Fluor Corporation

Good morning. Welcome to Fluor's fourth 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 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, I'd like to turn the call over to Jason Landkammer, Head of Investor Relations. Please go ahead, Mr. Landkammer.

Thanks, Chris. Welcome to Fluor's 2022 Fourth Quarter Earnings Call. David Constable, Fluor's Chairman and Chief Executive Officer, and Joe Brennan, Fluor's Chief Financial Officer, are with us today. Floor issued its fourth quarter earnings release earlier this morning, and a slide presentation is posted on our website that we'll 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 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 2022 Form 10-K, which was filed earlier today. During this call, we will discuss certain non-GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the investor relations section of our website at investor.floor.com. With that, I'll now turn the call over to David Constable, Floor's Chairman and Chief Executive Officer.

David? Thank you, Jason. Good morning, everyone, and thank you for joining us today. And please turn to slide three. Before we get started on operational results, as safety is one of our core values, it is always a top priority. Our total case incident rate for 2022 was 0.31, better than Fluor's corporate goal of 0.38, and well under the industry benchmark of 0.90. One example of our commitment to safety is our Silver Medallion Award. which was established to recognize employees who embody our vital commitment to protect one another. During 2022, 26 employees received a silver medallion for life-saving actions. In one particular incident, an employee was camping with his family and encountered a child face down in a nearby lake. Two weeks prior to this incident, the employee had taken a company onsite first aid course. With the training fresh in his mind, The employee, Rick and Bob Saar, took charge of the situation by pulling the child out of the water and successfully performing CPR while waiting for emergency assistance to arrive. Now let's turn to slide four. It has been just over two years since the launch of our new Building a Better Future strategy and long-term financial targets. I'm incredibly proud of the progress the company has made in reaching and in many instances surpassing our strategic goals. I'll discuss our updated strategic targets in just a moment. Our new awards in 2022 doubled to just under $20 billion with a full year book to burn ratio of 1.5 times. Through our disciplined pursuit of contracts, 87% of new awards were reimbursable and our total backlog is now 63% reimbursable. This compares to 45% reimbursable two years ago. I'm encouraged by the market's response to our priority of seeking fair and balanced terms in our contracts. Clients continue to recognize the value Fluor provides in the industry. Our optimism is further supported by a robust prospect pipeline. We are currently working on, or have recently completed, feed and study packages that represent an estimated $147 billion installed cost of high-quality new award prospects. We are also tracking front-end design prospects in the next 18 months that represent more than $230 billion in capital expenditures. Of that amount, 20% is related to energy transition opportunities. This continues to be a key element of our strategy and represents significant opportunity for Fluor. Moving to our business segments, please turn to slide six. Beginning with Urban Solutions, segment profit for the year was $3 million, down from $38 million in 2021. Results reflected infrastructure cost growth on three legacy projects in the first three quarters. Results for the year include a non-cash charge of $16 million for a ruling on a Denver commuter rail project that was completed back in 2019. since this decision was not issued until february 10th floor along with his joint venture partners are currently reviewing the decision 2022 was an excellent year for new awards and urban solutions with a total of 6.8 billion dollars in high quality contracts a significant increase from 2.7 billion last year with these new awards backlog for urban solutions is currently 55 percent reimbursable compared to 32 percent in 2021. Turning now to slide seven, new awards for the fourth quarter in mining and metals included a $2.4 billion metals project in the United States and a $600 million mining project in Greece for Hellas Gold. Although some mining awards have been delayed due to geopolitical and inflation concerns, we are reassured as clients continue to move into the execution phase. With the ongoing demand for copper, gold, and lithium, we are presently working on $2 billion of limited notice to proceed work. In one of the LNTP awards, the client is awaiting environmental approval and has been offered a $700 million loan commitment from the DOE. In addition, we are well positioned to book a copper concentrator expansion project for a repeat customer in South America. This is a clear indication of capital deployment taking off in our mining business. Now please turn to slide eight. Our advanced technologies and life sciences business continues to support our strategic priority of driving growth across the portfolio. We were awarded $100 million in front-end study work for semiconductors and biopharmaceuticals in Q4. These