Earnings Call Transcript - FLR Q4 2023

Operator, Operator

Good morning, and welcome to Fluor's Fourth Quarter 2023 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's presentation. A replay of today's conference call will be available at approximately 10:30 a.m. Eastern Time today. Accessible on Fluor's website at investor.fluor.com. The web replay will be available for 30 days. 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.

Jason Landkamer, Head of Investor Relations

Thanks, Rob. Good morning, and welcome to Fluor's 2023 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 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 will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences, in our 2023 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?

David Constable, Chairman and CEO

Thank you, Jason. Good morning, everyone. Thank you for joining us today. Please turn to Slide 3. To get started today, let me highlight the impact that Fluor has made in local communities this past year. First, through Fluor Cares, that's our employee giving and volunteering program. We donated $4 million to worthy causes in 2023. That represents a 17% increase over 2022. In addition, the Fluor Foundation contributed $4.2 million to community initiatives and programs with much of that funding going to support underserved groups. Fluor employees donated more than 33,500 volunteer hours in 2023 and that's an increase of 49% over our efforts the previous year. We provided nearly 1 million hours of science, technology, engineering, and math instruction to 237,000 students, and we provided 706,000 meals to those in need. As part of our commitment to sustainability, we planted 29,000 trees, including the reconstruction of a mangrove forest on the Philippine coast, plus a large-scale multiyear tree planting effort across four continents. These are just a few examples in the past year of the generosity of our employees and the company, which has helped Fluor continue our honorable and long history of giving back. Please turn to Slide 4. It has now been three years since the launch of our new Building a Better Future strategy and the unveiling of our long-term financial targets. 2023 was a pivotal year in which we achieved some significant milestones. Our continued focus on operational excellence has allowed us to move past the inflection point in our path to creating significant shareholder value. I'm extremely proud of the results we've achieved and very thankful for all the efforts put forth by our employees worldwide. We'll discuss more about our future view of Fluor, including our prospects and financial outlook in just a moment. In 2023, we were successful in converting our high-quality prospect pipeline into new awards, a trend we expect to continue in 2024. Revenue for the year was $15.5 billion, up 13% from 2022. Our full-year new awards in 2023 totaled $19.5 billion with a book-to-burn ratio of 1.3x. Through our disciplined pursuit of contracts, 87% of our new awards were reimbursable and our total backlog is now 76% reimbursable, a full year ahead of our strategic goal. This is a significant improvement from 41% two years ago. And importantly, the current project mix across all business lines is the most diverse it has been in years. Now, let's look at an overview of our fourth quarter highlights. Please turn to Slide 6. Beginning with Urban Solutions, segment profit for the quarter was $147 million, up from $38 million a year ago. Results include a $69 million effect from a settlement on longstanding claims on the Gordie Howe bridge project and a favorable determination on another legacy infrastructure project. At Gordie, the team made tremendous progress this past year on the bridge and both ports of entry. We're on track to complete the bridge span this summer and we'll then start the handover process for the ports of entry. We are very pleased to have a resolution on Gordie that defines our cash funding obligations and solidifies the path to project completion in 2025. Our infrastructure group continues to focus on legacy project completions as its top priority heading into 2024. New awards for the quarter totaled $5.1 billion and included a multi-billion reimbursable award from BHP for Stage 2 of their Jansen Potash project in Canada. In addition, we booked a $1.7 billion reimbursable award with H2 Green Steel. This will be the world's first renewable hydrogen-based integrated steel mill. The site is expected to produce 5 million tons of sustainable steel annually by 2030. Ending backlog for the full year improved to $14.8 billion from $10.3 billion a year ago and is now 71% reimbursable. Moving on to Slide 7. Mission Solutions reported a segment profit of $31 million in the fourth quarter compared to $20 million a year ago. New awards were modest in the quarter and ending backlog was $3.9 billion compared to $5.7 billion a year ago. During the quarter, the Mission Solutions Group took steps to enhance our technical service offerings to better serve customers in the national security market. Moving to Energy Solutions, please turn to Slide 8. Energy Solutions reported a fourth-quarter segment profit of $26 million compared to $124 million in 2022. Segment profit for the quarter reflects the impact of a large project nearing completion and $33 million in cost growth and scheduled extension on a large upstream legacy project, which is scheduled to complete this quarter. This charge does not reflect additional opportunities for cost recovery from subcontractors or the client. Results also include a $6 million gain on embedded foreign currency derivatives. Fourth quarter new awards of $2.2 billion include a $1.3 billion reimbursable contract for a chemical project in Poland. In addition, our ICA Fluor joint venture booked extra work on a large EPC project in Mexico. We also received an award for engineering services on a major Middle East chemicals project. Ending backlog was $9.7 billion, up from $9.1 billion a year ago. At LNG Canada, the project is 90% complete overall and is transitioned into the systems completion phase. We expect to begin safe startup activities later this year. Before I turn the call over to Joe, I want to provide an update on our investment in NuScale. With respect to NuScale monetization, we continue to be engaged in an exclusive diligence process with a strategic investor that would provide an accelerated path to commercialization and does so in a way that maximizes returns for Fluor shareholders. We expect to have an update in the first half of this year. With that, let me turn the call over to Joe for the financial update. Joe?

