Fluor Corporation (FLR) Earnings Call Transcript & Summary

Good morning. On behalf of the Board of Directors and the management team, welcome to Fluor Corporation's 2021 Annual Meeting of Shareholders. I am Alan Boeckmann, and I am proud to serve Fluor Corporation as its Executive Chairman. It's an honor and privilege for me to be here with you today. At our annual meeting, shareholders will act upon the matters outlined in the notice of meeting. On our virtual meeting site, you will find an agenda and rules of conduct for today's meeting. It is our intention to conduct this meeting in accordance with this agenda and rules of conduct. Please note that this webcast is being recorded and all other audio recordings are prohibited. As is the practice at every Fluor meeting, we will begin with a health, safety and environmental topic and then a value creation topic. [Technical Difficulty]

[Technical Difficulty] It's truly hard to understand if that is the truth or just people being nostalgic. Today, though, it is difficult not to acknowledge the impact we have on our planet and the need to act, and that's why I am very excited for the Fluor Net Zero 2023 initiative. Fluor is taking an aggressive position by eliminating Scopes 1 and 2 greenhouse emissions by the end of 2023. Scope 1 are direct greenhouse gas emissions and Scope 2 are indirect emissions from purchased sources of energy. Employees are asking for this. Clients are asking for this. Shareholders are asking for this. And our communities are asking for this. Fluor has listened and is taking the initiative to build a better future. To get there, we're tackling this challenge in 3 phases: planning and implementation and verification. Similar to how we execute our projects, we plan the work and then work the plan. To date, we've established a multidisciplinary core team, aligned goals through our offices and set forth our communication plan. Currently ongoing is an ideation campaign to collect ideas from our colleagues all over the world. And being a global organization, all of us at Fluor want to be global citizens adding value to such initiatives. Once the planning phase is complete, we'll move into the implementation stage, and examples of these ideas include: reducing the use of electricity and gas at our offices, using energy from renewable sources and supporting environmental projects through our Fluor Foundation. The final phase is a third-party verification. In addition to all these efforts we're taking internally, we are also supporting our clients in reducing emissions at their existing and new facilities. One example of this is Fluor's proven Econamine FG Plus technology for post-combustion CO2 capture, which captures over 90% of carbon in the emission stream. It always puts a smile on my face when I see the Fluor name on roads and baseball fields, and it's truly a reminder that we really are a big part of the community and play an integral role in them. So setting goals such as the ones in the Net Zero initiative is proof that we are also living our purpose of building prosperity and empowering progress. We will be a stronger and a better world because of this initiative. Thank you for your time today.

Thank you, [indiscernible]. Let's turn now to our value creation topic. It's my pleasure to introduce Irene Palma, a civil engineer from our Santiago office, currently working as an area manager on the Salares Norte Gold Mining Project in Chile. Irene, please proceed with your value creation topic.

Thank you. Together, our world is facing new and diverse environmental challenges. We at Fluor are proud to have the opportunity to change the markets we serve by using greener alternatives, which will optimize our clients' resources and generate greater sustainably. The mining sector plays a key role in the world's ability to achieve the goal of a more sustainable future through the energy transition to a low-carbon economy. Renewable energy systems require mineral and metallurgical inputs such as from copper, commonly used in the production of wind turbines, solar panels and electrical vehicles. Thanks to copper's electricity and heat conduction properties, it is used in 60% of renewable goods production. In order to lending its full support to this energy transition, the mining industry itself must reduce its own emissions, which make up 22% of global emissions. In recent years, mining companies have taken advantage of decreasing wind energy costs to incorporate wind and solar energy into their already developed large scale projects as well as future planned projects in Chile. Clients are seeing up to 25% savings in electricity costs as well as the substantial benefits of their actions contributing to the future of sustainability. On my project, Salares Norte, we have incorporated this type of energy into the 2019 feasibility study, defining the main photovoltaic system parameters and pricing as part of the power supply contract. This will include the use of photovoltaic energy through solar panels covering a surface area of 56,000 square meters and an energy production of 18,000 kilowatt hour per year. We are scheduled to deliver this greener solution for the [indiscernible] in the first quarter of 2023 and the process plant operation by the third quarter of 2023. There's a clear need for companies to develop sustainable solutions for our clients and the markets we serve. Fluor is proud to be part of this global change.

