Meta Platforms Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2024

There are 11 speakers on the call.

Operator

Good morning, and welcome to Fluor's Second Quarter 20 24 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 the management's presentation. A replay of today's conference call will be available at approximately 10:30 a.

Operator

M. Eastern Time today, accessible on Fluor's website at investor. Fluor.com. The website replay will be available for 30 days. A teleco replay will also be available for 7 days through the registration link, also accessible on Fluor's website at investor.

Operator

Fluor.com. At this time, for opening remarks, I would like to turn the call over to Jason Landkamer, Head of Investor Relations. Please go ahead, Mr. Landkamer.

Speaker 1

Thank you, Ellie, and good morning. Welcome to Fluor's 2024 Second Quarter Earnings Call. David Constable, Fluor's Chairman and Chief Executive Officer and Joe Brennan, Fluor's Chief Financial Officer are with us today. Fluor issued its 2nd 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 2.

Speaker 1

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 2023 Form 10 ks and in our Form 10 Q, which was filed this morning. During the 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.

Speaker 1

Fluor.com. I'll now turn the call over to David Constable, Fluor's Chairman and Chief Executive Officer. David? Well, thank you, Jason.

Speaker 2

Good morning, everyone, and thank you for joining us today. Please turn to Slide 3. To get started today, I wanted to briefly highlight the Fluor Fellows program. Fluor Fellows are a distinguished group of world class subject matter experts whose knowledge and experience contribute significantly to Fluor's success both internally and externally. Our fellows' technical expertise sets Fluor apart from its competitors and frequently become the decisive factor for clients when selecting Fluor for future work.

Speaker 2

The Fluor Fellows program involves a robust nomination process. Candidates are nominated by department managers, executive management and existing fellows and senior fellows. Fellows are selected based on their expertise, recognition from both peers and clients and the value they bring to the company on a global basis. These leaders have roles beyond projects, helping drive innovation and performance across the organization. I'm pleased to say that with the 2024 class, we now have 91 fellows and senior fellows driving world class technical excellence.

Speaker 2

Now let's turn to our operating review beginning on Slide 4. Revenue for the Q2 was $4,200,000,000 Consolidated new awards for the Q2 were $3,100,000,000 led by key awards in our Urban Solutions segment. Awards for the quarter do not reflect our substantial minority ownership in a joint venture that recently won a $30,000,000,000 Pantex M and O contract, more on that in a moment. New awards were 82% reimbursable and our total backlog is now $32,300,000,000 of which 81% is reimbursable. Strong demand for our services continues to drive new award margins above the 4% to 6% segment margin range that underpins our strategy.

Speaker 2

Specific to the margin profile, new award margins continue to outpace margin on existing backlog by an average of over 150 basis points for the past 6 quarters. Our margin story is driven by strength in service margins, which have been in the 20% range this year for our traditional EPCM businesses. This strong demand for our services is driving our investment in resources and people. Our shift to an asset light company provides us the opportunity to move resources quickly as we pursue a wide range of requests, which includes everything from pre FEED and studies to large EPCM programs. This flexibility also supports our diverse pipeline of opportunities in advanced technologies and life sciences, mining and metals, production and fuels and more broadly energy transition.

Speaker 2

Moving to our business segments, please turn to slide 6. Urban Solutions, our most diverse segment, reported $105,000,000 profit in the 2nd quarter. Results in this segment reflect increased execution activities on multiple advanced technology and life sciences projects and the effect of a change order on a legacy infrastructure project. This change order covers many of the matters that gave rise to the charge we recognized in Q2 of 2023. New awards for the quarter were $2,400,000,000 compared to $2,300,000,000 a year ago.

Speaker 2

Ending backlog continues to reflect the strength of our end markets and now stands at $19,600,000,000 This represents an increase of nearly 70% over the past 12 months. Now please turn to Slide 7. During the quarter, Mining and Metals received a $1,100,000,000 incremental award for an aluminum rolling facility in Alabama. Clients in this space continue to have a steady long term vision for their CapEx plans. Over the next few quarters, we are preparing for new awards to support rare earth refining, iron ore port debottlenecking and a lithium project in the United States.

