Welcome to day two. We're getting going bright and early here. Really excited to have you all join us. I'm Andy Wittman. I'm the Senior Research Analyst covering construction and engineering. We're really happy to have Fluor back this year to start off our day. John Regan's the company's CFO, Senior Director of Investor Relations, Jason Landkamer is here as well. Again, thank you all for joining us. This one's going to be conducted as a fireside chat. I've got plenty of questions here. If you all had wanted to chime in, I'll be monitoring session3@rwbaird.com email address. Feel free to send those in. This session also does have a breakout afterwards. If you do have other questions, great opportunity to join us for that afterwards.
John, I always like to just start off for those who might not know Fluor, if you could just give us kind of a five-minute rip.
I do not know Fluor.
Yeah, you never know.
Yeah, so Fluor provides the full spectrum of engineering, procurement, construction on projects on a global basis, probably best known for the work we've done in the oil and gas space. In recent years, made a conscious decision to diversify away from that. We still have an energy presence. One of our signature projects just wrapped up in the last month or so, the LNG Canada project. LNG, Power Gen, chemicals, production and fuels. We do some work for the government through our Mission Solutions segment. Our Urban Solutions, which is kind of the kitchen sink of everything else we do, broadly consists of mining and advanced technologies and life sciences as critical components. We also do some infrastructure type stuff as well. It's exciting.
Keeps us on our toes and our sell-side covered guys, globetrotting to see the things that we do.
Yeah, it's quite a company. I always say Fluor is one of those companies that modern life would not be possible without what you do. I think we're going to talk a lot about numbers and the good things and the bad things of the world. What you guys do changes humanity. It's a really cool thing.
Building a better world.
Yeah, I guess that's the takeaway.
That's it.
Yeah, it's actually true. Your business model has evolved. You guys are one of the last kind of multi-end market construction companies in the public market. John, maybe why don't you just talk about the journey that Fluor's been on and how you've approached managing risk and the jobs that you do and how that's changed? Because it's been a big change.
Yeah, you know, and again, so I've been with the company for five years. So a lot of the problems predate me. I hope I'm part of the solution. Looking back in the mid-teens, there was a strategy that said, if we grow the backlog, if we grow the business, we will grow results. We, like many of our competitors, brought a lot of risk into the backlog. We had a disproportionately large lump sum component of our business that was probably poorly bid and probably not executed really well. You have to look back even decades before that. Fluor's always been really good at solving problems. The problem-solving component came in because we had people who could go triage a situation.
When 5% or 10% of your portfolio is in distress, you send in the SEAL Team Six, and they make everything back work again. When you got 40% or 50% of your portfolio, you do not have enough people on SEAL Team Six. We got into real trouble. In 2018, we rolled out a new philosophy of how we bid projects and really de-emphasized lump sum in favor of reimbursable and further refined that in 2021 when we rolled out that strategy. We diversified a little bit away from energy, but really stressed fair and balanced terms, which by and large meant reimbursable work.
Also the things that you would not necessarily see, we went from a decentralized model of risk and a lot of autonomy in the business lines to go take on work to make their growth projections and other things and brought some of that control back centrally. We probably have more visibility into when we are starting to pursue things, certainly when we are at the bid/no bid stage, and then through execution, better visibility to that. It has been a journey.
There are tangible results. I mean, numerically, you can look at the amount of reimbursable contracts today. Why do you not talk about what that is as a percentage of your total backlog? How much is reimbursable versus fixed price? I think last quarter was what, 99% of your awards were reimbursable?
New awards were almost exclusively reimbursable last quarter. Backlog is kind of hovering between 80%- 85%. It has definitely proverbially paid dividends. I think one of the things that's a challenge, though, is how much can you grow your business inside of a truly or an exclusively reimbursable model? We've taken a hard look at some of the industries, sectors that we want to be players, and the power market, LNG market. Those tend to be more lump sum than reimbursable. The question is, how do you apply those fair and balanced concerns to a market that you want to grow that tends to be lump sum?
Is the competitive environment changing a little bit today in terms of we've seen other companies, like you said, I mentioned that you're kind of the last man standing with this diversified construction approach. You've seen some people exit the market. Are there markets that were formerly kind of no-go markets? You mentioned power, which could be a yes-go today with less competition and better terms and conditions.
Yeah, that's absolutely kind of the direction we're going. You'll see us retrench back into power. We got out of it because of some significant losses we took on in the late teens. We said, you know, look, we just need to catch our breath and let that market come back to us. There is still some competition there, lots of competition at the regional levels. We think some of the more sophisticated projects, co-location type projects would fit the bill for us. It's got to be what we call smart lump sum. You can't have oppressive liquidated damages on the back end. You can't have lost profit provisions. You're going to look for mid to late stage conversion of your reimbursable work to lump sum when you have more certainty around procurement and then the cost of those elements.
