Fluor Corp (FLR) 2018 Q1 法說會逐字稿

Good afternoon, and welcome to the Fluor Corporation's First Quarter 2018 Conference Call. Today's conference is being recorded. (Operator Instructions) A replay of today's conference 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 on May 10 at the following telephone number, (888) 203-1112, the passcode of 7615156 will be required.

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

Thank you, Ashley, and welcome to Fluor's first quarter 2018 conference call. With us today are David Seaton, Fluor's Chairman and Chief Executive Officer; and Bruce Stanski, Fluor's Chief Financial Officer. Our earnings announcement was released this afternoon after the market closed, 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 the 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 20.

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?

Thank you, Geoff, and good afternoon, everyone. Thank you for joining us.

Let's start off by discussing the challenges that we are experiencing on the same gas-fired power project we discussed last quarter and the steps we're taking to complete this project and in Fluor's participation in the specific end market. Craft productivity and estimating were materially different than the original baseline expectations we made in the initial charge on this project last year. While those factors were included in our initial charge, the majority of the $125 million charge taken this quarter is driven by extremely low ongoing productivity and the financial impact that this has relative to initial expected timing of when the 2 units would be available for power production based on the current outlook. As of last week, this project is 86% complete with an expected completion date in Q4 of this year.

Last August, we made a number of changes to our power business. This included in -- bringing in new leadership, removing certain executives and closing our power operation office in Charlotte. I also stated that we were in the process of assessing the gas-fired market to determine if there are opportunities for risk-adjusted returns that are consistent with our expectations and long-term experience. I'd like to share with you the outcome of our review and the further actions that we are taking. I'm going to ask everyone to pay close attention.

The U.S. power consumption growth rate is less than 1%. The power produces -- producers do not really need additional capacity, other than satisfying regional needs. We, the industry and the entire E&C community have led our clients to believe that a gas-fired power project costs approximately 650 kilowatts -- $650 per kilowatt, although virtually no one has delivered one for that value. The customers start at that figure and negotiate downward, and there's always some contractor that is willing to say okay to lower number, using some excuse to justify the win, Fluor included.

We have had 12 gas-fired power projects since 2003. 10 of the 12 have underperformed our as-sold expectation, with 3 suffering losses. Competition, both public and private had, had similar experiences, with no current projects performing as expected. Some industry leaders think these are cookie-cutter projects, but they are not. These projects have different machines, different site locations, different labor pools, all of which produce different outcomes. Craft labor in this case has been the major issue.

Therefore, Fluor will discontinue the pursuit of lump-sum gas-fired power market from the end of Q1. We will finish the existing projects and fulfill our commitments. However, we are not exiting the entire power market. Our power services business, which includes maintenance, shutdowns, turnarounds and environmental upgrades, are very robust, and we will focus also on renewables as well as nuclear. We will use our resources, both financial and human, to focus on other end markets to support our margin expectations. We will continue to update the investment community on this discontinued business until the last project is complete.

Now let's review our first quarter segment highlights, which begins on Slide 3. The energy and chemicals segment booked $721 million in new awards for the quarter, and ending backlog was $14.1 billion. During the quarter, we continued to grow our self-performed construction capabilities in the Gulf Coast, with the award of MEGlobal's new monoethylene glycol facility. This represents our fifth major construction project in Freeport, Texas over the last 6 years.

Our COOEC Fluor yard is very active right now, with pipe and steel fabrication and module assembly underway for 2 offshore projects and a large onshore module project. The yard achieved a major milestone in April, with the first of more than 185 modules for that onshore project being loaded out. The yard recently opened a new piping and painting facilities to support the workload and has more than 6,500 craft workers on site. Our investment in this fab yard is a major part of our integrated solution to model that is now beginning to pay dividends.

We continue to see indications that the energy market is turning. Last week, you saw our announcement for the LNG Canada project with our joint venture partner, JGC. This project, expected to reach final investment decision late this year, it's one of the key prospects we are tracking for '18. Other opportunities include additional chemical derivative and refining opportunities, both domestically and international, and we see additional upstream and LNG opportunities as we move into 2019.

First quarter new awards in Mining, Industrial, Infrastructure & Power segment were $1.3 billion and included a large copper mine expansion project in Peru. The ending backlog was $10.3 billion.