Joe Brennan, CFO

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 stature and share details on 2024 guidance. Please turn to Slide 10. For the full year, Fluor reported revenue of $15.5 billion and net income of $139 million or $0.54 per diluted share. Results for the year include a $93 million loss on the sale of Stork Latin America that was transacted in the fourth quarter. Segment profit for the year was $537 million and adjusted EBITDA was $613 million. On an adjusted basis, our 2023 results were $2.73 per diluted share. Corporate G&A expenses for the year were $232 million compared to $237 million a year ago. For the full year, we reported net interest income of $168 million as our cash management team invested in U.S. treasuries and other interest-bearing assets to more than cover the $60 million in fixed-rate interest expense on our outstanding debt. Please turn to Slide 11. Cash and cash equivalents combined with marketable securities were $2.5 billion, which excludes the $118 billion in cash held by NuScale. Our operating cash flow for the year of $212 million was positively impacted by cash settlements in the fourth quarter from project claims and disputes, as well as cash distributions from two of our largest proportionally consolidated joint ventures. Results for the year also reflect $129 million in funding of legacy projects. For 2024, we expect cash funding amounts between $100 million and $200 million. As it relates to our significantly improved capital structure, I wanted to recap the progress made during the year. Last January, we retired our outstanding 2023 euro notes. In February, we extended the maturity of our revolving committed credit facility by one year, thereby extending the maturity date to 2026. In August, we executed a very well-received convertible debt offering to address our December 2024 senior notes. These notes were extinguished in late December. These transactions have reduced our stated interest rate on outstanding debt by 100 basis points to a weighted average rate of 2.7%. In addition, we have no debt maturing before September of 2028. In September, we converted our outstanding convertible preferred stock into common shares, which significantly simplified our capital structure. Finally, we also made considerable progress in divesting non-core businesses to allow greater focus on end markets with the highest returns. Last year, we exited all AMECO equipment rental operations, sold Stork Latin America, and reached an agreement to transact Stork's European operations, which is expected to close near the end of quarter one. We are currently marketing Stork's UK operations. Before we open the call to Q&A, David and I want to take a few moments to summarize our strategic outlook and provide details on what you can expect from us in 2024. David?

