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spk05: Today's call is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the 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 .floor.com. The website replay will be available for 30 days. A telephone replay will also be available for seven days through the registration link, also accessible on Floor's website at .floor.com. At this time, for opening remarks, I would like to turn the call over to Jason Landhammer, head of the investor relations. Please go ahead, Mr. Landhammer.
spk06: Thank you, Ellie, and good morning. Welcome to Floor's 2024 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 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 in 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 2023 form 10-K and in our form 10-Q, which was filed this morning. During the call, we will discuss certain non-GAAP financial measures. Reconciliation 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 .floor.com. I'll now turn the call over to David Constable, Floor's chairman and chief executive officer.
spk07: David? Well, thank you, Jason. Good morning, everyone, and thank you for joining us today. Please turn to slide three. To get started today, I wanted to briefly highlight the Floor Fellows Program. Floor Fellows are a distinguished group of world-class subject matter experts whose knowledge and experience contributes significantly to Floor's success both internally and externally. Our Fellow's technical expertise sets Floor apart from its competitors and frequently become the decisive factor for clients when selecting Floor for future work. The Floor Fellows Program involves a robust nomination process. Candidates are nominated by department managers, executive management, and existing fellows and senior fellows. Fellows are selected based on their expertise, recognition from both peers and clients, and the value they bring to the company on a global basis. These leaders have roles beyond projects, helping drive innovation and performance across the organization. I'm pleased to say that with the 2024 class, we now have 91 fellows and senior fellows driving world-class technical excellence. Now let's turn to our operating review beginning on slide four. Revenue for the second quarter was $4.2 billion. Consolidated new awards for the second quarter were $3.1 billion, led by key awards in our urban solutions segment. Awards for the quarter do not reflect our substantial minority ownership in a joint venture that recently won the $30 billion Pantex M&O contract. More on that in a moment. New awards were 82% reimbursable, and our total backlog is now 32.3 billion, of which 81% is reimbursable. Strong demand for our services continues to drive new award margins above the 4% to 6% segment margin range that underpins our strategy. Specific to the margin profile, new award margins continue to outpace margin on existing backlog by an average of over 150 basis points for the past six quarters. Our margin story is driven by strength in service margins, which have been in the 20% range this year for our traditional EPCM businesses. This strong demand for our services is driving our investment in resources and people. Our shift to an asset-like company provides us the opportunity to move resources quickly as we pursue a wide range of requests, which includes everything from pre-feed and studies to large EPCM programs. This flexibility also supports our diverse pipeline of opportunities in advanced technologies and life sciences, mining and metals, production of fuels, and more broadly, energy transition. Moving to our business segments, please turn to slide six. Urban Solutions, our most diverse segment, reported a $105 million profit in the second quarter. Results in this segment reflect increased execution activities on multiple advanced technology and life sciences projects and the effect of a change order on a legacy infrastructure project. This change order covers many of the matters that gave rise to the charge we recognized in second quarter of 2023. New awards for the quarter were $2.4 billion compared to $2.3 billion a year ago. Ending backlog continues to reflect the strength of our end markets and now stands at $19.6 billion. This represents an increase of nearly 70% over the past 12 months. Now please turn to slide seven. During the quarter, mining and metals received a $1.1 billion incremental award for an aluminum rolling facility in Alabama. Clients in this space continue to have a steady long-term vision for their capex plans. Over the next few quarters, we are preparing for new awards to support rare earth refining, iron or port de-bottlenecking, and a lithium project in the United States. Moving to slide eight, advanced technologies and life sciences continues to ramp up to meet sustained client demand. New awards for the quarter included phase one of the Northvolt's large-scale lithium ion battery manufacturing facility in Germany for $361 million. Northvolt, headquartered in Sweden, manufactures batteries for consumer and industrial products, electric vehicles, and solutions for energy storage systems. During the quarter, our ATLS business line formed an alliance with Topso and ABB Limited to streamline construction of -the-art electrolyzers for effective production of green hydrogen. We look forward to providing EPC support for this key energy transition effort. We continue to see strong investments in the semiconductor space, where the outlook is supported by the CHIPS