Fluor Corporation

Good morning and welcome to Floor's fourth quarter 2021 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow management's presentation. A replay of today's conference call will be available at approximately 10.30 a.m. Eastern Time today, accessible on Floor's website at investor.floor.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 Floor's website at investor.floor.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.

Thanks, Cynthia. Welcome to FLOR's 2021 Fourth Quarter Conference Call. With us today are David Constable, FLOR's Chief Executive Officer, and Joe Brennan, FLOR's Chief Financial Officer. We issued our earnings release earlier this morning, and we 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 two. During today's presentation, we'll be making forward-looking statements which reflect our current views 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 2020-2021 Form 10-K, 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.floor.com. I'll now turn the call over to David Constable, Floor's Chief Executive Officer. David?

Well, thank you, Jason. Good morning, everyone, and thank you for joining us today. Before we move into operational results and our outlook for 2022, I'd like to start by highlighting one of our employees, Annie Lidge, the Director of our Supplier Diversity Program in Houston. Floor's Supplier Diversity Program aligns with corporate and client project goals and standards of the U.S. government regarding small minority and women-owned businesses. In December, Annie won the Corporate Champion of Diversity Award at Houston's 2021 Diversity Summit. Mayor Turner also proclaimed December 9, 2021, as Annie Lidge Day in the City of Houston. So, on behalf of the company, I'd like to congratulate Annie. This award honors both Annie's commitment to promote supplier diversity and the importance of making a positive social impact through the diversification of Fluor's global spend. Now please turn to slide three. It's been a little over 12 months since we launched our new strategy and 2024 EPS target. That strategy is centered around four strategic priorities. And just to recap, first, driving growth across the portfolio. At the onset, we said 2021 would be a bridging year. While that was clearly the case, we are now well positioned to meet our strategic goal of growing non-traditional oil and gas revenue to 70% of our portfolio. To better serve our customers and drive growth, we launched a key account management review process focused on aligning our capabilities directly to our clients' needs. Strengthening our client relationships by communicating Fluor's value differentiators is a key focus area for us going forward. We've also improved our leadership push into professional and technical solutions with a robust front-end backlog and prospect pipeline. We are currently working on or have recently completed over 400 feed and study packages representing over $200 billion in total installed cost. Fluor Technical Fellows and our other subject matter experts are supporting a wide range of projects from mining to semiconductors to energy transition. Speaking of energy transition, we have launched an energy transition offensive. This company-wide effort will provide a uniform marketing approach across all our business segments and will have Fluor's full range of capabilities on display to support our energy transition pursuits. Our second strategic priority, reinforcing financial discipline, has resulted in a significant reduction of outstanding debt and a company-wide effort to systemically and permanently reduce corporate, operating, and real estate costs across the organization. Jo is going to provide an update on our successes in this area a little later. On the new scale front, it's a very exciting time. Fluor functional teams are fully supporting the business combination with Spring Valley, and we are on track for the proposed transaction to close in Q2, subject to regulatory review. I'll provide more color on new scale status in just a moment. Now please turn to slide four. Moving to our third priority, fair and balanced terms. where it should be noted that at the end of 2021, 95% of Fluor's prospect pipeline was for reimbursable work, furthering our effort to drive predictability in earnings. In addition, 2021 new award gross margins were 120 basis points above our plan. And with our focus on developing strong client relationships, we are working with owners that recognize the value we provide and the deep experience we offer in technical solutions, engineering, supply chain, and construction. And our final strategic priority, high performance culture with purpose. During the year, we refreshed the company's core values and established a campaign for new enabling behaviors, highlighting what we do and what we don't do as an organization. With respect to the performance and accountability of our leadership team, we launched performance scorecards in 2021 that included ESG goals. For our net zero and sustainability commitments, we've made good progress on scopes one and two emission plans and have identified our sustainability focus areas for 2022. Last quarter, our foreign borough office in the United Kingdom was the first office to achieve net zero. And importantly, we've expanded our regional inclusion councils and employee resource groups to better support our DE&I journey. Overall, we've made significant progress on our four strategic priorities. But more importantly, the Fleur team has created positive momentum for the company as we begin a new year. Next up is an overview of fourth quarter highlights and what we see in each of our end markets in the coming year. Please turn to slide five. In Mission Solutions, we finished the year strong with 2021 segment profit up 80% over the prior year. During the year, our team successfully completed their support of Log Cap 4 in Afghanistan, received an extension of the M&O contract at the Savannah River site, and won the integrated mission completion contract there as well. As you will recall, We were also awarded a contract to provide humanitarian support at Holloman Air Force Base in New Mexico for Afghan evacuees as part of Operation Allies Welcome. We completed our Holloman efforts at the end of January with positive performance reviews from the Air Force and are now demobilizing the site. In the fourth quarter, we were awarded the Pantex Y-12 Management and Operations Contract in Tennessee and Texas. This NNSA contract will result in up to $28 billion in revenue over its 10-year life. We are ready to begin transition and are awaiting direction from the NNSA as they assess actions that may be warranted