Good morning, and welcome to Fluor'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 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, Julian. Good morning, and welcome to Fluor's 2023 first 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 first 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, and 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.fluor.com. I'll now turn the call over to David Constable, Fluor's Chairman and Chief Executive Officer. David?

Thank you, Jason. Good morning, everyone. Thank you for joining us today and please turn to Slide 3. 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 L.A. 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 one Fluor, our team worked collaboratively to keep their 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 L.A. project team on this well-deserved recognition. Now let's turn to Slide 4. 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 & EPCM prospects totaling approximately $51 billion across the company. Moving to our business segments. Please turn to Slide 6. 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 ending backlog is now 58% reimbursable. Moving to Slide 7. In Mining & 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 U.S. Please turn to Slide 8. We're off to a good start this quarter as our Advanced Technologies & 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 9. 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 Howe 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 emerge, including legacy contracts that did not provide appropriate protection for supply chain and labor escalation costs, labor availability, and the tempo of claims recovery negotiations with clients. To address these issues, over the last few months, we marshaled 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, Fluor has made good progress on reducing legacy risk in our backlog. In 2020, $3.6 billion of our backlog represented projects in a loss 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 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 expansion in the third quarter of next year. New awards for the quarter included 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 our 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, BWX 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 a mobilization plan 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 U.S. 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 1,600 megawatts of carbon-free, safe, economical, and sustainable energy. Looking ahead, last quarter, I mentioned our pursuit of a multibillion-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 ICA Fluor 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 1 and 2 have been installed. Our 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 start-up 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 Path2Zero 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 Co-Operatives Limited, FCL for the renewable diesel facility in Regina, Saskatchewan. FCL will be deploying Fluor's proprietary economy 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 NuScale 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 can seal 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?

Thanks, David, and good morning, everyone. Today, I will review our results for the first quarter, provide an update on divestitures, and go over key financial outlook assumptions that support our guidance. Please turn to Slide 16. As David mentioned, for the first quarter of 2023, revenue of $3.8 billion came in as expected and represented a 20% increase from last year. Revenue for the quarter was driven by increased execution activities across our portfolio including mid-scale LNG, chemicals, and projects in our Advanced Technologies & Life Sciences businesses. Our consolidated segment loss for the quarter was $15 million and included approximately $80 million of legacy project charges previously discussed and $60 million for the negative earnings impact associated with the sale of our remaining AMECO assets. I will note that we are seeing solid improvement in Energy Solutions when normalized for the ICA Fluor-related embedded derivative. Adjusted EBITDA for the first quarter was $71 million compared to $90 million a year ago. Our adjusted EPS was $0.28 compared to $0.16 in 2022. Our adjusted results exclude $80 million for the income effect of FX and embedded derivative. G&A expenses for the quarter were $62 million, down from $71 million a year ago. This was driven by a decline in our stock price driven compensation. Net interest income in the quarter was $41 million compared to $31 million last quarter, and an expense of $9 million a year ago. Since our outstanding debt is at a fixed rate, I expect a trend for positive net interest income to continue throughout the year. New awards of $3.2 billion in the quarter drove our ending backlog balance of $25.6 billion. Turning to Slide 17. Our cash and marketable securities balance for the quarter was $2.3 billion. Total cash includes $268 million held by NuScale. As a reminder, our cash and marketable securities balance excludes cash for proportionally consolidated ventures that do not come on to our balance sheet as cash until distributed to us at the appropriate time. Our operating cash flow for the quarter was an outflow of $161 million and reflects increases in working capital needs on several large projects and the usual timing of annual incentive payments. We still expect cash flow to be modestly positive when you include approximately $200 million for legacy project cash needs in 2023, of which $15 million was recognized in quarter one. We anticipate legacy projects will have similar cash needs in 2024, but no significant cash contributions are expected in 2025. On to Slide 18. During the quarter, we sold our remaining AMECO operations in South America. This transaction represented the end of Fluor providing equipment rental services. This is notable as it essentially eliminates our need to provide capital for rental equipment and allows our management team to focus on our core business segments. Since 2019, we have received $144 million in cash proceeds from the AMECO portfolio. We also expect to complete final divestiture negotiations for Stork's European operations in the second quarter. Our operations in Stork U.K. will be going to market in early June, and we are having ongoing conversations with select buyers for Stork operations in the Middle East and Latin America. Finally, in regard to our majority ownership of NuScale, we have committed to working with strategic investors that provide an investment thesis that supports our monetization of this industry-leading small module nuclear reactor clean power business. Based on the pace of these conversations, we anticipate a strategically aligned transaction by year-end. Please turn to Slide 20. We are affirming our 2023 adjusted earnings per share guidance range of $1.50 to $1.90 and our adjusted EBITDA guidance of $450 million to $600 million. Our assumptions for 2023 include revenue growth of approximately 10%, adjusted G&A expense of approximately $45 million per quarter, and an effective tax rate of approximately 40%. This may vary depending on the countries in which revenue is generated. We expect tax rates to moderate as revenue and our tax advantage locations start to increase. Our expectation for full year segment margins in 2023 are approximately 5.5% in Energy Solutions, approximately 3% in Urban Solutions, and approximately 3.5% in Mission Solutions. Finally, we also affirm our 2026 guidance as indicated in our earnings release this morning.