front-end work packages are gateways to larger opportunities, including $4 billion in two life sciences projects. In addition to this front-end work, we have another $3 billion opportunity on the horizon to significantly expand capacity for a pharmaceuticals company. The value we add with full project execution capability and speed to market is a differentiator with this client. In the semiconductor space, although the market has shown unprecedented growth in the United States, Europe, and Asia, A widespread shortage in recent years has exposed the reliance on these specialized components in our modern technology economy. We plan to leverage our expertise for a number of clients, including a $4.5 billion U.S. facility currently in the bidding phase. Turning to slide nine, in infrastructure, we entered into a contract in January to perform design, construction, and maintenance services for the A27 motorway project in the Netherlands. Floor's $220 million share was booked in the first quarter of 2023. We have completed multiple projects with our Dutch joint venture partner and have executed a number of projects in the region. For this project, we are reducing the risk typically associated with fixed price work by using a two-phase contracting approach. Here, design work packages and negotiations with subcontractors and vendors are complete before the second phase is undertaken. This commercial pattern could become popular for future infrastructure projects. During the fourth quarter, we made progress on claims and schedule relief on all three legacy projects. Joe will provide more details on this progress in a moment. Moving on to slide 10, Mission Solutions reported a segment profit of $136 million for the year. compared to $155 million a year ago. These comparative results reflect the successful conclusion of a few large projects in 2021. New awards in 2022 included the $4.5 billion extension with the U.S. Department of Energy for the floor-led Savannah River Nuclear Solutions LLC management and operations contract near Aiken, South Carolina. Our performance on jobs within Mission Solutions has been outstanding, and as a result, provided us an opportunity to bid on several contracts for the intelligence community. This increased pipeline could bolster segment revenue in 2023 and into 2024. Looking ahead, we see some great prospects, including a recompete of the existing Portsmouth decontamination and decommissioning contract, and a continuation of our services to NuScale and UAMPS. among other nuclear engineering opportunities. We are also exploring multi-billion dollar opportunities with the U.S. Air Force for the management and operations of their facilities and the Hanford Integrated Tank Disposition Contract with the DOE. Consistent with our strategic priority to pursue contracts with fair and balanced terms, all prospects here are aligned with our reimbursable pursuit criteria. Moving to energy solutions, please turn to slide 11. We finished the year strong with 2022 segment profit of $301 million, a 20% increase over 2021. New awards for the year were $6.5 billion, nearly double the previous year's new awards. Our opportunity in the LNG market continues to grow and includes an award in the fourth quarter for the full notice to proceed on a third New Fortress Energy FAST LNG project. We also received another package for the BASF Integrated Chemicals project in China, and were awarded EPC services for the Brascom Ethane Storage Terminal in Mexico under our ECA Fluor joint venture. Turning to slide 12. At the LNG Canada project, our joint venture scope of work is approaching 80% complete. By the end of December, 169 modules have been shipped with 149 delivered. All 215 modules are expected to be on site by mid 2023. And we continue to have productive conversations with the client regarding the resolution of COVID related impacts across the primary job site and fabrication yards. Together with LNG becoming a growing business line in energy solutions, we have significant prospects supporting our chemicals clients as well. had a positive start to 2023 with the award of initial engineering procurement and construction management work from dow for the world's first net zero ethylene and derivatives chemical complex for this reimbursable contract we will be taking an initial feed award in q1 and anticipate a full epcm award release in mid to late 2023 we were also awarded a pre-feed study for a major middle eastern client for a significant liquid to chemicals complex that is expected to convert more than 400,000 barrels of oil per day into chemical derivatives. Now moving to energy transition on slide 13. We continue to be upbeat with the direction and growth Fluor is making in the energy transition space. We have increased opportunities across all of our business segments. Just one of many examples to highlight is Fluor's recently completed engineering procurement and construction management services contract for SoCalGas's hydrogen home. This is a first-of-a-kind US project aimed to show how a carbon-free gas from renewable electricity can be used in pure form or in a blend to power a clean energy system. Overall, energy transition projects were 22% of new awards in 2022, or approximately $4.3 billion, an increase from 13% in 2021. With that, let me turn the call over to Joe for the financial update.

