Michael Dudas: I appreciate that, David. And my follow-up would be, you mentioned in your prepared remarks or maybe Joe, you’ve added 5,000 employees, to Fluor’s professional staff in ’23. What’s that on a net basis, what type of growth do you see you need to achieve not only the backlog you’ve booked, the growth you anticipate given the opportunities in front of you? And maybe following on the LTC question in the Saudis. How you’ve been able to ramp up that with professionals and engineering staff to meet those needs because that’s, I think, again, going to be a lot of demand stress in that market for something like you guys.
David Constable: Well, you’re definitely correct there, right? It is the number one focus area for the company, Michael, across the management team and across all the businesses is getting the right people at the right places at the right time. And like I think Joe said, we’ve hired about 5,000 people in ’23. Net-net, it’s not that much because we as projects come down in certain regions of the world, we’ll have to let folks go. But overall, we’re trying to redeploy as many as possible, to support this growth that we’re seeing. So yes, I would expect to see probably another 5,000 hired this year or thereabouts. And that continuing on that track. So now with the sale of Stork, you’ll see our numbers dropping, head count dropping somewhat.
And, which is fine. But it’s, with all the puts and takes of the projects, I’d say you’ll start to see the head count ramping up again. But we’re being very cost effective at the same time as far as overhead count goes. So I think on the Saudi Arabia specifically, on the work in the Middle East, the ramp-up is spread across various offices, not — we need multiple — we need to Fluor’s global strength to be able to execute those types of programs for those clients. So you’ll see work going into Amsterdam. You’ll see work going into the U.K. You’ll see work going into Texas and Houston, and into our execution centers in Delhi and the Philippines to be able to handle all of that. All those hours that are coming at us. So that’s where we’re at right now.
Operator: Your next question comes from the line of Brent Thielman from D.A. Davidson.
Brent Thielman: David the book of business in Urban Solutions, obviously really picked up here in the last year. Can you talk about the composition or mix of things in your backlog in that business segment, I guess, between ATLS, Mining, Infrastructure, maybe how does that inform your sort of profit margin outlook for the group into 2024? And I guess, in particular, is that mix between the different practice area is more attractive than in years past?
David Constable: It’s been, it’s been so gratifying to see that driving growth across the portfolio strategic priority, over delivering, right? We wanted to make sure that we didn’t have all our eggs in the traditional and gas basket back in late 2020 when we set the strategy. Not that we don’t want traditional oil and gas to continue, we know it is, and we are right there supporting it and doing very well on the traditional side and now, obviously, in an energy transition across the company. But, what we said was we really wanted to grow in the markets, based on those megatrends that we saw in front of us, urbanization and energy transition and big data, Industry 4.0, everything was really being — really leaning into the Urban Solutions space.
And we’ve seen that through Mining & Metals with obviously copper being a big play in those megatrends but also ATLS as well. So if you think about the backlog right now, it’s, these are approximate numbers, right? We’ve got $10 billion in Energy Solutions, about $15 billion in Urban Solutions now, right? So, and then the remainder $4 billion or so is in Mission Solutions to get up to your $29 billion. And that Mining is $7.5 billion of that backlog, ATLS is about $3 billion. Infra is at $4 billion. And we’re starting to come along in plant and facility services as well, where we’re starting to bring a higher level of service including digital solutions to our operations and maintenance offering. And we’ve got some good prospects on the horizon there.
So, as far as margins go, maybe Joe can comment on Urban Solutions margins with that type of backlog and what we’re expecting. As you know, our guidance that we’re putting out there right now is the 3% to 4%. But it’s, as you mentioned, it’s the Infrastructure that we’ve got to work through that as well.
Joe Brennan: Yes. I think, Brent, if you look at kind of normalizing out the $600 million of zero margin revenue and where we’re heading, we would expect the 3% to 4% that we’re laying out today as we move forward and progress through the backlog and what we’ve taken into our pipeline that we would be in that 4% to 6% corridor. And we would feel comfortable towards the end of the year, we’ll probably be looking at what that guidance looks like. But as we move out into 2025, squarely within the 4% to 6% corridor that we’ve laid out.
