 5% in Energy Solutions, 3.5% to 4.5% in Urban Solutions and approximately 4% in Mission Solutions. Operator, we are now ready for our first question..

[Operator Instructions] We will begin with Michael Dudas with Vertical Research..

Good morning, gentlemen..

Good morning, Michael..

Good morning, Michael..

First David, you mentioned in your response, the booking margins, I think, you said about 470 basis points from expectations. Maybe you can elaborate a little bit more on that.

And as you look through the pipeline over the next several quarters, how those booking margins are relative to 2022 plan and out to the 2024 plan [indiscernible]?.

Thanks Mike. Good morning. Yes, we were very pleased with if you’re going to beat your margin plan, it’s nice to do it in the first quarter and beating it by 470 basis points, certainly sets this up well for the year and for our guidance for the year.

I think that’s the takeaway there is that their margins were extremely strong and that it’ll be burning this year and next. So we continue to see really good deal shaping through the business segments, allowing us to realize those as-sold margins and convert those into actual margins with strong execution.

So I think that’s the point there and sets up the 2022 plan. The pipeline is very strong through 2022. It is obviously the strongest I’ve seen since being here and its broad based Mike. It’s through our government Mission Solutions business in DOE. And obviously in ATLS, we’ve talked about quite a bit.

When you think about the data centers and semiconductor facilities that are right in front of us, mining, as I said, has over about, $6 billion in new awards coming up in the very near term. Energy Solutions seeing good traction in chemicals and energy transition in general, coming on strong.

But also traditional oil and gas if you look at the CapEx numbers for our big customers in traditional oil and gas, their CapEx numbers are continuing to increase and with the new landscape in energy, and energy security and energy challenges in Europe a lot of work going on there.

So I’m very pleased on margins and the pipeline that we’re looking at right now across our business lines..

Thank you, David.

My follow-up is regarding in your advanced manufacturing and your semiconductor businesses, maybe you could frame a bit more about type of opportunities? And especially on the construction side, how much competition is there? What are the customers asking from? And what, over the next several quarters could be a win rate or potential opportunities in this area where given all the interest and investments that’s going on?.

Yes, it’s a little hard to hear you, Mike, but I think you’re asking about the state of the semiconductor business for Fluor, but also, and on the construction side and how the competition is shaping up..

Yes. Thank you..

Yes thanks. So yes, it’s exciting times, right. And we think we’re in a very good position with a couple of the key manufacturers that are coming on strong in the U.S. I’m sure you know who they are. And we’ve been working with one of the key manufacturers for over four years now.

So I think we’ve got a leg up on the competition from that standpoint, some are just getting into the business right now. We’ve been working with the Intel’s and Samsung’s of the world chair more recently and have of a good history and good experience in the locations they are considering in the U.S. We’ve got a great delivery model.

We understand the environment, the union environment, the self-performing capability that we bring to the table, but also the offsite modular manufacturing playbook that will be implementing. We’ve got good discussions on going there. These are massive facilities as you know up to $20 billion on one site, multi-billion dollars on another.

So I think from that standpoint, we’re bringing our mega-project experience to bear our clean room experience. We’ve got over 40 years of clean room experience that are directly applicable to these types of facilities. And so cost certainty, they are looking for cost certainty speed.

And we feel that with our offering, we really do have a good opportunity, a leg up if you will, on the competition. Not only on the design side with our modeling expertise but also through into construction and tool installation we can bring that to the party as well and improve the schedule even further.

So lots of good things happening on the semiconductor front..

Thank you, David..

Thanks, Michael..

And now we’ll hear from Andy Wittmann with Baird..

Hey great. Thanks for taking my questions. Good morning, guys. I have several questions today, but I’ll try to pick a couple here that I think are relevant. Maybe just starting with NuScale saw the 57% equity ownership and that’s helpful.

I guess, all the filings on NuScale aren’t exactly clear and most systems are still showing just only the SPAC shares, so they’re kind of wrong. So how many total shares are there that you own 57 percentage – percent of so that we can assign proper value to that for per floor..

Joe, I’ll have to turn that one to you..

Yes. No, we’re – so nominally we’re 220 million shares. We’re 57% of the 220 million shares, which is outstanding. So do a little math there about 114 million, 115 million shares would represent 57%..

Okay. So the 220 million is the total share count of NuScale? I didn’t know if that was just the SPAC shares or if there was any pipe shares that were additive to that that should be included..

Well, it’s part of the overall share count relative to the AK that’s going out through NuScale power..

