Fluor Corporation

Good morning and welcome to Floor's first quarter 2023 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 investors.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 investors.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, Julianne. Good morning and welcome to Floor's 2023 First Quarter Earnings Call. David Constable, Floor's Chairman and Chief Executive Officer, and Joe Brennan, Floor's Chief Financial Officer, are with us today. FLIR issued its first 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 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 and our Form 10-Q, 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. I'll now turn the call over to David Constable, Floor's Chairman and Chief Executive Officer. David? Well, thank you, Jason.

Good morning, everyone. Thank you for joining us today. And please turn to slide three. Before we get started on operational results, I wanted to recognize a special achievement that our team recently received for a key milestone on the Marathon LA Refinery Project. The team comprised of members from our offices in Southern California, Calgary, Manila, New Delhi, and Houston were able to complete the project's turnaround construction work packages by December 31, 2022, a task that was considered almost impossible at the time due to an aggressive schedule, staffing complications, and ongoing scope changes. In the spirit of OneFloor, our team worked collaboratively to keep the work going and were able to beat the deadline by nine days. The team utilized working meetings and obtained feedback from the client in real time for increased efficiency. This 24-7 lean approach by the team also used time zone differences to their advantage for seamless handoffs around the clock. Congratulations to the Marathon LA project team on this well-deserved recognition. Now let's turn to slide four. Q1 revenue was $3.8 billion, representing a 20% improvement over a year ago. Our increase in revenue was led by Energy Solutions, as they continue to deliver strong execution performance on LNG projects and refinery activities in North America. New awards for the quarter were $3.2 billion, in line with our expectations and on track relative to our full-year plan. New awards were 81% reimbursable, and our total backlog is now up to 64% reimbursable. Our optimism for the future of Fluor is further supported by a robust prospect pipeline. We are currently working on or recently completed feed and study packages that represent an estimated $290 billion of installed cost, high quality new award prospects. In the near term, we are tracking key EPC and EPCM prospects totaling approximately $51 billion across the company. Moving to our business segments, please turn to slide six. Urban Solutions reported a $20 million loss for the first quarter as a result of additional costs on a legacy infrastructure project. More on this in a moment. New awards for the quarter were $1.8 billion and any backlog is now 58% reimbursable. Moving to slide seven, in mining and metals, we continue to successfully execute and deliver on our nearly $4 billion backlog. Over the next 18 months, we are either working on or have direct line of sight on $7 billion of opportunity. This includes decarbonization of metal production facilities, copper projects in South America, and lithium work in the US. Please turn to slide eight. We're off to a good start this quarter as our advanced technologies and life sciences business continues to support a broad range of opportunities that align well with our strategic priority of driving growth across the portfolio. During the quarter, we received a significant award for a large automated distribution center program in North America and additional work for an existing semiconductor plant in Malaysia. Looking ahead, We have been engaged as a key project delivery partner for several new biopharmaceutical facilities, including both brownfield expansions and new greenfield campus developments. These projects are in their early stages and will ultimately produce life-saving and quality of life improvement treatments for diabetes and oncology patients. Combined, these projects will represent an additional $1 billion in new awards in the second quarter. In addition to our significant advanced technology work in Asia, we also continue to position ourselves for large semiconductor fabrication projects in Idaho and Oregon. Now turning to slide nine, I'd like to spend the next few minutes addressing the execution challenges in our infrastructure portfolio. During the quarter, we recognized $59 million in reduced margin on our LAX automated people mover project. This increase in cost is a result of rework associated with subcontractor design errors, the related schedule impacts, and systems integration testing timelines. The client has been working collaboratively with us and last week saw us securing an extension of time agreement. Construction on this project is now 88% complete. Our progress on the I-635 LBJ East Freeway project continues to track our Q4 forecast and is now 53% complete. This quarter we brought in additional craft labor and we continue to work on formalizing our claim submission against our design subcontractor for retaining wall deficiencies. Progress on the Gordie Howell International Bridge project now stands at 47% complete. Progress in the first quarter was as expected with no material changes from Q4. We continue to hold productive conversations with the client as it relates to cost and schedule relief. Moving on to slide 10. Looking across our infrastructure portfolio, a few common themes emerged, including legacy contracts that did not provide appropriate protection for supply chain and labour escalation costs, labour availability, and the tempo of claims recovery negotiations with clients. To address these issues, over the last few months we marshalled additional resources into infrastructure to strengthen leadership and execution at the project and management level. This is driving a more robust organization with rigorous control and oversight at the business line and project levels. We also worked with our joint venture partners on these projects to align on our strategy for managing potential claims, and we are encouraged by the progress we are making on this front. Finally, for the past two years, we have deliberately narrowed the focus of our infrastructure business to state DOTs, or select regional opportunities, as was the case with A27 in the Netherlands. Staying away from large signature projects, and focusing on traditional roads and bridges fully aligns with our 2021 strategic plan. We continue to have a selective mindset and a view that any prospects must conform with our strategic priority of pursuing contracts with fair and balanced terms. For the balance of 2023, we only see one major infrastructure prospect that meets these