Speaker 2

Moving to Slide 8. Advanced Technologies and Life Sciences continues to ramp up to meet sustained client demand. New awards for the quarter included Phase 1 of the Northvolt's large scale lithium ion battery facility in Germany for $361,000,000 Northvolt, headquartered in Sweden, manufactures batteries for consumer and industrial products, electric vehicles and solutions for energy storage systems. During the quarter, our ATS business line formed an alliance with Topso and ABB Limited to streamline construction of state of the art electrolyzers for effective production of green hydrogen. We look forward to providing EPC support for this key energy transition effort.

Speaker 2

We continue to see strong investments in the semiconductor space where the outlook is supported by the CHIPS Act funded here in the United States. From smaller tool install opportunities all the way up to large fabrication facilities, there's over $5,000,000,000 in potential prospects over the next 12 months. Over the next few quarters, the ATLAS business line is pursuing opportunities in data centers and additional phases on large life sciences projects. In the data center market, we're building our relationships with large tech companies that are taking a disciplined approach to capital expenditures. In infrastructure, productivity remains strong across the portfolio.

Speaker 2

During the quarter, we completed the deck connection on the Gordie Howe project. This bridge is the longest cable stayed bridge in North America and the longest composite steel and concrete decked cable stayed bridge in the world. The team is currently focused on completion and handover of both ports of entry. On the LAX Automated People Mover project in Los Angeles, our joint venture has reached a settlement with the client that covers already completed extra work dating back to August 2018 and a longer than anticipated construction timeline. We will continue to work with the client while we seek final approval of the change order with the City of Los Angeles.

Speaker 2

While we recognize a $39,000,000 improvement to our previous disclosed position for our portion of the settlement, this project remains in a lost position. Finally, plant and facility services secured a $533,000,000 renewal from a large consumer products manufacturing client, where we are providing ongoing construction management services. Moving on to Slide 9. Mission Solutions reported segment profit of $41,000,000 for the 2nd quarter, compared to $40,000,000 a year ago. New awards for the quarter were $63,000,000 and included various task orders for FEMA.

Speaker 2

Ending backup for the quarter was $3,800,000,000 During the quarter, our Paducah contract was extended for 2 years through June 2027. We have also received a notice of intent to extend our Portsmouth and DUF-six contracts for up to 1 year through September 2025. I'm pleased to report that the FE Warren nuclear weapon storage and maintenance facility is substantially complete. The project represents the last legacy project in the Mission Solutions portfolio. In early July, notices to proceed were issued to 2 joint ventures in which Fluor has minority ownership interests.

Speaker 2

As previously mentioned, the NNSA award awarded the Pantex M and O contract in Amarillo, Texas. Based on all three of the 5 year contract options being exercised, the contract will span 20 years at an estimated funding level of approximately $30,000,000,000 The protest period on this project has passed and transition from the incumbent is underway. Also, we were notified in July that the protest for the incumbent on the Air Force test operations and sustainment contract was denied and transition on this project is underway. Because we are a substantial minority partner in both joint ventures, our portion of earnings will be recognized as equity method income and not revenue. With the additional contributions from these 2 projects accounted for under the equity method of accounting, this segment is currently managing over $5,000,000,000 of additional project scope annually that is not reflected in our revenue.

Speaker 2

Other prospects for Mission Solutions include the Hanford Tanks project, which we have won, but are awaiting conclusion of the protest process. In addition, we are positioned to win additional work in the intelligence services space. Solutions, I want to highlight a new fifty-fifty partnership with Worley to pursue opportunities that support the Australia, U. K, USA Trilateral Security Partnership, formerly known as AUKUS. The partnership brings deep maritime, defense and nuclear competencies required to build and maintain a nuclear Navy capability, while also enabling the uplift of Australia's sovereign defense industrial base.

Speaker 2

Please turn to Slide 10. In Energy Solutions segment profit was $75,000,000 for the 2nd quarter compared to $89,000,000 a year ago. Results for the quarter reflect several large projects in the late stages of execution. During the quarter, we recognized a modest charge on a construction only subcontract with our joint venture entity in Mexico. With this recognition, we are close to reaching an agreement with our client on the cost to complete this project.

Speaker 2

New awards for the quarter totaled $582,000,000 and included incremental work for a petrochemical facility in Canada and an engineering study for Aramco. The energy solutions team had a number of accomplishments in the Q2. First, we moved our lead Energy Solutions office from our long time location in Sugar Land, Texas to a fit for purpose location in Houston's energy corridor. This location optimizes our real estate footprint and increases exposure to a tremendous concentration of industry talent for our expected growth. Next, we opened a second office in India to support our global execution platform and to position us for significant in country market growth.

