Fluor Corporation

Good morning and welcome to Floor's second quarter 2022 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, and good morning. Welcome to Floor's 2022 Second Quarter Earnings Call. David Constable, Floor's Chairman and Chief Executive Officer, and Joe Brennan, Floor's Chief Financial Officer, are with us today. Floor issued its second 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'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 will 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 2021 Form 10-K and in 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.floor.com. I'll now turn the call over to David Constable, Floor's Chairman and Chief Executive Officer. David?

Thank you, Jason. Good morning, everyone. Thank you for joining us today. Please turn to slide four. Before we get started on operational results, I'd like to draw your attention to FLUR's 14th Annual Sustainability Report that was recently published. Our sustainability report provides insight into how we are accelerating our ESG actions to build a better world. Notable accomplishments highlighted in this latest report include, first, The action is underway to reduce our carbon footprint, led by a 15% reduction in scope two emissions from 2020 to 2021. This performance supports our drive towards delivering on our net zero 2023 commitment for scopes one and two. In addition, we also achieved a 12% reduction of scope three emissions in the same period. Second, our efforts in supporting employees and their families health and safety during the COVID-19 pandemic, which included the expansion of FLUR's Employee Assistance Program globally. And finally, advancing DE&I efforts from implementing inclusion councils to broadening employee resource groups so that all of FLUR's employees globally feel included and can reach their full potential. Additional information, including our GRI and SASB disclosures can be found in the sustainability section of our website. Q2 new awards for the quarter were above a one-to-one book-to-burn ratio at $3.6 billion. Importantly, 73% of new awards for the quarter were reimbursable, and nearly 40% were in support of energy transition-related opportunities. The floor continues to differentiate itself in this growing global market space. We also continue to see strong demand for our technical and construction services. In the first quarter, our margins on new awards were 470 basis points above our plan, and we were able to achieve equally impressive results with margins on second quarter new awards that were 550 basis points higher. Moving now to our business segments, please turn to slide six. Urban Solutions reported a segment profit of $8 million for the second quarter. Results for the quarter reflect cost growth on three legacy infrastructure projects and the closing of a P3 transaction that Joe will discuss in a moment. New awards for this segment approached a two to one book to burn ratio at $1.9 billion compared to $617 million a year ago. Now turning to slide seven. in infrastructure. New awards included a $547 million award for the I-35 Capital Expressway South project just south of Austin. This award is a continuation of FLUR's regional infrastructure focus and reinforces the strength of our project execution skills in road and bridge work. For the second half of 2022, The near-term prospect pipeline includes the A27 project in the Netherlands. In the quarter, we recognized charges on the Gordie Howe Legacy infrastructure project. Fleur and our partners recently performed a detailed review of project progress and cost. The team continues to see significant inflation pressure on materials and labor. This resulted in a $32 million increase in our cost estimate. We've engaged external partners to create a comprehensive claim package that we expect to submit in the fourth quarter. This project is 36% complete with an anticipated completion date in early 2025. We also recognize non-material charges on two other legacy projects as a result of cost growth and rework. Across the infrastructure landscape, there are clear signs of cost inflation. At Fluor, we see cost escalation in fuel and commodities such as rebar. On large contracts, we reduce our fuel risk by entering into fuel hedges. While we have not seen significant inflationary pressure on labor, we are planning for this and have included the currently identifiable amounts in our forecasts. Our projects estimate future labor costs by using local labor information for craft wages or labor agreements with agreed escalation rates. During the proposal phase, our teams negotiate firm, fixed price commitments with the majority of our subcontractors and suppliers. When we are successful in winning an award, we then strive to immediately execute those contracts to lock in prices with subcontractors and suppliers. As discussed previously, we will continue to be extremely selective on infrastructure pursuits with a focus on fair and balanced contract terms and with clients where we have a strong relationship. Turning to slide eight, in mining and metals, We successfully started to convert the prospect pipeline I shared with you last quarter. During Q2, Fluor was awarded a contract to perform engineering, procurement, and construction management for Iluka Resources' INI-ABA project, a fully integrated rare earths refinery in Western Australia. When complete, this refinery will produce light and heavy rare earth oxides that are essential to global electrification and renewable energy infrastructure. We're also booked an award for the construction and construction management of a copper project in Indonesia for a valued long-term client. This new work is an extension of an award we booked last year. Over the next three quarters, our mining and metals clients are positioning to move forward on approximately $5 billion of limited and full notice to preceded awards to support demand for copper, gold, lithium, and metals. Our Key of Echo project in Peru is nearing completion and began initial operations in July. The facility is expected to have an average production of 300,000 tons of copper per year. The floor was responsible for Key of Echo's engineering, procurement, and construction management services. Now please turn to slide nine. Our efforts in advanced technologies and life sciences continue to support our strategic priority of driving growth across the portfolio. In semiconductors, we are supporting the demand for onshoring manufacturing across multiple clients. Currently, Fluor is working with Intel on projects in Arizona and Malaysia, and we anticipate that these programs will convert to a full release of work over the next few quarters. On the life sciences front, we anticipate receiving work in the third quarter for an expansion of an existing biologics manufacturing facility currently underway for Fujifilm in Europe.