David Constable, Chairman and CEO

Thanks, Joe. Let's turn to Slide 13. In the fall of 2020, we began to think about a new strategy for the company. As we did that, we kept the aspirations of our core stakeholders in mind. These include building trust with our clients, creating a great place to work for our employees, becoming an attractive investment for shareholders, and continuing our tradition of having a positive impact on society and on the communities in which we live and work. As part of the strategic development process, we evaluated the overarching market conditions that are impacting the industries of our clients and the competitive environment. From that work, we identified four megatrends. To achieve our aspirations and take advantage of these trends, we developed our strategy, Building a Better Future. With the strategic intent to be the preeminent leader in professional and technical solutions while maintaining our global engineering and construction expertise. In order to achieve the strategy, we developed four strategic priorities. First, reinforcing financial discipline, which focuses on deleveraging the balance sheet. Second, pursuing fair and balanced contract terms, which is focused on de-risking the backlog. Third, driving growth across the portfolio is about diversifying revenue into growth markets. And fourth, fostering a high-performance culture with purpose is, among other things, about improving project execution. Taken together, these strategic priorities have delivered and will continue to deliver on our drive to maximize shareholder returns. Moving to Slide 14. This slide shows the results of executing against our strategic priorities. Starting with reinforcing financial discipline, the upper left chart shows our debt to capital ratio, which was 63% at year-end 2020. This ratio has significantly improved to 37% in 2023. We are already within the 2024 range as set out in 2021. Our 2026 target set last year is to be at less than 30%. Pursuing fair and balanced contract terms, the lower left chart shows our reimbursable backlog. We've increased our reimbursable share of backlog from 40% in 2020 to 76% today, achieving our 75% goal one year ahead of schedule. We intend to maintain a reimbursable backlog above 75%. Driving growth across the portfolio, the upper right chart shows the mix of nontraditional oil and gas revenue. We set a target of 70% by the end of 2023. You'll see from the graph, we are currently at 65%. When we set the target, we expected the Stork to be fully divested by now. Removing Stork's oil and gas revenues from the analysis, the number jumps to 71%. More importantly, we see significant prospects in front of us. In addition to opportunities in Mission Solutions and Mining and Metals, we have key prospects in chemicals, advanced technology, life sciences, and energy transition programs across the business portfolio. Fostering a high-performance culture with purpose, the chart on the lower right shows our performance and strength in prior execution for new awards. 81% of ending backlog includes projects awarded since the beginning of 2020. These projects are performing at 116% of as sold. We expect to continue this performance by adhering to our stringent pursuit criteria, by applying our proven project execution methods, procedures, and risk processes, and by enforcing our guiding principles for financial forecasting. Moving to Slide 15. To share some insight on how the execution against our strategy looks in 2024. Here are just some of the opportunities we have on our radar. For our Urban Solutions segment, in Advanced Technologies and Life Sciences, we continue to strengthen our footprint and are well-positioned for some exciting new opportunities in the semiconductor, data center, and pharmaceutical space. In Mining and Metals, we anticipate a full notice to proceed on a copper project in South America in the first half of this year. Looking ahead, we see additional sizable opportunities in battery metals and iron ore. In infrastructure, as mentioned earlier, we remain focused on executing our legacy portfolio. We also anticipate an award for the next phase of a significant motorway project in the Netherlands that we are currently working on. Within Energy Solutions, we have a robust pipeline of prospects, notably multiple FEED awards supporting mega liquid to chemicals programs in the Middle East. Other opportunities in energy solutions include refineries in Mexico and the U.S. Gulf Coast and in the energy transition space, a large renewable diesel project in Canada. In Mission Solutions, we are well-positioned for recompete scopes of work, including the strategic petroleum reserve renewal. In addition, we were recently selected for an extension on the Portsmouth decontamination and decommissioning program. We anticipate this extension to be funded later this year. Next, we expect to hear the NNSA's decision on context in the second half of 2024. We also have opportunities in the nuclear fuel space, and we continue to pursue nuclear work for conventional and small modular reactor programs. Finally, we continue to see strong interest in our capabilities to support the intelligence services market. These projects represent over $75 billion in total installed cost with a good number of our opportunities based in the United States. Now please turn to Slide 16. Specific to Energy Transition, we see this as a driving force behind a shift from traditional energy to lower carbon energy sources. Fluor is well-positioned across the spectrum of ET markets. In 2023, we had over 200 active energy transition projects, many of which are front-end technical solutions scopes of work that position us well for EPCM conversion. Here we are focused on five areas that spread across the clean electron, clean molecule spectrum. We have worked and are pursuing opportunities in clean power and energy storage, the battery value chain, carbon reduction, hydrogen, and renewable fuels. And importantly, we have industry leaders and subject matter experts in each of these areas. Turning to Slide 17, to summarize, the strategy is working, and we continue to see it reflected in our results. Our strategic priorities, taken together, are deleveraging the balance sheet and de-risking the backlog. They are driving revenue growth in new markets and improving product execution. We continue to restore trust with our clients and build confidence with our shareholders. As we look to continue improving our reputation through solid project execution, we are confident that our strategy is meeting our stakeholder aspirations and creating a business that generates consistent earnings and cash flow. I'll now turn the call back to Joe so he can provide details on how our efforts translate our strategy into financial performance for 2024, and what this means for capital deployment. Joe?

