Earnings Call Transcript - FLR Q2 2024

Operator, Operator

Good morning, and welcome to Fluor's Second Quarter 2024 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 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 Fluor's website at investor.fluor.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 Fluor's website. At this time for opening remarks, I would like to turn the call over to Jason Landkamer, Head of Investor Relations.

Jason Landkamer, Head of Investor Relations

Thank you, Ellie, and good morning. Welcome to Fluor's 2024 second 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 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 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 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. 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.

David Constable, Chairman and Chief Executive Officer

Well, thank you, Jason. Good morning, everyone, and thank you for joining us today. Please turn to Slide 3. To get started today, I wanted to briefly highlight the Fluor Fellows program. Fluor Fellows are a distinguished group of world-class subject matter experts whose knowledge and experience contribute significantly to Fluor's success, both internally and externally. Our fellows' technical expertise sets Fluor apart from its competitors and frequently becomes the decisive factor for clients when selecting Fluor for future work. The Fluor 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 4. 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 the 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-light 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 and fuels, and more broadly, energy transition. Moving to our business segments. Please turn to Slide 6. 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 effects 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 the 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 7. 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 ore port debottlenecking, and a lithium project in the United States. Moving to Slide 8. Advanced Technologies and Life Sciences continues to ramp up to meet sustained client demand. New awards for the quarter included Phase 1 of 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 Topsoe and ABB Limited to streamline construction of state-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 deck 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 the client that covers already completed extra work dating back to August 2018 and the 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 recognized a $39 million improvement to our previously disclosed position for our portion of the settlement, this project remains in a loss 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 9. Mission Solutions reported 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 backlog 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 F.E. Warren nuclear weapon 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 Fluor has a minority ownership interest. 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 win additional work in the intelligence services space. Before I move to Energy Solutions, I want to highlight a new 50-50 partnership with Worley to pursue opportunities that support the Australia, U.K., USA trilateral security partnership, formerly 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. 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 Sugar Land, Texas, to a fit-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 Penguin's FPSO project, was turned over to the client and towed to its final destination in the North Sea. Shifting to LNG Canada, our team celebrated a major milestone with the final weld on Train 1. 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 RoPower’s Small Modular Reactor facility using NuScale power's industry-leading technology. As a reminder, Fluor has a development agreement with NuScale, 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 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 the SMR specifically, and how Fluor 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 '24 to fund the completion of the advanced 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.

Joseph Brennan, Chief Financial Officer

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 $0.85 compared to $0.76 in Q2 of 2023. EPS results benefited from a lower tax rate as revenue and tax-advantaged locations increased. When you adjust for the change order in 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. G&A 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 1 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 NuScale. Operating cash flow for the second quarter was $282 million compared to a $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 storage U.K. operations is progressing and dependent upon regulatory approval timing, which is likely to happen towards the end of 2024. Regarding NuScale, I want to note that NuScale's ongoing capital efforts may reduce Fluor's ownership below the threshold for consolidation. While this would result in us no longer consolidating NuScale, 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 cash flow 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 million to $700 million to a range of $625 million to $675 million. Our expectations for operating cash flow are now between $500 million and $600 million. Our assumptions for 2024 include revenue growth of approximately 15%; G&A 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 Constable, Chairman and Chief Executive Officer

Thanks, Joe. As we enter the second half of the year and successfully wrap up Chapter 1 of our building a better future strategy, we're looking ahead and 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 cash flow, and continue to develop our pipeline of talent. In support of our objectives, we are making changes to our Fluor 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 5, Jim Breuer, who is currently the Group President of Energy Solutions, will assume the role of Fluor's Chief Operating Officer reporting to me, with our three business segment Group Presidents 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 1, Raj Desai will join the Fluor management team as Fluor'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 Fluor's expertise in leveraging technology and product execution. Robert Taylor, our current Chief Information Officer, has advised an intention to retire at the end of March 2025, after nearly 34 years with Fluor. And lastly, after a career with Fluor 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 5, Kevin Hammonds will join the Fluor management team as Chief Legal Officer. Over the coming months, John will transition his responsibilities to Kevin. For the past several years, he has 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 Fluor 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 bridge profiles for Jim, Mike, Raj, and Kevin are attached as an appendix to the earnings call presentation.