Thank you. Our first question comes from Andy Wittmann from Baird. Please go ahead. Your line is open.

Good morning, and thank you for taking my question. I wanted to inquire about the Hanford win. Since it won't be consolidated and you're a minority joint venture, it's a bit challenging for us to gauge the potential earnings impact, especially considering we don't see any revenue or backlog associated with it for Fluor. Could you, Joe or David, provide some insight into the expected annual revenue share from this project? It would help us understand how it might influence your earnings. Additionally, could you discuss any expectations related to protests and the timeline for that, as it wasn't mentioned in the prepared remarks?

Okay. Good morning, Andy. I'll turn it to Joe to start on the earnings impact or at least give color and then I'll take the protest question.

Yeah. Thanks, David. Hey. Good morning, Andy. The way I would look at the Hanford Tank contract is, I think we've laid out what the value over a 10-year period would be and our percent ownership in that. And I think if you were to view that in the context of what we have laid out relative to guidance for Mission Solutions in terms of our earnings margins for the upcoming years. I think maybe with those data points, you could probably construct what would be flowing through our other income and expense line.

Sorry, I didn't see the percentage disclosed or hear you say that...

Our guidance for Mission Solutions is related to that contract. We haven't provided specific guidance on the project itself, but I would suggest looking at the guidance for margins for Mission Solutions in relation to a $45 billion spend over 10 years, factoring in our ownership percentage. This will give you an idea of the impact on our P&L.

Okay.

Just on the protest, I think you asked about, protests seem to be the order of the day, flavor of the day right now in government contracting and this is the second time we've won this award. So at the same time, it's very possible that a protest can come in on this work. And delay us up to three months. So I'll just put that out there right now, and we'll see how that goes.

Thank you for the information. I'd like to follow up on LNG Canada. The slide indicates that almost all of the modules needed have shipped and will arrive on site in the next 60 days. This suggests significant progress. Joe, while I understand you need to assess and report on the project as it unfolds, you've previously mentioned that once the modules are on site and installation begins, especially given the current high completion percentage, you'd review the contingencies you've maintained so far. Could you discuss the potential this summer for reaching important milestones and how that might impact your profit recognition as you complete the remaining 15% to 20%?

Thanks, Andy. I don't think I'll get into the profit recognition. Maybe what I'll talk a little bit about is the risk and how we view it. We have signaled that getting the modules to site is one of the key risk items that we need to clear off. I would suggest though that that was probably the most significant milestone now. As you get to site, you still have a lot of activities that need to occur in order to get the facility to mechanical completion. So it's not a panacea when you look at all of the risks being cleared up. But we do view that as a positive milestone within the overall execution of the project. It is a significantly positive milestone, but that does not, in any way, shape or form, clear the challenges that will still be required in order to deliver the project. But what we can say, I think definitively today is that there is a significant chunk of that risk that has been addressed in an appropriate time frame.

Okay. Thank you very much.

Thanks, Andy.

Our next question comes from Jamie Cook from Credit Suisse. Please go ahead. Your line is open.

Hi. Good morning. First, just a clarification, Joe, on the guidance that you're affirming today, the adjusted EPS, the EBITDA and the margins, does that include the $80 million - does that include the first quarter results that included the $80 million in problem project charges?

Good morning, Jamie and yes, it does.