Brent Thielman: And I guess, maybe on Mission Solutions, as you mentioned, kind of a lower level of backlog relative to the other two business groups. But any update on the timing of Pantex decisions and any other opportunities outside of that to build up the backlog in that business group. Obviously, that one is a bit lower here this quarter.
David Constable: Yes. Mission Solutions can be very lumpy with these massive long-term 10, 20-year contracts, of course, we hit one in late 2022 with Savannah River that was a very large program. So that’s, again, that was a lumpy year because of ’22, but those will continue to come around. I think on Pantex to your question, we’re expecting an award I’d say second quarter to third quarter 2024, but before the election. So maybe that’s the best timing I can give you there. But we’re really excited about Mission Solutions and the future that we’ve got being such a strong Department of Energy contractor and picking up speed in the defense space and our LOGCAP work in Africa and supporting the troops out of Germany, we see really great opportunities in DOE and DOD.
And of course, FEMA comes along. We’ve just been awarded that Eastern U.S. East Coast FEMA contract as well, which will continue to, as things occur, drive revenue. So I think that’s where we’re at with Mission Solutions. And like I said, very positive, and we’ve moved towards national security and brought in some new management capabilities in national security in the defense and intelligence space, where we’re pretty excited about some prospects there as well. Those are prospects we don’t talk about publicly, but they are very exciting and quite sizable. So that’s where we’re heading in Mission Solutions.
Operator: Your next question comes from the line of Michael Feniger from Bank of America.
Michael Feniger: Just your debt to cap is in your range, you have your target for 2026. It seems like you guys are really making progress on the targets you laid out positive cash from Ops in Q4, you’re guiding for good 2024 free cash flow. So just with the mega trends you’re seeing out there, are you starting to reinvest in the business? Should we see you guys maybe kind of look organic investment, but even M&A wise, just curious how we should think about that since we’re starting to see that — where we’re seeing the cash flow move?
Joe Brennan: Yes. Maybe I’ll take the kind of the cash flow movement up to M&A. What you’re seeing in 2024 is not only a servicing of some of the legacy, it’s the tail, the cash flow tail of the P&L at the end of the day, but you’re also seeing in there an organic investment in our business as resources have become the number one criteria in order to kind of support this growth trend that we see in front of us, there’s an investment in the infrastructure. And there’s an investment in talent development and onboarding of individuals and training. So that is the organic investment that we’re making happily into the business as we see the kind of the demand curve increase for our services. So there is some of that, but we believe that, that will become the baseline to support the growth into ’25 and to ’26.
And also when you get into a 75-plus reimbursable environment, we’re not working off of mobilization payments or big advances that you find through maybe the lump sum more risk more risk profile. So there will be some costs to continue to kind of ramp up the reimbursable activities. But it’s all done relative to supporting the infrastructure to appropriately address and execute the projects that are coming our way.
David Constable: So I’ll just add to that, Michael. And again, yes, as Joe said, organically, we’re just investing in our people, right? And attracting training and developing, but also our systems and by way of example, offices, this growth, we’re going to be opening a Delhi satellite office. We’ve got three new offices in Houston. And so that will continue. On the M&A side, really just think about it as niche bolt-ons to further the business as appropriate, potentially in Mission Solutions as a first wave. So, that’s where we’re at right now. And as things continue to go in the right direction, as we’ve been seeing here, then we start, of course, talking to the Board about dividends and share buybacks and things like that.
Michael Feniger: And just thematically, there’s always a worry with rates still kind of high that some projects will get pushed out to the right. It doesn’t seem like that’s what you’re seeing based on what your backlog is? Do you need to see rates come down for that robust pipeline to convert, or do you feel like a great stay here, you guys saw visibility on really some of those bookings that you’re expecting to play out through the year?
David Constable: Yes. The projects that we work on other than maybe some energy transition developers that would need some financing, which they’ve been somewhat successful at. But our key client base, if you will, that we deal with use their balance sheet. So, and our clients look through the short-term challenges of economic and geopolitical challenges. And they play the long game, right? So, as I look at the client CapEx across just a sampling of Fluor’s, say, 10 clients that I took a look at here a couple of weeks ago, their CapEx for 2024 is holding strong, up. Some of them are up. But just those tenants are going to spend about $110 billion in CapEx. I think they expect to spend $125 billion in annually, $125 billion in the out years.