Sure. Sorry to cut you off.
No, no, no. I'm saying, and so that's where we're kind of rebuilding the muscle memory over the course of the next year.
There's just been so much talk about power at this conference with AI and everything. I just want to drill in on this one because, I mean, does your customer in power generation for combined cycle gas plants historically been utilities? It sounded like on the conference call last week, that was still like where you're kind of hunting there and talking. You also have relationships with some of the hyperscalers. Do you feel like maybe you got a hyperscaler on an island for some of these things? You mentioned co-location.
Look, I think in the long of time, yes. I think the hyperscale market is still developing. I think that power needs, either as part of a data center complex or otherwise, we still have power needs in this country. As I think about where we want to deploy our human capital, I think that the power markets span even more broadly than data centers. I think there will be dedicated power supply. I think, and look, and truly in the long of time, and maybe after you and I have hung it up, we'll have dedicated nuclear power associated with hyperscalers. Nuclear is another area where I think we do separate nuclear from traditional power gen. Both I think are going to be important elements of the strategy.
All right, you brought it up. We're going to talk about nuclear now. I was going to save it for later.
You're going nuclear.
All right, so where should we go on nuclear? The most topical one is your announcement of the liquidation of your 111 million share stake in NuScale, ticker SMR. You gave a timeline on that. I think a lot of people are just kind of wondering if you could just give more details of how you plan to exit that and show that on the balance sheet as early as 1Q 2026.
Yeah, so look, the NuScale story is one of wild success. It's a company that we invested $500,000,000 in, what, 10, 12 years ago.
That's right.
We helped them put in place a lot of who they are today. By and large, they've outgrown what we can offer them. They have a robust capital structure, their own business development plan. We did not need to own them anymore. I'm not a hedge fund. Better use of the value of that investment for the benefit of my shareholders. Getting to an agreement around how we could convert and get to an orderly exit to feed into what we need to do was really important. In terms of what to expect, we're in the middle of a structured sale environment, which essentially means I do not complete the program until, or at least the first chapter, until the middle of the first quarter. For December 31, you should think of the investment of all remaining 111 million shares will remain on my balance sheet.
We'll have the day of reckoning. When we get to mid-February, we'll be able to talk about what we've done in the program and what.
You anticipate at your fourth quarter call, you'll give an intra-quarter update what the progress has been.
A pro forma peek at what the balance sheet at December 31 would look like if I'd completed the program. I think it will involve a measured sell down through time. NuScale at least has signaled that they have near-term capital needs. They are raising capital. I'm trying to exit a position. All of that says it's got to be very measured, transparent, and people understand what both companies are seeking to do over this period of time.
OK, there's also some other things that are going on in nuclear power at Fluor. Maybe, Jason, there's a Romanian full-size nuke that you guys are kind of doing early stage consulting on. And then there's like this half-built one in the U.S. that you guys had some scope on a couple of years ago this summer that there's rumblings of that one getting dusted off and started again. I just maybe thought you could riff a little bit on kind of traditional nuclear. It seems like it's kind of out there, but investors are really pushing this as a path forward.
It's kind of interesting because you can make the case that we never really left the nuclear market right now. And when you look at the ebbs and flows and kind of where we're at today, so you're correct. We have two opportunities that we're working on right now. Ironically or interestingly, they're both in Romania. So one is to support NuScale's efforts with RoPower and their SMR development. This is actually supported by the US government, some of the engineering effort behind that. So we're working on the estimate on that right now. And the indications are that the client would make a decision on that as you get towards the second half of next year. And then down the road from there is Cernavodă, which is already an established nuclear facility that's based on the CANDU Canadian technology.
We're also doing and executing some bid estimate work for that for a potential EPC role with that. AtkinsRéalis would be clearly the technology provider for that since it's the Canadian nuclear tech on that. We have those two operations going on. You mentioned V.C. Summer. For those of you that follow the E&C ebbs and flows, particularly last decade, that was a contract that we had taken over from CB&I Shaw back in the day. It was right in our backyard in South Carolina. We executed that project until the client stopped work on that. Now it looks like it might be coming back around with some of the news that we've heard with Brookfield showing interest in that. We are aligned with a firm to be potentially providing that EPC support on. We're clearly familiar with the project.
I think that would be great to kind of get back into that US traditional nuclear build. It is a facility that is already partially built. Clearly there is some interest in that in terms of getting it, it is already something that has gone past the start line a little bit.