Joe? Thanks, David, and good morning, everyone. I'd like to discuss an overview of our financial performance and provide an update on the progress we've made in strengthening our capital structure and our expectations for new-scale ownership and remaining divestitures. We will then share details on 2023 guidance and provide insight into our expectations for 2026. Please turn to slide 15. For 2022, Floor reported revenue of $13.7 billion and net income from continuing operations of $145 million, or $0.73 per diluted share. For perspective, this is the first year since 2018 we have reported positive results on a GAAP basis. On an adjusted basis, our full year results were $0.82 per diluted share. Results include $0.09 for a ruling on the Denver Commuter Rail Project, which was completed in 2019. Segment profit for the year increased to $427 million from $415 million a year ago. Although we recognized $175 million in legacy infrastructure charges in 2022, we are on path to generate significant segment profit in the years ahead as we work off remaining zero margin backlog. More on this in a moment. Adjusted EBITDA was $327 million compared to $358 million we reported a year ago. Results for 2022 include $16 million for the adverse ruling I just mentioned. Corporate G&A expense for the year was $237 million, consistent with the $226 million reported in 2021. Under our cost optimization program, we finished the year with $110 million in real life savings and are well ahead of our targeted $100 million in savings by 2024. The annual savings this program generates positively impacts cash flow, supports our margin profile, and improves our competitive position. During 2022, we continue to right-size our real estate footprint with the sale of excess land in Texas and reduce footprints in the UK, the Netherlands, California, and various locations for Amico. We also initiated the process to move from our current location in the Houston area to a fit for purpose building located in the energy corridor. This will result in considerable cost savings. Turn to slide 16. Our cash and marketable securities balance for the quarter was $2.6 billion, with 23% of this amount domestically available. Total cash includes $338 million held by NuScale. To provide a bit more color on our view of cash, the total cash balance I referenced is used to fund our global project execution activities and includes consolidated variable interest entities that will convert to readily available cash over time. We exclude cash at proportionally consolidated ventures. Although these cash balances can be significant, they do not come onto our balance sheet as cash until distributed to us at the appropriate time. I would like to point out that our global cash management program generated $94 million in net interest income, more than sufficient to cover our fixed rate interest expense of $59 million. Our operating cash flow for the year of $31 million was negatively impacted by increases in working capital on several large projects, as well as higher cash payments of GNA. Approximately $250 million was used during the year to fund cash flow needs on legacy projects. we are currently projecting a similar level of cash outflow in 2023 with roughly half that amount in 2024 and beyond. Including these payments, we expect to see modest improvement in cash flow for 2023. Our view on cash requirements for legacy projects are further supported by the actions taken in the fourth quarter on the Gordie Howe LAX Automated People Mover and I-635 LBJ projects. The joint venture executing the Gordie Howe project is currently engaged in discussions with the client for cost and schedule relief, and we have aligned with our clients on a path forward for schedule relief on the other two projects. There was no material change in project margin as a consequence of these developments. On to slide 17. As it relates to our significantly improved capital structure, I wanted to point out a few recent highlights and our next steps relative to capital deployment. In December, Moody's upgraded our rating outlook from negative to stable. Their upgrade was based on an improving risk and margin profile associated with more reimbursable work and consistent project execution. At the end of January, we retired our 2023 Euro notes. With this, our ending 2022 pro forma net debt to capital ratio stands at 32%, with no additional maturities until December of 2024. And last week, we extended the term of our credit facility, which now matures in February of 2026. Regarding the monetization of STORK and Amico, during Q4, we divested STORK operations in Australia and New Zealand, along with our African operations of Amico. These transactions represent our ongoing continued commitment to refocus the business. We are in final negotiations for the sale of our remaining Amico operations in Latin America, and with respect to STORK's European operations, We are engaged in late-stage negotiations with an interested party. As a reminder, we have decided to keep FLOR's long-established operations and maintenance business, now called Plant and Facility Services. This business line will report into Urban Solutions and be reflected there under beginning in Q1. Finally, we continue to receive interest in our majority ownership of NuScale. We have committed to looking at strategic investors that provide an investment thesis that supports our monetization of this industry-leading small module reactor clean power business. I believe that by any measure, we have outperformed relative to our timeline and our shareholders' expectations on reinforcing our capital structure. With the discipline around our strategy and our focus on asset light full service model, we are now in position to create a stronger balance sheet which should generate significant shareholder value in any economic environment. Before we open the call to Q&A, David and I want to take a few moments to recap our journey to this point and provide details on what you can expect from us in 2023. David?