Act, funded here in the United States. From smaller tool install opportunities all the way up to large fabrication facilities, there's over $5 billion in potential prospects over the next 12 months. Over the next few quarters, the ATLS business line is pursuing opportunities in data centers and additional phases on large life sciences projects. In the data center market, we're building our relationships with large tech companies that are taking a disciplined approach to capital expenditures. In infrastructure, productivity remains strong across the portfolio. During the quarter, we completed the deck connection on the Gordie Howe project. This bridge is the longest cable-stayed bridge in North America and the longest composite steel and concrete decked cable-stayed bridge in the world. The team is currently focused on completion and handover of both ports of entry. On the LAX Automated People Mover project in Los Angeles, our joint venture has reached a settlement with a client that covers already completed extra work dating back to August 2018 and a longer than anticipated construction timeline. We will continue to work with the client while we seek final approval of the change order with the City of Los Angeles. While we recognize the $39 million improvement to our previous disclosed position for our portion of the settlement, this project remains in a lost position. Finally, plant and facility services secured a $533 million renewal from a large consumer products manufacturing client where we are providing ongoing construction management services. Moving on to slide nine, Mission Solutions reported a segment profit of $41 million for the second quarter compared to $40 million a year ago. New awards for the quarter were $63 million and included various task orders for FEMA, ending back up for the quarter was $3.8 billion. During the quarter, our Paducah contract was extended for two years through June 2027. We have also received a notice of intent to extend our Portsmouth and DUF6 contracts for up to one year through September 2025. I'm pleased to report that the FE Warren Nuclear Weapons Storage and Maintenance Facility is substantially complete. The project represents the last legacy project in the Mission Solutions portfolio. In early July, notices to proceed were issued to two joint ventures in which FLUR has minority ownership interests. As previously mentioned, the NNSA award awarded the Pantex M&O contract in Amarillo, Texas. Based on all three of the five-year contract options being exercised, the contract will span 20 years at an estimated funding level of approximately $30 billion. The protest period on this project has passed and transition from the incumbent is underway. Also, we were notified in July that the protest for the incumbent on the Air Force test operations and sustainment contract was denied, and transition on this project is underway. Because we are a substantial minority partner in both joint ventures, our portion of earnings will be recognized as equity method income and not revenue. With the additional contributions from these two projects accounted for under the equity method of accounting, this segment is currently managing over $5 billion of additional project scope annually that is not reflected in our revenue. Other prospects for mission solutions include the Hanford Tanks project, which we have won but are awaiting conclusion of the protest process. In addition, we are positioned to do additional work in the intelligence services space. Before we move to energy solutions, I want to highlight a new 50-50 partnership with Worley to pursue opportunities that support the Australia, UK, USA trilateral security partnership, formally known as AUKUS. The partnership brings deep maritime, defense and nuclear competencies required to build and maintain a nuclear Navy capability while also enabling the uplift of Australia's sovereign defense industrial base. Please turn to slide 10. In energy solutions, segment profit was $75 million for the second quarter, compared to $89 million a year ago. Results for the quarter reflect several large projects in the late stages of execution. During the quarter, we recognized a modest charge on a construction-only subcontract with our joint venture entity in Mexico. With this recognition, we are close to reaching an agreement with our client on the cost to complete this project. New awards for the quarter totaled $582 million and included incremental work for a petrochemical facility in Canada and an engineering study for Aramco. The energy solutions team had a number of accomplishments in the second quarter. First, we moved our lead energy solutions office from our long-time location in Surgelland, Texas, to a -for-purpose location in Houston's energy corridor. This location optimizes our real estate footprint and increases exposure to a tremendous concentration of industry talent for our expected growth. Next, we opened a second office in India to support our global execution platform and to position us for significant in-country market growth. Finally, Energy Solutions' only legacy contract, the Penguins FPSO project, was turned over to the client and towed to its final destination in the North Sea. Switching to LNG Canada, our team celebrated a major milestone with the final weld on train one. The weld took 48 hours of continuous work from teams of welders working in shifts. More than 380 pipe welders have worked on the project since construction began in 2018. To date, we have