Fluor Corporation (FLR) Q3 2026 Earnings Call Transcript

Operator: Hello, everyone. Thank you for joining us, welcome to Fluor's Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow management's presentation. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. A web replay of today's conference call will be available at approximately 10:30AM Eastern Time today. Accessible on Fluor's website at investor.fluor.com. At this time, for opening remarks, I would like to turn the call over to Jason Landkamer, Vice President, Investor Relations. Please go ahead.

Jason Landkamer: Thank you, operator. Good morning, and welcome to Fluor's 26 third quarter earnings call. James R. Breuer, Fluor's Chief Executive Officer and John C. Regan, Fluor's Chief Financial Officer are with us today. Fluor issued its third quarter earnings release earlier this morning a slide presentation is posted on our website that we will reference while making prepared remarks. Before getting started, I would like to refer you to our Safe Harbor note regarding forward looking statements, which is summarized on Slide 2. During today's presentation, we will be making forward-looking statements that reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors which could potentially contribute to such differences in our 2025 Form 10-K and our Form 10 Q which was filed earlier today. During this call, we will discuss certain non GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in today's slide presentation and posted in the Investor Relations section of our website at investor.fluor.com. With that, I will now turn the call over to James R. Breuer, Fluor's Chief Executive Officer. Jim?

James R. Breuer: Thank you, Jason, and good morning, everyone. This was another strong quarter with record awards a growing backlog, and continued capital returns to shareholders. I would like to start by sharing some observations from the Fluor Supply Chain Summit that we hosted this quarter in Greenville, South Carolina. Please turn to slide 3. The Summit, now in its third edition, brought together 230 vendors and contractors from around the world alongside clients and Fluor leaders. It was an opportunity to align our partners on upcoming projects, and on the collaboration needed to deliver them for our shared clients. Over the next 4 years, Fluor plans to spend approximately $50 billion in procurement and contracts on our projects. And as we look to grow our business, we will rely on our supply chain relationships to help us turn new opportunities into successful project delivery. Executing projects in an uncertain environment. Geopolitical risk, tight labor markets, rising costs, and logistics disruptions demand an agile and resilient supply of goods and services. Engaging early in project planning with contractors and vendors helps us anticipate constraints and build more credible estimates schedules, and execution plans. These efforts matter because of what our clients need. A well thought out capital efficient execution plan before committing a project, and delivery certainty. Once execution begins. The summit reinforced that our supply chain partners are ready for the challenge. We have strong relationships built over multiple projects, and we see the opportunity to extend those relationships across new projects in different business lines. Turning to slide 4. We had some significant accomplishments during the quarter. First, we are experiencing robust growth. New awards were 10.9 billion a record for Fluor. And backlog is now $34.3 billion the highest level we have seen this decade. These projects will ramp up to full execution over the next 2 years. Solidifying our future earnings growth. And we have additional meaningful awards expected in the near future. Second, our capability to execute mega projects is an important differentiator. Our resume, our people, systems, and footprint set us apart in the marketplace. And I will discuss this in greater detail in a minute. And finally, we are steadfast in our approach to capital allocation. We are investing in capabilities and creating shareholder value. Turning to Slide 5. Urban Solutions. Here are a few highlights for the quarter. New awards were 2 billion. Headlined by 2 copper projects in Chile. Our strategy in mining is producing tangible results. And the need for capacity expansion is clear. Clients want a partner that can carry a project from early engineering through construction. With a special focus on supply chain as I mentioned earlier. Looking ahead in the near term, we are well positioned for the release of a multibillion dollar copper project in South America. Where we are already doing early work. This will be the first large award coming out of our $30 billion mining pipeline that we mentioned last quarter. In the data center market, we recently announced a contract with TeraWulf the development and construction of a 3 building site in Kentucky. We expect to recognize an award for the first 2 buildings in the fourth quarter upon finalization of pricing. In life sciences, executing feasibility studies for several clients including a new facility for Bayer. We expect these studies to develop into larger awards as we progress through 2027. Finally, in infrastructure, continue to work off our remaining legacy projects. I 35 phase 2 is on track to open its main lanes by year end. An LA people mover should complete shortly thereafter. On this project, we and our project partners are working collaboratively with LAWA. To ensure the safe completion of systems demonstration to support passenger service availability. Moving to slide 6. In energy solutions, our next growth cycle is beginning with the LNG Canada full notice to proceed. We booked in the third quarter $7.5 billion. I am pleased with how we collaborated with the client in these negotiations. Resulting in a favorable outcome for both sides. The execution plan reflects the benefits of extensive replication, and the contract incorporates valuable learnings from phase 1 related to labor availability, geopolitical risk, and other events outside of contractor control. Working alongside our JV partner, we are now in full execution mode and are off to a strong start. In power, momentum continues to build. Where we are performing planning work on a large gas field facility. With this client, we are finalizing the EPC contract for the first of what could be several plants. Our near term portfolio looks promising, and we expect several EPC contracts next year. Now specific to nuclear power, Under Cernavoda project, our JV team is finalizing the LNTP phase and positioning the project for a full release sometime in late 27 or early 28. Additionally, in nuclear, I am pleased to share that we continue to expand our relationship with X-energy. With a new award for a project at the Hanford site. This is our second project that will utilize this SMR technology. And in anticipation of the next wave of nuclear development, we continue to deepen our engagement with multiple technology providers to support the pipeline of projects ahead. In domestic refining, we are seeing a resurgence in front end activity. In addition to the work for America First Refining, which grew this quarter, We are also supporting other major US refiners advancing the early phases of their expansion projects. As I noted last quarter, we expect this front end work to translate into EPC opportunities in 2027 and 2028. We are also positioning for the emerging opportunities in the Middle East and Venezuela. In The Middle East, we remain engaged with our clients and anticipate more clarity in 2027 on new work. These opportunities will be incremental to our current work across all 3 segments. And in Venezuela, we are taking steps to reestablish our presence. Including a local partnership. As a reminder, we have a long history of delivering energy projects in Venezuela. Turning to Mission Solutions on slide 7. We continue to ramp up on our nuclear fuels work. And booked additional scope on the EPC project we announced last quarter. We also recognized a 6 month extension of our management and operations scope at Savannah River. And we anticipate a decision on the new contract early next year. And we are encouraged by the recent announcement from the NNSA approving the start of full scale construction on the Savannah River Plutonium Processing Facility. Before I turn the call over to John, I wanna spend a moment discussing what is 1 of our key strengths in the marketplace. Our capability to execute mega projects. Please turn to slide 8. At Fluor, we are proud to execute projects of all sizes. But our skill set to execute very large projects sets us apart and is a market differentiator. For perspective, our prospect pipeline in the next 2 years includes 25 megaprojects with an average size of $4.5 billion. And we are well positioned to capture many of them. Megaprojects required a different level of capability. And the complexity grows exponentially with size. They demand the ability to move seamlessly. From front end development through engineering and into construction. Supported by a global supply chain team and experienced leadership in a trained workforce. Success takes rigorous project controls and risk management. And the financial strength to ensure delivery over multiple years. Fluor brings these capabilities together. A global footprint, proven tools and systems, a resume spanning 6 continents, and teams who have delivered some of the world's largest and most complex projects. And we continue to evolve and improve. We are investing in AI. In our ERP replacement, and in our Project of the Future initiative. To strengthen the tools and systems required to plan and execute projects. The goal is to deliver greater project certainty and to reduce cost and schedule for our clients. And for our shareholders, our mega project capability allows us to be selective, pursue work that fits our core strengths, and generate attractive returns. With that, I will turn the call over to John.

