Good morning, and 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 approximately 10:30 AM 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 Landkamer, Head of Investor Relations. Please go ahead, Mr. Landkamer.

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. Fluor 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 2. 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.fluor.com. With that, I'll now turn the call over to David Constable, Fluor'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 3. 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 Flour'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 lifesaving 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 [Bobsar] (ph) 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 4. 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 encourage by the market response to our priority of seeking fair and balanced terms in our contracts.…

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 NuScale 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, Fluor 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 increase 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 finish the year with $110 million in realized savings and are well ahead of our targeted $100 million in savings by 2024. The annual savings this program generates positively impact 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,…

Thanks, Joe. Let's turn to Slide 19. Just over two years ago, together with the new senior management team we launched the 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 Fluor for the value we deliver. We ended the year with the 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 Scope’s 1 and 2 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 million to $600 million or $1.50 to $1.90 per diluted share. In addition, we're introducing long term 2026 adjusted EBITDA guidance of $800 million 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 close out 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 in which revenue was generated. We expect tax rates to moderate as revenue and our tax advantage location 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. [Operator Instructions] The first question is from Michael Dudas with Vertical Research. Your line is open.

Good morning, everyone.

Hey, Michael.

Good morning, Michael.

May be you could talk about the competitive nature of what you're seeing in the marketplace? And how that's translating to margins that you [indiscernible] your work in 2022 [Technical Difficulty]

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 Wittmann with Baird. Your line is open.

Yeah. Great. Good morning, guys. I’d 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, 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 PLC 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 around 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 our 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 Solutions side of the margin, our improved operating results coming out of Mexico and across other aspects of the portfolio. So it's not 100% 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 were nominally or approximately 50% complete on LBJ and Gordie 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 has 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. So I just want to make sure I heard correctly. But on these legacy projects, you basically have agreement that's what you've done so far and how you've accounted for it so far at LAX and LBJ 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 is 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 [indiscernible]. 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 dialog 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.

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 little more help around your expectations around your new 2026 targets. What 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 I will 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 those -- 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, 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 provides for consistent earnings going forward very important to bridge the 2026 the margin corridor you can still think about a 4% to 6% a quarter and we're 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-third-third almost. And we're just going to see a continued robust pipeline across all three segments. So that's driving that 2026 guidance that we're showing. And the time we 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 just commented on those legacy projects. So 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 complete by 2026. I'm just trying to think about a normalized cash flow conversion over the next couple of years? Thank you.

Thanks, Jamie. Yeah, we are currently reflecting approximately $250 million of cash requirements for legacy projects in 2023, that will 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 EACs. 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, Jamie, 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 flows. So, I would suspect that -- in fact in Q4, we were able to dividend some of those activities in Canada back into the US and into Fluor's books. And we expect that to continue out into 2023 and into 2024, both for not only in 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, Mike. That's better

Yeah. We got you.

Great. Yeah, technology is wonderful, when it doesn't work. So, two questions. First, David, I want to talk about the competitive nature in the marketplace, it seems like your clients getting more comfortable, confident, 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, is that -- are we going to continue to see that from the plan you put forth in 2024 to 2026? And my second question would be, Joe, you talked about NuScale, it sounds like you're leaning a little bit more on the strategic investor environment. Can 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 made some comments around CapEx expenditure. We always -- we've been talking about Fluor 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've just mentioned, real traction on CapEx increasing here by across all of our business segments. The CapEx plans by our clients in 2023 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] (ph), mining and metals, government and energy transition across all of our businesses, 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 that we are as they start to ramp CapEx. If you look at the traditional oil companies all doubling their profits in 2022 and just increasing CapEx in oil and gas upstream refining LNG and then in low-carbon biofuels hydrogen. And so it's just -- they're going to run that rates through 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 -- yes, 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. And so from that standpoint, yes, 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 at north of -- are going to be north of what we booked in 2022, so that's positive. And deal shaping is going well. The fair and balanced contract term -- 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 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?