Joe Brennan, CFO

Thanks, David. Please turn to Slide 19. We are establishing our 2024 adjusted EBITDA guidance at $600 million to $700 million, or $2.50 to $3 per diluted share. Our guidance for 2024 fully meets our strategic plan expectations that we shared with the investment community in January 2021. In addition, we are reaffirming our 2026 adjusted EBITDA guidance of $800 million to $950 million. While the company sees a robust prospect pipeline to support our internal strategic plan, going forward, we intend to conform with accepted practices and only provide guidance on expected results for the current year. Our guidance for 2024 is based on our ability to successfully execute our strategic priorities on significant demand for our services across the end markets we serve and on achieving significant completion of our legacy projects over the next 12 months. To provide a bit more clarity on guidance for 2024, our assumptions include revenue growth of approximately 15%, net interest income of approximately $120 million, G&A expense of approximately $190 million, and an effective tax rate of approximately 35%. We anticipate free cash flow plus divestiture proceeds of approximately $350 million to $450 million excluding cash funding for legacy projects. Our estimate for cash flow is based on the underlying performance we see from the portfolio. Receipt of cash from transacting remaining noncore businesses and the working capital needs required for reimbursable projects. Our expectations for 2024 segment margins are approximately 5% in Energy Solutions, approximately 3% to 4% in Urban Solutions, which reflects $600 million in revenue for zero-margin legacy projects, and approximately 6% in Mission Solutions. Please turn to Slide 20. We are incredibly pleased with our progress over these past few years as we transform back into one of the leading engineering and construction firms. The entire organization is excited about not only what we have accomplished but also what lies ahead. Our positive results over the past few years combined with our expectations for 2024 and beyond continue to accelerate our journey towards restoring Fluor's position as a leading solutions provider. Our primary investment will be to build and develop world-class teams to convert our prospect pipeline into backlog. Our focus on investing in our people supports our strategy of pursuing an asset-light model that simplifies investors' understanding of our earnings power. But by way of example, we added 5,000 employees in 2023. Our dedication and commitment to negotiating fair and balanced terms and getting paid for the value we provide are evident and ongoing. We have also shown success in the claims recovery process with three key settlements reached on some of our legacy projects, and we continue to hold productive conversations on other pending claims. Since a significant portion of these claims arose from COVID-related challenges, we see lower claims exposure over the coming years. As we continue this journey, we expect to arrive at a point where our funds exceed what is required to support our growth plans and lower-risk portfolio. We look forward to providing more details on what this looks like later in the year. Operator, we are now ready for our first question.

Operator, Operator

Your first question comes from the line of Steven Fisher from UBS.

Steven Fisher, Analyst

Just looking at your full-year EBITDA and EPS for 2023, how that came in and comparing that with your 2024 targets, the growth actually looks pretty modest, but of course, your implied CAGR from ‘24 to ‘26 looks to be much faster in the double-digit area. So I guess to what extent is that just a slow ramp of projects in backlog that you've expected or something else? And what do you expect to contribute most to the acceleration in '25 and '26?

Joe Brennan, CFO

I think the way to level set how we view the kind of the growth and the trajectory between ‘23 and ‘24, there were a number of settlements that we were able to achieve during 2023 which created some lumpiness in the earnings flow for the year. The best way to look at that is if you go back and look at the original guidance that we provided in 2023 of $450 million to $600 million, if you take that midpoint relative to the $600 million to $700 million in guidance in 2024, I think that gives you the apples-to-apples comparison of how we're seeing growth. And we have talked about the lessening burden of some of those claims activities that arose during the pandemic. So from an apples-to-apples comparison, we're viewing that growth year-over-year in that way.