John C. Regan: Jim. Good morning, everyone. Today, I would like to cover a few topics, including Q3 results, capital allocation, allocation, plus our outlook for the balance of 2026 some early framing for 2027. Let's start with consolidated results on Slide 10. For the third quarter, revenue was $3.7 billion up from $3.4 billion a year ago. Adjusted EBITDA was $142 million compared with 161 a year ago. And adjusted EPS was $0.77 compared with $0.68 last year. Our EPS metrics benefit from the 32 million shares that we have retired over the past 12 months. As a reminder, the prior year GAAP results for Q3 included a $653 million revenue reversal. Related to the Santos court ruling. So the year over year GAAP results are not meaningful on a stand alone basis. Our 2026 GAAP results also include the $73 million gain on ECA Fluor, our former JV in Mexico. I will put some perspective around what the sale means for next year a bit later. New awards were 10.9 billion led by LNG Canada, Mining Awards for Copper, and a 6 month extension for Savannah River. New awards were almost 3x quarterly revenue. Which significantly bolsters our expectations of future earnings growth. Ending backlog was $34.3 billion and is now about 70% reimbursable. In large part due to the LNG Canada award. We anticipate the percentage of our reimbursable backlog to trend down to the 60s as we convert the pipeline of attractive power opportunities into backlog. Our approach to risk remains disciplined and consistent. Reimbursable work continues to be an important contracting model. But we will accept fixed pricing if the returns are higher, risks are commercially balanced, and where the scope is within our proven execution capabilities. Let's look at our business segments on Slide 11. Urban Solutions reported segment profit of $100 million which is a 4.3% margin compared with last year's 2.6%. The improvement reflected late stage change order on the legacy infrastructure project, improved profitability on another infrastructure project that reached a construction milestone during Q3, and increased execution activity on a large life sciences project as well as the $25 million effect in 2025 for delays at LBJ. Q3 results in 2026 also included $25 million for a charge on a mining project. The same project that we discussed in Q1 this year. Working with our partner, we have reached a preliminary agreement on a change order that establishes the path to completing this project by mid 27. Energy Solutions reported segment profit of $93 million including the $73 million gain for the ECA Fluor sale. This means that segment profit was otherwise $20 million or about a 3% margin. This compared with $120 million a year ago without the Santos effect. ES' profitability declined as mature projects rolled off faster than recently awarded projects entered meaningful execution. The graphic we will show later on slide 14 illustrates how we see projects generate earnings across our execution window. Including these major energy projects. Mission Solutions reported segment profit of $55 million, up from $34 million a year ago. The increase was driven by improved award fee performance across the DOE portfolio and the ramp up of EPC execution. We ended Q3 with $3.1 billion in cash and equivalents. Versus $2.8 billion a year ago. That balance supports our planned share repurchases and gives us capacity to internally invest in key enablers. Which will drive future growth. This includes our people and systems, plus inorganic opportunities. Operating cash flow for the quarter exceeded expectations $186 million Our year to date operating cash usage of $21 million under GAAP includes the tax payment in Q2 for the 2025 NuScale conversion. Which $357 million The impact on Q4 guidance to come a little later. It relates to our legacy projects, we did not have any funding in Q3. As the late stage change order I mentioned, offset any Q3 funding requirements. Moreover, the revised forecast now means that our remaining obligations are around $20 million and are expected to hit Q4 investing cash flow in their entirety. Turning to slide 12. Our financial position remains on solid footing. And our capital allocation priorities have not changed. We will keep shareholder value creation and focus while preserving the flexibility to invest in the business. Under the current chapter of our repurchases, began in Q4 of 2024, we have spent more than $2 billion to retire our shares. Including $300 million in the third quarter. This translates to more than 20% of our outstanding shares over the last 24 months. We remain on pace for $1.4 billion in repurchases for all of 2026. Turning to our internal investments. We continue to build momentum with our Project of the future and our AI initiatives. We have also made good progress on the design of our ERP replacement. And we expect to enter the detailed design phase of that transformational project by mid 