Operator, Operator

Thank you very much. We are now opening the floor for the question-and-answer session. Our first question comes from Sangita Jain from KeyBanc Capital Markets. Your line is now open.

Sangita Jain, Analyst

Hi. Good morning and thank you for taking my questions. So if I could 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?

Joseph Brennan, Chief Financial Officer

Yeah. Thanks for Sangita 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 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 bet 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.

Sangita Jain, Analyst

Great. And one more on the lost 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 at LA People Mover?

Joseph Brennan, Chief Financial Officer

It is in terms of the settlement value and the fact that we don’t have that cash outlay, Sangita, that’s a fair logic tie there. That’s a piece of it, for sure.

Sangita Jain, Analyst

Okay. Understood. Thank you so much.

Operator, Operator

Our next question comes from Jamie Cook from Truist Securities. Your line is now open.

Jamie Cook, Analyst

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 1. I know bookings are lumpy. Just your confidence level there, in particular, what you're seeing on the data center side? Thank you.

Joseph Brennan, Chief Financial Officer

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 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 and 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.

David Constable, Chairman and Chief Executive Officer

Good morning, Jamie. We had a very strong first half of the year, booking $10 billion. This keeps us on track for a total of $50 billion over the last 2.5 years, with $20 billion booked in both 2022 and 2023, maintaining a similar run rate. The new award bookings remain robust, particularly with a higher margin profile compared to our existing backlog. In the second quarter, new awards were 250 basis points above the backlog margin, which is encouraging. Looking ahead to the second half, the ATLS and mining markets are looking very promising. For the third quarter, we see major prospects in mining, traditional refining, chemicals, semiconductors, DOE maintenance, and energy transition projects. In the fourth quarter, we anticipate DOE environmental management bookings, additional mining projects, LNG, data centers, and some significant work in chemicals. Overall, I would say our confidence level is around 1, consistent with what we've expressed in previous quarters. We also expect revenue growth of about 15% this year, which you can use to gauge our book-to-burn ratio. That's the current situation.

Jamie Cook, Analyst

Thank you.

Operator, Operator

Our next question comes from Andy Kaplowitz from Citi Group. Your line is now open.

Andrew Kaplowitz, Analyst

Good morning, everyone.

Joseph Brennan, Chief Financial Officer

Good morning.

David Constable, Chairman and Chief Executive Officer

Good morning.

Andrew Kaplowitz, Analyst

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 a 25% ramp-up in bookings there? And maybe talk about Fluor's competitive positioning, do you think the majority of the projects will actually be cost-invisible?

David Constable, Chairman and Chief Executive Officer

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 U.S. 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 will reach about 35,000 megawatts by 2030. And there's about 17,000 in place right now. So a huge growth in data centers. And the U.S. is going to account 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 for our contract, our risk profile, and fair and balanced contract term 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 Fluor is obviously one of those that will be right in the mix for the data center build-outs 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.

Andrew Kaplowitz, Analyst

Helpful, David. And maybe can you give us more color regarding what you're seeing specifically within Energy Solutions. Backlog is up year-over-year, but revenue is down and you have LNG Canada, as you said, winding down. So what kind of visibility toward revenue growth in the business do you have over the coming quarters and in '25. Could there be a low before as you said, you do a bunch of FEEDs, but then you get into TPC, I guess, later in '25 or '26. How does it evolve?

David Constable, Chairman and Chief Executive Officer

We've experienced a positive trend in Energy Solutions. Our backlog has increased to $8.5 billion, significantly higher than the second quarter of 2023. While we are concluding some major projects with LNG Canada and TCO reducing their activities, there is still around $420 billion worth of potential projects available for us to pursue, a significant part of which falls within Energy Solutions. Currently, we've identified $207 billion in front-end projects, which is fairly evenly divided between Energy Solutions and Urban Solutions, with Energy Solutions accounting for about $104 billion. This includes areas like chemicals, refining in Mexico, and nuclear power, along with a substantial portion focusing on downstream production and fuels, which are relevant for the energy transition. Additionally, we have another $200 billion in studies that are likely to advance. Regarding full projects, there are approximately $60 billion in potential opportunities over the next 18 months, with $25 billion of that belonging to Energy Solutions. While we aren’t experiencing a slowdown, we’re heading into the front-end work phase where our approach is to engage early and maintain our involvement over time. Consequently, we are occupied with front-end projects in energy solutions, which we anticipate will lead to growth in the upcoming quarters.