Okay. And then just I guess, I wanted to ask on LNG Canada really kind of two facets here. One is the fab yard in China and the impact that any shutdowns may or may not be having.

Could you just give us an update as to that location and the production that’s coming out of it today, as well as any discussions that you might be having with the customer to provide relief for that? And then just maybe more broadly given the new world order here for energy, I’m curious as to your thoughts on the potential for Phase 2 and your interest in Phase 2.

Obviously this has been a project that’s had a lot of headlines and I wanted to just see if there’s anything that would prevent you from being interested in bidding on Phase 2 if and when it comes. Thanks..

Thanks, Andy. Yes, like as I said in the prepared remarks, LNG Canada, the project is coming along nicely. I think I said over 60%, I think it’s 64%, 65% complete right now. And at the two fab yards, the key fab yards at COOEC and CFHI, COOEC Fluor heavy industries seeing good progress on the modules coming out of China.

I’ve mentioned before there’s 215 modules if we need to get to site from various yards.

If you add it all up with fourth quarter and first quarter of 2022, and the modules we’ve brought over to date in Q2, we’ve got 59 modules, over up in [indiscernible] that have been delivered and so full second quarter should take us up to 92 modules of the 215 at the end of Q2.

So I think that’s gives you a good indication that things are starting to move. And of course, we continue to monitor the sites and ensure that COVID impacts are kept to a minimum.

We have had some challenges getting some of our expats into country obviously, which is to be expected with the lockdown situation over there, but as far as physical progress that the fab yards continue to see good progress.

On Phase 2, obviously with everything that’s happening in the world, I would venture to say that that the customer at LNGC would be looking to install Trains 3 and 4. I think they’ve actually mentioned that in their earnings call as well. So that’s a very good chance of moving forward on 3 and 4.

I think again, from their perspective, that’s what I’ve heard. And of course, we’d be very interested in continuing.

I think we will bring a lot of efficiency and cost effectiveness schedule certainty to Train 3 and 4 based on our knowledge and our experience and local capabilities and interactions with the community up there and the customer relationship. So yes, more to come on that, but we stand ready to support on Train 3 and 4 as well. Thanks, Andy..

Now we’ll move to a question from Jamie Cook with Credit Suisse..

Hi, good morning and nice quarter. I guess two questions. One, it sounds like you’re pretty confident in your FY2022 guidance. But I think in the release, you do say it’s dependent on new awards. So if you could just sort of frame that for me.

And then David, I’d be interested given Russia-Ukraine talks about LNG just your sort of view on another potential energy cycle and how you’d be positioned given you’re one of the few players left to support your customers. Thank you..

Thanks Jamie. Good morning. As far as the new awards go, we talked last quarter, Jamie, about where we at in the trough as far as were at an inflection point on backlog and new awards coming. I think that’s clearly the case from what Joe and I are seeing in Q2, Q3 and Q4 in the sales forecast. So, again, it’s fairly broad based.

As I said, we had really good margins in Q1 obviously well above the plan.

And that’s what we really need to be focusing on is that healthy backlog to burn here this year? So that gives – that’s the confidence that I have in addition to coupling up with the Q2 awards, the prospects are again broad base through chemicals, another big job with eco Fluor.

We’ve got LNG kicking in as well into few some more work there on the mid-scale facilities. Mining, big aluminum job, copper over in Asia big release for mining in South America in Q2, and then really nice awards for the DoE Intelligence Community and Department of Defense. So again, broad based.

It continues into chemicals in Q3 and Q4 and also energy transition and renewable fuels. So obviously that is coupled with all the semiconductor work and pharma work that we expect to see in the second half as well. So I think from – again, from my standpoint, very exciting to see the prospect pipeline like it is in 2022.

Joe?.

David, thanks. I was just going to add Jamie that that there are a number of these projects and prospects that we’ve been pursuing that are not waiting for their initial FID investment. We’ve been working under LTPs and we’ve been working on extended work scopes supporting that FID decision.

So a lot of what we’re pursuing in terms of when we think that’s going to convert from the stage that it’s in into a full release into EPCM our projects that we have been supporting in quite a robust nature relative to detailed design and other things.

So it gives us a much higher level of confidence, I think as to when we believe these will flip into backlog..

Yes.

On the energy front, Jamie, also very pleased that we stayed very well stuck into our traditional oil and gas history and able to be there for our energy clients going forward with all the CapEx plans that they have in traditional oil and gas, petrochemicals and LNG, obviously will really start picking up pace, as you may have heard on many of the energy client first quarter calls here recently.