Speaker 2

Finally, Energy Solutions' only legacy contract, the Penguin's FPSO project was turned over to the client and towed to its final destination in the North Sea. Shifting to LNG Canada, our team celebrated a major milestone with the final weld on Train 1. The well took 48 hours of continuous work from teams of welders working in shifts. More than 380 pipe welders have worked on the project since construction began in 2018. To date, we have turned over 1 third of the systems to the client and will be ready to import refrigerants in mid August.

Speaker 2

This week, we announced a key contract award for the next phase of engineering and design for Row Power's small modular reactor facility using NuScale Power's industry leading technology. As a reminder, Fluor has a development agreement with NuScale where we have a preferential right for work related to SMR opportunities. For the remainder of 2024, prospects are led by traditional refining and battery manufacturing. After a 6 year cycle of delivering on large scale programs, including LNG Canada and TCO, we are now seeing this mature EPC backlog replaced by higher margin pre FEED and FEED opportunities that set the stage for new large scale projects. With respect to the nuclear industry, I recently had a call with Energy Secretary Granholm about the importance of nuclear and SMR specifically and how Fluor can play a key role in supporting a transition to low carbon power in the United States.

Speaker 2

I'm optimistic that the recently passed Advance Act will increase the aperture for nuclear opportunities that the company is well positioned for. Finally, for fiscal year 2025, the House Energy and Water Appropriations Committee recently added $8,000,000,000 to the $900,000,000 in fiscal year 2024 to fund the completion of the advanced reactor demonstration program as well as an SMR demonstration project. While not law, this is a critical step to making advanced nuclear power a reality by the end of the decade. With that, let me turn the call over to Joe for the

Speaker 3

financial update. Joe? Thanks, David, and good morning, everyone. Today, I will review our results for the Q2 and go over financial outlook assumptions that support our guidance. Please turn to Slide 12.

Speaker 3

As David mentioned, for the Q2 of 2024, revenue was $4,200,000,000 Our consolidated segment profit for the quarter was $194,000,000 Adjusted EBITDA for the Q2 was $165,000,000 compared to $181,000,000 a year ago. Our adjusted EPS was $0.85 compared to $0.76 in Q2 of 2023. EPS results benefited from a lower tax rate as revenue and tax advantage locations increased. When you adjust for the change order in infrastructure, the incremental cost growth on a project in Mexico and the timing of revenue contributions from large projects and energy solutions, Q2 results support our full year guidance. Our adjusted results for the quarter exclude $20,000,000 for the positive income effects of FX on embedded derivatives in Mexico and nearly $50,000,000 of other FX gains.

Speaker 3

G and A expenses for the quarter were $50,000,000 down from $60,000,000 a year ago. Net interest income for the quarter was $38,000,000 compared to $37,000,000 a year ago. Net interest contributions reflect a higher for longer interest rate environment and our low cost fixed rate debt. We anticipate interest income to remain near this level for the next two quarters. New awards of $3,100,000,000 in the quarter resulted ending backlog balance of $32,300,000,000 which now stands at 81% reimbursable.

Speaker 3

Based on our prospect pipeline, we anticipate a book to burn ratio equal to 1 for the 3rd straight year. The book to burn would be much higher if you included the unconsolidated revenue that Mission Solutions manages. Moving on to Slide 13. Our cash and marketable securities balance for the quarter was $2,600,000,000 This excludes amounts held by NuScale. Operating cash flow for the 2nd quarter was $282,000,000 compared $2,000,000 outflow a year ago.

Speaker 3

This reflects distributions from our joint ventures, customer payments on several large projects and a refund from the IRS amounting to $77,000,000 Additional IRS refunds of approximately $90,000,000 are anticipated to be recovered later this year. During the quarter, we distributed $21,000,000 in cash to fund legacy projects. We currently estimate that our funding requirements on the 3 remaining legacy projects is $50,000,000 for the balance of 2024. The sale of Storch U. K.

Speaker 3

Operations is progressing and dependent upon regulatory approval timing, which is likely to happen towards the end of 2024. Regarding NuScale, I want to note that NuScale's ongoing capital efforts may reduce Fluor's ownership below the threshold for consolidation. While this would result in us no longer consolidating NuScale, we would expect to recognize our investment under the equity method. Before I close with details on our outlook, I want to provide an update on our view of capital structure. Year to date, we have made considerable progress in entitlement negotiations, free cash flow conversion and investing in our people.