Steven Fisher, Analyst

And then can you talk about the cadence of bookings that you expect in 2024? Do you think it's going to be more front-weighted or back-weighted? And kind of should we still expect double-digit growth in backlog in '24? It was nice to see that 76% ahead of schedule. I'm curious how you see the kind of the mix evolving in '24 as well.

David Constable, Chairman and CEO

Yes, it looks like we'll continue on the track we've been on for the past couple of years. We have a lot of prospects in front of us across all the business segments. And I would expect when you think about book-to-burn, we've been messaging, I think last year we were messaging one or above. I think we'll continue to see that and we've been overperforming on our go-get factor numbers. So we're pretty comfortable that 2024 is going to be shaping similarly, or possibly better than '22 and '23. We looked at the results of our hit rates at the company in '23, and they were really strong. And I think that has a lot to do with our project pursuit criteria. We're going after projects. We hit 78% of the prospects we went after in 2023, just a phenomenal number. And note that, that is with bringing in 140 basis points above our backlog in margin. So not only hitting on a lot of them, but improving the margin as well. And I expect that to continue. It's a seller's market right now. Thanks, Steve.

Operator, Operator

Your next question comes from the line of Andy Wittmann from Baird.

Andy Wittmann, Analyst

I guess, Joe, I want to just dig in a little bit more on some of the comments you had around free cash flow. And if you could just maybe just drill into this a little bit more. I think you said $350 million, $450 million, before the cash burn on the legacy projects, but it does not include other cost recovery. So it looks like you're just looking through the cadence, it looks like you're expecting a big tax settlement. Could you give us some kind of parameters around that? And do you expect any other kind of chunkier claim settlements to hit in '24? Like I don't know when the cash on your Gordie Howe bridge settlement is coming in and that was obviously a pretty significant amount. Maybe you want to talk about how the joint ventures, the consolidated proportion joint venture cash is factoring into that look in particular considering that was a large balance? Those are just some of the things that come to mind for me. Maybe there are others, but maybe if you could give us a little bit more detail what's supporting that cash flow outlook?

Joe Brennan, CFO

I'll give you the range on the tax item itself is approximately $150 million to $160 million that's what we'll be popping in. In terms of claim settlements for 2024, I would expect less of those activities because we did clear off a significant portion of those activities through our legacy projects in 2023 but there still are other opportunities that we'll pursue during the year. And what we did see come in, in 2023 was some of the retained earnings through our proportionally consolidated joint ventures, but really the initial kind of push to repatriate those retained earnings back into the 2020 timeframe. So as we move into '24, we will see additional retained earnings flow in from those proportionally consolidated joint ventures, which will help to drive some of the upper end of the guidance that we provided around our cash flow.

Andy Wittmann, Analyst

And then David, you referenced the engineering services contract that you have in the Middle East here for liquids to chemicals. Some of the numbers being tossed around for that project for like total installed costs are pretty big numbers? I thought I'd just give you an opportunity to elaborate to the extent you could on this job a little bit. How meaningful can this job and what's the profitability attached to this job at Fluor for you today as you're sitting here today? And maybe more importantly, given that it's such a mega project, how much notice to proceed and visibility do you have in your backlog on it today? In other words, the confidence is going forward. We're seeing some signs, obviously, like Aramco didn't decide to increase its production outlook. I don't know if that's a total reflection of their capital spending or not, but I would be curious as to what you're hearing from the customers on these projects as to their confidence in moving forward.

David Constable, Chairman and CEO

So having recently traveled there, I think I was there in November talking with various clients, SABIC, Aramco, Modine on the mining side and very bullish right now in Saudi Arabia. We see this as a real growth engine for the company, and we are extremely well-positioned for not only the mining work but liquids to chemicals programs, where they are shifting obviously from a lower automotive fuel requirement to high-margin chemicals. And we are getting started with customers over there. And you'll see it in a ramp-up of massive amounts of home office engineering hours, which deliver a good margin for Fluor as we help them with our technical solutions where they really look to us. That's the value we're adding here to get these projects off on the right track and then continue and help manage them through to completion. And they are, as you mentioned, massive projects. And that's what we're looking at getting kicked off right now. So confidence-wise, I'd say we're very confident that the programs we're getting involved with are going to be going forward. There's a lot to say grace over these projects. So it's not going to be just one contractor; it will be multiple contractors supporting their business plans.