2027. Collectively, these represent a profound step forward in our technology. And will streamline both our execution playbook and the internal efforts arising from project execution. Separately, we continue to evaluate selected inorganic opportunities but it looks increasingly like it is a 2027 consideration. With that context, let's turn to guidance beginning on slide 13. We are maintaining our full year 2026 adjusted EBITDA guidance of $500 million to $525 million which implies a full year adjusted EPS range $2.70 and $2.80 given our expected share repurchase tempo. We conditioned both of these ranges last quarter when we announced the divestiture of ECA Fluor. So the guidance principally means continued execution against our backlog. For reference, through the first 9 months of 2026, we have delivered $351 million of adjusted EBITDA. So our range implies fourth quarter adjusted EBITDA of roughly $150 million to $175 million and adjusted EPS of about $0.85 to $0.95 Importantly, Q3 included some favorable closeouts and settlements that we do not expect to repeat in Q4. So that means real growth in recurring earnings. While some investors may dismiss these closeout efforts, as onetime events, they represent the culmination of the earnings from across the project's execution. And I commend those teams for the good outcomes this quarter. Our other key full year assumptions are outlined on the slide. Including an adjusted operating cash flow of $430 million to $460 million Full year new awards book to burn ratio potentially approaching 1.4x. With FID on some mega projects over the next few months, but in any case, will be well above 1 for all of 2026. G&A will be approximately $180 million to $190 million which excludes up to $15 million in outside costs for the replacement of our ERP and for other technology and AI enhancements. Which I touched on earlier. We assume a full year tax rate of 25% to 27%, and a revenue split of approximately 65% Urban, 20% Energy, and 15% Mission. Assuming these splits, we expect full year segment margins of approximately 2.5% in Urban, 7% in Energy, and 6.5% in Mission. All on a GAAP basis, including CFM. Most of our refresh guidance aligns to Q2, though the G&A growth was offset by PGM growth. And refreshing the overall EBITDA guidance. Before I close out Q4, 1 point worth connecting. The higher G&A, and the higher operating cash flow guidance. Are directly linked. 've built the uplifted cash generation into our incentive comp projections so stronger cash flow gave rise to higher G&A, under the pay for performance model. Also, during late October, 1 of our reimbursable clients notified us of changes to its project scope. We are still evaluating the impact on backlog, but based on our early assessment, we could expect a reduction of approximately $2 billion as early as Q4. Please turn to Slide 14. I would like to put some preliminary context to next year's numbers when we compare them to the 2026 outlook. For adjusted EBITDA, we expect the growth percentage to be in the low double digits compared to 26. This assumes several changes to the earnings base, which I will describe, the expected gradual ramp up of contributions from recent large awards, and the absence of the same level of closeout on major energy projects. A big factor is the sale of ECA Fluor. Which removes approximately $45 million of EBIT that we recognize year to date in 2026. So the growth in 2027 is far higher for our retained business. Spending on project of the future and our ERP implementation will continue into 2027. And although that spending will hit our GAAP P and L, in whole or in part, they are important expenditures, that will define how we will conduct business for years to come. And are excluded from the year over year EBITDA growth target. As illustrated on the sample burn curve on the slide, our recent mega project awards will enter the earnings stream in 2027. But large projects generally take 2 years to approach peak earnings. These mega projects also execute over longer horizons than the work they are replacing. With peak activity starting in 2028. Expect earnings to build as these projects move into full execution. Furthermore, our awards pipeline remains strong heading into 2027, and we expect a book-to-burn greater than 1. We also plan to continue share repurchases anchored around half of expected annual free cash flow. We will be adding to these preliminary 2027 views during February's call. To summarize our thinking coming out of Q3, the core business remains healthy, We delivered record new awards, simplified the portfolio, substantially advanced completion on legacy projects, and continue to direct value to our shareholders. And with that, we are ready to open the line for questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question And if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sangita Jain from KeyBanc Capital Markets. Please go ahead.