turned over one-third of the systems to the client and will be ready to import refrigerants in mid-August. This week, we announced a key contract award for the next phase of engineering and design for Rowe Power's small modular reactor facility using New Scale Power's industry-leading technology. As a reminder, FLUR has a development agreement with New Scale where we have a preferential right for work related to SMR opportunities. For the remainder of 2024, prospects are led by traditional refining and battery manufacturing. After a six-year cycle of delivering on large-scale programs, including LNG Canada and TCO, we are now seeing this mature EPC backlog replaced by higher margin pre-feed and feed opportunities that set the stage for new large-scale projects. With respect to the nuclear industry, I recently had a call with Energy Secretary Granholm about the importance of nuclear and SMR specifically and how FLUR can play a key role in supporting a transition to low-carbon power in the United States. I'm optimistic that the recently passed ADVANCE Act will increase the aperture for nuclear opportunities that the company is well-positioned for. Finally, for fiscal year 2025, the House Energy and Water Appropriations Committee recently added $8 billion to the $900 million in fiscal year 2024 to fund the completion of the ADVANCE reactor demonstration program as well as an SMR demonstration project. While not law, this is a critical step to making advanced nuclear power a reality by the end of the decade. With that, let me turn the call over to Joe for the financial update. Joe?
spk11: Thanks, David, and good morning, everyone. Today, I will review our results for the second quarter and go over financial outlook assumptions that support our guidance. Please turn to slide 12. As David mentioned, for the second quarter of 2024, revenue was $4.2 billion. Our consolidated segment profit for the quarter was $194 million. Adjusted EBITDA for the second quarter was $165 million compared to $181 million a year ago. Our adjusted EPS was 85 cents compared to 76 cents in Q2 of 2023. EPS results benefited from a lower tax rate as revenue and tax advantage locations increased. When you adjust for the change order and infrastructure, the incremental cost growth on a project in Mexico, and the timing of revenue contributions from large projects and energy solutions, Q2 results support our full year guidance. Our adjusted results for the quarter exclude $20 million for the positive income effects of FX on embedded derivatives in Mexico, and nearly $50 million of other FX gains. GNA expenses for the quarter were $50 million, down from $60 million a year ago. Net interest income for the quarter was $38 million compared to $37 million a year ago. Net interest contributions reflect a higher for longer interest rate environment, and our low cost fixed rate debt. We anticipate interest income to remain near this level for the next two quarters. New awards of $3.1 billion in the quarter resulted in our ending backlog balance of $32.3 billion, which now stands at 81% reimbursable. Based on our prospect pipeline, we anticipate a book to burn ratio equal to one for the third straight year. The book to burn would be much higher if you included the unconsolidated revenue that Mission Solutions manages. Moving on to slide 13. Our cash and marketable securities balance for the quarter was $2.6 billion. This excludes amounts held by New Scale. Operating cash flow for the second quarter was $282 million compared to $62 million outflow a year ago. This reflects distributions from our joint ventures, customer payments on several large projects, and a refund from the IRS amounting to $77 million. Additional IRS refunds of approximately $90 million are anticipated to be recovered later this year. During the quarter, we distributed $21 million in cash to fund legacy projects. We currently estimate that our funding requirements on the three remaining legacy projects is $50 million for the balance of 2024. The sale of Storch UK operations is progressing and dependent upon regulatory approval timing, which is likely to happen towards the end of 2024. Regarding New Scale, I want to note that New Scale's ongoing capital efforts may reduce floors ownership below the threshold for consolidation. While this would result in us no longer consolidating New Scale, we would expect to recognize our investment under the equity method. Before I close with details on our outlook, I want to provide an update on our view of capital structure. Year to date, we have made considerable progress in entitlement negotiations, free cashflow conversion, and investing in our people. These elements all support our stated goal of initiating a plan to return capital to shareholders. Please turn to slide 14. We are affirming our 2024 adjusted per share guidance of $2.50 to $3, and tightening our adjusted EBITDA guidance range from $600 to $700 million to a range of $625 million to $675 million. Our expectations for operating cashflow are now between $500 million and $600 million. Our assumptions for 2024 include revenue growth of approximately 15%, GNA expense of approximately $215 million, and an effective tax rate of between 30 to 35%. Our expectations for 2024 full year segment margins are approximately 5% in energy solutions, approximately 4% in urban solutions, and approximately 6% in mission solutions. Before we head to Q&A, I'll turn the call back over to David for an organizational change announcement. David.