In this segment, we continue to see some great opportunities in copper, gold and iron ore replacement projects. Infrastructure has opportunities in the United States, but my enthusiasm is tempered a bit as we wait for the long -- a long-term federal infrastructure bill. Our application of the -- with the NRC for new skills continued progress. We were recently informed that the NRC completed Phase 1 of the review process. This essentially means that the NRC has reviewed the application and provided questions on any items requiring clarification or change. NuScale and the NRC have confirmed the review is proceeding on or ahead of schedule. We expect that the passing of this milestone will attract additional investors. And last week, NuScale was selected to receive additional cautionary plans for SMR development from the Department of Energy.

Turning to Slide 4, the Government group posted first quarter new awards of $43 million with an ending backlog of $2.4 billion. This quarter, we substantially completed our power restoration work with the Army Corps of Engineers in Puerto Rico, and I'm very pleased with what we were able to accomplish in just a very few short months.

Looking at opportunities for the balance of 2018. And we recently informed that our work at Savannah River, the Savannah River Plant, has been extended until July of 2019, and we are pursuing the LOGCAP V and Hanford liquid waste projects.

Diversified Services segment posted first quarter new awards of $433 million and had an ending backlog of $2.3 billion. Results for the quarter reflect growth from Stork operation in Latin America and North America. I'm pleased to see that the clients are beginning to increase their maintenance spending.

In closing, outside of my disappointment with the charges this quarter on the power project, I am encouraged by my conversations with customers and their expectation of economic growth. We remain enthusiastic about our prospects, with many sizable awards in the future. And this is going to be a multimarket, multiyear upturn, and we are well positioned to meet the needs of our clients. I'm also encouraged by the performance of the projects that are taking full advantage of our integrated solutions approach as well as a growing acceptance by our clients.

Now I'll turn it over to Bruce. Bruce?

Thanks, David, and good afternoon, everyone.

Please turn to Slide 5 of the presentation. I'll start by highlighting some income statement items and then move on to the balance sheet.

Review for the quarter was for -- excuse me, revenue for the quarter was $4.8 billion compared to $5 billion last quarter. Revenue improved in Government, driven by Puerto Rico, it was offset slightly by declines in our other segments.

Corporate G&A expense for the first quarter was $57 million compared to $54 million last quarter. Expenses for the quarter improved when you exclude the $12 million related to foreign currency exchange losses due primarily to fluctuations in pound sterling.

For the quarter, we reported a net loss attributable to Fluor of $18 million or $0.13 per diluted share. Results for the quarter include a $0.69 charge related to the previously mentioned gas-fired power project; $0.17 for the combined impact of foreign currency losses at the corporate level as well as for an embedded derivative related to a project with our joint venture partner in Mexico; and a nonrecurring hurricane-related work in Puerto Rico, which contributed $0.20.

In our last call, I noted that the paint was still drying on tax reform and that our tax rate may vary as we receive additional guidance over the course of 2018. While that is still the case, our tax rate, excluding the charge of the power project, would have been about 30% for the quarter. This higher-than-planned tax rate is reflection of the larger amount of the revenue generated outside of the United States in higher-tax jurisdictions and lower-than-anticipated earnings domestically.

Q1 2018 results represent the first results published under our new revenue recognition standard. Under the retrospective method that we have adopted, you can see a reconciliation of these results to the old standard in our 10-Q. For the quarter, the impact of the new standard was minimal due to timing, progress and mix for effective projects. We expect to see positive, albeit, much more modest impact on expected results for the remaining of the year.

Shifting to the balance sheet on Slide 6. Fluor's cash plus current and noncurrent marketable securities for the quarter was $1.8 billion, down from $2.1 billion last quarter. The reduction in cash has been primarily in domestic cash, which reflects our need for strong cash balances to fund earnings-generating businesses. Relative to cash, a good example this quarter, is the power restoration project for the U.S. Army Corps of Engineers in Puerto Rico. Current assets for the Government group increased by approximately $370 million, as higher working capital needs were required to complete the project and generate the increased earnings associated with this job.

Available domestic cash at quarter-end was approximately 20% of our total cash and marketable securities balance. We expect to build this balance over time to support not only future projects that have initial capital needs, but also P3 infrastructure opportunities.

Cash utilized by operating activities was $136 million for the quarter, primarily as a result of the cash demands from Puerto Rico.

During the quarter, we paid $30 million in dividends.

Moving to Slide 7, new awards for the quarter were $2.5 billion and ending backlog was $29 billion. Approximately 38% of our backlog is predominantly fixed-price contracts. And the mix by geography is 40% U.S. and 60% non-U. S.

Lastly, I want to point out that starting in Q1 of 2018, we have moved our mining business into our Industrial, Infrastructure & Power segment to better align our external reporting with how these business segments are now being managed. We have posted on the Investors section of our website our fact book for the quarter, which includes recast segment information for the past 2 years under this new reporting structure.