Sangita Jain: Good morning. Thank you for taking my question. So I wanna ask about the TeraWulf award that you recently announced that you will book in 4Q. Maybe you can share the sizing of that award and whether there is further upsizing prospects in that award beyond the first 3 buildings.

James R. Breuer: Good morning, Sangita. Thanks for the question. This is Jim. Yeah. We are excited about answering that project. It would be for the first 2 buildings a low single digit multibillion award there is a third building at the site that is being estimated and therefore released a little bit later. And we are also in conversations with that client for potentially other sites. So, yeah, it could grow. The focus right now is in the first 2 buildings. Followed by the third building at the Kentucky site.

Sangita Jain: Got it. And then on the operating cash flow in third quarter and the outlook, can you help us on what is driving that stronger outlook and the potential M&A targets that you are looking at for 2027?

John C. Regan: Good morning, Sangita. it is Reagan. So operating cash flow is a really good story in the quarter and in the outlook. So during the. And it plays across all 3 segments. So I will talk about what is in the rearview mirror and what is to come. So, during the quarter, with respect to urban solutions, it was in flight projects and working capital better working capital management across the portfolio. Maybe with a little bit of a concentration in ATLS. So that was fantastic. On the energy solution, side of things, the ultimate liability and funding of the warranty exposure at LNG was much lower than we had expected. Coming out of Q2. So our ability to work that down with less cash meant we were able to dividend out more of that money. So that money came to us again in quarter 3 at a at a larger quantum than we had expected at the time of the Q2 print. And then on the mission solutions side, as we said in the kind of the EBITDA rundown for them, They had excellent pay scores across the DOE portfolio. And so when the federal government wrapped up its fiscal year in September, our fee scores were much better. And so that hit earnings in Q3. But will give us a tailwind on the cash flow when we make collection of that in Q4. Does that all hang together? Yeah. that is very helpful. Thank you. Yeah. And then on the, the inorganic opportunities, look. I think we continue to look to build to our depth and to add to kind of the earnings you know, earnings growth that we are expecting. You know, clearly, we are we are we are flush with cash in terms of being able to make those acquisitions. but we just have not been able to get them across the goal line. It will be an increased focus over the next few quarters. And as I signaled in the prepared statements, we will look for something. A little more transparency there. In 2027. Perfect. Thank you.