Thanks, Joe. Let's turn to slide 19. Just over two years ago, together with the new senior management team, we launched a strategy for the company that centered around four overarching priorities. First, driving growth across our portfolio by growing markets outside of the traditional oil and gas sector, including energy transition, chemicals, advanced technology and life sciences, high demand metals, infrastructure, and our solutions for government clients. New awards for 2022 included approximately 81% of non-traditional oil and gas projects. Second, pursuing contracts with fair and balanced terms. by focusing on more favorable risk-adjusted agreements that reward Flora for the value we deliver. We ended the year with a majority 63% reimbursable backlog, well on our way to our 75% goal by 2024. Third, reinforcing financial discipline by maintaining a solid balance sheet and generating predictable cash flow and earnings. As Joe mentioned, we have significantly reduced outstanding debt solidified our cash position, and reduced unnecessary overhead expenses. And fourth, fostering a high-performance culture with purpose by advancing our diversity, equity, and inclusion efforts and promoting social progress as well as sustainability. Importantly, a high-performance culture also means excellence in execution, one of Fluor's key calling cards, which delivers value to all our stakeholders. Importantly, We remain on track to meet our net zero target for scopes one and two by the end of this year. And to further support DE&I, we've expanded our employee resource groups and now have 55 chapters across our global offices. It's gratifying for the management team to see that our four strategic priorities remain firmly intact and that they will continue to set the foundation for Fluor to deliver significant results over the next several years. Moving to our outlook on slide 20. We are establishing our 2023 adjusted EBITDA guidance at $450 to $600 million or $1.50 to $1.90 per diluted share. In addition, we are introducing long-term 2026 adjusted EBITDA guidance of $800 to $950 million or $3.10 to $3.60 per diluted share. Our guidance for 2023 and 2026 are based on first, the significant volume of new awards received across all three segments over the past year. Second, the reimbursable concentration of contracts and the underlying quality of the existing backlog. Third, a diverse and robust prospect pipeline. And fourth, the timely closeout of our remaining legacy projects. Finally note that while we are no longer providing guidance for 2024, we continue to trend towards our initial guidance that was set in our strategy day in 2021 on a diluted share basis. As evidenced by our guidance for 2023 and 2026, our strategy has created a lower risk, predictable model that leverages our technical services capability to capture full service EPC offerings. I'm extremely proud of the progress to date and all of the hard work and contributions from our employees to transform Fluor. Joe is going to close out with some additional details on our 2023 guidance.

Thanks, David. To provide a bit more clarity, our assumptions for 2023 include revenue growth of approximately 10%, G&A expense of approximately $40 million per quarter, and an effective tax rate of approximately 45%. This may vary depending on the countries and which revenue is generated. We expect tax rates to moderate as revenue and our tax advantage locations start to increase. Our expectations for 2023 segment margins are approximately 5% in energy solutions, approximately 3.5% in urban solutions, and approximately 3.5% in mission solutions. Operator, we are now ready for our first question.

Thank you. If you would like to ask a question, please press star, then 1 on your telephone keypad. The first question is from Michael Dudas with Vertical Research. Your line is open.

Good morning, everyone. Hey, Michael. Good morning, Michael.

If you could talk about the competitive nature of what you're seeing in the marketplace and how that's translating to the margins that you're bringing to your work in 2022 and what you're anticipating in 2022.

Sorry, Michael, you're breaking up. We couldn't hear the question. Michael, can you try that again for us?

Perhaps we will just move on to the next question for now, which is from Andy Whitman with Baird. Your line is open.