So then my question is, if you're able to keep your guidance given the charges that you had in the first quarter, it implies the core profitability of your business is probably better than, I guess, I would have expected. So could you just confirm and then give a little color on how you're able to affirm your guidance with charges, I'm assuming you didn't expect. So just help me what's performing better? Maybe you can talk to sort of the margins as sold margins in your backlog, give us an update there. I know what you said about the first quarter, but just holistically, I'm just trying to understand the core profitability. Thanks. And then I have a follow-up.

Good morning, Jamie. It's David.

Good morning, David.

Hi. So yeah, let me start here, and Joe can chime in. Back in '21, we reinforced our commitment to be transparent and measure in our view on product performance and our ability to execute and that still holds true today. And the $80 million charge right now does not account for any future claim recovery, so we expect to see certain claim recoveries in the near term as well. And then also in 2023, we're seeing upside based on the prospect pipeline and the strong execution platform deployed. We're very pleased with the execution and hitting as sold margins. So the margins, to your question on margins, margins on new awards have been at or above plan for the last five quarters. You remember that we were 220 basis points above plan in 2022 on that $20 billion award year. So that's driving an extremely healthy backlog plus we've got that gone from $3.6 billion in challenged projects in 2020 down to $1.7 billion in Q1 here. And we continue to book high quality new awards, and we're successfully executing on approximately 800 projects in backlog right now. And again, importantly, the majority of our projects are delivering at or above as sold commercial terms. So with significant opportunities taking shape across our business segments, coupled with an existing healthy backlog, right, driven by the $20 billion from last year that are starting to ramp up and strong execution performance, we're quite comfortable maintaining guidance for 2023.

No. I guess the only thing I would add is one of the other indicators that we're looking at too is you're starting to see that revenue growth kick in, which is really a function of what Dave is laying out the high quality backlog. And it's not just the $20 billion that we booked in 2022. It's really $30 billion over a three-year period, which all fits into the same pursuit criteria, which we would consider to be a healthy backlog. So I think we're starting to see I firmly believe, I think we're starting to see that inflection point where the quality of what we're putting into backlog is starting to dictate what the future is going to look like for us.

Yeah. These margins, Jamie, are higher than historical margins as we look back in time. And we've got clients lining up, teams with not fully having the scope in place, but coming to us and getting teams on board, getting ready for their CapEx. So that just gives you an idea of how things are looking right now on the margin side.

Well, then, I guess my follow-up question because obviously, the award prospects out there are tremendous and you're talking about cost plus better margins. I guess the other question is, once we get past these legacy projects, I'm just trying to understand, can free cash flow conversion also improve relative to history as terms and conditions improving? I'm just wondering at what point do you get more comfortable where you want to be utilize the balance sheet a little more if the free cash flow can improve and what would be the capital allocation priorities, in particular, is you're thinking about your long-term margin targets that my guess is the Street isn't giving you credit for. So what are your capital allocation priorities given that backdrop? Thank you.

Thanks, Jamie. In terms of cash flow, we expect to see notable growth as we approach Q3 and Q4. We are using our current cash flow to reduce debt, which has been crucial for maintaining fiscal discipline that has affected our cash flow until now. The fact that we’re able to sustain a neutral to slightly positive cash flow amid these challenges is quite encouraging. We anticipate a significant improvement towards the end of this year, which will depend on a few factors. We are continuing to conclude legacy projects, and the new backlog is beginning to produce robust free operating cash flow. Regarding capital allocation, our main focus remains on improving our capital structure related to debt and transitioning to an asset-light model. We will concentrate on the 2024 and 2023 strategies, including examining the option of converting preferred shares as an alternative. Ultimately, our goal is to return to paying dividends and increase our ability to reinvest in the business, whether through targeted mergers and acquisitions or organic growth, both of which we believe will significantly contribute to Fluor's growth moving forward.

Yeah. Just a quick note on project fit and the overhead cost savings that we've been very successful with. I know we set a target of $100 million, and we achieved that annually, getting $110 million in 2022. This year, we're aiming for approximately $123 million in annual cash savings. This is also supporting all the strategies that Joe just mentioned. Thanks.

Thank you. I appreciate it.

Thank you.

Our next question comes from Sean Eastman from KeyBanc Capital Markets. Please go ahead. Your line is open.