I will conclude my remarks by commenting our guidance for 2018, which is on Slide 8. We are revising our 2018 earnings guidance range from $3.10 to $3.50 per diluted share to $2.10 to $2.50 per diluted share. Our guidance reflects the impact of the gas-fired power charge for the quarter, the impact of foreign exchange losses and a much more modest contribution from U.S. tax reform and the new revenue recognition standard than we expected.

This guidance also assumes G&A expense of approximately $50 million per quarter, excluding any impact of foreign exchange gains or losses, and a tax rate of 25% to 30%.

NuScale expenses are expected to be $75 million in 2018. Expenses were a bit higher this quarter as a result of a delay in government funding, which has now been resolved.

We anticipate average margins for the remainder of 2018 in the Energy & Chemicals group to be in the 6% to 7% range; Mining, Industrial, Infrastructure & Power, excluding NuScale, to be in the 2.5% to 3.5% range; Diversified Services to be around 4.5% to 5.5%; and Government to be approximately 3% to 4%.

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

(Operator Instructions) And our first question is from Steven Fisher with UBS.

I guess, one of the things that troubles me about the power project charge is the challenge that you've had in assessing the right productivity of the craft. And it's troubling just because it seems like you're moving more into the self-perform construction area where you're going to be even more reliant upon forecasting that type of craft activity. So I guess, how should investors get comfortable that taking on some of the bigger fixed-price projects, with all of that craft exposure, is really a good investable strategy?

That's a good question, Steve. Thank you. Look, as I understand how tragic this is, no one is more mad than I am about what's going on, but I want to point you to a couple of key points here. One is, this is one of 1,000 projects that we execute at any given time, and we execute with excellence. I mentioned the projects in Freeport being construction, and we have executed with excellence in those cases. This project is challenged of where it is in the state of Florida. Being able to bring the kind of talent that we want is difficult. I think you can also look to the fact that in that particular case, when it's a bad project, a lot of people don't want to be associated with a bad project. Where we are right now at 86% complete, we're taking into account the much lower productivity factors. Given the schedule that we have and the needs of our customer, we feel good that we could finish it for what we took this quarter. I'll contrast that and answer what the going-forward comment is. I don't think there's an inherent risk in fixed-price construction. I think the risk is regional and associated with the approach we use for the particular project. The LNG project in Canada, as an example, our approach is different than our competition was and that we took a significant amount of labor off of that site and into our fabrication yard, where it is -- in a controlled environment, both from a productivity perspective and from a safety perspective. So when we think about the integrated solutions, part of that is being able to lessen the exposure to craft in certain areas and make sure that we've got an execution approach that delivers for the client and delivers the expected profit to us. I know it's hard for you guys to understand where we are on this project and the statement that this is an anomaly. We've had these projects in the past. And when a project goes bad the way this one went, it goes real bad. And where I cannot guarantee performance of future projects, I am confident that based on the fact that the projects that are exercising our new approach are performing very well. We have some very large lump-sum projects in Kuwait and other places that are performing as expected or better. So whereas this one is hard to swallow and hard for people to understand, I get that, I don't think it's a fatal flaw in our system.

Okay, that's helpful, and then moving on to Shell. What -- so what is your confidence that it moves forward?? And can you just talk a little bit more broadly about the risk you're taking on the project? And then, I guess, broadening that out just related to customer CapEx, I'm curious to what extent contracting structures is kind of holding back customer decisions at this point. Are you finding that customers are saying, "Hey, you know, we'd go forward on that project if we could just get the EPC firm to give us a fixed price or lump-sum contract." Is that happening?

Well, I think there's a little bit of that happening. I think the question is, whether people are putting the right numbers in there to do that. I can tell you in our case, Jim Brittain specifically managed the development of that estimate. And I have great confidence in him and the team that pulled that together. So we are taking the risk, but we're taking it on the terms that we expect with the kind of coverage ratios that we would expect. In the case of these power projects, I can tell you that as I said, there's a per-kilowatt cost. And we got roped in, just like a lot of other people did in the saying that, that -- if you don't do that price, you're not going to win that project. And we're not interested in playing those games anymore. So I think when we look at Canada, it's been on a different basis. It's been utilizing our integrated solution approach, it's been utilizing our yard in China. It's in a place in BC that we know how to work. The equipment that is being procured, we know how to do that. And the evidence is how well we bought the 2 refinery projects out in Kuwait, give me great confidence that we can do this. The business model, as I understand it, would suggest that there's a high probability of this project being funded -- final FID this year. When you look at Shell's strategy around gas, when you look at the potential partners that they pull together on this project, I have a high confidence level that FID will be achieved this year.