Operator: Your next question comes from the line of Steven Fisher from UBS. Please go ahead.

Steven Fisher: Thanks. Good morning, and congrats on all the awards. Obviously, the election is topical this week. I am curious if you can just discuss the election impact on data center and your energy business and perhaps your booking opportunities more broadly? And curious what conversations you have had with customers in the last couple of days.

James R. Breuer: Good morning, Steven. This is Jim. Yes. We are obviously following the implications of the election very closely. I think we need to let the dust settle a little bit We are looking at potential impacts on energy, data centers, etcetera, etcetera. But I think if you step back a little bit, the markets that we pursue Steven, whether it is in the mission space or the private sector space, Most of them have bipartisan support. Yes. there is a little bit of growing concerns around the data center ecosystem. But we feel that the data center work that we have today and the power work that we. That we are hoping to book in the next few months is pretty resilient. And I also take it even further back around Fluor's diversity of markets, whether it is domestic or international, copper, life sciences, manufacturing, iron ore, We feel pretty good that our diversity is working as we are not overly exposed some of the concerns that are out there. On the positive side, both sides of the aisle are very determined to work on permitting reform. Think that the permitting reform momentum that is building in the country is going to do well for some of the work we are pursuing. So I think, all in all, yeah, there are some areas of attention, but we do not expect any significant impact on our company's trajectory.

Steven Fisher: Okay. that is helpful. And then maybe drilling into the gas fired opportunity, you talked about some of the larger opportunities there. I assume those are all combined cycles. Can you just talk about what still has to happen to book those And then can you talk about any simple cycle opportunities you might have? To what extent are any potential customers reaching out to you? And if not, why not? It seems like there is there is quite a bit of that activity going on and a need for contractors.

James R. Breuer: We are we are pursuing those. Both of those types of projects. Steven. We have. Our most matured opportunity is the combined cycle. But shortly thereafter, we are working on 2 simple cycles for a different client that, we hope to convert, I would say, around the middle of next year. So you are right. There are both types of projects out there. We are pursuing both of them. Talking to several clients. So we. As I said in my remarks, we expect several EPC contracts to be live next year.

Steven Fisher: And just to clarify, the next few months on, the bigger ones, what. what is still has to happen to book those?

James R. Breuer: Oh, sorry. it is just we. We are working collaborative with a client on the estimate, the execution plans, the contract terms. And all that is very matured. Now the client in the. On the. In the case of the first project, they have to go to their board for approval. And once they get that approval, they will give us to go ahead and start.

Steven Fisher: Okay. Terrific. Thank you.

Operator: Your next question comes from the line of Andy Kaplowitz from Citi. Please go ahead.

Andrew Kaplowitz: Good morning, everyone. Morning. Morning. Jim, I think we all understand that the geopolitical environment these days is quite fluid. But maybe just frame this awards cycle a little more versus what you have seen in the past I think you are going to book $25 billion this year. Think you just said next year would be $1 billion again in terms of book to bill. Do you think 2027 could be similar to 2026 where book to bill could be way over 1 do you expect bookings to grow in 2027 versus 2026 despite, you know, obviously, you booked LNG Canada, which is a large project this year?

James R. Breuer: So, Andy, all good questions and questions that were analyzing and addressing as a team obviously, every day. So 2026 is gonna be a good year. As you can tell, we are already $20 billion, essentially at Q3 and anything in Q4 is additive to that. We are saying, as John said earlier, 2027 is gonna be greater than 1 book to burn. Part of the challenge we have is the same story we have been telling you all along is if we are we sometimes struggle defining the exact timing of these big awards. So for example, there is. We feel very good about a large mining award in South America coming up in the next few months. It could land in Q4. It could land in Q1. That makes a difference when you look at the full fiscal year, but it does not really make a difference to us The work comes in, we start executing it. So I do not know what the exact number for 2027 will be yet. We will we will have more clarity in the beginning of next year. I can tell you that both years are gonna be good. Therefore, backlog is gonna continue to grow. And it is very fairly diversified as gas fired power, it is copper. it is data center work. it is life sciences. it is a advanced manufacturing. it is mission solutions. Refining. Refining. it is picking up There may be a nuclear award there. So we feel good about diversity. We feel good about clear line of sight we have to these projects. The exact timing is not always up to us, but we feel good about both this year, of course, and next year.

