Fluor Corp (FLR) 2017 Q2 法說會逐字稿

Good afternoon, and welcome to Fluor Corporation's Second Quarter 2017 Conference Call. Today's call is being recorded. (Operator Instructions) A replay of today's conference call will be available at approximately 8:30 p.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 through 7:30 p.m., Eastern Time, August 10, at the following telephone number, (888) 203-1112. The passcode of 4460690 will be required.

At this time for opening remarks, I would like to turn the call over to call over to Geoff Telfer, Senior Vice President of Investor Relations. Please go ahead, Mr. Telfer.

Thank you, Andrew. And welcome to Fluor's Second Quarter 2017 Conference Call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer; Biggs Porter, Fluor's Chief Financial Officer; and incoming CFO, Bruce Stanski. Our earnings announcement was released this afternoon after market close, and we have posted a slide presentation on our website, which we will reference while making prepared remarks.

But before getting started, I'd like to refer you to our safe harbor note regarding forward-looking statements, which is summarized on Slide 2. During today's call and slide presentation, we'll be making forward-looking statements, which reflect our current analysis of existing trends and information. However, there is an inherent risk that actual results could differ materially. You can find a discussion of our risk factors, which could potentially contribute to such differences, in the company's Form 10-Q filed earlier today and our Form 10-K filed on February 17.

During today's call, we may also discuss certain non-GAAP financial measures. Reconciliations of these amounts with the comparable GAAP measures are reflected in our earnings release and posted in the Investor Relations section of our website at investor.fluor.com.

Now let me turn the call over to David Seaton, Fluor's Chairman and CEO. David?

Thanks, Geoff. Good afternoon, everyone, and thank you for joining us. On today's call, we'll review the second quarter results and discuss the outlook for 2017.

Before I get started, I want to thank Biggs for his contribution to Fluor over the last 5 years. His expertise and strategic leadership have been instrumental in strengthening our company's financial foundation. So I'd like to thank Biggs for his service.

Now, as mentioned, Bruce Stanski is on the phone with us today. He will transition into the CFO role starting tomorrow. Bruce, I wonder if you'd like to say a few words?

Yes David, but I'll be brief. I'm very happy to have the privilege to serve as CFO for Fluor. Biggs and his entire finance team have just been great on getting me up to speed on things. I have met a number of you at past investor events, and I do really do look forward to reengaging with both the analyst and investor community.

Thanks, Bruce. I want to start our call today discussing the issues we are experiencing in our Industrial, Infrastructure & Power segment, specifically the concerns on 3 gas-fired projects currently under construction. All 3 projects, 4 if you include the Brunswick project that incurred a charge in 2015, had a fundamental problem. The projects did not meet the original baseline assumptions due to improper estimating, craft productivity and equipment issues. All of these projects were bid in 2014 by the same pursuit team. In addition, all 4 projects were based on next-gen turbines or steam generators that were first of a kind for Fluor. The quality control and completeness of these turbines delivered to the site were not in line with our bid assumptions and we are pursuing our options.

So where are we today? Of the 3 currently active projects, 1 is 92% complete, with an expected mechanical completion in Q4. One is 45% complete, with an estimated completion date of Q2 2018. And the last project is 42% complete, and is expected to be complete in Q4 2018. I'd make a comment that those are construction completion percentages, not overall project percent completes. So this is specifically related to the construction scope.

I've discussed the problems, and now I'd like to talk about we've changed. After we had the initial charge last quarter, we changed the Power leadership team and brought in Simon Nottingham as the President of that group -- of the Power group. Simon comes from our oil and gas group, and he brings to this role his extensive background in project and program management. He and his team, in coming to this role, led a review of the 3 projects in the second quarter and developed a path forward that is reflected in our current estimates. Some members of the Power management team have exited Fluor. We also informed our employees that we are closing our Charlotte office and consolidating Power operations in Greenville, where it will be closer to our other businesses and leadership.

As we do periodically with all of our markets, we're in the middle of reassessing the gas-fired power market to determine where there are opportunities or returns consistent with our expectations and long-term experience. The power market is extremely competitive. And unfortunately, we are not immune to the challenges others have seen in this segment of the power industry. We will only participate in this market if we believe we can achieve appropriate risk-adjusted returns. Now every aspect in this market is being reviewed by the team through a different set of lenses.

In addition to the changes in management of Power group, our strategic evaluation of the gas-fired power market, we're also implementing other changes to give us greater confidence that these types of earnings adjustments are diminished and less frequent.

I'd ask you to please turn to Slide 3. For the past several years, we have been focused on expanding our EPC model into the one integrated solution. We've done this by adding fabrication capacity, improving our supply chain capabilities and performing more direct-hire construction. This strategy delivers on our client's need for greater capital efficiency, and these actions also allow us to perform create greater scopes of work on a project, which gives us greater control on the project outcomes and provides us an opportunity to generate greater returns.