And just to clarify, the craft labor productivity on this project will be your risk?

Which project?

LNG Canada.

Yes, it will be.

And our next question comes from Jamie Cook with Crédit Suisse.

I guess just a follow-up question to Steve, understanding the industry leadership -- you're being an industry leader in terms of exiting the gas-fired power business, even one of the biggest players in the industry, how do we think about being more proactive on the energy side? Because to be fair, you took charges in power, but we've also taken charges been E&C over the past couple of years, probably totaling about $300 million or so. So what can you do on as an industry leader to change the approach to -- for contractors taking risks with the charges you've had, and with some of your -- with the other players in the industry on the verge of bankruptcy? And then my second question, understanding you think -- or that you are saying you have a different approach from your peers with your integrated solutions model, and you will be using that on LNG Canada, have you ever delivered a project of LNG Canada's size using your integrated solutions model? And why would that -- why should that not be concerning to us that we're trying this on such a large project?

Well, it is a large project, Jamie. I agree with you. But when you look at the total value of -- when you look at the 2 projects in Kuwait specifically, they are probably the best model of that. And in those cases, our piece is $4 billion or $5 billion. So I think, yes, it's a bigger number. I don't think anybody has actually done it. Well, I know we haven't done a project that large using our tools and systems. But I can tell you that in the fact -- let me back up. If you go back, and you mentioned several projects in E&C. It's really one, and it's CPChem. And we broke that down in terms of the lessons we learned. Now that project, as well as these other projects, were bid prior to the maturation of our integrated solutions approach. And there are fatal flaws in the bidding process of all of those projects, and there were execution issues that weren't properly covered. And you didn't have the coverage ratio as you expect on a project that has a kind of risk that those projects had, part of it driven by market in terms of the power business. But one of the things we've done is we look at CPChem and the results, and we broke it down into the issues that led to that loss. And we applied those lessons learned just in the case of E&C on the CFP project, which is the clean fuels program for Kuwait. We had issues and challenges, but we're above our expected as-sold profitability there and we're nearing completion. And we use those learnings as we bid the Al-Zour plant, which was a bigger lump-sum project with partners in Kuwait. And I can tell you that the application of those lessons learned there has even bettered our situation relative to that project. Now it's not quite as far along, but we have the client in our China yard last month and saw the first module sail out. And I can tell you that the customers is pleased, and I can tell you that I'm very pleased, because it's meeting the schedule requirements and it's meeting the cost expectations. Learning from that one, I mean, it's a journey that we're on, Jamie, as you can appreciate. We applied all of those to LNG Canada and basically, utilizing that modular approach. Just as one case and going back to Steve's question, we were able to take about 1/3 of the craft expectation from a stick-built project to the module approach off of that job site. So when you look at...

I guess, I understand that, and I understand that you've shifted your business model, and you think this will allow you to drive greater capital efficiency for your clients and allow you to handle the project differently. But again, companies are going bankrupt because they are taking on risk. So are you changing your -- are the conversations changing with customers and that you're saying, "I won't do this anymore," or "we won't do this anymore?"

Well, I just said that, Jamie. I just said that about one segment of the power market.

I know, but I'm talking about energy.

We're now having these conversations in oil and gas. We are starting to change the dialogue. Customers are continuing to try to shed risk. In a lot of cases, we're saying no. And I already see that our win rate will drop as we go through '18 and '19. And I'm satisfied with that drop in win rate, because we're only going to win projects that meet our expected coverage ratios, and the approach is utilizing the integrated solutions approach. So yes, the dialogue is changing.

Okay, that's helpful. And then sorry, just a follow-up question for Bruce. Bruce, the cash flow in the quarter, you talked about the working capital associated with Puerto Rico. Can you just provide some context on how much was Puerto Rico? And just how broadly -- how do we think about the drag on cash this quarter, and how to think about cash flow for the year? And then I'll get back in queue.

Sure, Jamie. And that's why I kind of -- for the first time, we kind of provided on this call some guidance about U.S. domestic cash, what percentage of our total cash and marketable securities it is. Because that cash draw this quarter was all in, just about all in U.S. domestic cash, and it was primarily all in Puerto Rico. As you could imagine, we ramped that job up very quickly and had to fund that working capital. But that money is been sent out and coming back with earnings that are recognized in the quarter for the Government group, but the receivables and cash don't get paid. We don't get the money back until after this quarter. So it's -- while we think this is a timing event, we really want to emphasize that this need for U.S. easily accessible cash is very important to us, and we're going to concentrate on continuing to build that U.S.-based cash balance.