spk07: Thanks, Joe. As we enter the second half of the year and successfully wrap up chapter one of our building a better future strategy, we're looking ahead in developing plans for the next chapter. Going forward, our objectives will be to maximize opportunities in growth markets, remain laser focused on execution, generate consistent operating cashflow, and continue to develop our pipeline of talent. In support of our objectives, we are making changes to our floor management team. To prepare for the future, we require a more holistic view of our markets, strengths, and needs in project execution and talent allocation across our businesses. Please turn to slide 16. To this end, effective August 5th, Jim Brewer, who is currently the group president of Energy Solutions, will assume the role of FLUR's chief operating officer reporting to me with a three business segment group presence for energy, mission, and urban solutions reporting to Jim. Succeeding Jim as group president of Energy Solutions is Mike Alexander, currently the chemicals business line president within the segment. Next, to strengthen and optimize our supply chain capabilities, effective October 1st, Raj Desai will join the FLUR management team as FLUR's chief procurement officer. Currently, Raj is responsible for our supply chain and commercial strategies groups. In addition to these duties, Raj will also assume responsibility for our information and technology organization. Furthering FLUR's expertise in leveraging technology in project execution. Robert Taylor, our current chief information officer, has advised of his intention to retire at the end of 2025, March 2025, after nearly 34 years with FLUR. And lastly, after a career with FLUR that spans almost 40 years, John Reynolds, our chief legal officer and corporate secretary, confirmed his decision to retire from the company effective mid-May 2025. Effective August 5th, Kevin Hammons will join the FLUR management team as chief legal officer. Over the coming months, John will transition his responsibilities to Kevin, who for the past several years served as senior vice president and managing counsel of the Americas. Until his retirement in May 2025, John will remain in service to the company as corporate secretary to the board of directors. I'd like to take this opportunity to warmly thank Robert and John for their service and dedication to FLUR Corporation and congratulate Mike, Raj, and Kevin on their upcoming appointments to the FMT, and Jim on his new role as chief operating officer. For your reference, the abridged profiles for Jim, Mike, Raj, and Kevin are attached as an appendix to the earnings call presentation. And with that, operator, we're now ready for our first question.
spk05: Thank you very much. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star one. Our first question comes from Sangeeta Jain from Key Bank Capital Markets. Your line is now open.
spk03: Hi, good morning, and thank you for taking my question. So if I can start with the capital allocation comments that you guys just made and the plan to return cash to shareholders, can you tell us a little bit more about that on what that exactly means and what the timing of that would be?
spk11: Yeah, thanks for Sangeeta for the question. I think as we laid out at the beginning of the year, by the end of the year, that we would be kind of in a position to firm up what that plan would look like and the timing of it. I think one of the elements, I think we've satisfied a lot of what we're doing internally. And as we're embarking on the 2024 strategic plan, I think that's the last piece of this to kind of close off the circle and allow us to kind of roll out what our communication related to the shareholder allocation plan will be. So we're kind of in that process. We'd like to vet off one more thing, but it's coming by the end of the year. And then we'll be a little bit more granular about what that looks like. I don't think we're prepared to talk about the granularity of it. But I would say a lot of the things that are occurring in the quarter are giving us more and more confidence. And as we close off the strategic plan, I think we'll be in a good position to have that discussion.
spk03: Great. And one more on the last project, Outlay, that seems to be now lower than the 150 million that you gave last quarter. Is it fair to assume that that's a reflection on the positive adjustment that L.A. people move over?