We are simultaneously executing over 1,000 projects globally with excellence. The vast majority of the projects meet or exceed our expectations, and we see the benefits of our integrated solutions strategy at work. Unfortunately, it takes a few poor performing projects to overshadow the great work we are doing on most of our projects.

Strong project execution has been a hallmark of Fluor. And as I've said, the vast majority of our projects are performing well. Strategically, we're focused on improving our execution and maintaining this key differentiator. This strategy is multipronged. We have initiatives in place to improve safety and quality. By performing -- by improving safety and quality, we've will improve project outcomes to the benefit of our clients and Fluor.

We have significantly increased the independent review of critical projects. We are improving our estimating system. And we're also making significant investments in applying data analytics to projects so that we can identify challenges earlier, which would allow us to mitigate problems sooner. We believe all these actions will minimize downside risk and allow for greater upside opportunities.

From an even broader perspective, the current market environment is perhaps the worst I've seen in my 30-plus years. The market has contracted since 2014. The good news is that we're starting to see prospects come back in some of our end markets, including mining, which includes the Anglo American Quellaveco project in Peru and the Salares Norte project in Chile for Gold Fields, and our recent announcement of the BHP South Flank project.

Having said that, creating and maintain a diverse portfolio of work has been and continues to be a core strategy of Fluor. Portfolio diversity helps minimize adverse impacts from a specific industry as well as industry cycle -- excuse me, regional cycle. Recently, our ability to expand our backlog in Infrastructure, Government, Life Sciences & Advanced Manufacturing has offset the multiyear decline in mining and metals as well as oil and gas.

In addition, we have expanded our long-term recurring revenue opportunity with our acquisition of Stork, along with key wins in our Government business. Our integrated solutions' project execution and portfolio diversity strategies create a strong sustainable company that is built to preserve the current -- persevere in the current market situation and build for future profitable growth.

Now let's look at the second quarter and please, turn to Slide #4. The net loss attributable to Fluor was $24 million or $0.17 per diluted share. This includes the $124 million or $0.89 per diluted share charge related to those Power projects I discussed.

Consolidated segment profit for the second quarter was $15 million. Segment profit margins were 0.3% compared to 4.7% last year. Excluding the negative impacts of the project charges taken this quarter, segment profit margin would have been approximately 4.3%.

Revenue for the quarter was $4.7 billion compared to $4.9 billion a year ago.

New awards for the quarter were $3.2 billion. And ending backlog was $37.6 billion.

Turning to Slide 5. The Energy, Chemicals & Mining segment booked $860 million in new awards for the quarter, and their ending backlog was $19 billion. Of this amount, approximately $1.2 billion is in mining. We continue to have positive conversations with clients and see some sizable EPC awards over the next 2 quarters.

Our oil and gas customers have become accustomed to the current range of crude oil prices, but they are moving forward with CapEx spending but with a focus on advantaged projects. Our integrated solutions offering is being received well, and while projects have shifted to the right, they are still there for us to win.

Second quarter new awards for Industrial, Infrastructure & Power were $672 million, including the Southern Gateway highway project in Texas. Ending backlog was $11.4 billion for this segment, which also reflects an adjustment for the V.C. Summer Nuclear Station project that is winding down. So that is no longer in our backlog.

Both SCANA and Santee Cooper are starting the process to abandon both units at that location. And we are working with them to assist in the orderly and safe closure of those sites. We continue to support and progress at Southern as they wrap up their assessment efforts for that site. And we expect that assessment to be done in the next 4 weeks or so.

Turning to Slide 6. The Government group posted second quarter new awards of $1.1 billion, including our annual renewal of task order awards for LOGCAP IV in Afghanistan and additional funding for the Strategic Petroleum Reserve and the Idaho Cleanup Project Core Contract. Ending backlog was $4.1 billion.

The Diversified Services segment posted second quarter of awards of $554 million. Ending backlog was $2.9 billion.

And now, I'd like to turn it over to Biggs. Biggs?

Thanks, David, and good afternoon, everyone.

Please turn to Slide 7 of the presentation. As usual, I'll start by providing some additional comments on our second quarter performance, then move to the balance sheet. Revenue for the quarter was $4.7 billion, down slightly from $4.9 billion a year ago. Revenue increases from Government and Industrial, Infrastructure & Power were offset by a decline in Energy, Chemicals & Mining.

Corporate G&A expense for the second quarter were $47 million compared with $53 million a year ago. Expenses for the quarter include $14 million related to foreign exchange fluctuations, partially offset by a decrease in compensation expense.