Speaker 3

These elements also support our stated goal of initiating a plan to return capital to shareholders. Please turn to Slide 14. We are affirming our 2024 adjusted per share guidance of $2.50 to 3 dollars and tightening our adjusted EBITDA guidance range from $600,000,000 to $700,000,000 to a range of $625,000,000 to $675,000,000 Our expectations for operating cash flow are now between $500,000,000 $600,000,000 Our assumptions for 2024 include revenue growth of approximately 15%, G and A expense of approximately $215,000,000 and an effective tax rate of between 30% to 35%. Our expectations for 2024 full year segment margins are approximately 5% in Energy Solutions, approximately 4% in Urban Solutions and approximately 6% in Mission Solutions. Before we head to Q and A, I'll turn the call back over to David for an organizational change announcement.

Speaker 3

David? Thanks, Joe.

Speaker 2

As we enter the second half of the year and successfully wrap up Chapter 1 of our Building a Better Future strategy, we're looking ahead and developing plans for the next chapter. Going forward, our objectives will be to maximize opportunities in growth markets, remain laser focused on execution, generate consistent operating cash flow and continue to develop our pipeline of talent. In support of our objectives, we are making changes to our floor management team. To prepare for the future, we require a more holistic view of our markets, strengths and needs in project execution and talent allocation across our businesses. Please turn to Slide 16.

Speaker 2

To this end, effective August 5, Jim Brewer, who is currently the Group President of Energy Solutions, will assume the role of Fluor's Chief Operating Officer reporting to me. With our 3 business segment Group Presidents for Energy, Mission and Urban Solutions reporting to Jim. Succeeding Jim as Group President, Energy Solutions is Mike Alexander, currently the Chemicals business line President within the segment. Next, to strengthen and optimize our supply chain capabilities, effective October 1, Raj Desai will join the Fluor management team as Fluor's Chief Procurement Officer. Currently Raj is responsible for our supply chain and commercial strategies groups.

Speaker 2

In addition to these duties, Raj will also assume responsibility for our information and technology organization, furthering Fluor's expertise in leveraging technology and price execution. Robert Taylor, our current Chief Information Officer has advised of his intention to retire at the end of 2025, March 2025 after nearly 34 years with Fluor. And lastly, after a career with Fluor that spans almost 40 years, John Reynolds, our Chief Legal Officer and Corporate Secretary confirmed his decision to retire from the company effective mid May 2025. Effective August 5, Kevin Hammes will join the Fleur management team as Chief Legal Officer. Over the coming months, John will transition his responsibilities to Kevin, for the past several years served as Senior Vice President and Managing Counsel of the Americas.

Speaker 2

Until his retirement in May 2025, John will remain in service to the company as Corporate Secretary to the Board of Directors. I'd like to take this opportunity to warmly thank Robert and John for their service and dedication to Fluor Corporation and congratulate Mike, Raj and Kevin on their upcoming appointments to the FMT and Jim on his new role as Chief Operating Officer. For your reference, the bridge profiles for Jim, Mike, Raj and Kevin are attached as an appendix to the earnings call presentation. And with that, operator, we're now ready for our first question.

Operator

Thank you very much. We are now opening the floor for question and answer session. Our first question comes from Sangeeta Jain from KeyBanc Capital Markets. Your line is now open.

Speaker 4

Hi, good morning and thank you for taking my questions. So if I can start with the capital allocation comments that you guys just made and the plan to return cash to shareholders. Can you tell us a little bit more about that on what that exactly means and what the timing of that would be?

Speaker 2

Yes. Thanks for Sangita for the question.

Speaker 3

I think as we laid out at the beginning of the year, by the end of the year that we would be kind of in a position to firm up what that plan would look like and the timing of it. I think one of the elements I think we've satisfied a lot of what we're doing internally. And as we're embarking on the 2024 strategic plan, I think that's the last piece of this to kind of close off the circle and allow us to kind of roll out what our communication related to the shareholder allocation plan will be. So we're kind of in that process. We'd like to bet off one more thing, but it's coming by the end of the year.