Oh, yeah, great. Good morning, guys. I just thought maybe Joe... here, the energy solutions segment margins were very strong here, kind of above what you guys were indicating last quarter. It looks like you got some COVID relief in the quarter. I was hoping you could maybe give us a little bit of context on that, the amount of COVID relief that was recognized in the quarter maybe, which projects in particular. Certainly, you know, there's been lots of attention to the fact that you are seeking COVID relief on LNG Canada in particular. So maybe you could address that. And then just if you could talk about how much POC is still remaining on projects for which you got COVID relief, which would be suggestive that your future margins would be better than the historical margins. So just any commentary on that I think would be helpful for us to understand the quarter a little bit better.

Thanks, Andy. I guess I would start by kind of addressing some of the COVID claims. We have closed out deal one on LNGC, but we are still in the process of kind of collaboratively working our way through those discussions. I would suggest to you some of the improvement you're seeing in the energy solution side of the margin are improved operating results coming out of Mexico and across other aspects of the portfolio, so it's not 100 percent focused on some of these COVID claims settling out in the quarter. I think it's improved execution across a number of different geographies within energy solutions. Andy, I think that's a bigger driver to this. And then I think if you look across where we have applied relief for COVID, and it's really running through most of our legacy projects, We're nominally or approximately 50% complete on LBJ and Gordy with LAX closer to 75%. And as you read through maybe some of the articles, the FPSO for penguins has arrived to the European transit yard. So we are making significant progress to get that out into the North Sea. But fundamentally, I think the improvement in margins around energy solutions is improved improved performance in a couple of different geographies.

Okay. Well, that's super helpful context, Joe. I guess the other thing that kind of stood out, and you mentioned this in your prepared remarks, I just want to make sure I heard it correctly, but on these legacy projects, you basically have agreement that what you've done so far and how you've accounted for it so far at LAX and LBJ is is in line and you've gotten relief for that. So you guys are all kind of, should we assume that you guys are basically settled for where you are today on those projects? And again, there's no net change from the agreements that you've come to with them. Did I understand that correctly? Did I summarize that correctly?

Andy, I think the way I would look at it is we were able to agree on mutually accepted positions, which has taken a significant amount of risk off the table relative to schedules, and indirect cost growth on those two projects, and we are in discussions around cost and schedule relief with Gordie. So I think in terms of the formalization of the process, we feel very good around where we are as it relates to LBJ and LAX, and we have opened a very substantive dialogue with our client on the Gordie Howe project. So I guess the way I would characterize that, Andy, if I'm stepping back and looking at it, we've made a lot of progress relative to getting a significant amount of additional comfort relative to our estimates of completion across those three legacy projects.

Yeah, okay. Great. I think I'm going to leave it there. Have a great day, guys. Thanks, Andy.

The next question is from Jamie Cook with Credit Suisse. Your line is open.

Hi, good morning. I guess two questions. Just one, if you could just provide a bridge or a little more helpful around your expectations around your new 2026 targets, which you assume for sort of margins, revenues, backlog implied to get to those numbers. And then just a clarification, it sounds like for 2024, are those targets off the table? I mean, it sounds like you think you're approaching them, but you're not going to get to the 250 to 290 of what you originally expected. So I guess those are my two questions. Thanks.

Good morning, Jamie. And we'll take that last one first. On the 2024 guidance that we put out in 2021, I think, like I said, I think in the remarks, we are on a good pathway there. We are inside that range that you just mentioned on a diluted basis, 250 to 290. So, yeah, I think just take that as a given based on what we're seeing. And so all good on that front. And the bridge to 2026, obviously, you know, we've really improved the backlog through 2022. And the margins, as you know, I think, We ended the year, we've been talking about it all year, but I think we ended the year 220 basis points up over plan in 2022, and we see increasing margins in bookings in 2023 as well. So that healthy backlog and the certainty that that provides for consistent earnings going forward, very important to bridge to 2026. The margin corridor, you can still think about a 4% to 6% corridor, and we're not Not quite ready to come off that yet, so that stays in place for now. A great pipeline in front of us. So we booked awards in all three business segments, almost equal, I'd say, in 2022. As you see in the summary financials, third to third to third almost, and we are going to see A continued robust pipeline across all three segments, so that's driving that 26 guidance that we're showing. The timely work off of our few remaining legacy projects also is going to be that bridge to 2026, and we're getting more and more confident, as Joe has just commented, on those legacy projects.