This quarter's loss per diluted share of $0.17 includes an $0.89 charge on 3 power projects in the Industrial, Infrastructure & Power segment. Without this charge, earnings per share would have been well within our expectations for the quarter.

Margins for the quarter were 0.3% compared to 4.7% a year ago. Margins in our Energy, Chemicals & Mining segment improved to 5.5% from 3.8% last quarter and 5.1% a year ago. This improvement was driven by increased project execution activities and cost improvements for a large international project.

Shifting to the balance sheet. Fluor's cash plus current and noncurrent marketable securities totaled $2.1 billion compared to $2.2 billion last quarter and $1.9 billion a year ago. Cash provided by operating activities was $158 million for the quarter as we continue to see an improvement in working capital. This represents an improvement from last quarter and positions us well for the remainder of 2017.

During the quarter, we paid $29 million in dividends.

Moving to Slide 8. Fluor's consolidated backlog at quarter-end was $37.6 billion. The percentage of fixed priced contracts in our overall backlog was 32%. At quarter-end, the mix by geography was 48% U.S. and 52% non-U. S.

I will conclude my remarks by commenting on our guidance for 2017, which is on Slide 9. We are revising our earnings guidance to a range of $1.40 to $1.70 per diluted share to primarily reflect the charges taken on powers projects this quarter and, to a smaller extent, the wind-down of the V.C. Summer Nuclear Station project. Our guidance for 2017 also assumes G&A expense in the range of $180 million to $200 million, and a tax rate for the remaining quarters of 32% to 34%.

Other expectations for 2017 include NuScale expenses of approximately $80 million, and capital expenditures of approximately $225 million to $275 million, depending on AMECO opportunities.

Looking at margin expectations for the balance of the year, we anticipate the Energy, Chemicals & Mining group be approximately 5%; Diversified Services to be approximately 5.5%; and Industrial, Infrastructure & Power, excluding NuScale and Government, to both to be approximately 3%.

With that, operator, we're ready to take questions.

(Operator Instructions) Our first question comes from Jamie Cook with Credit Suisse.

I guess a couple of questions. David, I appreciate the color on the projects, the 3 power projects. But can you give us some sense of the backlog? What percent of the backlog is problem projects at this point? Because we had issues with CPChem and the infrastructure project, so I'm just trying to think that part through. The second question is if I look at your guidance cut from before, you're reducing your guidance $0.95 at the midpoint and the 3 power projects were like $0.90. So I'm just wondering if that's conservative enough, in particular, with the cancellation of the nuke project. And then my last bigger question is, David, I appreciate the management changes and closing offices and considering whether or not you should be in the fixed-priced Power business. But the fixed -- the issue's much broader than Power when we think about CPChem, when we think about infrastructure, when we just think about the history. So why is it ever a good idea to do fixed-priced work? We never had a better mousetrap, not you or anyone.

Those are good questions. I'm not going to get into what's in the backlog and what we feel on those backlog projects. But I will address the fixed-priced work. We continue to develop our confidence in that market. Part of it is reliant on our ability to deploy our resources. In each of these cases, including CPChem, we were challenged by available skilled labor on those job sites as well as mistakes that were made in certain areas. With regard to the power projects, I didn't say we wouldn't do fixed-priced power projects again. I said we were going to review the gas-fired power projects to see whether that piece of the market is consistent with what we expect. I appreciate that your confidence has been shaken, but I would argue that this is not systemic. In the case of those 4 projects, they were done by the same team, by the same -- using the same statistics and information. And unfortunately, and I think those in our industry would agree, you really don't know where the issues are going to raise their heads until you're at about 40% -- 30% to 40% construction progress. On power projects, just like on CPChem, (inaudible) path runs through the piping account and in all those cases, in Power, we miss things. In the case of CPChem, we've been very transparent with you guys in terms of the things that led to that write-down, most of which was outside of our -- some of which was outside of our control. I don't want to overstate that. So I don't think that even though we've got a dismal report here, obviously, frustration in the outcome of those 4 projects, I would argue that the things that we've done, the changes we've made, the people we've got looking at these programs and projects give me greater confidence that we can perform as we expect. So I don't necessarily agree that -- I may be putting words in your mouth, that we have a systemic problem on the fixed-priced projects.

But, David, since Q2, we've announced like over $2 in problem projects.

I understand that.

Okay. And then just to the guidance, if we look at your guidance cut at the midpoint, it's $0.95. The power projects are $90-some. Just hope that doesn't seem conservative enough. And then, also, Biggs, maybe a comment on cash flow with the problem projects. And I'll get back in queue.