Okay, but is there any way to think about cash flow for the year relative to net income, just as other projects -- other projects, -- you win other projects, they might have working capital needs? I'm just trying to think about cash flow for the year.

Well, sure. I mean, it's the ebb and flow effect here. We time our working capital. And we also keep our cash in the locales where we see our project wins to occur in the future, so that we have enough cash to start up and ramp up, especially with these FIDs start to stack up on us with the customers as they pull the trigger and make the programs go forward. But as far as a working capital balance, we're going to target $2.1 billion or more on a go-forward basis.

And our next question is from Andrew Kaplowitz with Citi.

Sorry, operator, we can't hear you.

You can hear me? It's Andy Kaplowitz. So David, the power project is 86% done, you've said. I think you have one more project in backlog of the same A-grade. And it is probably the same level done. Is there anything else you could do on the projects to assure investors that they can invest, really for the next couple of quarters, in Fluor until the projects are done? I think I remember back in the day, Alan Boeckmann saying he was going to visit his embassy problem project every week toward the end of it. Can you do that? Shouldn't you do that? Anything more you can do.

I'm not sure I heard the last part of that, Andy. It kind of broke up just a little bit. Are you talking about...

So I just said that -- yes, back in, I think it was 2006 or something, I'm showing my age. But Alan Boeckmann had said that he was going to go visit the embassy project, his problem projects literally every week until it's done. So as a CEO, what more can you do, David? Like we always get the question, "Can I invest in Fluor until these problem projects are done?" How would you answer that?

Yes, I mean, I've been in the project site twice this year, and I have personally directed different resources there. And I am -- I hate to even say confident, but I am in the ability of the project to complete within this number, as well -- and look, we used an abysmal productivity rate in setting the number that we wrote down. So I have confidence that we'll be able to finish. As you said, we're high 80s percentage. We're starting to turn over systems to the customer on unit 1. Unit 2, I think, will be an easier finish than unit 1 has been. So I feel pretty good about the team that's there now, Yes, I'm not going to say that I will be there every week, but I'm going to be there on a routine basis, and I have already taken personal review of this project. With regard to the other one, and this is a hell of it, is the project in Virginia is going very well. It is in the same kind of completion percentage. And those guys have done a better job relative to managing that craft and making the progress that they need to make. So I feel very good about that project and what that team is doing. But yes, I mean when things go bad, the boss has got to be there, and I get that. And I have been and will be as we finish this project.

Okay, that's helpful, David. And then look, the power project it is what it is. But if we look at the rest of the segments in the quarter, they are at least a little below our expectation and below the guidance for the rest of the year. So look, I don't want to read too much into one quarter, but maybe talk about visibility for margin performance going forward. It's just hard to see, if I look at E&C, you've got a little bit of a step-up their model and maintenance. I'm not sure why the margin was low there in the quarter.

Well, I think that as we talked about in previous quarters, I think that we've been looking for the bottom, and I think we see it in terms of new award production. I think second quarter might be -- it will be better, but it will still be somewhat we think it will be. And it is heavily weighted towards the back end of this year. But I think '19 is going to be another great year. And it's in the -- it's on the back of refining petrochemicals, gas, LNG. It's on copper. There's a lot of work that's coming this year in the mining sector, primarily in South America, some in Australia again. So I think as I said in the prepared remarks, I think we're in a multiindustry, multiyear upturn. So as disappointing and as angry as I am about this particular quarter, I got to tell you, I'm pretty excited about what's in front of us. And I realize the credibility hit that this takes with investors, I think we got it, and I think we're going to finish. We don't have that much time left to finish. So I believe that we've seen the bottom. And it is, I've said the quality of what we put in the backlog relative to the integrated solutions, is better margin with a better risk-adjusted coverage than the power projects that we put in the backlog 4 years ago.

So just a quick clarification for Bruce, you've got a $0.30 difference between your charge and your lower guidance. I guess half of that or a little more than half of that is FX. Is the rest of it the difference from the $0.85 you said last quarter in rev rec plus lower tax? Is that number now, call it, $0.15 lower? Or am I missing something?

No, you're not missing anything, Andy. And actually, the exact amount that we're decrementing for the range that I gave last quarter of $0.75 to $0.95 for both tax and rev rec included, we expect to be significantly lower. At that time, I said about 2/3 of that range would be associated with rev rec. If you look at our Q, rev rec in the quarter was only accretive to earnings by what, a little over $1 million, $1.1 million. We expected a whole lot more than that. And again, as I said in my prepared remarks, it has to do with the timing and progress and mix of all these jobs around the world and how rev rec is calculated. The total that we have, and you could see that in our retained earnings, about the $360 million which last quarter, we thought that's what the total impact would be over 3.5 or 4 years, we still believe that number is correct. It's the timing of it. And that's why we are being much more prudent here on what's actually going to come in this year.