with the contract award. For 2022, we anticipate contract extensions at Savannah River and Portsmouth and additional work in the intelligence services business. Finally, Mission Solutions continues to look at areas of investment to support opportunities in the defense and intelligence space. Now let's turn to our urban solutions business on slide six. Segment profit for the year declined from 2020, primarily as a result of a charge on the Gordie Howe Bridge project in the second quarter. This project continues to progress under its revised cost estimates, and efforts are underway to support our claim position. The segment's results for the fourth quarter were encouraging and included receipt of our second and final payment for the Purple Line project. For 2022, we see a number of exciting opportunities. In mining, we are maintaining our leadership position, particularly in copper and gold. Based on what we're now seeing, we anticipate that awards will ramp up in the second half of the year. In advanced technologies and life sciences, Semiconductor work is really picking up. As you've read, Intel and a number of other chip manufacturers are looking to deploy capital to alleviate supply chain concerns and onshore capacity in the U.S. We are encouraged by our client conversations as there is keen interest in Floor's ability to provide a complete solution for their engineering, construction, and project management needs. We continue to build on our success in life sciences. Last year we won a large-scale biologics manufacturing facility in Europe with Fujifilm and are well positioned for the next phase. In infrastructure, our focus is two-fold. First, we continue to drive the effective delivery of our legacy backlog. During the fourth quarter, there were no material changes in estimated cost to complete these projects. Second, We want to pursue new regional road and bridge work that is aligned with our risk profile. The infrastructure bill passed last fall and the push for U.S. bridge retrofit spending are encouraging developments that support growth in this market. Moving to energy solutions on slide seven, segment profit for the year improved from 2020 as we ramped up our efforts on LNG Canada and refinery work in Mexico. Results for the fourth quarter also reflect the reversal of reserves associated with payments of outstanding receivables attached to certain projects in Mexico. We expect to see a couple of interesting trends develop in energy solutions during the year. In chemicals, clients are putting capex back to work, and we have some sizable chemical projects globally that we are well positioned for. Our first notable award should be in the next few months. It should be noted that our strategic priority of fair and balanced terms is starting to pay off as all prospects in 2022 are currently reimbursable. For production and fuels, it will be a transition year with clients beginning to focus on decarbonization efforts, renewable fuels, and smaller facility optimization projects. We also see that IOCs are focusing on net zero commitments and what effect this will have on the pace of capital investment. As I mentioned earlier, you will continue to hear us talk more about energy transition in 2022. While these opportunities are somewhat smaller in nature and early stages, they are consistent with the deliberate approach of our clients in this market. Examples include our ongoing work to support renewable fuels efforts in California and our work with another client as they develop the world's largest carbon capture storage facility, also in the U.S., Turning to slide 8, our work on LNG Canada continues to advance. During the fourth quarter, we approached the 60% completion mark, up from 50% last quarter. As we mentioned in November, we have begun to ship modules to the site, and in December, the project took delivery of its first process module. Thus far, we have shipped 28 modules, with 21 having been received at the Kitimat site, and another seven en route. When complete, The project will have received 215 modules from eight fabrication yards. For 2022, our milestones are primarily related to the delivery and safe installation of modules at the Kitimat site in British Columbia. Our operations on this project continue to be impacted by COVID. The Omicron variant has also increased local quarantine and testing requirements across the project, including our primary fabrication yards and our job site in Kitimat. We are monitoring our progress on our procurement, fabrication, logistics, and construction activities, and are working collaboratively with the client to mitigate COVID-related delays and costs. Now let's turn to NuScale on slide nine. We've had quite a run of good news and development since our last call. In December, NuScale announced their merger agreement with Spring Valley Acquisition Corporation. This transaction will bolster and accelerate the path to commercialization and deployment of NuScale's industry-leading small modular nuclear reactor technology. This month, the conditions around Samsung's $30 million pipe investment were satisfied. The total committed pipe investment now stands at $211 million and is in addition to the $193 million in capital contributions from outside investors, which NuScale received in 2021. The transaction is progressing well, and the amended S4 was filed on February 11th. Currently, the deal remains on track to complete the de-SPAC process in the second quarter. When complete, Fleur will own approximately 60% to 70% of NuScale. we will also be in a preferred position to execute NuScale's SMR projects. On that front, Fluor recently completed the field work required to support the combined offering license application for NuScale's first customer, UAMPS, at their site in Idaho. And last week, NuScale Power and KGHM signed an agreement to initiate the deployment of NuScale SMRs in Poland. Under the agreement, The first power plant could be deployed as early as 2029, which would help Poland avoid up to 8 million tons of CO2 emissions per year. To wrap up, I'm pleased with the progress we've made in 2021, and I can confirm that the management team and broader organization are excited and energized about what 2022 holds in store. And finally, two weeks ago, We announced that Executive Chairman Alan Beckman would not stand for re-election at our shareholder meeting in May. Alan's contributions to Flour and to me personally have been invaluable. We are all indebted to him and happy to report that he will continue to be in our corner serving on the board of New Scale Power. Now I'm going to turn the call over to Joe to cover our financial results and 2022 guidance. Joe?