Andrew Kaplowitz, Analyst

Appreciate all the color.

David Constable, Chairman and Chief Executive Officer

Thanks.

Operator, Operator

Our next question comes from Steven Fisher from UBS. Your line is now open.

Steven Fisher, Analyst

Great. Thanks. Good morning and congratulations. I just wanted to clarify whether the Urban Solutions change order you had in the quarter was already kind of probability weighed 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. How should 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.

Joseph Brennan, Chief Financial Officer

Steven, I'll take kind of the view on guidance for the quarter. I guess the way I would frame it for you is, the results for the quarter kind of reflect the underlying quality of the existing backlog that we booked over the last couple of years, that $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 in our core results and I think those results suggest the run rate of $165 million that we've shown in the quarter. As we move forward, Steven, I think we'll see 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 derisked 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 recognition over some of our major programs in Energy Solutions, which are coming 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.

David Constable, Chairman and Chief Executive Officer

Good morning, Steven. Regarding margins and our backlog, we've experienced a positive trend that is helping to improve our backlog margins. Our backlog remains strong, with over 80% now being reimbursable, exceeding our strategic target for reimbursable work in backlog. I believe this trend will persist, as we anticipate booking new awards at margins that are higher than our planned expectations. Much of this is driven by the service margins we are securing currently. The front-end projects we are re-engaging in Energy Solutions are contributing significantly to much higher margins when they involve services only. This is an important factor for our outlook over the coming quarters. I think we will continue to see margins for new awards that exceed our expectations.

Steven Fisher, Analyst

Great, helpful. Thanks a lot.

David Constable, Chairman and Chief Executive Officer

Thanks, Steven.

Joseph Brennan, Chief Financial Officer

Thanks, Steven.

Operator, Operator

Our next question comes from Mike Dudas from Vertical Research Partners. Your line is now open.

Michael Dudas, Analyst

Good morning, Jason, Joe, David.

Joseph Brennan, Chief Financial Officer

Good morning, Mike.

David Constable, Chairman and Chief Executive Officer

Good morning.

Michael Dudas, Analyst

First for Joe. Given the positive improvement in cash flow this year compared to last year, after considering all the factors including the transition of legacy projects and the addition of stronger business in backlog through the profit and loss, what do you anticipate for a normalized conversion rate when Fluor is operating smoothly? Even though there will be some specific fluctuations during the quarter, how has your expectation changed?

Joseph Brennan, Chief Financial Officer

Thank you for the question, Mike. We have indicated that a conversion rate of 60% to 70% is our expectation moving forward. Having reviewed our historical performance at Fluor, there have been times when we've reached a 75% conversion rate with a similar asset-light model. Therefore, our aim is to reach levels between 70% and 75%. However, during this transition, I believe that maintaining a conversion rate of 60% to 70% is a reasonable outlook as we progress over the next few quarters.

Michael Dudas, Analyst

That's helpful, Joe. And for David, you mentioned in your prepared remarks the booking from the NuScale and RoPower, your discussion with the Department of Energy Secretary. How real, how are your thoughts on what potential that could be for nuclear, whether it's through NuScale or other opportunities at other areas on the nuclear side and maybe an update on monetization opportunities for your majority of your holdings?

David Constable, Chairman and Chief Executive Officer

Good morning, Mike. This is a timely topic considering the current power demand requirements in the data centers, not just in the U.S., but worldwide. As we mentioned last quarter, the interest in small modular reactor technology and carbon-free power has reached an all-time high. We're actively supporting NuScale, as well as their commercialization efforts and partnerships globally. We have a strong understanding of the opportunities available with tech companies and utilities to address power demands and the need for clean energy. These are exciting times for us. We're enthusiastic about RoPower and NuScale's technology, especially with their backing from the U.S. government. We're eager to begin work on the front-end package for RoPower and anticipate more activity both internationally and within the U.S. Utilities may pursue different business models, including integrating these assets into their facilities or establishing build-on-operate agreements. Tech companies are likely to engage in power purchase agreements with SMR developers. Overall, conditions are favorable. Our preferential rights with NuScale put us in a strong position, given our expertise in engineering design and constructability. We see promising developments ahead. Regarding monetization, we continue to collaborate with our strategic investor. Given the positive outlook, we believe this will help secure the investment needed, and we expect to provide more details at the end of the year about the status of Fluor's shares and the potential sale of a majority of our shares to a strategic investor who will move the commercialization forward.