From that standpoint... And then, Joe, sorry, one last question. Is there any way to think about free cash flow conversion with some of these legacy projects, you know, complete by 2026? I'm just trying to think about a normalized cash flow conversion, you know, over the next couple of years. Thank you.

Thanks, Jamie. Yeah, we are currently reflecting approximately $250 million of cash requirements for legacy projects and 2023, that'll reduce to about half that value based on an outlook. And this does not include any additional progress made around our claim positions and other things. This is at our current EAC. So we're projecting $250 million for 2023 in terms of cash requirements for legacy projects.

No, but I was asking more around the 2026 target. Sorry.

Well, so as we've talked about, I think, in the script, Amy, of a lot of the off-balance sheet activities that flow through our joint ventures, and as we continue to progress and we do so in a very positive way, we will be in a position to begin to dividend a significant portion of those earnings back into our operating cash flow. So I would suspect that, in fact, in Q4, we were able to dividend... some of those activities in Canada back into the U.S. and into Flores Books, and we expect that to continue out into 2023 and into 2024, both for not only Canada, but a significant portion of those dividends coming back in from Mexico.

Thank you.

The next question is from Michael Dudas with Vertical Research. Your line is open.

Michael Dudas, your line is open. Please go ahead. Thank you.

Can you hear me better now? I'm sorry.

Go ahead, Michael. That's better. Yeah, we got you.

Great. Technology is wonderful when it doesn't work. So two questions. First, David, I want you to talk about the competitive nature in the marketplace. It seems like your clients are getting more comfortable, confident, a lot of capital spending budgets improving across the board. Is that helping some of the terms and conditions and certainly the margins that you talked about, 220 over your plan? Are we going to continue to see that from the plan you put forth in 24 and maybe the one to 26? And my second question would be, Joe, you talked about new scale. It sounds like you're leaning a little bit more on the strategic investor environment. Could you maybe talk a little bit more about how that's going and what your expectations might be? Thank you.

Hey, Michael. Good morning. Right. You make some comments around CapEx expenditures. You know, we've been talking about floor being somewhat immune to recession, and it is because of these large CapEx plans that are spread out over years and years with our clients. They don't take a short-term view, and so we're able to really see, as you just mentioned, real traction on CapEx. increasing here across all of our business segments. The CAPEX plans by our clients in 23 and beyond more than cover our short-term and long-term guidance that we've talked about. When you think about energy solutions, traditional oil and gas, LNG, chemicals, HLS, mining and metals, government and energy transition across all of our businesses, uh it's very exciting to see that right now i'm very glad that we're still firmly in the traditional oil and gas business right and our clients are very grateful uh that we are as they start to ramp capex if you look at you know the traditional oil companies all doubling their profits in 2022 and just uh increasing capex in oil and gas upstream refining lng and then in low carbon you know biofuels hydrogen And so it's just, they're going to run that right through to the end of the decade, right? The big oils are seeing multi-year growth cycle for the industry based on higher oil and gas prices and refining margins through 2030. And that's just ES. You'll see the same thing in urban solutions with commodity prices going higher and higher as China comes back. So we're going to see good things in certainly mining and metals. and also in ATLS in the businesses they play in. So from that standpoint, yeah, more work out there than we can say grace over. And therefore, I think your question about margins, we did well in 2022. I think the margins in the plan for 2023 are going to be north of what we booked in 22. So that's positive. And deal shaping is going well. The fair and balanced contract commercial terms strategic priority, we're seeing deal shaping ongoing in all of our businesses to get to that fair solution or that fair set of terms on both sides, both for ourselves and our clients. So from that standpoint, I think it's really setting up to be an exciting time in the next several years. Joe?

Yeah, and Michael, on the new scale monetization, we have kicked off the strategic exercise. We've been in contact with a number of different potential investors at the end of the day. We have maybe some opportunity within that set of potential investors, and we've opened up some additional dialogue around that. I would suspect that by the time we get to the end of quarter one, we'll be in a much better position to talk about how we're moving forward on the strategic side. But again, I think I've laid out from an investment thesis perspective, getting a strategic in there, getting an end market maker type of individual that wants to take the SMR technology into production is really nirvana for us, and it's a win-win in terms of the valuation of NuScale at the end of the day and what it means in terms of our monetization. So we have kicked off that in earnest, and it will be a high-priority critical item to address here at the first half of 2023. Thank you, Joe.