And our next question is from Jerry Ravitch with Goldman Sachs

David, can you talk about where you see the mining award cycle in terms of expansion versus greenfield? And when do you expect to see meaningful pickup in terms of the greenfield portion of the book? Obviously, we've had midsize projects so far, by Fluor standards, based on the pipeline. When do you think we can see more meaningful greenfields book for you folks?

I think it's going to be a while before you see greenfield. What we're seeing right now is kind of replacement-type projects, and they are big projects. I mean, there's 2 or 3 projects that are in the near term that are in excess of $1 billion in copper, iron ore and just to a lesser degree, gold. But in terms of really ramping up capacity, I don't see that for a while. I don't think we're there yet. But in this cycle, I think you're going to see a lot of upgrades, a lot of replacement capacity going deeper, harder to process orders, which is right up our alleyway. And there's some very large projects that we're pursuing. But I wouldn't even venture a guess as to when you're going to see the real large $10 billion kind of new capacity mines and processing facilities coming on. But I think we got a long tail on the stuff we just talked about over the next -- in terms of new awards over probably the next 2 to 2.5 years.

How does the cadence of new awards look in terms of what you would expect would be awarded this year versus a '19 or maybe '20 event? How would you characterize the cadence of that activity?

I guess I'd use the word steady. I think over the next 6 to 8 quarters, you're going to see something pretty good-sized within that mining sector. We've really done a lot of work leading up to the cycle on front ends and studies and stayed very close to these customers to help to develop these projects. So I think that team has done an outstanding job of really looking at which projects do we want to go get, where we have a differentiated offering. And I think over the next, like I said, 6 to 8 quarters, you're going to see a pretty steady new award flow.

And David, LNG Canada, are you willing to talk about based on your plan, what proportion of the manhours or total fabrication work will be done at your fabrication facility in terms of on site, and how that's different from similar scope LNG projects in the past? Could you frame that for us at all?

No, I don't really want to get into segmenting that. I would just say that our yard is going to be busy for quite some time.

And we hear modular project approaches from a lot of your competitors as well. Can you just frame for us on a project of this size, how is your approach using fabrication yard to modernize and effectively drive less correct labor on site, how that's different from the approach that some others are using just to help us all build comfort with the fixed price risk there?.

I think a lot of people are talking about modernization because we are. Other companies have done it in the past and have that expertise, but I would use Kuwait as an example. There's lots of people fabricating pipe racks. We're fabricating complete process modules fully loaded with pipe, instrumentation, electrical, winding, everything which goes back to Redwater in Canada but it all starts with a design approach that we've taken, which is different than our competition. It deals with how these modules are separated, it has with the weight of these modules. But the most important thing is how do you load that module sufficient to where you gain the productivity on the job site once those modules appear. Our experience in both CFP in the Suncor and the other projects that we've done, fit-up has been flawless, which again goes back to that design approach, the design procedures that we've implemented. So I think that we do have a little bit different mousetrap than anyone else, and that's been proven. And we're way down the road on the 2 biggest ones that we've done so far, which is the 2 Kuwait projects, and seeing the -- what's actually stacked in these modules on Al-Zour shows a significant difference in terms of what our competition is trying to accomplish.

And our next question is from Tahira Afzal with KeyBanc

David, you talked about being fairly selective going forward might inflect your win rate. But can you talk about maybe the areas that do carry -- is there commonality in terms of the risk you're more selective around in terms of maybe the types of projects or the regions?

No, I wouldn't segment that, Tahira. I think as I said we went -- we started on this journey when I became CEO. And I think where we are on that journey is perfecting the approach, and we've been able to prove it. And if that is correct, and I believe it is, I believe that it kind of gives us the latitude to choose the right projects for that approach, say "thank you, but no, thank you" to the ones that don't. And I don't think market or region necessarily have a bearing on that. And we're not going to be the low bidder, but we're going to have the best solution, in some cases. And that should give everyone comfort that we're actually doing the -- we're looking at these differently today than we looked at when we bid those 4 power plants.

Got it, okay. And David, you mentioned renewables. Nuclear, I get. And it seems NuScale has come through against all, I think media hype and skepticism, and it's doing very well. But I would love to get a better sense of what you're thinking on the renewables side.