Thank you, Irene. At this time, I would like to introduce the directors of Fluor's Board who are standing for election today. Our Board is comprised of outstanding individuals who possess a wealth of global business and management experience. They have proven themselves dedicated to Fluor and provide us valuable guidance and leadership. With me is David Constable, Fluor's Chief Executive Officer, who was appointed in January of this year. David has been on Fluor's Board since September of 2019 and is also a director of ABB. Next is Alan Bennett, who is the Former President and CEO of H&R Block. Alan joined our Board in 2011 and is our lead independent director. He also serves as Chair of our audit committee and as a member of our executive and our organization and compensation committees. Alan is also a director of Halliburton Company and the TJX Companies. Next is Rosemary Berkery, the Former Vice Chair of UBS Wealth Management Americas and Chair of UBS Bank USA. She is also the Former Vice Chairman, Executive Vice President and General Counsel of Merrill Lynch. Rosemary joined our Board in 2010. She is Chair of our governance committee and is a member of our audit and executive committees. She also serves on the Boards of Mutual of America Life Insurance Company and the TJX Companies. Next is Paula Eberhart, who is Chair and Chief Executive Officer of HMS Ventures and is the Former President and Chief Executive Officer of CDI Corporation. She is also a director of LPL Financial Holdings, Valero Energy Corporation and Vine Energy Inc. Paulett joined our Board in 2020 and is a member of the commercial strategies and operational risk committee and the organization and compensation committee. Then we have Jim Hackett, who has served on our Board since 2016 with previous service from 2001 to 2015. Jim is the Chair of the organization and compensation committee and a member of the commercial strategies and operational risk and executive committees. He is President of Tessellation Services and the Former Executive Chairman of Alta Mesa Resources and Former Chief Executive Officer of Kingfisher Midstream. He also serves on the Boards of Enterprise Products Partners and NOV Inc. Next is Tom Leppert, who is the Former Chief Executive Officer of both Kaplan and Turner Construction. He is also a Former Mayor of the City of Dallas. Tom joined our Board in 2019. He is a member of the commercial strategies and operational risk and governance committees. Next I'll introduce Teri McClure, who joined our Board in 2020. Teri is the Former Chief Human Resources Officer and Senior Vice President Labor at United Parcel Service. She is a member of the audit and governance committees. She is also a director at GMS, JetBlue Airways Corporation and Lennar Corporation. Then, I'll introduce Armando Olivera, a Senior Adviser at Ridge-Lane Partners. He is a Former President and CEO of Florida Power & Light Company. Armando joined our Board in 2012 and serves on the commercial strategies and operational risk and organization and compensation committees. He is also a director of Consolidated Edison and Lennar Corporation. Last we have Matt Rose, who has joined our Board in 2014. Matt is an adviser to BDT Capital Partners and is the Former Executive Chairman of Burlington Northern Santa Fe. He is a director of AT&T and serves as a member of our audit and organization and compensation committees. On behalf of our Board, we would collectively like to thank Carlos Hernandez, our previous CEO and a former director, for his leadership and the integral role he played in stabilizing the company during his tenure. I would also like to take this opportunity to recognize Peter Fluor for his many years of service and contributions to our company. Peter will be retiring from the Board upon the expiration of his term at this annual meeting and will be sorely missed. The great-grandson of the company's founder, he has been a steadfast adviser and confidant. And as our longest serving director, no one has been more dedicated to the company than Peter. I'm also joined today by Fluor's senior executives. In addition to David, I would like to introduce John Reynolds, who will be acting in an official capacity at today's meeting. John is Fluor's Executive Vice President, Chief Legal Officer and Corporate Secretary. Also present today representing our outside auditors, Ernst & Young LLP, are [indiscernible], our global coordinating partner; and Andi Pritchett, our engagement partner. And now a note on voting. If you have already voted on the items of business for this meeting by sending in your proxy online or over the telephone, it is not necessary to vote online today. However, if you do wish to vote today, you can do so by clicking on the Voting button on the meeting website and following the instructions. I now declare the polls open. [Voting]

The Board has appointed [ Bob Johnson, ] an agent of Broadridge Financial Solutions, Inc, to serve as the independent inspector of elections. I will now ask John Reynolds to confirm that we have a quorum represented at this meeting.

I have been informed by the inspector of elections that at least 70.4 million shares of common stock are represented and voting at this meeting, representing a majority of the total common stock issued and outstanding as of the record date.

Thank you, John. Because a majority of the total issued and outstanding shares is represented, I declare a quorum to be present. Now let's proceed. In our virtual meeting room, you will find there are 3 items of business that we'll be voting on. John, would you please describe these items?