John C. Regan: I think it comes back in large part to the board oversight that you referenced with respect to the power project that once they get clearance from their own governance structure, that. that is the that is the important hurdle for us to get over in terms of the book. Booking.

Andrew Kaplowitz: Very helpful, guys. And then we appreciate the color, the initial thoughts on 2027 EBITDA, but maybe can you give us some more color on how to think about 2027 from a utilization perspective? Are you still relatively underutilized as you ramp up, particularly in Energy Solutions? And that is part of, like, you know, the friction in terms of how quickly you can grow. And then obviously, we are not gonna talk about guidance for 2028, but could you have a bigger step up? I mean, I see the chart in terms of utilization helping margins as you go into 2028, so much bigger step up in earnings then.

James R. Breuer: Yeah. Andy, so utilization will improve in 2027 and in 2028. You bring up a. Obviously, you understand the company, and so you bring up a good point. it is not just a large EPC, EPC awards. Also the services that we are also building up, whether it is in front end refining work, or life sciences or even some early chemicals work, the objective is not just to do the large projects, which in themselves have significant utilization by also continuing to feed and replenish the pipeline, which services only work that then will feed the EPCM awards for 2028, 2029. So I do expect a gradual improvement of utilization including in energy solutions in 2027, but the big step, I think, is gonna be in 2028.

John C. Regan: Yeah. Agreed. And that was at the root of slide 14 that hopefully landed well with you, Andy. It did.

Andrew Kaplowitz: Just 1 quick follow-up, John. Any reason why Urban was light in revenue in Q3? Something happened there?

John C. Regan: No. I think that is just a typical burn across there. Portfolio. Alright.

Andrew Kaplowitz: Thanks, guys.

John C. Regan: Thank you. Thanks.

Operator: Your next question comes from the line of Jamie Cook from Truist Securities. Please go ahead.

Jamie Cook: Hi. Congratulations on a good bookings in a fairly noneventful quarter. I guess just 2 questions. 1, Jim, you talked about your strength in MEGA and you talked about 25 projects that you are looking at that have an average size of $4.5 billion Can you just help us understand what markets largely are driving that? Just interested in the competitive dynamics on these projects, how many other players you are bidding against, or is it more function of you know, just function of whether or not the project goes forward because there is not a lot of people that have the capability that Flora has. And then my second question, just on nuclear, congrats and the SMR. Just wondering if you can elaborate what else is to come on the side. You know, whether it is traditional or SMR and just sort of the time frame associated with that. Thank you.

James R. Breuer: Thanks, Jamie. Good morning. So on the mega projects, portfolio. Pipeline portfolio, it is copper, it is power. it is life sciences. it is manufacturing, and it is both US and international. So it is it is fairly diverse. Many of them. I cannot say all the 25, but the majority of the 25 were doing the front end work. Or we are in sole source conversations with clients in case of example, in the case of these utilities. So we are we are really not bidding competitively these large mega projects. They are more negotiated deals. And the biggest hurdle to win the work is whether the project gets approved by the client's board, and it overcomes its financial hurdles. As far as nuclear, so we are doing 2 projects with X-energy now and we are. We talked about Cernavoda. that is a conventional nuclear in Romania, and that project is now the LMTP is almost done, and they are working the financial picture to hopefully go into EPP in late 2027, maybe 2028. Above that, we are in conversations with 2 very established nuclear technology providers. 1 in the SMR space, and 1 in the conventional reactor space about establishing partnerships to tackle projects together. So we do not have anything to announce today, neither names of technologies or projects, but I can tell you would very much recognize these 2 names. it is a go-to-market strategy or a go-to-market to market strategy. As our country and other countries are getting more and more serious about building these large projects. So this is a longer play. As far as announcements, front end in 2027 and EPC announcements in 2028 and 2029. Okay.