Well, I mean, solar and wind are going to be part of it. We're not going to obviously take the kind of approach I was suggesting in E&C with those kinds of things. But that -- we've got an expertise there, and we're going to continue to do the projects when they come up. We follow that in the particularly the solar side, very carefully. And technologies are changing. It's becoming more amenable to the models that they need to do. But I think the bigger issue is the power generators and where do they need the power. And I think that, that really translates into opportunity for NuScale, because it's going to -- it's not going to be in the places where you think. It's going to be in places where there's a new industrial capability going in. So I think internationally, there's a big market there. In the U.S., it's going to be in places like Idaho where project #1 will be. But I'm very encouraged by what we've been able to accomplish there. As you said, there are lot of naysayers. We submitted our design certification on time, first one ever. It was docketed ahead of schedule terms, ahead of any technologies that had been in front of the NRC in their lifetime. We've hit all the schedules and passed Phase I with flying colors. The client base is growing. The DOE sees the value of nuclear power, and specifically the small modular reactor and the flexibility that, that gives for not only government institutions, but also as I've said, some of these industrial complexes around the globe. I'm really, really satisfied with what they've been able to accomplish. Now, we got to keep after it and get the NRC approval done. But I think from a technical perspective, it's really proven. It's proven its worth. And now we get into the legal reviews and all of the licensing kinds of things that go on. So I feel pretty bullish about where we are in terms of bringing in new investors and those projects moving forward in the time frame we've communicated previously.

Got it, okay. And David, just a follow-up to that, when you look at renewables or maybe matter of fact when you look even outside on your overarching business, do you think -- or do you see anything that -- technology-wise or process-wise, that could be potentially disruptive to NuScale? As you look at renewables, it's more the traditional opportunities that you see out there.

Well, if governments completely walk away from lowering greenhouse gas, that would be something that would be a problem. And clearly, when you burn gas, you have emissions. In nuclear, you do not. And I think people are starting to realize that. But I think the other -- the issues that I see that could be disruptors are more geopolitical issues. Because some of these places, for us to be able to participate with the country, that is going to need a 1, 2, 3 agreement, or we won't be able to deploy that technology there. The Saudis don't have one yet, but they're working on it. I've had conversations with the folks in Saudi as well as in the DOE, and they're moving in the right direction for that. So it's those kinds of things that I think are really the disruptors that I'm concerned about.

And our next question comes from Michael Dudas with Vertical Research

David, as you look at the bid list over the next 4 to 8 quarters, how much of that is involved with the integrated solutions that you guys have thus far? Does every new project has that support towards it? And what about the current projects that are still in the backlog? Are they scrubbed to the point where they're using these technologies and systems that you've created? Or is there still something to be "legacy issues" that might not achieve on a profit or a productivity scale?

Thanks, Michael, a couple of comments. Number one, when you have an issue like we've had, you can bet that we turned everything upside down throughout the company on that 1,000 projects that I mentioned. But I'd point you back to that 1,000 projects that I mentioned. We have 4 power projects that were bid by the same management team at the same time. And we accepted. We, being me and my management team, accepted those bids, primarily because we just come off of a project in that market where we had bettered the [as sold] margin expectation. Different things happened, we ended up with a problem, but it's a confined problem within a group. And I acknowledge the question by Jamie on E&C and specifically, the CPChem project, again bid before we exercised this. So I believe when we look at the risk in the backlog, based on our reviews and based on our -- where we are on finishing projects that are questionable without benefit of the integrated solutions, I think we're in a good place. With regard to the integrated solution, not every customer, not every project is going to enjoy the full implementation, and we're okay with that. But when that lack of implementation of the full model is driven by a customer, there needs to be a very serious question about where the risk resides. And going back to again Jamie's question, we're already having those conversations. And in some cases, either we or the customer, because they don't want to accept what we want to do, have parted ways. And I'm okay with that too. Because what our customers have asked us to do is to become more capital-efficient and more sure in terms of cost and schedule. We have invested, over the last 5 years, significantly in our tools and systems and in this model, which includes fabrication, construction, our supply chain capabilities. When we're able to deploy those, I think we're going to be in a very good place. And where we're not, there will be a risk-adjusted approach to that.

Understood. And to follow up, David, on your comments regarding government and infrastructure. handicap how you think with LOGCAP and some of the opportunities you see throughout the year (inaudible) position? And is infrastructure just solely Congress is not going to get back together and allowing the funding for the larger type projects that you guys would rather be involved in? Or is the PPP projects are up -- are they just not quite ready to get let out in the time frame that you need to see this year or into the next?