spk11: It is in terms of the settlement value and the fact that we don't have that cash outlay. Sangeeta, that's a fair logic tie there. That's a piece of it for sure.
spk03: Okay, understood. Thank you so much.
spk05: Our next question comes from Jamie Cook from Truvis Securities. Your line is now open.
spk02: Hi. Congratulations on a fairly clean quarter here. I guess my first question, Joe, just on the cash flow guide increase, it was nice to see. What was not embedded in your guidance? I'm just wondering, I know you said the cash reflects distributions from joint ventures and you had the IRS refund and etc. I'm just wondering how much cash outperformed your initial expectations and then it's nice to see you're starting to get cash from the joint ventures. What's embedded in the guide or where would there be upside? I'm just wondering if we should get more positive that these distributions are coming and sort of the magnitude of that. And then I guess David, on the bookings for the rest of the year, I think before you've talked about a book to bill of over one, I know bookings are lumpy. Just your confidence level there and in particular, what you're seeing on the data center side. Thank you.
spk11: Thanks, Jamie. I'll start with the cash. We had an outlay at the beginning of the year from a planning perspective of $360 million to fund legacy projects. And today we currently have managed through the reestablishment of entitlements and excellence in execution. We've dropped that number from a $360 million outlay potentially to now $126 million. And even within that $126 million in the balance of 2024, I see ways to kind of improve that outlay. So I think that's going to help us drive to the upper end of the guide that we've laid out relative to OCF. And I'm getting more and more confidence that that's kind of the direction that we're heading. But I see more opportunity to get to the upper end of that guide. But I think some time needs to play out here.
spk07: Okay. Morning, Jamie. On the book, the bill and the one, the one-oh confidence, we had a really good first half, right? We've booked $10 billion in the first half of the year. So basically right on track with our, that's $50 billion over the past two and a half years and booking $20 billion in each of the, in 22 and 23. So about the same run rate. New award bookings really strong, right? Higher margin profile versus the existing backlog, as we mentioned in the prepared remarks. Q2, in fact, new awards were 250 basis points above the backlog margin. So that's great to see. As far as, you know, what it's shaping up like for new awards in the second half, ATLS and mining markets are really very promising. But also, you know, if you look at the Q3 major prospects, they'll be in mining, traditional refining, chemicals, semiconductors, DOE maintenance and energy transition projects across the portfolio. And then in Q4, DOE environmental management bookings, more mining, LNG, data centers, some large data center work, and then some more chemicals prospects. So, confidence level, yeah, I'd say we'll be right around one, I think, thereabouts. I think that's what we've been messaging for the past several quarters. And obviously, we've got a revenue growth of about 15% guidance this year, just so you can track it that way as well to get to what that book to burn would be. So, that's where we're at.
spk02: Thank you.
spk05: Our next question comes from Andy Kapulich from CC Group. Your line is now...
spk01: Morning, everyone.
spk07: Good morning.
spk01: David, maybe I'll follow up on Jamie's questions around data centers. You mentioned that you're building relationships with tech customers and they're taking a disciplined approach to projects. So, maybe what does that mean? Do you start seeing more bookings this year? Is it more 25 ramp up in bookings there? Maybe talk about floor is competitive positioning. Do you think the majority of the projects will actually be cost-reversible?
spk07: Yeah, so, like I said to Jamie, the data center work right now for the larger programs are starting in Q4 is what we're seeing right now. And then into 25, like you mentioned. So, that's where we're at with data centers. It's just a really big demand right now, I think as everyone on the call knows, the need for data centers has rapidly increased based on cloud-based technology and artificial intelligence, right? So, in the US market alone, the power consumption to reflect the number of servers of data centers that they can house is going to reach, we think, or we've looked at the data and we think it'll reach about 35,000 megawatts by 2030. And there's, what, about 17,000 in place right now. So, a huge growth in data centers. And the US is going to account for 40, it accounts for 40% of the global market. So, lots of data center work to say grace over here. And from what we've seen, it is primarily reimbursable, right? So, that's also encouraging, or reimbursable with incentives on cost and schedule. So, right in our wheelhouse to, in our contract, our risk profile and fair and balanced contract terms, strategic priority to go after these data centers. And they are large, right? So, there's only a few contractors in the country who can really take on these really large projects. And FLUR is obviously one of those that will be right in the mix for the data center build-out that's coming. So, we're very bullish on data centers, but also semiconductor facilities right now more in the global markets and also life sciences in ATLS. So, ATLS is shaping up very nicely here going forward.