The CapEx is quite something, if you add up the CapEx of just the majors, it’s north of $120 billion for this year, just with Chevron, Exxon BP and Shell. And then that jumps up a little higher in 2023. So lots to say grace over, but again, very happy that we are right in the middle and a preeminent player in the traditional oil and gas industry..

Okay. Thank you very much..

Thanks, Jamie..

Now we’ll hear from Sean Eastman with KeyBanc Capital Markets..

Hi team. Thanks taking my questions. Just following-up on Jamie’s question there on the line of sight on the new award activity. You listed a bunch of stuff that sounds like it’ll translate the backlog very near-term. Are you guys communicating that we’re going to see that book to bill flip above one-time starting in 2Q.

Just wanted to clarify sort of the cadence of that new award translation we’re expecting over the next couple quarters..

Yes, Thanks for the question. And like I said, it really is a turning point, but I’ll let Joe give some color on it..

Yes. Thank you for the question. Our book to burn, kind of the key project that’ll fall first, we believe is Pantex/Y12, there are a number of other opportunities, which I think David has laid out. But we would just – our expectations are by the end of Q2 that we would be above the 1.01 book to burn.

And if things fall our way here, we would be significantly above that book to burn at 1.0..

Okay. Thanks. Thanks. And I’m just trying to parse-out what changed in the guidance. It looks like we had a pretty big closeout in MS.

I’m not sure how – how big that was, but was that contemplated in the guidance before? And then I guess on the other side of it, looks like there was some issues on an advanced manufacturing project in the quarter, some cost creep there.

Can you just kind of walk us through the moving parts and what gets us back into this intact range?.

Yes. I’ll take that question..

Go ahead..

Thanks, Joe. The – I don’t want to nail down the exact, the values that the amount that was associated with the project was a closeout of an existing contract. And I would call it nominal for the quarter.

It was not a significant or material amount and the settlement that we were able to achieve through the Puerto Rico activities was not an anticipated settlement. So I would certainly look at that as a onetime event for.

But I think when we look at as a onetime event, it also pretends to good solid execution in our ability and how we’re dealing with clients as we close out some of these contracts and kind of the new execution approach moving forward.

I think under this management team that we’re starting to see some of those – those resolutions come out much more positively at the end of the day. So one could look at it as a onetime event, but I look at it is just good solid execution in how we’re closing out our projects..

So just real quick to clarify, so does that settlement – the onetime settlement benefit kind of give us an added cushion in terms of getting to this guidance over the balance of the year? Or was there something else that hit you on the other side that neutralized it?.

Yes, and it’s a fair question. We did not have – let’s put it this way, we did not have the challenged project in ATLS in our guidance either..

Yes. Got it. Very helpful..

Yes. I would call that a net-net push..

Okay. Very helpful guys. I’ll turn it over there. Thanks very much..

Thanks..

Steven Fisher with UBS has the next question..

Thanks. Good morning. So a nice start to the year on EPS. I guess to hit the midpoint of your EPS guidance you got to ramp up from the $0.16 to from around a $0.35 to $0.40 range per quarter that’s an average. So I guess I’m curious how backend weighted is that.

And then to follow up on Sean’s question, are there other onetime things that your special items that you have embedded in there or is that majority likely to be kind of project based?.

Yes, Steven I’ll take that question. We are seeing some ramping up in Q4, but I think what we’re really seeing is more of a normalized kind of run rate moving forward. And that ramping up is not through onetime events, it’s through the booking and the gross margin that’s being generated off the back of what we have signaled in our earnings release.

And I think what we’re signaling today in this phone call that we do expect Q2 and Q3 to be fairly substantive booking quarters for Fluor..

Right.

But just to follow up on the, to clarify the EPS ramp, I mean, that’s something that builds sequentially from here or is kind of Q2 likely to be somewhere below the $0.35 to $0.40 average and then Q3, Q4 needs to be above that average?.

Well it will and yes, that is a fair assumption that we are going to, as we take a little bit of the noise that came through in Q1 relative to some of the positives offset by the negatives.

We will start to see a run rate that will ramp up over time, but I don’t – you’re not incorrect in your assumptions and how you should view that moving forward over the balance of the year..

Okay. Alright, I’ll follow-up on that. But I guess the other question is, I was a bit surprised when you clarified that it sounds like the first booking that’s going to move the backlog was Pantex.