On infrastructure, I think it's a timing thing, Mike. You look at the gestation period of some of these things. And I think I've told this group, a couple of calls back, about how long it took to get the Denver Eagle project from basically proof of process to cutting a ribbon, taken a decade. I would argue that the LA People Mover is no different than that. Purple Line is no different than that. You saw that even though it was sanctioned and moved forward, the government intervened again. But they were pushing more the regulatory side of that equation as opposed to the PPP model or where that business -- that financial model set. So yes, disappointed that Congress can't get their act together, I get it. Tax reform was a big deal. You read the papers like I do. And the vitriol that's going on in that place. So getting them to -- an infrastructure bill that starts this process is problematic. But when I look at what we're chasing and where those projects are in that gestation period, I think we're going to see a steady -- kind of a steady award cadence over the next 3 years. I hope it's going to accelerate. I think it will accelerate. But I think it's as much the regulatory situation as it is a comprehensive infrastructure bill by Congress. I'm sorry, what was the other first part?

Government?

Government.

The LOGCAP.

I feel good about where we are. I mean I think that, that team has done an outstanding job of growing that business. When you look at the number of DOE sites we've added over the last 3 years, I think we have a good brand in that market and are continuing to bid those projects and being successful. If you're not doing a good job, they don't extend you, which was evidenced by this Savannah River Plant extending us for a year to get them ready for the rebid, which I feel good that we'll be successful in that rebid. On the DoD side, I think we've proven to the Army that we're a contractor of choice and we provide the best value. And I think we'll continue to win in that business. It's good solid annuity style business, as we've said in the past. And I feel really good about where the brand sits with those customers.

And our next question comes from Andy Wittman with Baird

Maybe Bruce or David, this one's for you, I guess. On NuScale, I guess the Q said that the funding was going to run out here earlier in this quarter. But you said on the call earlier that it had been extended. Maybe just clarifying that. And can you just talk about how long it's been extended or the dollar amount of the matching funds that you've been able to realize with this extension?

Sure, and this is the ongoing process of kind of renewing the government matching funds that they're providing for the development of this technology. And they are very fiscal year driven, government fiscal year driven, so the end of that year at September 30. And we were notified that the application we did, we got the award back for their next tranche of funding, which is in the tune of about $40 million that will be coming to us as soon as we get that agreement penned with them. That -- the usage of that money flows through this year, and we already are applying for additional funds for next year. It's kind of a knock-on effect relative to burning the funds up on this current agreement while you're applying for the next one to keep the development and technology going through. So that's why I said in the quarter, we're a little overspent if you kind of 4 quarters of $75 million spend, it would look like we're going to overspend, but that will clearly normalize before the end of the year. And we will not be spending more than $75 million on NuScale, but be progressing the technology as we intended.

And I think it's -- it also ought to be said that the administration as well as the Secretary of Energy is seeing small modular reactors and nuclear in general in a positive light. So I think we're in a better position to continue to secure the matching funds as we go through time.

Okay, that's helpful. And then just on Puerto Rico, given that it's kind of episodic in the numbers, can you talk about just quantifying that, so we can get a better sense about what the revenue underlying the government segment might be running at?

Well, certainly, the type of business, which we call contingency type of business, and of course you know, Andy, I have a little bit of experience in that -- in the government group here. These are areas where we are well positioned and postured to fill immediate needs of the government and the people it supports and protects. And Puerto Rico is just a perfect example of that, but pretty much no different than any other kind of a contingency event, whether it be in Afghanistan or any other portions of the world. Some of them get sustained a lot longer. So the underlying business to that, we see a good solid business, as David said. But those type of areas are where we can build upon this Department of Energy base, what we do for them, decontaminate, decommissioning, nuclear facilities, supporting their nuclear operations, running their Strategic Petroleum Reserve. These episodic type of events or contingency events are kind of the icing on the cake there because we're able to really demonstrate how we pull from all aspects of Fluor to fix a problem that's facing our nation or our national security.

That concludes today's question-and-answer session. Mr. Seaton, at this time, I will turn the conference back over to you for any additional or closing remarks.

Thank you, operator. Despite a disastrous quarter and our disappointment, I'm really excited about the future. No one's more disappointed than I am relative to where we are on a very finite sample of projects. And we do know where the end is, and we believe we've captured that. But I think again, we're in a multiyear, multiindustry growth mode. And in the past, you've seen Fluor outperform our competition and grow significantly. And I think we're poised to do so. And I think the new approaches that we're applying give us better visibility in how those executions are going to be performed. I appreciate your interest in our company, and I wish you a good day.

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