criteria. Although it is not always easy to see, Floor has made good progress on reducing legacy risk in our backlog. In 2020, 3.6 billion of our backlog represented projects in a lost position. Today, that has been cut by more than half to 1.7 billion, with the vast majority of the backlog consisting of reimbursable contracts with higher than historical margins. Please turn to slide 11. Mission Solutions reported a segment profit of $7 million for the first quarter compared to $58 million a year ago. Results for the quarter reflect a $21 million charge for government-directed change orders on our legacy F.E. Warren Air Force Base project in Cheyenne, Wyoming. When construction commenced in 2019, the contract included specific construction activities in the awarded scope of work. Some of these scopes were suspended by the client at various times between 2020 and 2022, while others have impacted the project due to incomplete client designs. In Q1 of this year, the client directed us to restart construction activities that had been suspended at their request and to proceed with work that could not be negotiated. Our initial estimate to complete this work and the inefficiency arising from these late-stage changes is reflected in this charge. Since we are required to accept these government-directed change orders, we are now finalizing the total cost and schedule implications and will pursue revenue recovery for this claim in future periods. The project is over 70% complete. with handover expected in the third quarter of next year. New awards for the quarter include a six-month extension for our efforts at the Portsmouth decontamination and decommissioning project in Pike County, Ohio, and an engineering award to support the Class 2 estimate for NuScale's customer, UAMPS, on their carbon-free power project. Our outlook in mission solutions is increasingly positive as we start to convert our prospect pipeline. Last month, Fluor, along with our joint venture partners BWEX Technologies and Amentum, won the Hanford Tank Disposition Contract. The contract scope includes operation of the Hanford tank farm facilities and operation of the waste treatment and immobilization plant, among other responsibilities. For some perspective, the project includes 177 underground tanks holding approximately 56 million gallons of radioactive waste, resulting from the production of plutonium, for the US Defense Program. This contract has a ceiling of $45 billion over a 10-year ordering period. Since we are a minority partner, this program will be reflected as equity income with no increase in backlog or revenue. We anticipate starting the project in the second half of this year. Next, Mission Solutions recently signed an MOU with Longview Fusion Energy Systems to serve as its engineering and construction partner for their revolutionary laser fusion technology. At full capacity, their plants are slated to provide up to 1600 megawatts of carbon-free, safe, economical, and sustainable energy. Looking ahead, last quarter I mentioned our pursuit of a multi-billion dollar operations testing opportunity with the U.S. Air Force. In addition, we expect that the NNSA will be releasing the RFP for Pantex in Q3 of this year. Moving to energy solutions, please turn to slide 12. Segment profit improved to $88 million from $54 million a year ago. Results reflect increased execution activities on refinery and LNG projects in North America, partially offset by $39 million for our embedded derivatives at Ecoflor in Mexico. New awards of $712 million include work on two EPC projects for Pemex, a compressor modernization project in California, and an incremental award for our new Fortress Energy FAST LNG program. We also received an initial feed award for a new lithium chemicals conversion plant in the United States. Moving to slide 13. At the LNG Canada project, our team continues to have success in delivering modules to Kitimat. At the end of April, 205 of 215 modules have been shipped and 196 modules have been delivered to site the isbl or inside battery limit modules for trains one and two have been installed all remaining modules will be on site by the end of june and we are pleased with the final results achieved in the module fabrication yards as this phase of project risk moves behind us we look forward to the next phase of construction and our focus on construction progress and pre-commissioning at the Kitimat site. We expect resolution of COVID-related impacts on fabrication and construction during the course of this year. I'm also very pleased to report that we are in the final stages of finishing off another legacy project, and more specifically, an offshore platform for Shell was moved from China to the European Transit Yard in Q1, where we will be finishing the final punch list startup and commissioning items. As I mentioned in our earnings call in February, in Q1 we received the initial awards for the EPCM of Dow's Path to Zero Ethylene and Derivatives Chemical Complex in Canada. We anticipate a full EPCM award release in Q3. In addition to the Dow project, we are tracking significant opportunities with Pemex and with other chemical clients in the second half of 2023. Turning to slide 14. Energy Solutions continues to capture opportunities in the energy transition space, with 40% of new awards in the quarter being energy transition related. Last month, Energy Solutions signed a licensing agreement with Federated Cooperatives Limited, FCL, for their renewable diesel facility in Regina, Saskatchewan. FCL will be deploying Fluor's proprietary Econamine FG Plus carbon capture technology to help them meet their commitment of a 40% greenhouse gas emissions reduction target by 2030. Finally, we continue to have positive discussions with Romania for the front-end engineering and execution management of two conventional nuclear units at an existing facility. We are also supporting new scale in Romania as we execute a front-end engineering package for a six reactor SMR nuclear power plant. Both of these opportunities will be executed on a reimbursable basis. Before I turn the call over to Joe, I want to reinforce that our strategy continues to serve us well. While the challenges in our legacy portfolio are frustrating for us and for our shareholders, we believe that the experienced resources we have deployed on these projects will put us on the best path to resolution. Our diminishing portfolio of legacy projects conceal some tremendous performance from the rest of our backlog. While early, the $20 billion in new awards booked last year are ramping up. and will provide considerable EBIT in the years ahead. When you include our awards in the first quarter, where we captured double-digit margins, I'm confident that we will be able to deliver on our earnings expectations for 2023 and 2026. With that, let me turn the call over to Joe for the financial update. Joe?