Yes. and Michael on the NuScale 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 dialog 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 individuals 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.

Thanks Joe. Thank you, David.

Thanks, Michael.

Your next question is from Brent Thielman with D.A. Davidson. Your line is open.

Hey, great. Thanks, good morning. Just on Urban Solutions, the infrastructure proportion, great to see the progress on the schedule relief for the two legacy projects. Any sense when we can get some resolution related to Gordie Howe, which I don't think it's quite there. Are those discussions productive? Is there some confidence we can see something soon for that?

Good morning. And I'll just say on Gordie Howe 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 think will continue as we move through 2023. I guess, that's the best way to put it. We'll continue on our discussions with the Gordie Howe client through 2023 and looking forward to putting that project in place here, early 2025 as a completion.

Okay, okay. I appreciate that. And then, I mean, Urban Solutions has seen some significant new awards in growth and backlog and you provided quite a few specifics in terms of things that are upcoming there. When you consider the opportunity pipeline overall for Fluor and also this focus in reimbursable and kind of lower risk terms. Do you expect that business will outpace growth in higher margin Energy Solutions business in the coming years?

It's -- again, the markets there 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 as -- 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 the mining houses, all their CapEx is up based on higher commodity prices that we're 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 is a big -- pharmaceuticals and semiconductors is a big market for us right now as well. So, I see it -- as we saw this year, it was balance between ES, 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 ES and US, very similar. And so, we want to spread the work around and have the diverse portfolio as well, which is very important for us.

Okay. Thank you very much.

Thank you.

The next question is from Steven 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 kind of the start of 2023, if those -- is it were any specific drags? Are 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 2023 and moving into 2024. 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 kind of how backend weighted or frontend weighted it is expected to be?

I would suspect a reasonably steady climb. So the way I look at the business as 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 in our EBITDA and EPS numbers moving from Q1 through Q4.

Okay. And then lastly on the [Multiple Speakers] Go ahead.

No, I’d say that's just more of a function of when that backlog is coming online and there is typically when you booked 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 of that.

Okay. And then, I mean it is a somewhat wide range of $450 million to $600 million of EBITDA $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.

Yes. 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 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 2026, is kind of how we're seeing in 2023 and into 2026. So it to me -- again, with what we're seeing with the pipeline out in front of us. What we 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. So a really good point, right? Reimbursable concentration in the backlog, reimbursable concentration of contracts in the underlying quality of that backlog to ensure predictability and consistency.

Yes, 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.

Thanks.

[Operator Instructions] The next question is from Michael Feniger with Bank of America. Your line is open.

Hey guys. Thanks for taking my questions. You mentioned earlier Air Force management and intelligence work. So, strong pipeline in 2023 and 2024 in the Mission Solutions business. I'm curious, if we see some headlines on the debt ceiling and a potential continuing resolution in 2024? 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. Yes, the government budgets certainly for 2023 are set, right, and continue to increase off of 2022. 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 2023 and 2024 and based on what we're going after the projects that we're involved with, whether it'd be Pantex or Y-12 or as we talked about the various intelligence business is starting to show opportunity for us. We feel pretty good about both 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. Just when we think of the timing, how much that backlog are you expecting to deliver to hit that 10% revenue growth? Is it 30%? Is it 50%? Like how much awards do we kind of 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 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 can just sneak one in, as you guys are generating cash, I remember, at the Investor Day there was talk of potentially doing some tuck-in acquisitions, filling in some certain areas. I'm just curious, where are you guys on that as you starting to pay down debt. The debt rating move is notable, just curious how you kind of thinking about as you guys generate more cash, and started the checks boxes on the balance sheet needs? Thanks.

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 2024s coming, we've cleared off the 2023s. 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 preferred in 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 potential at 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. I will 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 we'll drive significant value to shareholders for years to come. When you look at the technical and professional solutions we're providing to our clients coupled with Fluor's global engineering and construction brand we clearly reestablished 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.