Jamie Cook: And sorry. Just 1 follow-up. Just as these mega projects move forward and just the constraints that there are in labor, do you see your business model evolving more towards strategic partnerships versus work that is been more transactional historically. I am just wondering what that. The implications are for potentially less cyclical earnings or more stable earnings stream opportunity going forward.

James R. Breuer: No. it is it is it is. that is exactly right, Jamie. We are we are working hard on growth but predictability So whether it is in the execution of the project, in partnerships with other contractors or longer term account relationship with clients. there is a lot of effort on the team to try to provide more predictability to the earnings, but we are we are balancing that with our growth objectives. Thank you.

Operator: Your next question comes from the line of Michael Dudas from Vertical Research. Please go ahead.

Michael Dudas: Good morning. Good morning, gentlemen. Good morning, Mike. Jim, as the. Your bookings and the business evolves over the next few years, it just it seems like you are. You guys can. We can cover characterize the business right now as pretty clean. The legacy projects, thank goodness. We are not gonna have talk about those much or if at all in 27. And, you know, given where your mix of reimbursable lump sum and the margins you are booking in the current and with the expected backlog, how does the positioning look from a return and margin standpoint into the next few years versus the prior large project cycles you know, maybe with similar different end markets that Floor has executed I am assuming there is a much more visible and predictability in this, and maybe I am assuming better margin accretion? Maybe you can adjust that. That would be helpful. Thank you.

James R. Breuer: Sure. Thanks, Mike. Let me say a couple of things here. 1, we are pleased with the margins of the new awards we are seeing. So far. We are seeing better margins in these awards than we were expecting a year and a half ago when we had our investor day, Mike, in early 2025. So that is encouraging. We are paying a lot of attention to the lump sum versus reimbursable mix. We are seeing good margins on both. Obviously, they are very different. Lump sum has higher margins and so that is why they are an important aspect of our portfolio. We are also working hard with our teams on improving the margins on the reimbursable work. Given the demand for qualified resources in the marketplace. So yeah, as we as we grow the company, the backlog, and the revenue that is gonna help margin. there is gonna be better utilization as we talked about But we are also driving higher margin performance on the individual projects. So I think over the next several years, as these big projects start entering into their peak production mode, if you will, last John explained. We expect margins to grow materially.

John C. Regan: Yeah. So maybe I will just append there. We do expect project level margins to improve, and then certainly with the additional scale we are gonna get more absorption of the overhead. So even bottom line margin should be expanding as we get into that peak execution window.

Michael Dudas: And I am assuming, John, that with the ERP and the technology, maybe you can frame a little bit of what contribution or absorption or impact could have in the discussion as well?

John C. Regan: Yeah. it is it is a great question. it is it is a little bit of a variable right now that is difficult to foretell. But, certainly, our expectations, you know, coming out of that are gonna be a much leaner organization. So know, I think about better technologies making us more efficient in the bidding process, ultimately, in the planning process, certainly, in the and in the back office. it is just a little difficult in the moment to say it is going to trigger, you know, a 200-basis-point improvement or something of that. But that is why we are so keen to get on to the. Advance the project of the future and incorporate those learnings into the to the ERP design. Because, you know, it is very tempting what could do to our margins. But certainly, we would expect up and to the right. Excellent. Thank you.

Operator: Your next question comes from the line of Brent Thielman from Baird. Please go ahead.

Brent Thielman: Brent. Good morning. Thank you for taking my question. I always like to try to understand the quarter a little bit better, so that is where I am gonna go here. Particularly, I guess I wanted to start in the urban solutions segment here and just you mentioned a couple of moving pieces. I guess I guess we do have that the joint venture mine was $25 million to the to the negative. First on that 1, is that a consolidated JV or unconsolidated? And then you have some good guys here too. I think you mentioned a favorable claim. There was. In the press release, you talked about a milestone achievement, I guess, Are those good guys more than the 25? I am just trying to get a sense of what maybe the underlying margin of urban was and I would love it if you give the numbers. I do not expect that you will, but just understanding how they compare the 2025 bad guy just to get a better understanding of what is happening there would be helpful.