Thank you, David.

Thanks, Michael.

The next question is from Brent Thielman with DA Davidson. Your line is open.

Hey, great. Thanks. Good morning. Just on urban solutions, the infrastructure portion, great to see the progress on the schedule release for the two legacy projects. Any sense when we can get some resolution related to Gordie Howe, which I don't think is quite there. Are those discussions productive? Is there some confidence? We could see something soon for that.

Good morning and I'll just say on Gordie how in Q4 our joint venture entered into cost and schedule relief discussions with the client and also reached preliminary agreement on a large soil removal change order just here in Q1. So that's positive progress that we that we think will continue as we move through 2023. I guess that's the best way to put it. You know, we'll continue to honor discussions with the Gordie Howe clients through 23 and looking forward to putting that project in place here, you know, early 2025 as a completion.

Okay. Okay. Appreciate that. And then, I mean, Urban Solutions is seeing some significant new awards and growth and backlog, and you've provided quite a few specifics in terms of things that are upcoming there. When you consider the opportunity pipeline overall for floor and also this focus in reimbursable and kind of lower risk terms, do you expect that business will outpace growth in the higher margin energy solutions business in the coming years?

You know, it's a Again, the markets are, as I said to Michael, really strong across all segments. When you look at the CapEx, for example, in mining and metals, continuing to increase. I'm sure you've taken a look at whether it's Rio or BHP or Anglo or Freeport or Vale, whoever you look at in the mining houses, all their CapEx is up. based on higher commodity prices that we are seeing through iron ore and copper and gold and lithium and so on. So certainly mining and metals will be strong, as will ATLS. Pharmaceuticals and semiconductors is a big market for us right now as well. So I see it, as we saw this year, was balanced between EES, Energy Solutions, and Urban Solutions, and I would expect that to continue. It's a little lumpier in Mission Solutions, with major, major awards coming through every other year or so. So that could go up and down a little bit, but between EES and US, very similar, and So we want to spread the work around and have that diverse portfolio as well, which is very important for us.

Okay. Thank you very much. Thank you.

The next question is from Stephen Fisher with UBS. Your line is open.

Thanks. Good morning. The revenues in Q4 were a bit below the $4 billion plus that you had expected in November. So I guess I'm wondering what drove that. Was that just a percentage of completion adjustment or was it some other drag? And really just trying to gauge the confidence of the start of 2023 if it were any specific drags or those drags cleared.

Steven, yeah, thanks for the question. It's quite simply that a number of those opportunities that we booked in 2022 didn't come into later in the quarter, so we didn't get as much of that burn. It has nothing to do with the building of our backlog, the quality of our backlog, and what that will ultimately generate. It shifted to the right by a month, and it has no impact on what we perceive relative to 23 and moving into 24. So it is simply just a timing issue.

Okay, that's helpful. I guess related to that then, in terms of the cadence of earnings over the course of 2023, any sense for, you know, kind of how back-end weighted or front-end weighted it is expected to be?

I would suspect a reasonably steady climb. So the way I look at the business is we have some of the backlog coming out, some good high-quality backlog like a TCO, and we've added a significant portion of that backlog up to close to $20 billion with a good, robust pipeline. So what I expect and how we have it modeled in terms of how we built up our operating plan, you'll see a gradual increase for in our EBITDA and EPS numbers moving from Q1 through Q4.

Okay, and then lastly on this, go ahead.

No, no, I was going to say that's just more of a function of when that backlog is coming online. And, you know, there's typically when you book some of these larger EPCM type contracts, you're looking at a nine to 12-month period where you can get through engineering enough to get into the procurement activities and other things which really drive your percentage of progress. So if that shifts to the right, that's kind of what's driving a little bit of that.

Okay. And then, I mean, it is a somewhat wide range of $450 to $600 million, but $1.50 to $1.90. What are the major uncertainties you're trying to account for in that guidance, and what have you factored in there? Thank you.