Yep. OK, I think I'm going to leave that for the power discussion. Next, I wanted to talk about mining. This is an area of Fluor that I think you guys are like kind of A1 in terms of global competitiveness. When it comes to a big copper mine, gold mine, iron ore, Fluor's name is one of really two companies that I think kind of A1 here. You look at these commodity prices, John, it's like gold is like a zillion. It feels like it should go. Why aren't these things moving faster? You guys have been talking about them. I'm just kind of curious as to what those discussions look like and what investors can expect, what needs to happen, what investors should be watching for to see some of these things matriculate into FID.
Yeah, copper, you mentioned, is an area where we really see a lot of prospectivity. What's really exciting about it is it is Canada. It's the U.S. It's Australia. It's South America. Truly a global opportunity around copper. Rare earths, also an area. We had a new award last quarter on a rare earth project. I think it is absolutely a growth engine, mining and metals, growth engine for us. I think going to be a significant contributor to the growth that we expect across this planning cycle.
Which goes through 2028.
Yeah, running through 2028. I guess as we're looking forward at new awards, we see 2026 as when, I'll say, of the four copper projects that we or prospects that we're embracing, that we see those coming to FID in 2026.
You think all four can get to FID?
Maybe not all four get there in 2026. But I think at least half of those will come to an FID in 2026.
These are projects where you've been doing pre-feed work and engineering directly for the customer. So there's already been some revenue that you've recognized on this, right, if I'm not mistaken?
Absolutely. That is a more ubiquitous comment in that of the prospects we're chasing, we're currently, for more than 90% of those, we're doing some level of front-end engineering, procurement strategy.
When a company like yours does pre-FEED work, how often does that not become an EPC for you? Do they choose somebody else to do it?
I think the bigger threat, and we certainly saw this earlier or in the last planning cycle, just where we invested a lot of intensity into energy transition. It was flavor of the day. We did a lot of really quality work in the front-end engineering and procurement space or procurement strategization space. Simply put, the projects did not have financial legs. They did not move to FID. In many respects, we think of projects not moving forward because maybe it is the chemical markets on a bit of a pause, or energy transition does not come across, or the overall headline amount to a nuclear facility is just something that cannot be abided. To me, that is kind of a bigger risk. Clearly, there is competition. Look, the mantra.
The economics seem like they're there, though. You look at commodity prices. Is it politics? Is there permits? Are these the limiting factors?
I would say maybe a little bit on this too is if you recall, go back to 2010, 2011, right, Fluor had $18 billion worth of mining work. That was kind of an all-time peak right there. Afterwards, I think a majority of the management teams at those mining companies were changed out because they created their own hyper-escalation environment. I think that ended with an oversupply, you could say, in some of those commodities. I think if you look at kind of what's happening now, we're in the last stages of that ready to launch. What I mean by that, because I think, Andy, there was a lot of excitement about copper awards coming out of the pandemic. Then you saw the resultant increase in inflation on materials and costs. There was a bit of a defer.
There was a huge acquisition cycle that has happened with consolidation over the last few years. Now they are going, and that entire time, I think the copper prices, if you pick that as a commodity, was supportive. Now they are looking and they are saying, OK, we now need to go execute huge brownfield expansions, new greenfield opportunities. Anybody that follows the copper space, there is no, it is extremely, the copper that is left to extract is in very difficult, tough locations, which again, I think plays into our CV of executing those projects. I think to John's point, 2026 and 2027 are going to be really exciting years for us, whether that be copper, aluminum. There are some green steel opportunities that are out there as well.
You have just kind of, I would say the cherry on top is what's going on with rare earth and critical minerals, because that's a market that you had not heard us talk about, although we are executing a project right now in Australia and we have for the last few years. I think with the concerns of getting those sources outside of the Asia-Pac area is causing some interesting conversations in terms of North America and elsewhere.
Yeah. OK, also in Urban Solutions is your life sciences business. It's been a real big earnings driver in 2025. You're building a GLP-1 plant for Lilly. That's probably the headline project. You've booked two phases of that and huge billions of dollars. While that's great, everybody's kind of looking for what's next. It feels like there is still a redomestication of some of the life sciences and pharmaceutical life sciences types of projects. Is there more to come on the back of what is already a huge award that you're working on? What do you see in that pipeline?
Yes, we do see more growth. I think on the Lilly front, execution there is really important to us. We see repeat business as a mantra, get in early, stay late as a mantra, and Lilly as the type of client that we want to do great work for. We want to be at the top of the speed dial list for them on their projects as they execute globally. I do not want to just focus on new awards when the execution of that complex, of that campus, is critically important to both our company and our company. That said, yes, we continue to see as we built our CV in the space, interest in the growing desire to put more manufacturing facilities in the US. Unfortunately, that does tend to be a space where you are procuring equipment out of the European Union.