spk01: Tough one, David. And maybe can you give us more color regarding what you're seeing specifically within energy solutions? The backlog is up year over year, but revenue is down. And you have that on Canada, as you said, winding down. So, what kind of visibility toward revenue growth and that is do you have over the coming quarters and in 25? Could there be a low before, as you said, you do a bunch of C8s, but then you get in TPC, I guess, later in 25 or 26. How does it evolve?
spk07: Yeah, we've had a good run in energy solutions. Backlog is up, as I mentioned, right? Up to 8.5 billion, up quite a bit over Q2 of 23. So, that's good news. But also, we have been finishing off some major projects, coming to the end at LNGC and TCO is ramping down somewhat. But as we look at all the feed work and prospects in feed work, there's about $420 billion of potential projects out there that we can go after. And a good portion of that is in energy solutions, right? If you just look at the prospects of front-end work, it's split pretty evenly between up to 207 billion that we're tracking right now. It's split very evenly between energy solutions and urban solutions, about 104 billion for energy solutions. And that's across chemicals and refining, refining in Mexico, specifically nuclear power. And then a very big chunk is in downstream production and fuels, which covers off a lot of the energy transition. So, I think with everything that's either in-house, which is another 200 billion of studies that we've got, that we think will proceed, a lot of good things are coming. If you look at full projects, EPC, EPCM, there's about $60 billion of prospects in the next 18 months for the company, and $25 billion of that is energy solutions. So, yeah, I wouldn't call it a lull, but it's going into that front-end work, where our strategy is to get in early and stay late. So, we're busy on some more front-end work in energy solutions that'll see them growing nicely in the coming quarters.
spk01: Appreciate all the color. Thanks.
spk05: Our next question comes from Stephen Fisher from UBS. Your line is now open.
spk10: Great, thanks. Good morning and congratulations. I just wanted to clarify whether the urban solutions change you already had in the quarter was already kind of probability-wage in the guidance. And if it was, was there something else that offset that since the midpoint of EBITDA was kept the same? And then I'll just ask my second question now. David, you cited that the average of 150 basis points of higher margins going into backlog over the last six quarters. Actually, we think about the trajectory of margins going into backlog from here kind of relative to that 150 basis points. Is that kind of flattening now, or do you think there's still room for putting higher margins in? Thank you.
spk11: Stephen, I'll take kind of the view on guidance for the quarter. You know, I guess the way I would frame it for you is, you know, the results for the quarter kind of reflect the underlying quality of the existing backlog that we've booked over the last couple of years. $50 billion up through the end of 23, an additional $10 billion plus what's coming in on Pantex. We understand there were some puts and takes in the quarter, but we still have confidence on our core results. And, you know, I think those results suggest the run rate of $165 million that we've shown in the quarter. As we move forward, Stephen, I think what we'll see is less and less volatility. As the results, we're continuing to close out our existing legacy projects. We've made significant progress there, and our de-risk project portfolio of 80% reimbursable will begin to mature as it pulls through the pipeline. But as we laid out in prepared remarks, we did have some delayed revenue recognitions over some of our major programs in energy solutions, which are coming in in the back half of the year. And so that gives us the confidence in being able to support the guidance and certainly up to the midpoint at this point.