Speaker 3

And then we'll be a little bit more granular about what that looks like. I don't think we're prepared to talk about the granularity of it. But I would say a lot of the things that are occurring in the quarter are giving us more and more confidence. And as we close off the strategic plan, I think we'll be in a good position to have that discussion.

Speaker 4

Great. And one more on the loss project outlay that seems to be now lower than the $150,000,000 that you gave last quarter. Is it fair to assume that that's a reflection on the positive adjustment at L. A. People Mover?

Speaker 3

It is in terms of settlement value and the fact that we don't have that cash outlay, Sangita, that's a fair logic tie there. That's a piece of it for sure.

Speaker 4

Okay, understood. Thank you so much.

Operator

Our next question comes from Jamie Cook from Truist Securities. Your line is now open.

Speaker 5

Hi. Congratulations on a fairly clean quarter I guess my first question, Joe, just on the cash flow guide increase, it was nice to see what was not embedded in your guidance? I'm just wondering, I know you said the cash reflects distributions from joint ventures and you had the IRS refund and etcetera. I'm just wondering how much cash outperformed your initial expectations. And then it's nice to see you're starting to get cash from the joint ventures.

Speaker 5

What's embedded in the guide or where would there be upside? I'm just wondering if we should get more positive that these distributions are coming and sort of the magnitude of that. And then, I guess, David, on the bookings for the rest of the year, I think before you've talked about a book to bill of over 1. I know bookings are lumpy. Just your confidence level there, and in particular what you're seeing on the data center side?

Speaker 5

Thank you.

Speaker 3

Thanks, Jamie. I'll start with the cash. We had an outlay at the beginning of the year from a planning perspective of $360,000,000 to fund legacy projects. And today, we currently have managed through the reestablishment of entitlements and excellence and execution, we've dropped that number from a $360,000,000 outlay potentially to now 126,000,000 dollars And even within that $126,000,000 in the balance of 2024, I see ways to kind of improve that outlay. So I think that's going to help us drive to the upper end of the guide that we've laid out relative to OCF.

Speaker 3

And I'm getting more and more confidence that that's kind of the direction that we're heading. But I see more opportunity to get to the upper end of that guide, but I think some time needs to play out here.

Speaker 2

Okay. Good morning, Jamie. On the book to bill and the one-zero confidence. We had a really good first half, right? We booked $10,000,000,000 in the first half of the year.

Speaker 2

So basically right on track with our that's $50,000,000,000 over the past 2.5 years and booking $20,000,000,000 in each of the in '22, 'twenty three, so about the same run rate. New award bookings remain strong, like higher margin profile versus the existing backlog as we mentioned in the prepared remarks. Q2, in fact, new awards were 2 50 basis points above the backlog margin. So that's great to see. As far as what it's shaping up like for new awards in the second half, ATLS and mining markets remain very promising.

Speaker 2

But also, if you look at the Q3 major prospects, they'll be in mining, traditional refining, chemicals, semiconductors, DOE maintenance and energy transition projects across the portfolio. And then in Q4, DOE environmental management bookings, more mining, LNG, data centers, some large data center work and then some more chemicals prospects. So confidence level, yes, I'd say we'll be right around 1, I think, thereabouts. I think that's what we've been messaging for the past several quarters. And obviously, we've got a revenue growth of about 15% guidance this year, just so you can track it that way as well to get to what that book to burn would be.

Speaker 2

So that's where we're at.

Speaker 5

Thank you.

Operator

Our next question comes from Andy Kaplowitz from Citigroup. Your line is now

Speaker 6

open. Good morning, everyone.

Speaker 2

Good morning. Good morning.

Speaker 6

David, maybe a follow-up on Jamie's questions around data centers. You mentioned that you're building relationships with tech customers and they're taking a disciplined approach to projects. So maybe what does that mean? Do you start seeing more bookings this year? Is it more 25 ramp up in bookings there?

Speaker 6

And maybe talk about Fluor's competitive positioning. Do you think the majority of the projects will actually be cost reimbursable?

Speaker 2

Yes. So like I said to Jamie, the data center work right now for the larger programs are starting in Q4 is what we're seeing right now and then into 2025 like you mentioned. So that's where we're at with data centers. It's just a really big demand right now. I think as everyone on the call knows the need for data centers has rapidly increased based on cloud based technology and artificial intelligence, right?