Operator, Operator

Thank you. Our next question comes from Andy Wittmann from Baird. Your line is now open.

Andrew Wittmann, Analyst

Great. Thanks for taking my question. I guess, 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 you're turning out well? Maybe if you could just talk about the change there?

Joseph Brennan, Chief Financial Officer

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 will be non-recurring, Andy, as we move forward.

Andrew Wittmann, Analyst

Got it. Okay. So we still like the $190 million as kind of the underlying rate for the company.

David Constable, Chairman and Chief Executive Officer

That is right. That's fair.

Andrew Wittmann, Analyst

I wanted to discuss the change order related to infrastructure on the People Mover. There was a public announcement about some resolutions regarding this change order during the quarter. Additionally, the media made a subsequent announcement that was more significant in the headlines. However, I am unclear whether this was within Fluor's scope. Can you clarify if there was any scope or relief provided in the second round of funding? Was this recognized in the second quarter, or could it be recognized in the third quarter? I would appreciate your comments on this, Joe.

Joseph Brennan, Chief Financial Officer

Sure, Andy. Yeah. The settlement that we've reached is a global settlement and the position that we've taken reflects our position to complete the project.

Andrew Wittmann, Analyst

Okay. Entirely the second quarter, yeah.

Joseph Brennan, Chief Financial Officer

This settlement gets us to the finish line. 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 kind of the mark for handing over the facility to the client.

Andrew Wittmann, Analyst

Okay. Those are my only technical questions for today. Thank you very much, and have a good day.

Operator, Operator

Our next question comes from Brent Thielman from D.A. Davidson. Your line is now open.

Brent Thielman, Analyst

Hey, thanks. Good morning. David or Joe, I actually just wondering if you can clarify why the upper end of the EBITDA guidance range came down. It seems like you've got some really good momentum going into the second half? Is it just the pace that you're seeing the new business deploy or anything else?

Joseph Brennan, Chief Financial Officer

It's a good question, Brent. It is the pace of the deployment of some of these programs and they're coming online. It's more of where we are in the cycle, the burn cycle and the maturity of those projects. And as we see kind of where kind of 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 the cycle relative to the work that we've onboarded, the $60 billion plus of work that we've onboarded in the last three years.

Brent Thielman, Analyst

I appreciate that, Joe. My second question is about Urban Solutions now making up 60% of your backlog compared to less than 40% a few years ago. Is this a new direction for Fluor moving forward? I know there’s a potential pipeline of energy solutions work on the horizon, but I’m curious if this shift represents a new strategy for Fluor or if it's simply a reflection of current market conditions.

David Constable, Chairman and Chief Executive Officer

Thank you for the question. It's very encouraging to see that our strategic priority from early 2021, driven by global mega trends, has resulted in significant growth across our portfolio beyond traditional energy and oil and gas. This is reflected in our Urban Solutions backlog, which is nearing $20 billion. At the same time, we also aimed to grow our traditional oil and gas sector, and we are pleased that this has become a strong component of our overall strategy, which we believe will continue as we transition to new energy sources while maintaining traditional avenues. Nuclear energy is included in our energy solutions, and as we mentioned earlier, those projects will be under the Energy Solutions category going forward. We anticipate that all segments will benefit simultaneously, and it will be exciting to see Urban Solutions and Energy Solutions compete for the largest backlog. Currently, ATLS leads this charge, particularly in sectors such as data centers, semiconductors, life sciences, and mining and metals, which remain very robust. Overall, we see growth across all our business lines.

Brent Thielman, Analyst

Appreciate it. Best of luck.

David Constable, Chairman and Chief Executive Officer

Thank you.

Operator, Operator

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.

David Constable, Chairman and Chief Executive Officer

Thank you, operator. Many thanks to all of you for participating on the call today. I'm very pleased with the company's performance to date and our trends for 2024, and our focus on bidding discipline and product performance continues to serve us well. So I appreciate your interest in Fluor. Thanks again for joining. Thanks.

Operator, Operator

Thank you for joining today's conference call. Have a wonderful day. You may now disconnect.