Yes. So on the guidance, you're right; last quarter, we set guidance at what we felt like was a conservative level. Obviously, when we did that, we weren't anticipating these particular project charges; they really fell outside of what we were considering. And setting that guidance, nonetheless, it was conservative with respect to everything else that we saw. And so by taking down guidance now for the $0.89, plus a net $0.06 in the middle of the range for the effects of Summer and all the other variables, we think that we're left with a relatively conservative posture with respect to everything else for the remaining 6 months of the year. So we feel comfortable with what we've reset it to. I don't think it needs to go any further. We've tightened the range on the basis that we're now 6 months through the year, so the degree of variability on new book and burn and other things is -- should be down for the rest of the year. But that's really what drives our primary uncertainty in the range. I take this to the top versus the bottom, will largely be varied upon the rate at which we get new work in. we see new book and burn on the way. The question is, is it going to come in time to fully affect 2017 or does some of it fall over into '18? And on that basis then, we have a range.

And, of course, (inaudible) plus or minus.

Cash flow for the year, if any?

Yes, on cash, we've done well through the first half. The projects certainly will use cash and not generate for the remainder of their project lives. But having said that, we think we're in a reasonable position to hold on to the positive working capital movement that we've had year-to-date. There will be fluctuation. We don't guide on cash. So it will bounce around month-to-month and quarter-to-quarter, but do not think that the lost projects will significantly interrupt what our expectations were for the year.

Let me make another comment, a little bit more color on where it was going. We have -- we do review all these big projects on a routine basis. And we do have cold eyes or different lenses that look at them. And we do have significantly large other lump-sum projects in our backlog that are performing at or above our expectations. I'd also remind the group that after we took the CPChem write-down, it has not had a tail to it. And we are on schedule to complete that job as we'd planned.

Our next question comes from Andrew Kaplowitz with Citi.

David, so last quarter you mentioned you did expect to win some large EC&M projects in 2Q and 3Q, particularly in mining. Obviously, it's volatile because it seemed to delay oil and gas FIDs. You kind of talked about that in the prepared remarks. But you did announce some mining work yesterday, and it -- the question that I would have for you is if you've started to see some movement on projects, and do you still see second half '17 backlog moving higher from here?

I do. I do, specifically for mining. We've had a few awards after the quarter close in E&C that'll help. But some of those projects are still moving to the right in '17. But we're still in great position to win those projects, and I'm confident that when they reach final FID, we'll move forward. But we're just seeing delays in terms of making those FID decisions in the oil and gas sector.

Got it. And then just following up on Jamie's commentary, like, I would agree that even though (inaudible) of Fluor are not systemic, but I would also -- I would focus on Power for a second. And, David, you've been in Fluor for a long time. When you look at the Power business, rarely has it been a highlight and a lot of times, it hasn't even been a pause there. So maybe you can talk about that. I know you talked about big changes in Power. But how confident are you that these big changes can make Power contribute like EC&M does or like the Government business does? How do you get Power up to standards, I guess, for Fluor?

Well, historically, it has provided good profitability for us. I mean, Oak Grove, LCRA, I mean, I can list dozens of projects that have been very positive. But your point's well taken. In the aggregate, it drops pretty dramatically when you write off 3 projects like this. So I understand your point. I think the other comment I'd make is that the power market is basically 100% -- or not 100%, 90% fixed priced. And we do have a good position in that and we do have great resources that are executing with excellence. It's just a situation where I think we had a team that made some serious mistakes on 4 projects that all hit at one time, particularly when we bring in a new management team and they look at what they've been given. So I think we've got some work to do in terms of what that is. But I would also -- I think, to your point, very few of our competitors have made their expected profitability on gas-fired power plants. And I would argue that our customers believe in a certain cost per kilowatt that does not exist. So I think that everybody in the industry needs to kind of sharpen their pencil and look at this market through a different set of lenses.

Okay. That's fair. And Fluor has a relatively significant footprint in Russia in EC&M. As you know, sanctions have continued to get tighter each year. Do you see any risk of on a couple of the awarded projects, either getting delayed or even getting canceled? How should we think about that going forward?

I'm sorry, Andy. You were really garbled in the beginning of that question. I didn't catch the first part.

Yes, so I was just asking about your significant footprint in Russia in EC&M. Projects like TCO obviously is in Kazhakstan. You've been big in Sakhalin before. So how do we think about the exposure going forward given the increase in sanction? Do we need to worry about that or have you to talked to your customers around that?

That's a great question. I would argue that today's rhetoric in sanctions and kerfuffles from a trade perspective are no different than they've been in the entirety of my career. The things that we're doing in Russia are not party to the sanctions because we're obviously not going to do those things. So it really hadn't impacted the work we're doing. TCO is obviously a very large project that we're really focused on. And Kazakhstan, as you said, I really don't see anything relative to sanctions impinging upon that execution. But I mean, this is not a -- this is a common occurrence for us. I mean, we look at these sanctions that different countries provide. And although the saber's been rattled a little bit with Russia and China and obviously some other places, we really don't see it impacting the projects that we see in front of us in terms of going forward, or necessarily, the projects that are under execution. So it's a much ado about nothing right now for us.