Hi, team. Just first one is kind of a – good morning, guys. Good morning. First one is kind of a clarification question. The comment on the higher margins relative to history? Are we talking relative to historical cost reimbursable work or are we talking relative to just the overall margin performance of the business?

Yeah. Just across the portfolio is how I was looking at that, Sean.

So how can we achieve higher margins on lower risk work? Are we simply excluding certain charges, or does the question make sense? How can lower risk lead to higher margins?

I believe we are operating in a very competitive market. As I mentioned, clients are approaching us even before their project scopes are finalized, demonstrating just how tight the market conditions are. We are experiencing fewer competitors in the EPC industry at this time, and our clients are very satisfied. If you examine their capital expenditure plans across traditional sectors such as oil and gas, chemicals, and mining, you will see that they are generating significant profits and their capital spending is increasing, not decreasing. They appreciate that Fluor remains active in the EPC sector, especially as they begin to boost their capital expenditures. Additionally, there's the energy transition factor, which adds more capital expenditures, and we are well positioned to capitalize on that. These capital expenditure trends are expected to continue through 2030. In terms of our strategic priorities, we focus on fair and balanced contract and commercial terms while providing solutions that allow us to engage early on and maintain involvement throughout the entire EPC or EPCM process, ensuring we are compensated for the value we offer. We are actively pursuing this approach and have strong value propositions that can potentially command premium pricing against our competitors.

Very interesting. Thanks, David. I’ll turn it over.

Our next question comes from Michael Dudas from Vertical Research. Please go ahead. Your line is open.

Good morning, gentlemen.

Good morning, Michael.

Just a quick clarification. Regarding the $1.7 billion in loss backlog at the end of Q1, how will that be addressed over the next several quarters? You mentioned that it might be resolved by the end of '24, so I just wanted to clarify that, Joe.

Yeah, primarily, but I'll let Joe maybe talk to that and also talk to the remaining cash required for that $1.7 million that will flow.

Good morning, Michael. I want to update you on the status of the three projects we are discussing. We have completed over 50% of the LBJ and Gordie projects, and are nearing 90% completion on LAX. As our conversation opens, we are gaining clarity on what is needed to finish these projects. It has been challenging, but given the work we've done over the past couple of years and the additional resources we've allocated, we feel confident about the expected cash outflow to complete these jobs. At this point, we do not anticipate significant cash needs beyond 2024 to support these struggling projects.

Thank you for that. My follow-up question is about the ongoing discussions among investors regarding federal funding for semiconductor projects and energy transition initiatives. How is your company positioned in this area? You mentioned a couple of semiconductor projects, but there are many others. Are you actively involved in any of the $207 billion worth of projects expected over the next few years? Additionally, are any of your clients starting to advance projects that could allow Fluor to participate later this year and into 2024, potentially leading to an increase in orders for energy solutions or Urban Solutions?

Thank you, Michael. I’ll begin. There are many factors to consider regarding Energy Infrastructure and the Inflation Reduction Act, as well as the CHIPS Act and Science Act funding opportunities. For instance, the CHIPS Act has a complicated application process; if a company receives over $150 million in subsidies, they must share a portion of their profits with the government, refrain from investing in China for ten years, and are discouraged from buybacks. Additionally, union labor is required, and provisions for childcare must be addressed. These factors may raise concerns among manufacturers. However, we are actively engaged in Asia, particularly with Intel, and are observing significant projects in the U.S. that we are supporting through subsidies. The projects we are involved in, particularly in Idaho and Oregon, are progressing. In terms of transportation, we are working with agencies that manage yearly budgets of about $18 billion to $19 billion, which remain unaffected by legislation from Washington. On the Department of Energy side, several offices have mobilized $62 billion in investments from the Bipartisan Infrastructure Law, and we are closely monitoring that. We are also exploring hydrogen plant opportunities and supporting clients in that field, amounting to about $8 billion. Carbon capture and sequestration are areas where we can leverage our proprietary technologies for nuclear projects, and we're pursuing grants for commercial nuclear plants as well. Regarding the Inflation Reduction Act, funding is being directed towards infrastructure for domestic high assay and low-enriched uranium production, where we are involved. Additionally, we are looking into Fusion projects with Longview and working with General Atomics. These developments will not adversely impact our forecasts or our strategic financial plan through 2026, and unlike some other contractors, we are not overly reliant on these opportunities materializing in the near term.