Operator, Operator

Your next question comes from the line of Sangita Jain from KeyBanc Capital Markets.

Sangita Jain, Analyst

Can I ask about the nuclear opportunities that we've been reading about in Bulgaria and Romania and how close you may be to finalizing those maybe?

David Constable, Chairman and CEO

The nuclear space continues to be something we are supporting both in support of through the NuScale Small and Module Reactor Technology, but also on conventional nuclear facilities right now. And in fact, a good portion of our nuclear opportunities are in Eastern Europe as those countries, Bulgaria, Romania, Poland looked towards energy independence, energy security in that part of the world. So we are busy on opportunities there in SMRs, for example, in Romania, that I believe right now is moving into a FEED position for us, taking the lead there. And we're also, like I said, looking at a couple of conventional units in Romania actually on a reimbursable basis. So post-COP28 nuclear, the focus on nuclear is very high. And as we previously stated, we're really looking forward to supporting NuScale's commercialization efforts in the small modular reactor space and we're excited about our prospects there as they start to come to fruition both in the U.S. and overseas, particularly in Europe and Eastern Europe.

Sangita Jain, Analyst

If I can ask on another end market, I didn't hear you guys address data centers in your prepared remarks. Can you share some color on what you're seeing there and if the momentum kind of helps you in booking more backlog this year?

David Constable, Chairman and CEO

Yes. We do have a position in data centers. Certainly in Asia right now where we're doing some big programs in data centers. And we see that continue. I think I did maybe quickly mention data centers as part of the advanced technologies and life sciences opportunities in my prepared remarks. So we definitely are focused on data centers. It's with everything going on in the world, data and data processing via data centers is going to be a big market for Fluor and also upstream of that the power generation required to drive those data centers. So, yes, definitely we'll start to feature more in our plans going forward.

Operator, Operator

Your next question comes from the line of Michael Dudas from Vertical Research.

Michael Dudas, Analyst

Maybe David can continue your thoughts there on advanced facilities. Maybe state of your thoughts on the electronic semiconductor area, U.S. and abroad and certainly, the pharmaceutical life sciences have been a lot of activity. You've ramped up some business there. Do you continue to see that momentum in bookings through 2024?

David Constable, Chairman and CEO

Yes, we do see that as a key focus alongside data centers, particularly in the semiconductor and pharmaceutical sectors. Recently, we've observed the CHIPS Act funding starting to be distributed, which was established in 2022, and it is encouraging to see that progress. More than 170 companies have applied for grants, and we are maintaining close relationships with some key clients in this area. We anticipate hearing more about investments in the semiconductor field and significant funding announcements before the State of the Union address in March. Our work spans Asia and the U.S. semiconductor market, and we are optimistic about the prospects there. In pharmaceuticals, we are just beginning our involvement in diabetes and weight loss drug projects with two major clients. The scale of these pharmaceutical initiatives is far greater than what the industry is accustomed to, with multibillion-dollar projects that demand the project execution and product management expertise that Fluor can offer. It's a promising time for our involvement in the pharmaceutical sector, where we have a long-standing presence.

Michael Dudas, Analyst

I appreciate that, David. And my follow-up would be, you mentioned in your prepared remarks or maybe Joe, you've added 5,000 employees, to Fluor's professional staff in '23. What's that on a net basis, what type of growth do you see you need to achieve not only the backlog you've booked, the growth you anticipate given the opportunities in front of you? And maybe following on the LTC question in the Saudis. How you've been able to ramp up that with professionals and engineering staff to meet those needs because that's, I think, again, going to be a lot of demand stress in that market for something like you guys.