Our next quarter comes from Steve Fisher with UBS.

On the nuclear projects, can you talk about the tail of the wind-down there? I mean, is there revenue and cost, or just cost that you're going to be incurring? And what's the path for getting paid the $73 million as of June 30 on the receivables that you have there? And how much has that changed since the end of the quarter?

From an account receivables standpoint, we'll get paid everything we're owed. I'm not concerned about that at all based on...

Is that directly from the customer or from Westinghouse through the bankruptcy process?

I'm not sure I want to get into who, but I know from conversations I've had, and also from the fact that we have liens on those properties, that those companies are going to want to clear, I feel confident that we'll recover that. On the wind-down, it'll -- I mean, our contract is continuing on with SCANA. Obviously, we've had a significant decrease in volume there. And we did recognize not only the backlog, but also the earnings hit of earnings going forward on V.C. Summer in our current guidance. The hell of it is, I don't think these projects needed to be canceled if people had done what they should have done originally. Basically, you've got one -- at Summer, you've already got one reactor set and another one sitting on site. But I appreciate the financial realities that Santee Cooper was in as well as the result that SCANA ended up in. But we'll continue to help them there, great relationship with the customer. But there'll be a small tail to that over the next probably 2 quarters as we, as I said in the prepared remarks, safely and efficiently shut down that site. On Southern, they -- we participated in different presentations with them last week as well as in meetings this week about what their prospects are. I would argue that they're in a different position, Southern and their partners, than SCANA and Santee Cooper. But we'll see. They're going to be making their decision over the next month. We've got, again, a great relationship there. We're actually making good progress on that site. And if it goes forward, I would hope that we would maintain the scope that we got right now.

Okay. And can you -- since you're talking about these mining awards, can you just maybe give us the aggregate size of what you have in hand or what's on the way? And if you're expecting backlog growth in the second half for the company overall, I don't know if you can confirm that. What does that tell you about directional potential for earnings next year, excluding all the charges of 2017?

Well, on mining specifically, all we've taken into backlog on the 2 major projects that I mentioned is the early work. So there's large second piece of the scope awards that will go into backlog and it -- probably the third and fourth quarter of this year. So I think that those projects will help us maintain backlog at its current level. The real question is at what point do some of these oil and gas customers finally pull the trigger? As we've said, there's some several large projects out there that we are bidding or participating in. And as I mentioned one, which I won't talk about yet, but one has passed the FID process. So engineering services and the revenues and -- not being that big, but the revenues and profitability associated with that early design and the E piece of the equation will start to burn in the back half of the year for that. So we've got some work to do, but I think that as that impacts '18, it's a little early to tell. And the reason I'm hedging my bets is, as you've seen, these projects have moved to the right on the scale. And we have hope and we believe we know where it is. But again, we've seen a fickle market in terms of making those final decisions.

Our next question comes from Tahira Afzal with KeyBanc Capital Markets.

So maybe we can talk about something positive, David, and lighten up the mood a bit.

Tahira, that would be a very welcome thing.

Okay, good. So I know we've been -- I've been tracking some of the oil and gas customers you have, and it seems like while some of the stuff, as you said, is pushing to the right, the fundamental economics in demand-supply behind those remain fairly intact. I know in the last quarter, you really looked at petrochem as really being the place where you expect to see the more near-term activity with their followed -- and you were still a little hesitant on LNG. Would love to get a sense if that's still the ordering, and if you've seen any positive movements around the LNG side in particular?

Yes, I think petrochemicals and refining as well are things that will go first. I don't see upstream spending a whole lot of money in the industry as we finish this year. But I do think there's some large upstream developments that are kind of being dusted off by our customers because they're in need of that capacity. So I think as we get into '18, '19, we'll start to see upstream spend a little bit more than they're spending now. And that comment excludes LNG. I think there's going to be a lot of study work on LNG, but I really don't think there's going to be a lot of projects go to the EPC phase this year or most of next year. So I think we're just going to have to wait and see what happens. But I do see a pretty robust slate of opportunities in refining and petrochemicals.

Got it. And are the refining ones still a little in the Middle East, David? I know there were some pretty big opportunities there. Are those still on the map?

Yes, they're still on the map, but we're also seeing some refining programs in North America as well as more activity in Asia.

Our next question comes from Jerry Revich from Goldman Sachs.

David, can you talk about how the prospect list looks for your Infrastructure business? I know you've been expanding the range of jobs that you're evaluating to be smaller jobs as well. Can you just give us an update on how that potential prospect pipeline looks in the U.S. and internationally?