Speaker 2

So in the U. S. Market alone, the power consumption to reflect the number of servers of data centers can that they can houses is going to reach, we think or we've looked at the data and we think it will reach about 35,000 megawatts by 2,030 and there's about 17,000 in place right now. So a huge growth in data centers and the U. S.

Speaker 2

Is going to account for 40 it accounts for 40% of the global market. So lots of data center work to say grace over here. And from what we've seen, it is primarily reimbursable, right. So that's also encouraging or reimbursable with incentives on cost and schedule. So, right in our wheelhouse to in our contract, our risk profile and fair and balanced contract terms, strategic priority to go after these data centers.

Speaker 2

And they are large, right? So there's only a few contractors in the country who can really take on these really large projects and Fluor is obviously one of those and will be right in the mix for the data center build out that's coming. So very we're very bullish on data centers, but also semiconductor facilities right now more in the global markets and also life sciences in ATLS. So, yes, ATLS is shaping up very nicely here going forward.

Speaker 6

Helpful, David. And maybe can you give us more color regarding what you're seeing specifically within Energy Solutions? Backlog is up year over year, but revenue is down. And you have as you said winding down. So what kind of visibility toward revenue growth in that business do you have over the coming quarters and in 'twenty five?

Speaker 6

Could there be a low before, as you said, you do a bunch of seats, but then you get in TPC, I guess, later in 2025 or 2020 6? How does it evolve?

Speaker 2

Yes. It's we've had a good run-in Energy Solutions. Backlog is up, as I mentioned, right, up to $8,500,000,000 up quite a bit over Q2 of 'twenty three. So that's good news. But also, we have been finishing off some major projects, coming to the end at LNGC and TCO is ramping down somewhat.

Speaker 2

But as we look at all the FEED work and prospects in FEED work, there's about $420,000,000,000 of potential projects out there that we can go after. And a good portion of that is in Energy Solutions, right. Just in the if you just look at the prospects of front end work, it's split pretty evenly between of the 207,000,000,000 that we're tracking right now, it's split very evenly between Energy Solutions and Urban Solutions, but 104,000,000,000 for Energy Solutions. And that's across chemicals and refining, refining in Mexico, specifically nuclear power and then a very big chunk is in downstream production and fuels, which covers off a lot of the energy transition. So I think with everything that's either in house, which is another 200,000,000,000 dollars of studies that we've got that we think will proceed.

Speaker 2

A lot of good things are coming. If you look at full projects, EPCM, EPC, EPCM, there's about $60,000,000,000 of prospects in the next 18 months for the company and $25,000,000,000 of that is Energy Solutions. So yes, that's I wouldn't call it a lull, but it's going into that front end work where we our strategy is to get in early and stay late. So we're busy on some more front end work in Energy Solutions that will see them growing nicely in the coming quarters. Appreciate all the color.

Speaker 2

Thanks.

Operator

Our next question comes from Steven Fisher from UBS. Your line is now open.

Speaker 7

Great. Thanks. Good morning and congratulations. I just wanted to something else that offset that since the midpoint of EBITDA was kept the same? And then I'll just ask my second question now.

Speaker 7

David, you cited that the average of 150 basis points of higher margins going into backlog over the last 6 quarters. How should we think about the trajectory of margins going into backlog from here kind of relative to that 150 basis points? Is that kind of flattening now? Or do you think there's still room for putting

Speaker 8

higher margins in? Thank you.

Speaker 3

Stephen, I'll take kind of the view on guidance for the quarter. I guess the way I would frame it for you is the results for the quarter kind of reflect the underlying quality of the existing backlog that we booked over the last couple of years. That $50,000,000,000 up through the end of 2023, an additional $10,000,000,000 plus what's coming in on Pantex. We understand there were some puts and takes in the quarter, but we still have confidence on our core results. And I think those results suggest the run rate of $165,000,000 that we've shown in the quarter.

Speaker 3

As we move forward, Stephen, I think what we'll see is less and less volatility. As the results we're continuing to close out our existing legacy projects. We've made significant progress there. And our de risk project portfolio of 80% reimbursable will begin to mature as it pulls through the pipeline. But as we laid out in prepared remarks, we did have some delayed revenue recognitions over some of our major programs in Energy Solutions, which are coming in, in the back half of the year.

Speaker 3

And so that gives us the confidence in being able to support the guidance and certainly up to the midpoint at this point.