Was about the details in the regulation for sure. I appreciate your color there. Thank you.

Thanks, Michael.

Our next question comes from Brent Thielman from DA Davidson. Please go ahead. Your line is open.

Good morning. I have a question regarding the legacy infrastructure projects portfolio. Aside from LAX and I-635, can you provide insights into the performance of the rest of the portfolio? Are there other projects still in development stages that could pose future risks, or do these projects adequately represent the portfolio at this point?

Good morning and thank you for the question. Currently, we are very clear and transparent with our project forecasting. We feel comfortable with the infrastructure portfolio except for the legacy projects previously mentioned. Our main focus is on executing these final legacy projects. I have spoken with the new leadership in infrastructure, and we are dedicated to addressing these remaining projects. Our priority is execution rather than new awards. There is only one major prospect we are considering this year that meets our pursuit criteria. Overall, we are comfortable with the infrastructure portfolio aside from the legacy projects.

Okay. I appreciate that. I guess my follow-up would be maybe just a question on the overall business. I recognize the words are going to be or the trajectory isn't going to be linear quarter-to-quarter. Your new awards were good this quarter, maybe not as strong as we've seen over the past couple of quarters, your book-to-burn was a little less than 1 times. Yes. You got this big pipeline of projects hereafter. So I guess my question is how do you see the award trajectory over the coming quarters as we build up in the 2024? Are there some really meaningful opportunities kind of near that bid award stage that could accelerate this award pace in the coming quarters?

Yeah. Maybe I'll have Joe start on the book-to-burn side just to give you a feel of how comfortable we are going forward and take it from there. And I'll maybe give some color on what we're seeing overall across the business segments from a volume standpoint.

Yeah. Maybe just one point of clarification. Yeah. The quarter was slightly below one on a book-to-burn, but there's a lot of seasonality that goes into Q1 and I think $3.2 billion in new awards for the quarter is a pretty robust quarter considering you're coming out of the backside of the holiday. So from a seasonal perspective, it's within line and within expectations. But we do feel pretty confident and strong about the trajectory of new awards for the quarter. You may see some lumpiness because some of the opportunities that we're chasing are quite substantial in nature that will have fairly dramatic impacts on a quarter-by-quarter basis. You will see some lumpiness, but we're very confident on the new award plan that we laid out in December of last year.

We're experiencing significant activity in new awards, with $180 billion in promising prospects from our current projects. In addition, we anticipate another $235 billion in upcoming projects over the next 18 months. The main areas for our upcoming front-end design work will focus on chemicals, downstream, and mining and metals. It's important to note that energy transition plays a crucial role in all of this. In 2022, we secured 84 new awards in energy transition, and in the first quarter of 2023, these awards made up 40% of our Energy Solutions awards. Furthermore, we have $51 billion in near-term full EPC and EPCM projects alongside this front-end work, primarily in Urban Solutions and Energy Solutions. Overall, we have a strong prospect pipeline that will maintain our book-to-burn ratio at or above 1.

Appreciate that comments. Thank you.

Thanks.

Our next question comes from Steven Fisher from UBS. Please go ahead. Your line is open.

Thanks. Good morning. I just wanted to ask about cash. Can you just help us reconcile the cash expectations and charges. You mentioned, I think, Joe, $15 million out of the $200 million expected was spent in Q1. How does the $80 million of charges in the quarter factor into that $200 million? And can you provide an update on any other sort of major cash ins and outs for the year overall?

Yeah. Thanks. Good morning, Steve. In terms of how that would play out, in cash requirements for LAX in particular, we've slated about $47 million worth of cash requirements over the year for LAX at this point. In terms of cash flow, can you repeat the back half of your question, Steven? Sorry.

Yeah. Just all the major cash ins and outs for the year.

I think we've discussed a lot about the activities happening in Latin America, particularly through our ICA Fluor joint venture. We're also exploring opportunities in LNGC, but we are not consolidating that cash into our balance sheet as it is part of the proportional joint venture. Therefore, there will be opportunities that arise from that. We're beginning to see strong cash flow generated from the high-quality backlog we've established. There are some offsets this year that we want to address before 2024, and we aim to remove a significant amount of those ahead of time. The conversion of the converts and the forced conversion will impact this as well. That's why I'm projecting cash flow to be relatively flat to slightly increased over the year. I believe this is a conservative estimate, and it could turn out to be more optimistic. There are factors that could arise towards the end of the year that may lead to a more favorable trajectory for us.