Yes. It's growing dramatically. We've actually are starting to strengthen that organization because of the prospects we see. And it is all over the map. I mentioned the Southern Gateway project. A couple of quarters ago, we announced the smaller project in North Texas. We announced the smaller project in South Carolina. So I think that we're kind of bifurcating, if you will, the nominal smaller projects and looking at that from a regional perspective. And I would argue that in the United States for us, that's very robust in South Carolina, Virginia, Texas, Nevada, Colorado and Utah as well as California. Because California has a fair amount of light rail programs coming, and I think we're positioned to win 1 or 2 of those projects as they come out. But that's probably early next year before we see that happen. Some of the larger programs are -- we're pursuing. And it's pretty much Western Europe, the United States. We're looking in South Asia with some partners down there. But I think that's going to be a growth engine for us going forward. And we're just finishing some very large projects. The Horseshoe Project here in Dallas, a very successful project. And oh, by the way, it was a lump sum project. So I feel pretty good about Infrastructure and what's going to happen. I would caution though the rhetoric we all hear from the press and where it emanates from, whether it's the federal government or state government. As you've heard me say, there is no such thing as a shovel-ready project. But what I'm very eager to see is that at least the dialogue is around identifying -- in United States, in identifying the priorities, and those priorities around toll roads, bridges, ports, airports fit well into our portfolio. And I think those things are going to bode well for us. But I believe that our Infrastructure group will continue to be a bright spot in our organization and continue to add to their backlog as we go through the next probably 6 quarters.

And, David, there's been significant capital raised by financial sponsors who are talking about potentially putting it to work in early '18. Is that consistent with the pace of when you expect some of these projects to move forward? Are you seeing real benefit in terms of the opportunities for your business with the additional incoming capital?

I think the capital is there. I agree with you 100%. I think the problem is you've got to look at the Purple Line in Baltimore. Project passed all the hurdles environmentally, financially, everything else, and then the regulatory environment slowed it down and actually stopped it for a while. So even though the capital is ready, some of the projects, I think, are at least to a point where you get to that next stage. I think the regulatory reform that the government is talking about has to come through before the timing of those things actually improves. And I'd put pipelines in that category. If you look at pipelines that we're operating in right now, in one case, it's waiting on the FERC permit and the FERC regulators aren't even seated. So no decision is being made. So I think the Achilles' heel for an infrastructure spend in the United States is clearly on the regulatory environment and what the administration and others can do to flatten that and improve the schedule associated.

And, David, as you pointed out, you've got a number of projects that are performing well. I'm wondering if you'd just talk about out of roughly $12 billion in backlog that's fixed priced, can you give us a rough sense of the value of projects that you're monitoring closely that are -- that are at or below the performance threshold compared to history? Can you just give us a context? As you pointed out, we want to make sure we understand if there's a difference in the risk that was underwritten as part of the current fixed-priced backlog compared to what we've seen, call it, 3-plus years ago.

Well, as I said, I've changed some organization, not just the Power stuff. I've changed up some of the other organization and flattened it. And I can tell you that we're looking at all of our projects in making sure that we don't have issues. I would argue that the lion's share of our lump-sum backlog is performing extremely well. And that's about as far as I really want to go with that. But we're improving our tools and systems. We -- as I said, we've changed the review process to where there's more cold eyes review. And I feel reasonably good about where we are. I think I'd point you back to some of my comments on these Power projects. It's really contained in 1 segment of the power market. And as I said, all 4 of those projects were bid at a time when we didn't have good information on the new first-of-a-kind equipment, nor did we really have a good handle on the level of skill and number of craft employees that we would have available to us in some of these locations. One of the projects in that Power suite is operating extremely well. And the project team is being innovative, aggressive in terms of how they're executing, not the money associated with it. But again, I mean, I feel good about that. And reflecting a little bit, there's not 1 company in our sector, segment or whatever you want to call it, that hasn't suffered some challenges and problems when markets are down. And I think that's historic. You can go back within Fluor a decade and a half ago, and we had a series of issues on embassies. So I think that people get aggressive in terms of those down markets. And I think what we've done to change the organizational structure and things temper that dramatically, and will continue to do so.

And our next question comes from Michael Dudas with Vertical Research.

Welcome aboard Bruce, good luck. And, Biggs, it's been a real pleasure working with you and I hope next quarter, I can listen to the conference call with you.

Thank you for the kind comments. It's been great to work with everybody on this call.

Terrific. You talked about, David, your -- you brought in a -- you pretty much changed the organization and management structure. What is your expectations with all the changes? And how long do you think it's going to take to asses this power market, whether you're going to stay or go? Is that also trying to send a message to the client base that you need to like work with us a little bit here, or else, so you guys aren't going to have any real power being built in this country over the next decade?