David Constable, Chairman and CEO

You are right, it is indeed our top priority, Michael. The management team, along with all our businesses, is focused on placing the right people in the right roles at the right time. As Joe mentioned, we have brought on around 5,000 employees in 2023. However, this isn't a significant net increase since we may need to release some staff as projects decline in certain areas. Nonetheless, we aim to redeploy as many individuals as possible to support our growth. I anticipate hiring another 5,000 this year or something close to that. With the recent sale of Stork, we will see a slight decrease in our headcount, which is acceptable. However, as projects fluctuate, we expect the headcount to start increasing again. We are being very mindful of costs related to our overhead. In Saudi Arabia and the broader Middle East, the workload is distributed across various offices. We require Fluor's global capabilities to successfully manage these types of programs for our clients. You can expect work to be carried out in Amsterdam, the U.K., Texas, Houston, and our execution centers in Delhi and the Philippines to handle the influx of hours coming our way. This is our current situation.

Operator, Operator

Your next question comes from the line of Brent Thielman from D.A. Davidson.

Brent Thielman, Analyst

David, the book of business in Urban Solutions obviously really picked up here in the last year. Can you talk about the composition or mix of things in your backlog in that business segment, I guess, between ATLS, Mining, and Infrastructure? Maybe how does that inform your sort of profit margin outlook for the group into 2024? And I guess, in particular, is that mix between the different practice areas more attractive than in years past?

David Constable, Chairman and CEO

It's been rewarding to see that our focus on driving growth across the portfolio has been a strategic priority rather than just delivering results. Back in late 2020, when we established this strategy, we aimed to avoid relying solely on traditional oil and gas. While we certainly want traditional oil and gas to thrive, and we are supporting it well, we also recognize the importance of energy transition throughout the company. Our goal was to expand in markets driven by megatrends such as urbanization, energy transition, big data, and Industry 4.0, particularly in the Urban Solutions area. This is evident in our performance in Mining & Metals, where copper plays a significant role in these trends, as well as in ATLS. Currently, our backlog includes approximately $10 billion in Energy Solutions, around $15 billion in Urban Solutions, and about $4 billion in Mission Solutions, totaling approximately $29 billion. Within that, Mining constitutes $7.5 billion, ATLS accounts for about $3 billion, and Infrastructure stands at $4 billion. We are also making progress in plant and facility services, enhancing our operations and maintenance offerings with improved services, including digital solutions. Looking ahead, Joe might provide insights on Urban Solutions' margins based on the current backlog and expectations. As you are aware, our guidance is set between 3% and 4%, but we also need to navigate through the Infrastructure challenges.

Joe Brennan, CFO

Yes. I think, Brent, if you look at kind of normalizing out the $600 million of zero-margin revenue and where we're heading, we would expect the 3% to 4% that we're laying out today as we move forward and progress through the backlog and what we've taken into our pipeline that we would be in that 4% to 6% corridor. And we would feel comfortable towards the end of the year, we'll probably be looking at what that guidance looks like. But as we move out into 2025, squarely within the 4% to 6% corridor that we've laid out.

Brent Thielman, Analyst

And I guess, maybe on Mission Solutions, as you mentioned, kind of a lower level of backlog relative to the other two business groups. But any update on the timing of Pantex decisions and any other opportunities outside of that to build up the backlog in that business group? Obviously, that one is a bit lower here this quarter.

David Constable, Chairman and CEO

Yes. Mission Solutions can be very lumpy with these massive long-term 10, 20-year contracts, of course, we hit one in late 2022 with Savannah River that was a very large program. So that's, again, that was a lumpy year because of '22, but those will continue to come around. I think on Pantex to your question, we're expecting an award I'd say second quarter to third quarter 2024, but before the election. So maybe that's the best timing I can give you there. But we're really excited about Mission Solutions and the future that we've got being such a strong Department of Energy contractor and picking up speed in the defense space and our LOGCAP work in Africa and supporting the troops out of Germany, we see really great opportunities in DOE and DOD. And of course, FEMA comes along. We've just been awarded that Eastern U.S. East Coast FEMA contract as well, which will continue to, as things occur, drive revenue. So I think that's where we're at with Mission Solutions. And like I said, very positive, and we've moved towards national security and brought in some new management capabilities in national security in the defense and intelligence space, where we're pretty excited about some prospects there as well. Those are prospects we don't talk about publicly, but they are very exciting and quite sizable. So that's where we're heading in Mission Solutions.

Operator, Operator

Your next question comes from the line of Michael Feniger from Bank of America.