spk07: Yeah, good morning, Stephen. Yeah, on margins and going to backlog, that's been a good run that we've seen, and it continues to pull our backlog margins up. So our backlog continues to get healthier. As we've said, we're over 80% reimbursable now, which has surpassed our strategic priority target of reimbursable work in backlogs. So I'd say it's... Looking at it, I'd say it will continue. I think we'll continue to book new wards above our plan margins. A lot of it has to do with services margins that we're booking right now. A lot of this front-end work that we're back into in energy solutions obviously brings with it much higher margins when it's services only. So that's a big contributor to what we'll be seeing over the next several quarters. So I think that will continue. I wouldn't want to... It's better to get there and then tell you what it is after the fact. But I think we'll continue to see margins coming in and new wards that are above our planned expectations.
spk10: Very helpful. Thanks a lot.
spk07: Thanks, Stephen. Thanks, Stephen.
spk05: Our next question comes from Mike Doudos from Vertical Research Partners. Your line is now open.
spk04: Good morning, Jason, Joe, David.
spk11: Hi. Good morning, Mike.
spk04: First for Joe. Joe, with the positive success of cash flow improvement this year and versus a year ago, after we go through all the puts and takes and the legacy projects moving out, some of the better business moving in, back-lock through the P&L, what do you expect from a normalized kind of conversion rate when flow is kind of running on those cylinders without some of those, even though there will be some special movements every interquarter, what that can be and has that changed from what your expectations would have been?
spk11: No, thanks for the question, Mike. We have stated that 60 to 70% conversion rate as we move forward, and I would expect, you know, if I've gone back and kind of looked at, you know, our historical floor and at times we've been up in the 75% range in a similar asset-like model. So I think the goal would be to drive to levels in the 70 to 75% range. But as we transition here, I think that 60 to 70% conversion view is probably an appropriate one as we, you know, kind of progress through the next few quarters.
spk04: That's helpful, Joe. And for David, you mentioned in your preparative remarks the booking from the new scale on rural power, your discussion with the Department of Energy Secretary. How, you know, how real, how your thoughts on what potential that could be for floor, whether it's through a new scale or other opportunities that there is on the nuclear side, and maybe an update on monetization opportunities for your majority of your holdings.
spk07: Yeah, good morning, Mike. Yeah, great topic right now based on, as we talked about, the data centers and everything that's going on for power demand requirements, not only in the US but globally. I think we said last quarter that demand, or the interest, I'll say, the interest in SMR technology, carbon-free power has never been greater. We obviously are seeing, supporting new scale, but also supporting their commercialization and their development partner and commercialization globally. So we've got a pretty good insight into all the opportunities out there. With tech companies and with utilities to crack this nut on power demand and the requirement for it to be clean energy. So pretty exciting times. We're excited about ROE Power. We're excited for new scale, about their technology being chosen over there, support from the US government as well. And we're looking forward to getting started on that front end package for ROE Power. And we believe there's going to be a lot more of it, both internationally. And I think the floodgates will start to open here in the US as well as either, you know, with utilities taking on the assets in their facilities or over the fence. Build on operate. Different business models are available. And the tech companies are coming. I think they'll lean more towards, you know, PPAs, power purchase agreements with the SMR developers out there. So yeah, times are good. Like I said, we have, you know, preferential rights with new scale. And we know the technology best from an engineering design and constructability perspective. So, you know, it's shaping up to be something going forward that we'll be all over. So, exciting times. On the monetization, we're still working with our strategic investor. I think everything I've just said about how positive things are shaping, that is definitely going to get the investment, I think, over the goal line here. You know, we'll probably be talking more about it at the end of the year and letting you know where that stands with the Flir shares and, you know, selling down the majority of our shares to a strategic investor that will take the commercialization forward.
spk00: Thanks, Mike.
spk05: Thank you. Our next question comes from Andy Whitman from Baird. Your line is now open.
spk08: Oh, great. Thanks for taking my question. I guess I just wanted to ask on the SG&A guidance, I guess, is up this quarter versus what you were thinking last quarter. And so, I was wondering if you could discuss what's in there, Joe. Is there something one time? Is it incentive comp because the year is turning out well? Maybe if you just talk about the change there.
spk11: No, it's a one-time impact partly due to some of the investment that flowed through into the build out of our office in Houston, and it'll be non-recurring, Andy, as we move forward.