I thought based on your earlier comments in the call that it would be something in the Urban Solutions, and you said sort of on the cusp of things, and it sounds like some of these mining projects are really ready to go.

So I guess I’m curious what is the timing of expected bookings of those mining projects? Is there – it sounded like maybe one was in Q2 and how much might that be, and then there is another one some point later in the year?.

So again, thanks Steven for the question. We’re seeing a lot of sizable work in the next few quarters for mining, right. And so no, it’s not just Pantex here it’s – again its broad bases.

I told Jamie across our business segments, but mining is – they’ve got two very large projects that they’re working on limited notices to precede for those should drop in the very near-term. And then three others that one, in I guess one in the U.S. and a couple of international projects that get yet to that $6 billion number for mining.

And then we’ve got another $1 billion in Australia on a rare earth refinery, like I said. So mining has a lot of work in front of it and the awards should be Q2, Q3, Q4 spread across those quarters..

Okay. That’s very helpful. Thanks so much..

Thanks Steven..

Well now here from Andy Kaplowitz with Citi. Good morning, everyone..

Good morning, everyone..

Good morning, Andy..

David, could you just step back and talk about the general terms and conditions you’re seeing, obviously a little bit of noise in advanced manufacturing this quarter that you talked about.

Can you get the terms and conditions you want on those types of projects? I would assume you’re hoping to book work on a bunch of these types of projects in the near future, but how risky is this work and are expecting to do a lot of fixed price?.

Well, thanks for that question. And we are fortunately seeing a deal shaping play into our negotiations, and the ability for us to balance the, the risk profile. We’ve got a very stringent and selective pursuit criteria process we continue to follow, that ensures that the risk is with the right – the right party in the contract.

So I’m seeing good terms and conditions that we’ve been able to negotiate.

And in addition to that, we’re seeing that we’re able to, if clients are looking for some fixed price, some hybrid lump, some work that we will go to a negotiated model where it’s not in competition and it’s where we will convert these projects well along into their project life.

So that allows us to mitigate the risk profile on the back end and through having engineering well along, having vendor data in, having solid quotes from our vendors and suppliers before full conversion as you’re in the field. And you’ve obviously got to nail down construction labor rates and productivity.

But that’s what we’re seeing across it’s – to talk about a lot of different contracts obviously, but generally speaking it feels like we’re in a better place with such high demand for with all the CapEx spend out there and such high demand for a talent and resources and services companies that that allows us to drive those fair and balanced terms, which is one of our key strategic priorities as we’ve talked about in the past.

So continue to focus on that and protect the company..

David, just following up on that, you already talked about potential additional phases of LNGC, but the bigger topic of LNG.

Can Fluor do additional LNG work at the terms and conditions you just mentioned besides LNGC?.

So that’s the – that would obviously be the goal is to get these large LNG projects to a place where the customer is not spending inordinate amounts of contingency to cover risk. Some of these LNG projects are in very interesting places around the world and the risks that come along with that are very difficult to nail down.

So again, moving to a hybrid lump-sum where we can obviously look at fixing our services or entering procurement services, indirect field staff and things of that nature. And then work together with the customer to reduce risk in a collaborative fashion and attack it that way with, like I say a potential conversion late in the project.

Or put allowances in for certain line items in the estimate rather than – rather than naming an exact fixed price..

And then Joe, maybe just a quick follow up, given NuScale de-SPAC in the SMR listing. Could you help us think about how the business will trend here in 2022 within that other segment that you have.

Is the expectation for the overall segment to be like it was in Q1, kind of flattish in revenue with the mass loss and then the NCI line as you’re reporting Q1, does that kind of look similar going forward?.

Yes. We will be continuing to fully consolidate and we do not expect really any significant variation from how we’ve reported. As we view the investment in NuScale over time, and our participation in ownership percentages change, then obviously we’ll have an impact relative to fully consolidating and how we view it from an equity perspective.

But for the foreseeable future at least for 2020 – the balance of 2022, I would expect similar – a similar trajectory..

Thanks guys..

Thanks a lot..

Ladies and gentlemen, this will conclude your question-and-answer session for today. We’ll turn the call back over to David for closing remarks..

Thank you operator. Many thanks to all of you for participating on the call today.

Today’s results represent another good milestone as we can continue to build a, a better organization here so that we can in turn build a better future for our clients and our employees and for all of our stakeholders, right? So we appreciate your interest in Fluor Corporation, and thank you again for your time today. Stay safe, thanks.

Ladies and gentlemen this will conclude your conference for forward today. Thank you for your participation and you may now disconnect..