Speaker 2

Yes. Good morning, Stephen. Yes, on margins and going to backlog, that's been a good run that we've seen and it continues to pull our backlog margins up. So our backlog continues to get healthier. As we've said, we're over 80% reimbursable now, which has met our surpassed our strategic priority target of reimbursable work in backlog.

Speaker 2

So I'd say it's looking at it, I'd say we'll continue. I think we'll continue to book new awards above our plan margins. A lot of it has to do with services margins that we're booking right now. A lot of this front end work that we're back into in Energy Solutions, obviously, brings with it much higher margins when it's services only. So that's a big contributor to what we'll be seeing over the next several quarters.

Speaker 2

So I think that will continue. I wouldn't want to it's better to get there and then tell you what it is after the fact. But I think we'll continue to see margins coming in new awards that are above our planned expectations.

Speaker 7

Great. Helpful. Thanks a lot.

Speaker 9

Thanks, Stephen. Thanks, Stephen.

Operator

Our next question comes from Mike Dudas from Vertical Research Partners. Your line is now open.

Speaker 10

Good morning, Jason, Joe, David.

Speaker 3

Hey, Mike. Good morning, Mike.

Speaker 10

First for Joe. Joe, with the positive success of cash flow improvement this year versus a year ago, after we go through all the puts and takes and the legacy products moving out, some of the better business moving in backlog through the P and L, what do you trend what do you expect from a normalized kind of conversion rate on when Fluor is kind of running on those cylinders without some of those even though there will be some special movements interquarter, what that can be? And has that changed from what your expectations would have been?

Speaker 3

No. Thanks for the question, Mike. We have stated that 60% to 70% conversion rate as we move forward. And I would expect if I've gone back and kind of looked at our historical floor and at times we've been up in the 75% range in a similar asset light model. So I think the goal would be to drive to levels in the 70% to 75% range.

Speaker 3

But as we transition here, I think that 60% to 70% conversion view is probably an appropriate one as we kind of progress through the next few quarters.

Speaker 10

That's helpful, Joe. And for David, you mentioned in your prepared remarks, the booking from the NuScale on real power, your discussion with the Department of Energy Secretary. How real how are your thoughts on what potential that could be for 4, whether it's through NuScale or other opportunities at other areas on the nuclear side? And maybe an update on monetization opportunities for your majority of your holdings?

Speaker 2

Yes. Good morning, Mike. Yes, great topic right now based on as we talked about the data centers and everything that's going on for power demand requirements, not only in the U. S, but globally. I think we said last quarter that demand or the interest, I'll say, the interest in SMR technology, carbon free power that has never been greater.

Speaker 2

We obviously are seeing supporting NuScale, but also supporting their commercialization and their development partner in commercialization globally. So we've got a pretty good insight into all the opportunities out there with tech companies and with utilities to crack this nut on power demand and the requirement for it to be clean energy. So pretty exciting times. We're excited about ROW Power. We're excited for NuScale about their technology being chosen over there, support from the U.

Speaker 2

S. Government as well. And we're looking forward to getting started on that front end package for ROW Power. And we believe there's going to be a lot more of it, both internationally and I think the floodgates will start to open here in the U. S.

Speaker 2

As well as either with utilities taking on the assets in their facilities or over the fence, build on operate, different business models are available and the tech companies are coming. I think they'll lean more towards PPA's power purchase agreements with the SMR developers out there. So, yes, times are good. Like I said, we have preferential rights with new scale and we know the technology best from an engineering design and constructability perspective. So it's shaping up to be something going forward that will be all over.

Speaker 2

So exciting times. On the monetization, we're still working with a strategic investor. I think everything I've just said about how positive things are shaping, that is definitely going to get the investment, I think, over the goal line here. We'll probably be talking more about it at the end of the year and letting you know where that stands with Flour shares and selling down the majority of our shares to a strategic investor that will take the commercialization forward. Thanks, Mike.

Operator

Thank you. Our next question comes from Andy Wittmann from Baird. Your line is now open.

Speaker 9

Great. Thanks for taking my question. I guess, I just wanted to ask on the SG and A guidance. I guess, is up this quarter versus what you were thinking last quarter. And so I was wondering if you could discuss what's in there, Joe.

Speaker 9

Is there something one time? Is it incentive comp because the year is turning out well? Maybe if you could just talk about the change there.

Speaker 3

No, it's a one time impact, partly due to some of the investment that flowed through in to the build out of our office in Houston and it will be non recurring, Andy, as we move forward.