Well, just -- let's be specific. I said we were looking at the gas-fired power market, and we were looking at it from a Fluor perspective. No messages to anyone intended. And if they took them that way, I apologize. Because that -- we're looking at ourselves in terms of what we need to do. We just -- I don't think it's going to take long. I think that my expectation, and I've kind of coined this phrase, is flawless personal performance. And what that -- it doesn't mean I'm looking for perfection, but what it does mean I'm looking for is accountability and execution excellence. And we started that process when we found the problem in the CPChem, and we're continuing to do those reviews and make the changes necessary so that we don't have a repeat of what we've had here. And I'm -- I can tell you that -- I guess that we've dinged our credibility with you guys and we got to rebuild that. And I can commit to you that we're going to do everything we can to regain that trust. But I don't think it's going to take long for us to kind of right the ship based on these losses and continue to perform. As I said, we perform over 1,000 projects at any given time. And the vast majority of them are performing at or above our expectations. And in this case, we had 3 bad apples and I'll go ahead and give Jamie her due, one, was a double-dip in the apple bucket. And then we had one in infrastructure and in CPChem. I get where we are in your eyes, and we've got some work to do to change that.

Will the -- do you anticipate Fluor as an organization giving -- I guess just looking to the second half of the year and kind of right, getting things set and ready to take advantage of what you anticipate upmarkets, how quickly do you anticipate that we could start to see some cyclical recovery that will show up in the results going -- not to get it 2018, but relative to where Fluor is standing today and how do you set things up and where the market is just about ready to reach out and grab each business?

Yes, I think if we really start to see some of the FIDs in oil and gas in the last half of this year, I think '18 is solid. Clearly, those things have long tails on them, so you'll start to see it build in '18. The average project right now is a little -- almost 4 years, 3.5 years anyway. So I think -- as you say, I think we're kind of starting to see the signs of recovery in oil and gas for basically a long tail because they've waited so long. There's so many things that they have to do just to maintain their product mix that they delayed that they're going to have to do. And obviously, we're there to take advantage of that situation. So I kind of think '17 is -- we've given you the guidance on '17. So I wouldn't give you any more comments on that. But I do think, as we get to '18, '19, '20, we should start to see an accretive EPS.

And we'll take our next question from Justin Ward with Wells Fargo.

David, I wanted to build off your commentary around the hesitation in the infrastructure and even the pipeline side around customers having a lack of clarity on the regulatory front. If we look at your Chemicals, Energy & Mining segment, the new awards there in the U.S. essentially screeched to a halt after the election. So I'm wondering if you're seeing a similar hesitation in that segment around lack of clarity on the regulatory front as well.

I would say it's frustration. I'll -- we're doing a pipeline for Spectra right now. And they've been waiting, I don't know how long, for the FERC permit. Well, after the election, all of the FERC commissioners were basically exited, and they haven't been repopulated. So one of the frustrations I see, this is kind of a political commentary, there's 2,200 -- and you've read the same things I've read, there's 2,200 Senate candidates that have to -- candidates have to go through Senate approval. And I think the last count was 55. And you got people like Elaine Chao in Transportation. You've got Rick Perry in Energy. Rex in State. These people that we know and know well are sitting there twiddling their thumbs, so to speak, because we haven't been able -- the government hasn't been able to give their team. So I think that is why you saw things screech to a halt. And I don't see a whole lot of improvement until that phenomenon is behind us and the efforts that the administration are putting forth in terms of the regulatory reform actually see light of day. A lot of good intent, a lot of good thought and strategies, the people that I've talked to, including the folks I just mentioned, but until we get those things done, you're not going to see these permits that are absolutely necessary to go forward actually awarded.

Okay. And so does that extend to the chemicals and refining piece as well when you're talking about...

Not as much. Not as much. The -- you've got -- like, you think about some of these projects, you've got -- not only do you have the State, but you've got the Coast Guard, the Corps of Engineers. If you're thinking about pipelines, you've got different state, municipality permits you've got to get for creek and river crossings, the type of methods of construction. In terms of the Department the Transportation, some of these right of ways follow state and federal highway systems. So there's just a lot of different moving parts there that are keeping these programs from going forward. And as I've said, I've got a great confidence that once we get those people in place, that the right things are going to happen. But I can't predict Congress' performance.

We'll take our next question from Andrew Wittmann with Baird.

I just want to get a little bit better sense on, I guess, the Vogtle nuclear project. If you could tell us how much of the -- how much backlog is currently reflected in the backlog for Vogtle and what maybe the monthly burn rate is of that project?

Well, they were basically equal projects. And you saw the award we put in and divide it by 2 would be the answer -- the simple answer to that. I'll let you do the math, though. I apologize, but I'll let you do the math. And the second part of the question was what? Sorry.

What was monthly burn rate that you're recognizing at Vogtle?

We really don't go into that. I mean...