spk08: Got it. OK, so we feel like the 190 is kind of the underlying rate for the company. That is that's fair. Yep. OK, I just wanted to talk about the change order that you got in the infrastructure on PeopleMover. During the quarter, there was there was an announcement publicly about some resolutions and change order, then there was a second announcement from LAWA on this one. That was actually more substantial in the headline. But I don't know if if that was Fleur's scope. So I was hoping you could clarify that. So was there any scope or is there any relief given in the second wave of money? And was that recognized in the quarter in the second quarter? Or could that be recognized in the third quarter? Just thought maybe you could comment on that one, too,
spk11: Joe. No, Andy. Yeah, the the the settlement that we've reached is a global settlement and the position that we've taken reflects our position to complete the project.
spk08: OK, entirely entirely in the second quarter. Yeah, this
spk11: settlement gets us to the finish line. And and we don't expect any other changes other than if we're able to execute the job in terms of how we utilize reserves and contingencies. But this is the settlement that sets the the kind of the mark for handing over the facility to the client.
spk08: Got it. OK, those are my only technical questions for today. Thank you very much and have a good day.
spk05: Our next question comes from Brent Fieldman from David Davidson. Your line is now open.
spk09: Hey, thanks. Good morning, David or Joe. Actually, just wondering if you could clarify why the upper end of the EBITDA guidance range came down seems like you've got some really good momentum going into the second half, is it just that the pace that you're seeing the new business deploy or or anything else?
spk11: It's a good question, Brent. I it is the pace of the deployment of some of these programs and they're coming online. It's it's more of a where we are in the cycle, the burn cycle and the maturity of those projects. And as we see kind of where we are in that progress, it made sense to kind of bring us off the top end of the range and hold the midpoint. But all that backlog is going to continue to burn as we move out through 24 and into 25. So this is more just a function of where we are in the maturity of of of the cycle relative to the work that we've on boarded, the 60 plus billion of work that we've on boarded in the last three years.
spk09: I appreciate that, Joe. And I guess my second question, I mean, it's sort of interesting. I mean, urban solutions now 60 percent of your backlog compared to less than 40 percent a few years ago, I just curious bigger picture is this sort of a new look for floor going forward. I know you've got this potential pipeline of work and energy solutions that that can come down the line. But I guess I'm just curious whether, yes, this is sort of the new look for floor going forward or just a product of where the markets are right now.
spk07: Yeah, thanks for the question. You know, it's it's really encouraging to see that our strategic priority that we set back in early 21 based on mega trends we were seeing around the world, you know, driving growth across the portfolio outside of traditional energy, outside of traditional gas has really come to fruition and really lined up exactly as we we thought it would. And it's and you're seeing that in in urban solutions backlog of almost 20 billion. But we've also, you know, at that same time, we also wanted to grow traditional gas and we're happy that it could come along and be a strong part of the mix. And I think it will be for the future, both in energy transition, but also in traditional. So and you and nuclear sits in energy solutions as well. Just be aware that that, as we just talked about with Mike, will be sitting that those projects will be sitting in energy solutions going forward. So going forward, we're hoping and thinking that all boats will be raised, you know, across the three segments. And we'll we'll enjoy watching energy solutions and urban solutions battle it out for for who's got the most backlog. But right now, it's definitely ATLS based on data centers, semiconductors, life sciences, mining and metals is very, very strong, as we've talked about. So I guess I guess, you know, I'd say it's coming across all of all the business lines.
spk09: Appreciate it. That's a lot. Thank you.
spk05: Thank you. That concludes our question and answer session for today. I'd now like to hand back the call over to Mr. David Constable for final remarks.
spk07: Thank you, operator. Many thanks to all of you for participating on the call today. I'm very pleased with the company's performance today and our trend for 2024. Our focus on bidding discipline and private performance continues to serve us well. So appreciate your interest in FLIR. Thanks again for joining.
spk05: Thanks. Thank you for joining today's conference call. Have a wonderful day. You may now disconnect.
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