Okay. Just to clarify your answer on the LAX and just the overall $80 million was that not all cash, but everything you have embedded from those new charges is included in the $200 million?

Yes, it will be cash, but it will be distributed over 2023 and 2024.

Okay. And then if I could just ask, maybe, David, a higher level macro question. I guess, I'm curious how changing macro conditions, including credit tightening and commodity volatility are affecting customer decision making. And with regard to inflation, how are you seeing that flow through kind of customer decision making? Is there any more other scope reductions or just value engineering to try and kind of fit projects into budgets? Thank you.

Good morning, Steven. Let's start with credit. We're currently in a tighter credit environment, but our key clients have little need for bank funding to finance their projects as they are well-capitalized at this moment. This is especially true for our major clients in energy, chemicals, and mining. The government also seems to be in a stable position. Regarding the critical programs we’re involved with, we do not see any pullback in Mission Solutions. While there may be some slowdown in projects from developers, it isn't a significant concern for us since we primarily operate at the front end where we achieve high margins while clients seek financing. A slight recession at Fluor isn't expected to have a major impact because our clients are making long-term decisions that aren't swayed by temporary economic slowdowns. We've seen inflated cost estimates for projects over the past couple of years, which has raised concerns, but we're currently updating our feed packages to reflect better pricing from the supply chain, leading to a slight decrease in our construction material forecasts. Overall, we believe we're in a strong position. Additionally, we've been actively hiring, which is promising for a service-oriented company like Fluor. In the last 15 months, we laid off nearly 4,800 employees, with about 35% of those being rehires. We also have 2,050 open positions that we're looking to fill, indicating that we are moving forward confidently.

Terrific. Thank you very much.

Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.

Good morning, everyone.

Good morning, Andy.

David, can you give us an update on what's going on with NuScale? I think you said last quarter that you expected an update on potential, strategic agreement or something like that by the end of the first half of the year and now you're talking about at the end of the year. Is there any reason why conversations maybe are taking a little longer than expected?

Good morning, Andy. Thank you. We are very enthusiastic about NuScale's future and its leading technology in the small modular reactor space. There is notable excitement not just in the U.S., but also internationally, particularly in Eastern Europe and Asia, where NuScale's partners are making progress. We are also pleased with the strategic investor discussions we are having and the traction we are gaining in that area. We hope to see results from that effort by the end of this year. This timing is due to the complexity of the deal, but we believe we are making significant progress. We look forward to supporting NuScale’s commercialization efforts as we advance. Our investment in NuScale and the company's current performance make us very happy.

Very helpful. And then, David, I want to ask you maybe follow up on Steve's question, just specifically around chemicals CapEx. You seem pretty optimistic in terms of petrochemical bookings in the second half. I think we've heard from some software and industrial companies that customers are keeping a little bit of a tighter lid on Chemicals CapEx in '23. Are you not seeing any of that?

What we're observing are very interesting opportunities in mega projects. In the Europe, Africa, and Middle East region, there's a potential for reduced demand for combustion engine fuel, and companies are adjusting their strategies accordingly. There's a significant movement towards liquids to chemicals, and we have been supporting major clients that we've worked with for many years on this. This represents a major focus for us in the chemicals sector. Additionally, in Europe and the U.S., we are seeing growth in the recycling of chemicals, with these recycling facilities being quite large. Our front-end expertise and process engineering capabilities are strong selling points for us, particularly in the areas of energy transition and chemical recycling. This is what I'm currently noticing as we look at the second half of the year.

Very helpful. Thank you, David.

Thanks so much.

We are out of time for questions today. I will now turn the call back over to David Constable for closing remarks.

Great. Thanks, Julian. Many thanks to all of you for participating on the call today. I'm very pleased with the ongoing performance of our healthy backlog and the commitment and support of our clients, as I mentioned, and we’re well positioned to complete our few remaining legacy projects and we’re confident in achieving our expectations for 2023 and 2026. Appreciate your interest in Fluor, and thank you again for your time today.

This concludes today's conference call. Thank you for your participation. You may now disconnect.