The first item of business is the election of directors nominated for election to serve until the 2022 annual meeting and until their respective successors are elected and qualified are the following: Alan M. Bennett, Rosemary T. Berkery, Alan L. Boeckmann, David E. Constable, H. Paulett Eberhart, James T. Hackett, Thomas C. Leppert, Teri P. McClure, Armando J. Olivera and Matthew K. Rose. The Board of Directors recommends a vote for the election of these named directors. The second item is an advisory vote to approve executive compensation. Although nonbinding, the Board and the organization and compensation committee will review and consider the voting results of this advisory resolution, commonly referred to as a say on pay resolution when evaluating our executive compensation program. The Board of Directors recommends a vote for the advisory resolution to approve executive compensation. The third item is the ratification of the appointment of Ernst & Young LLP as Fluor's independent registered public accounting firm. The Board of Directors recommends they vote for the ratification. I'll now turn the floor back to Alan.

Thank you, John. Since our last shareholder meeting in November of 2020, I'm pleased to say the company has made significant progress on leadership and specific actions to drive our new strategy. And while the votes are being counted, David will describe Fluor's new strategy and our path forward.

Thank you, Alan. It's a time of new beginnings for Fluor, and I'm thrilled to be back at the company that largely shaped my career. Although I took the role of CEO on January 1, I've had the privilege of serving on Fluor's Board since 2019 and have spent the last 2 months of 2020 developing our strategy and establishing our new leadership team. Our new strategy, Building a Better Future, will address the 4 mega trends driving positive growth potential for Fluor. This includes Industry 4.0, energy transition and urbanization, beyond globalization and stakeholder engagement. We believe these 4 mega trends will drive significant demand for our services in 2021 and for decades to come. Fluor's already a recognized industry leader with a global execution platform, world-class expertise and the technical innovation ready to serve our diverse client base and deliver on their needs. We have one of the most robust engineering and construction cores in the industry that can tackle the world's problems, one client at a time. Our first strategic priority is to drive growth across the portfolio. By 2023, our goal is to grow our nontraditional oil and gas segments to 70% of our overall revenue. This includes energy transition, life sciences, high-demand metals and infrastructure. Accelerated growth will also be achieved through targeted investments in our advanced technology and government businesses. In addition, Fluor's traditional energy clients will continue to invest in oil and gas assets as they ramp up their focus on energy transition initiatives. Second, our commercial strategy confirms our intent to pursue contracts with more favorable risk-adjusted terms that reward Fluor for value. Our pursuit criteria will focus on reimbursable commercial terms that balance risk fairly and equitably. We will only consider fixed price construction contracts for business segments and scopes where we have a strong history of delivering expected returns. Our strong culture at Fluor is driven by our people and they are our greatest strength. Their value shines through in everything we do; safety first, integrity and ethical conduct, teamwork and inclusivity, and an ongoing drive for excellence. Our third strategic priority to foster a high-performance culture with purpose embraces a focus on ESG factors as well as diversity, equity and inclusion. Finally, our fourth strategic priority reinforces financial discipline across the company, which will rebuild and maintain a solid balance sheet with a strong cash position. We will achieve this by generating predictable cash flow and earnings. Our capital will be allocated to stabilize our financial position, invest in our growth markets and return excess capital to our shareholders. Fluor is embarking on a new journey, which will enhance our status as a leading provider of professional and technical solutions, while also maintaining our global leadership in engineering and construction. We believe this strategic direction is aligned with the prevailing trends that are transforming our markets, our customers and the world around us. The 4 strategic priorities we've established will enable us to maximize long-term value for our shareholders and fully deliver on our stakeholders' expectations. Fluor's employees around the world are energized and motivated to take this company to new levels of success. I am so privileged to lead them and appreciate their significant contributions during 2020. Before moving on, I want to thank our shareholders for submitting many questions for our meeting today. We have reviewed and grouped similar questions in our responses, which will be posted on our website shortly after the conclusion of this meeting. I'll now turn the meeting back over to Alan for the next item on the agenda. Alan?

Thank you, David. At this point, I hereby announce that the polls are closed. John, would you please give the preliminary results of the voting?

Thank you, Alan. Based on these preliminary voting results, each of the nominees for director has received the majority of the votes cast. Shareholders have approved Item 2, the advisory vote to approve executive compensation. And shareholders have approved Item 3, the appointment of Ernst & Young LLP as Fluor's independent auditors. The final voting results will ultimately be available and disclosed on a Form 8-K, which will be filed with the SEC after the vote has been certified by our inspector of elections.

Thank you. This concludes our meeting. I'd like to thank everyone for their participation. Please stay safe and enjoy the balance of your day. And I thank you for your trust in Fluor.