Yeah, thanks. I think we've kind of kept the range reflective a bit of timing of new awards. I don't think it impacts from my perspective and what we see in terms of an opportunity slate out in front of us. The quantum of reaching the 2026 numbers, I think we're playing a little bit of defense as to when those capital or FID decisions will occur. We've feel very comfortable those FID decisions will be made. But if they slip a month or they slip a couple of months, it has an impact on what that range would look like into 26 is kind of how we're seeing it, 23 and 26. So to me, again, with what we're seeing with the pipeline out in front of us, what we've put into backlog, the fact that it's 87% reimbursable, we feel very good about being very predictable moving forward. It's just shifted to the right. That's a really good point, right?

Reimbursable concentration in the backlog, reimbursable concentration of contracts and the underlying quality of that backlog to ensure predictability and consistency.

Yeah, so that range just kind of reflects a little bit of the start dates of when some of these programs will get into execution.

Thanks so much. Again, that's star one, if you'd like to ask a question. The next question is from Michael Fenninger with Bank of America. Your line is open. Hey, guys. Thanks for taking my questions.

You mentioned earlier, you know, Air Force management, some intelligence work, so strong pipeline in 23 and 24 in the mission solutions business. I'm curious if we see some headlines on the debt ceiling and a potential continuing resolution 24. Does that slow any of those awards? Is there any exposure there? How should we kind of think of that risk?

Good morning, Michael. Thanks for the question. Yeah, you know, the government budgets certainly for 2023 are set, right? And continue to increase off of 22. I think defense is at $737 billion and DOE is up at $98 billion. And so our... key customers, plus the intelligence agencies, budgets are strong. And from what we can see, those numbers are intact through 23 and 24. And based on what we're going after, the projects that we're involved with, whether it be Pantex or Y12, or as we talked about, the various intelligence businesses starting to to show opportunity for us. We feel pretty good about those jobs coming through, including the Portsmouth decontamination decommissioning contract, which is kind of like the next big one that we're looking at, which is pretty close on the horizon. So risk-wise, from a budget ceiling perspective, we're feeling pretty comfortable right now.

Great. And just nice backlog to start the year. When we think of the timing, how much of that backlog are you expecting to deliver to hit that 10% revenue growth? Is it 30%? Is it 50%? How much awards do we need to win throughout the year to help us hit that 2023?

Well, I don't know if I want to give guidance around the new awards, but let's say it's It's definitely north of $10 billion in upcoming years relative to being able to support that 2023 and beyond, 2024 and beyond targets.

Great. And if I could just sneak one in, as you guys are generating cash, I remember at the investor day, there was talk of potentially doing some token acquisitions, filling in some certain areas. I'm just curious, where are you guys on that as you start to pay down debt? The debt rating move is notable. Just curious how you're kind of thinking about as you guys generate more cash and start to check some boxes on the balance sheet needs. Thanks.

No, great question. Thanks for the opportunity. We have made significant progress, clearly, over the last couple of years, well ahead of our 2024 Strategy Day. targets that we laid out. Where we are as it relates to the capital structure and some of the needs, we still have things that fundamentally need to be addressed. We've got the 24s coming. We've cleared off the 23s. But I look forward very shortly to having a little bit more fulsome discussion around what the next steps are around our capital structure. We've got some preferreds in our and our cap structure that we would like to discuss and look at. Obviously, we want to return money to shareholders over time. So there's a number of things that we're working through, but there still is very immediate needs that need to be addressed, and also factoring in reinvesting in our people, reinvesting in the business, and then ultimately looking at potential M&A activities in the future. So the order of precedence kind of flows through our liabilities that we need to address and then down through reinvesting in the business and our people and our capabilities and then ultimately moving on from there. So it'll be a bit of a cascading view of how we address the capital structure.

We have no further questions at this time.

We'll turn it over to David Constable, Chairman and Chief Executive Officer for any closing remarks.

Great, thank you, Operator. Many thanks to all of you for participating on the call today. As you can see from our 2022 results, we're well positioned to leverage the actions taken over the past two years and will drive significant value to shareholders for years to come. When you look at the technical and professional solutions we're providing to our clients, you know, coupled with floors, global engineering construction brand, we've clearly re-established our position as a leader in our industry. So we appreciate your interest in Fluor and thank you again for your time today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.