John C. Regan: Yeah. Good morning, Andy. I will tackle that 1. So the project itself is a partial consolidation. So it is a 50 joint venture. So the income statement is you know, got the typical effects you would see for our ownership percentage and you are right. It was it was a downer in the quarter, it was largely offset by the 2 things in infrastructure space. So 1 was on the 1 of our projects here in Dallas, and so we were successful with change orders, that did give us a positive to our earnings. And, those were-- you said claim. We said change order. So Maybe I will correct the record there. But those were things that we were looking to drive to conclusion before year end. So it was a good outcome for us that we landed it in Q3 and a. At a little bit better than we had expected in establishing the forecast or the outlook And then on the milestone, that is a different project. That hit as we said, that milestone in Q3 and caused a an overall reevaluation of efforts to go. And when we did that, there was a reduction in that effort forecasted and applied against percent complete. All of which gave rise to a tailwind. I would say the totality of those 3 things roughly offset each other. So what you see in urban is really kind of the expectation moving into Q4 when there may be a slight uplift to what we think will come from them in Q4.

Brent Thielman: that is great. that is really clear. I am smiling. I did not know if I would get, that fulsome of an answer, and I did. Thank you for that, John. Also, I guess I wanted to. On energy, wanted to kind of dig in a little bit here too. Obviously, we can see kind of the underlying segment profit there. Obviously, I heard full notice to proceed on LNGC 2. Obviously, that is gonna have a big contribution and with full notice to proceed, I would imagine that is gonna ramp and, you got slide 14 that talks about the company's overall ramp. But maybe just to understand how this 1 goes, like, what is what is the expected completion date, over which we should be thinking about that $7.5 billion being burnt. I think that would just give some people some framing as to how this is going to contribute to their earnings as well. Thank you.

James R. Breuer: Yeah, Andy. This is Jim. So a couple of comments. The graph on that slide is intended to show a theoretical project. Yeah. it is it is not the corporation. it is a typical large mega project. So as far as LNGC, the client has announced start up in the early thirties, I believe, first half of the thirties. So you can extrapolate from that a 5- to 6-year burn.

John C. Regan: Yeah. And that project is a little different because we did have the sizable limited notice to proceed. And so we are we are maybe hitting the ground running a little faster on that versus what is on slide 14, but it is also a really large project. So maybe not quite so much in the first year. So it is it is complicated, but we wanted to put slide 14 out there to give us a frame to be able to comment on things like this.

Brent Thielman: Yep. Okay. Brent. Duly noted. Thanks guys for your time. Have a good day and good weekend.

John C. Regan: Thanks. See next week, Andy.

Operator: Your next question comes from the line of Steven Fisher from UBS. Please go ahead.

Steven Fisher: Brent. Thanks for the follow-up. I just wanted to ask about that potential $2 billion backlog scope reduction, Jim, that you mentioned. Anything more you can say about what is driving that and the likelihood of that happening or not?

James R. Breuer: Yeah. Steven, go ahead.

John C. Regan: Yeah. Maybe I will tackle it. You know, Steven, this is this is something that came up really late last month, so it is still very much a developing story. So it is a change in scope on a project, and so it is it is not as simple as the situations we had in the past. it is a project cancellation. And so we know sort of with an amount of precision. What that impact is. So it is still under evaluation. As we said, it is a reimbursable contract, so you can intuit what that. What those margins might be. But we think it is in that $2 billion range. And we think we will be able to see we will that those final amounts and have a derecognition going into quarter 4. But we you know, it is it is more than nominal, so we wanted to make sure that we were being transparent with you guys on that is to come.

Steven Fisher: And just in terms of. Is this sort of more kind of a macro environment kind of thing or just something company specific, project specific, of any sort of color there.

John C. Regan: Yeah. I think it is just project specific and kind of somewhat ordinary in terms of in flight projects and clients, from time to time reevaluating the scope of what they what they want us to do. Okay. Thank you very much. Yeah. Sure.

Operator: This concludes. Oh, your next question is from Andy Kaplowitz from Citi. Please go ahead.

Andrew Kaplowitz: Sorry, guys. John, can I just ask 1 follow-up there? Does your guidance then for 2027, your initial guidance like include the impact from the project? Like, how do we think about that?

John C. Regan: Yes. So everything that we talked about today is incorporated into that preliminary guide. Okay.

Andrew Kaplowitz: Thank you.

Operator: Now this concludes our question and answer session. I would like to turn the call back to James R. Breuer for closing remarks.

James R. Breuer: Thank you, operator, and thank you for joining today's call. I am very pleased with our record new awards and the health of our pipeline. And excited about our ability to deliver shareholder returns in the years ahead. Thank you, and have a good day.

Operator: This concludes today's call. You all for attending. You may now disconnect.