I think we -- and look at it this way, we said that the -- when we lowered our outlook or our guidance, we were putting about $0.06 in for the net effects of Summer and everything else. So you can kind of figure that maybe the range is a little bit more than that for the impact of Summer and you get it back. But Summer kind of affects our contribution for Vogtle. But we -- I wouldn't go so far as to go start to make adjustments on that one. We feel pretty good about the opportunity for that one going forward.

Yes, those are completely different situations between those 2 customers. And we just don't give -- we're not going to give individual project information that -- we just don't that. And I don't really want to go down that slippery slope.

Makes sense. And you're right, the PUC made it pretty clear that it's a different project than the other one. So the -- there was a cash flow from investing cash outflow of about $191 million in the quarter, Biggs. Was that the second payment on your Chinese fab yard? Or what was that related to?

That's a variety of JVs. The -- those are more the normal operational JVs that we have. The Chinese investment, $78 million still to be made. We'll see when that ultimately gets made, but it's not in our actuals to date and it may get pushed out to the future.

Okay. There was also a cash flow item for $350 million. It looked like maybe some sort of prepayment that showed up. And I was just wondering if that was tied to a specific project of note?

I'm not sure. There was a growth in other -- are you looking at advances?

Yes, exactly.

Okay. No, there's -- once again, there's a variety in there as well and I don't want to get into individual project ebbs and flows, there are so many. But getting advances is a good thing. We obviously strive to make that number as big as we can and stay as positive on the cash flow as we can through the life of projects. But there's nothing specific that I would want to point out in terms of project cash flows in the quarter tied to one versus another. They're going to have so many variables, so many different projects involved.

We'll take our next questions from Robert Norfleet from Alembic Global Advisors.

Quickly, David, I know Fluor's done a good job over the years of diversifying the portfolio and you mentioned especially in areas like life sciences, environmental and other areas. But, I mean, do you feel like you, at this point, have the scale to compete for some of these larger projects? And I guess, maybe my questions boil down to this, a lot of your competitors have been obviously pretty aggressive on the M&A side in terms of buying their way into markets. And I guess my point to you is, I mean, do you feel like you have the ability to win some of these bigger government-type projects with the existing platform you have? Or do you feel like you would need to go in and acquire other companies in order to be more effective in that market?

I mean, other than Bechtel, I'm not sure who is bigger than us. And with regard to acquisitions or at least the diversification in those markets, I'm -- flattery is always welcome because I think we've done a good job in creating the bandwidth to do just about anything. I think in the Government segment specifically, we continue to partner with key partners, and we'll continue to do so to broaden that capability. In things like infrastructure and some of the other markets, there are some pieces and parts that we're probably going to need to strengthen. But I would argue that there is very few companies with the balance sheet that we enjoy and the breadth in terms of geography and industry and people, human resource, to do just about anything. So I think that some of the acquisitions that you're making -- that you're hearing -- you're speaking of that people are making are interesting. But I would argue that they're going to be difficult. Acquisitions in this market are always difficult. You're dealing with cultures. You're dealing with people. And it's not like a manufacturing facility or a manufacturing company where you can sell off one manufacturing facility that doesn't fit in the strategy. These things deal with culture and individual capabilities and skills. So we're going to continue to look at things that add to our offering. But I would say we've already got the breadth to do just about any project that's presented to us that, again, meets our expectations in terms of risk and profitability.

Okay, great. And my last question is just on V.C. Summer. David, I assume once that project winds down, it will have to be mothballed. Can you kind of walk me through the process of how that works and what role Fluor could potentially play with that?

Well, that's the role we're going to be playing. I mean, you've got the nuclear island that will have to be especially protected because of its NSSS qualities. That will be a fair amount of work to make sure that those pieces of equipment are protected. As I said, both reactors are on site. The other pieces of the project are less difficult to shut down. And in some cases, some of it's done. Some of the power distribution pieces are already complete. So just making sure that those are protected is the game. I believe that -- I mean, we were over 3,000 craft on that site. And we'll be at probably hundreds to help them over the next 2 quarters.

That is all the time we have for questions. Mr. Seaton, at this time, I'll turn the conference back to you for any additional or closing remarks.

Thank you and thanks, everyone, for participating today. Our results for this quarter are unusual compared to what we've historically been able to deliver, albeit with the challenges that we've discussed today. I think in this case, the problems we discussed are unique to 1 business group at a specific point in time.

And as far as what we can see going forward for the remainder of '17 and into '18, we continue to see interest in our integrated solutions model and we see green shoots in terms of the mining and oil and gas markets.

Even with the negatives this quarter's, I do believe that we're well-positioned to grow and meet the expectations of you and our many shareholders and stakeholders.

We greatly appreciate your support, and we wish you a good evening.

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