Fluor Corporation

Good morning, and welcome to Fluor's third 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 Fluor's website at investor.fluor.com. The web replay will be available for 30 days. The 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 Landkamer, head of investor relations. Please go ahead, Mr. Landkamer.

Thanks, Jordan. Welcome to Fluor's 2023 third quarter earnings call. David Constable, FLOR's Chairman and Chief Executive Officer, and Joe Brennan, FLOR's Chief Financial Officer, are with us today. FLOR issued its third 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 will 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 in our Form 10-Q, which was filed earlier today. 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.floor.com. I'll now turn the call over to David Constable, FLUR's Chairman and Chief Executive Officer.

David? Thank you, Jason. Good morning, everyone, and thank you for joining us today. Please turn to slide three. In response to investor inquiries from our shareholders, I wanted to provide some insight into how FLUR is leveraging artificial intelligence technologies across the organization. As some of you may recall, In 2018, we had entered into an industry exclusive partnership with IBM to develop a predictive analytics solution for large projects. Based on a significant database of over 200 projects spanning 20 years, we continue to expand the use of this platform to supplement execution across our portfolio. At the same time, we launched a parallel effort to create an AI platform to provide predictive pricing on materials for our supply chain. Outside of these two major predictive solutions, Flora is currently using over 60 AI-derived platforms across IT, tax, treasury, human resources, proposal development, and plant and facility services. This is in addition to a number of simulation and rule-based AI-enabled systems that we have deployed to support project execution. These systems are helping Fluor reduce costs and drive a data-driven decision-making process that leads to better project management and quality control. Now let's turn to our operating review, beginning on slide four. Revenue for the third quarter was $4 billion, representing our third straight quarter of 10% growth over the prior year. Our increase in revenue was led by Urban Solutions, as we ramp up execution activities on several recently awarded projects, including a large metals project in the U.S., two life sciences projects, and a semiconductor project. Consolidated new awards for the quarter were $5 billion, remaining on track relative to our full-year plan of a book-to-burn ratio of greater than one. New awards were 94% reimbursable. and our total backlog is now $26 billion, of which 70% is reimbursable. We continue to see strong demand for our services and the value we provide. Margins on new awards were 70 basis points above the margin profile of our existing backlog. The demand for our services is evident by our prospect pipeline. We continue to track a slate of prospects that is more than 15 times the size of our current backlog. This is led by opportunities in chemicals, closely followed by production in fuels, and mining in metals. As you will see over the next few slides, our financial discipline, combined with our focus on selectivity and project execution, are starting to drive consistent results. Moving to our business segments, please turn to slide six. Urban Solutions reported a $66 million profit in the third quarter. Results included an incentive fee earned on a large mining project that is nearing completion, as well as a favorable arbitration outcome on a separate mining project. New awards for the quarter were $1 billion, and ending backlog is now $11.1 billion and 59% reimbursable. Now please turn to slide seven. In mining and metals, we continue to work on a number of front-end studies, including critical minerals production and green steel technologies. Although there have been no cancellations, the industry has been carefully monitoring inflation inputs and commodity pricing. We're now starting to see clients move forward with final investment decisions. Earlier today, we announced a multi-billion dollar reimbursable award from BHP for Stage 2 of their Janssen Potash project in Canada. This award will be recognized into backlog in the fourth quarter. Looking ahead to the first half of 2024, we see significant opportunities in lithium, steel, and copper to bring into backlog. Moving to slide eight, our advanced technologies and life sciences business line had another active quarter. Last month, we announced the completion of Bayer's first global cell therapy launch facility. This new state-of-the-art biopharmaceutical development and manufacturing facility will be used to produce cell therapies for neurological degenerative disorders, cardiovascular disease, and other current unmet medical needs. On the new awards front, ATLS was able to build off its successes in the second quarter This includes an initial award for a semiconductor facility in the Pacific Northwest and an award north of $400 million for an expansion facility for a key strategic customer in Denmark. We were also awarded a feed package for Altris AB for the world's first industrial scale sodium ion battery production facility. We are excited about the pipeline of reimbursable opportunities in this business line. Over the next few quarters we are positioned to win significant additional semiconductor work and multi-billion dollar opportunities in life sciences. In infrastructure we continue to make significant progress on legacy and non-legacy projects during the quarter. On the Gordie Howe project we had a very productive summer with great progress on the bridge and the US and Canadian ports of entry. In August The team celebrated the topping off of the US Tower at 722 feet. The project is now 65% complete. As we mentioned last quarter, Floor, along with our partners, continue to have collaborative discussions with the Gordie Howe client with respect to cost and schedule relief. Our joint venture team is working to resolve these discussions in the next few months. Moving on to slide nine. Mission Solutions reported a segment profit of $38 million for the third quarter, compared to $29 million a year ago. Results for the quarter reflected increased execution activities for FEMA hurricane support. New awards for the quarter included the $175 million four-month extension at Portsmouth, a new award for AFRICOM under our Log Cap 5 contract, and additional task order awards under our FEMA contract to support hurricane-related efforts in Florida and Georgia. Last month, we were also informed that our contract for the NNSA's Naval Nuclear Propulsion Program was extended for five years through 2028. Fees from this $8.5 billion extension will be recognized as equity income. During the quarter, our team submitted our bid package to the NNSA for the Pantex Management and Operations Contract, This contract includes a five-year base period with three five-year options valued at up to $30 billion over 20 years. We expect to have an update on this contract next year. Moving to energy solutions, please turn to slide 10. Segment profits significantly improved to $177 million from $59 million a year ago. Results reflect the initial recognition of cost recovery entitlements on several fixed-price projects, partially offset by cost growth on a large upstream legacy project and a charge for the expected net settlement of a long-standing claim. Results also included a $24 million gain on our embedded derivative in Mexico. New awards for the quarter totaled $3.3 billion and included a confidential reimbursable EPCM contract for a large chemicals project in North America. For the fourth quarter, we are anticipating some sizable reimbursable new awards. Prospects include a large battery chemical project and an isocrafter retrofit project both in Europe and an LNG facility in Indonesia. Finally, I'd like to note that LNG Canada is now 88% complete and this project continues to meet management expectations. Before I turn the call over to Joe, I want to note that our results and accomplishments this quarter reflect notable progress against our corporate strategy and is indicative of our ongoing transformation into one of the leading engineering construction companies in the world. With that, let me turn the call over to Joe for the financial update. Joe?