I bring up then the subject of trade policy and the hesitancy that we've seen in our client base around making multi-billion dollar decisions on kind of a question mark hanging over overall cost and impacting us. We talked about construction. Yeah, I mean, we are very much in that phase of the business. For our competitors who maybe are just engineering, there's no tariff on professional services. The engineering continues to advance. The FIDs have been what we've seen in particular be impacted by trade policy. I would say that is a space that trade policy, and particularly here in the U.S., has been a little bit of a dampener to the growth that we otherwise could have seen.
Got it. OK, that makes sense. I guess the next thing I wanted to talk about on your earnings call, I guess that was last week. Time flies. You updated your EBITDA range with one quarter to go. You can see what the range is implied for the 4Q EBITDA. I think at the high end of the range, it implies a quarterly EBITDA in the fourth quarter of like $125 million or $130 million. I think that's the right math. You also talked about 2026, which is where I kind of want to go with this question. You did not put a range out there. There are no numbers around it. You kind of commented on consensus and kind of where you are in 4Q.
Basically, the implication between what you said and kind of we're talking about for 2026 and where the run rate is suggests that there's an EBITDA increase in the run rate of what can happen on a sequential quarterly basis. My question, John, is really, what are the types of projects specifically that you've won already that gives you confidence that the EBITDA run rate as we head into 2026 will grow sequentially?
There is a couple of things in there. One, you've been kind and not asked about legacy projects. We do see the end in sight on several of those projects. In fact, we're sort of projecting one each quarter beginning in this quarter.
To finish.
To finish and complete. The drag on EBITDA, I mean, we'll have $600 million of revenue over the next year with no margin in it. Certainly, as we begin to hand those projects over, we'll be able to redeploy those resources onto EBITDA-generating projects. That is certainly an element there. You mentioned the life sciences project. We're going to continue seeing a ramp up in activity there as a major contributor. Again, solid contributions from the mining and metal side and what our projections in power potentially could be. Now, power is something that you're not going to see an EBITDA-generating component of that on January 1. We are making a little bit of an educated guess of what it's going to look like across the quarters.
In broad strokes, and then of course, I'd be remiss if I didn't mention the SRPPF, the plutonium pit facility, again, with an escalation in activities there delivering some of that EBITDA growth.
Got it. Is there anything in the 2025 compare that were big contributors to the run rate either this fourth quarter or through the year that are notable? LNG Canada, you've been taking some profit recognition. As you got to 98%, 99%, and now 100%, you've been releasing contingencies. It certainly was some unquantified benefit to the last quarter. Are there other things like that that are, I guess you'd say, tough compare on chunkier projects?
Obviously, we saw a lot of volatility at the Mexico JV.
Mostly the negative. That's an easy comp, I think.
I mean, there was some negative that came through Q2, through Q2, and then Q3.
Oh, it's a benefit for Q4.
Yeah. For Q4, we will see, what would you call it, the remobilization effort and giving us a little bit of a tailwind in quarter four. Their large projects, or several of their large projects, are at or nearing completion as well. You get a little bit of tailwind in 2025. That is more of a contributor to the first half of 2026.
Got it.
Look, it comes back to the strategy, diversify away from traditional markets because we truly are a portfolio company now. And as the ebb and the flow, we're riding that tide.
We have a lot of questions we could still do and only two minutes to go. Here's what I want to ask about. You're going to monetize a whole bunch of SMR, see what the price is. That's going to really bolster your balance sheet. You said that basically you're probably going to buy stock with it, which is fine and good, and I think what investors want. I'm kind of curious, as we get through some of these things, what should investors be thinking about in terms of cash flow from the business on a clean basis? You always have these chunky things where you get a change order in cash. It makes it trickier. How should people be thinking about it?
Look, to further complicate it, you've got JV and dividends. Is the JV consolidated or not? I get that it gets really complicated. I would encourage you to read the accounting policy footnote. I would never recommend anybody reading the accounting policy footnote.
That was the accounting policy.
That notwithstanding, we said we're going to buy back $800 million between today and the end of February. That is partially funded through the conversion of SMR that we did in September. We raised $600 million. The remaining $200 million is coming from core operations. I think we want to be returning capital to shareholders. With the recent conversion, we have exhausted those tax attributes that we've talked about for the last year and a half or so. We'll be back to a regular way taxpayer here in the U.S. The biggest delta between our EBITDA projections and operating cash flow will be what we do with Uncle Sam. You should think about that as a 25% drag on EBITDA.
Yep.
I think your EBITDA to cash conversion rate is going to be in that 60%-70% range since we have gone to an asset-light model. That is really, I think, the rule of thumb that we look at internally on how to deliver that cash gen.
Cool. All right, we're going to head to the Chestnut Room for follow-up questions if you have any. Join me in thanking the Fluor guys for the presentation.
Thank you.
Thank you.
Thank you.