Michael Feniger, Analyst

Your debt to capitalization ratio is within your range, and you have your target set for 2026. It appears that you are making significant progress on the goals you've outlined, with positive operational cash flow in the fourth quarter and guidance for strong free cash flow in 2024. Given the major trends you are observing, are you beginning to reinvest in the business? Should we anticipate some organic investments or potential mergers and acquisitions? I'm curious about your perspective as we observe these movements in cash flow.

Joe Brennan, CFO

Yes. Maybe I'll take the kind of the cash flow movement up to M&A. What you're seeing in 2024 is not only a servicing of some of the legacy, it's the tail, the cash flow tail of the P&L at the end of the day, but you're also seeing in there an organic investment in our business as resources have become the number one criteria in order to kind of support this growth trend that we see in front of us, there's an investment in the infrastructure. And there's an investment in talent development and onboarding of individuals and training. So that is the organic investment that we're making happily into the business as we see the kind of the demand curve increase for our services. So there is some of that, but we believe that, that will become the baseline to support the growth into '25 and '26. And also when you get into a 75-plus reimbursable environment, we're not working off of mobilization payments or big advances that you find through maybe the lump sum more risk profile. So there will be some costs to continue to kind of ramp up the reimbursable activities. But it's all done relative to supporting the infrastructure to appropriately address and execute the projects that are coming our way.

David Constable, Chairman and CEO

So I'll just add to that, Michael. And again, yes, as Joe said, organically, we're just investing in our people, right? And attracting, training, and developing, but also our systems and by way of example, offices; this growth, we're going to be opening a Delhi satellite office. We've got three new offices in Houston. And so that will continue. On the M&A side, really just think about it as niche bolt-ons to further the business as appropriate, potentially in Mission Solutions as a first wave. So, that's where we're at right now. And as things continue to go in the right direction, as we've been seeing here, then we start, of course, talking to the Board about dividends and share buybacks and things like that.

Michael Feniger, Analyst

And just thematically, there's always a worry with rates still kind of high that some projects will get pushed out to the right. It doesn't seem like that's what you're seeing based on what your backlog is? Do you need to see rates come down for that robust pipeline to convert, or do you feel like a great stay here, you guys saw visibility on really some of those bookings that you're expecting to play out through the year?

David Constable, Chairman and CEO

Yes. The projects that we work on, other than maybe some energy transition developers that would need some financing, which they've been somewhat successful at. But our key client base, if you will, that we deal with use their balance sheet. So, and our clients look through the short-term challenges of economic and geopolitical challenges. And they play the long game, right? So, as I look at the client CapEx across just a sampling of Fluor's, say, 10 clients that I took a look at here a couple of weeks ago, their CapEx for 2024 is holding strong, up. Some of them are up. But just those tenants are going to spend about $110 billion in CapEx. I think they expect to spend $125 billion in the out years. So with quite a bit of that $20 billion in energy transition, where, again, we are well-positioned and are, as I said, working on over 200 projects in energy transition. So I think we're in a very good space. You take BHP this morning that came out and said, well, the Nickels are not doing well for them. So they're pivoting to copper and iron ore and potash, which is right in our wheelhouse. So, and they didn't change their CapEx guidance. So I just think that interest rates are less of a concern for Fluor and our prospects. And then you've got, of course, the Mission Solutions clients that are spending in our space in DOD, DOE and say, TxDOT, one of our key infrastructure customers, they've spent $279 billion last year and $292 billion in 2024. So there's so much to say grace over. We just need to be careful that we don't bring too much work in. We have to make sure we've got the resources, the A teams to execute these projects and be very selective, and get paid for the value that we bring and the best opportunities.

Operator, Operator

This ends our question-and-answer session. I will now turn the call back over to CEO, David Constable for some closing remarks.

David Constable, Chairman and CEO

All right. Thank you, operator. Many thanks to all of you for participating in the call today. Based on our performance, it's evident that we are well-positioned to leverage the progress we've made over the past three years, and we expect that this will drive significant value for Fluor shareholders for years to come. So again, we appreciate your interest in Fluor Corporation, and thank you again for your time.

Operator, Operator

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