Speaker 9

Got it. Okay. So we still like the 190 as kind of the underlying rate for the company. That is. That's fair.

Speaker 9

Yes. Okay. I just wanted to talk about the change order that you got in infrastructure on PeopleMover. During the quarter, there was an announcement publicly about some resolutions and change order. Then there was a second announcement from LAWA on this one that was actually more substantial in the headline.

Speaker 9

But I don't know, if that was Fluor's scope. So I was hoping you could clarify that. So was there any scope or is there any relief given in the 2nd wave of Lalor money? And was that recognized in the quarter in the second quarter Or could that be recognized in the Q3? Just thought maybe you could comment on that one too, Joe.

Speaker 3

Andy, yes, the settlement that we've reached is a global settlement and the position that we've taken reflects our position to complete the project.

Speaker 9

Okay. Entirely in the second quarter, yes.

Speaker 3

This settlement gets us to the finish line. And we don't expect any other changes other than if we're able to execute the job in terms of how we utilize reserves and contingencies. But this is the settlement that sets the kind of the mark for handing over the facility to the client.

Speaker 9

Got it. Okay. Those are my only technical questions for today. Thank you very much and have a good day.

Speaker 3

Thanks, Dan.

Operator

Our next question comes from Brent Thielman from D. A. Davidson. Your line is now open.

Speaker 8

Hey, thanks. Good morning. It's David or Joe, actually just wondering if you could clarify why the upper end of the EBITDA guidance range came down? It seems like you got some really good momentum going into the second half. Is it just that the pace that you're seeing the new mid business deploy or anything else?

Speaker 3

It's a good question, Brent. It is the pace of the deployment of some of these programs and they're coming online. It's more of a where we are in the cycle, the burn cycle and the maturity of those projects. And as we see kind of where we are in that progress, it made sense to kind of bring us off the top end of the range and hold the midpoint. But all that backlog is going to continue to burn as we move out through 2024 and into 2025.

Speaker 3

So this is more just a function of where we are and the maturity of the cycle relative to the work that we've onboarded, the $60,000,000,000 plus of work that we've onboarded in the last

Speaker 2

3 years.

Speaker 8

Okay. I appreciate that, Joe. And I guess my second question, I mean, it's sort of interest I mean, Urban Solutions now 60% of your backlog compared to less than 40% a few years ago. I'm just curious, bigger picture, is this sort of a new look for Fluor going forward? I know you've got this potential pipeline of work in energy solutions that can come down the line.

Speaker 8

But I guess I'm just curious whether yes, see this is sort of the new look for Fluor going forward or just a product of where the markets are right now?

Speaker 2

Yes. Thanks for the question. It's really encouraging to see that our strategic priority that we set back in early 2021 based on megatrends we were seeing around the world, driving growth across the portfolio outside of traditional energy, outside of traditional and gas has really come to fruition and really lined up exactly as we thought it would. And it's and you're seeing that in Urban Solutions backlog of almost 20,000,000,000 dollars But we've also at that same time, we also wanted to grow traditional on gas, and we're happy that it come along and be a strong part of the mix. And I think it will be for the future, both in energy transition, but also in traditional.

Speaker 2

So and nuclear sits in energy solutions as well. Just be aware that, that as we just talked about with Mike, will be sitting that those projects will be sitting in Energy Solutions going forward. So going forward, we're hoping and thinking that all boats will be raised across the three segments. And we'll enjoy watching Energy Solutions and Urban Solutions battle it

Speaker 3

out for

Speaker 2

who's got the most backlog. But right now, it's definitely ATLS based on data centers, semiconductors, life sciences, mining and metals is very, very strong as we've talked about. So I guess I'd say it's coming across all the business lines. Appreciate it. Best of luck.

Speaker 2

Thank you.

Operator

Thank you. That concludes our question and answer session for today. I'd now like to hand back the call over to Mr. David Constable for final remarks.

Speaker 2

Thank you, operator. Many thanks to all of you for participating on the call today. I'm very pleased with the company's performance to date and our trend for 2024 and our focus on bidding discipline and product performance continues to serve us well. So appreciate your interest in Fluor. Thanks again for joining.

Speaker 2

Thanks.

Operator

Thank you for joining today's conference call. Have a wonderful day. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
Meta Platforms Q2 2024
00:00 / 00:00
Remove Ads