Fluor Corporation (FLR) Q2 2021 Earnings Call Transcript

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Fluor Corporation (FLR -0.17%)
Q2 2021 Earnings Call
Aug 6, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Fluor's Second Quarter 2021 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] A replay of today's conference call will be available at approximately 10:30 a.m. Eastern Time today, accessible on Fluor's website at investor.fluor.com. The web replay will be available for 30 days. The telephone replay will also be available for seven days through a registration link, also 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, Head of Investor Relations. Please go ahead, Mr. Landkamer.

Jason Landkamer -- Director of Investor Relations

Thank you, Hannah. Good morning, and welcome to Fluor's 2021 Second Quarter Conference Call. With us today are David Constable, Fluor's Chief Executive Officer; and Joe Brennan, Fluor's Chief Financial Officer. We released our earnings statement earlier this morning, and we have posted a slide presentation on our website, which we'll reference while making prepared remarks. Before getting started, I'd like to refer you to our safe harbor note regarding forward-looking statements, which is summarized on slide two. During today's presentation, we'll be making forward-looking statements, which 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 2020 10-K and in our Form 10-Q, which was filed earlier today.

During this call, we may discuss certain non-GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the Investor Relations section of our website at investor.fluor.com. I'll now turn the call over to David Constable, Fluor's Chief Executive Officer. David?

David Edward Constable -- Chief Executive Officer and Executive Director

Well, thank you, Jason, and good morning, everyone, and thank you for joining us today. Before we move into operational results, I want to acknowledge the passing of J. Robert Fluor II. Bob was the great grandson of our founder and worked at Fluor for 42 years before retiring in 2009. For 27 years, he led the Fluor Foundation, our charitable and community involvement organization that was established by his father and his uncle Si Fluor in 1952. Throughout his career, Bob brought meaning and value to the active giving back, inspiring thousands of employees across the company and across the globe, to commit time and resources to bettering their communities. The company will continue to build on Bob's legacy of supporting stronger, more sustainable communities around the world. In a few minutes, Joe will walk through the financials of our business in each of our segments. So let me first provide a high-level overview of what we are seeing in each of our major end markets. Starting with Urban Solutions.

Please turn to slide three. In mining, work is tracking broadly to our expectations for the next 18 months. We have seen a few large projects shift to the right as detailed estimate reviews and scrutiny of projects by our clients prior to an investment decision being taken is higher than we have seen in quite some time. In addition to those projects, we have a steady slate of feed and limited notice to proceed work, where we have a high level of confidence in conversion to full project awards in the next couple of years. Our prospect list is incredibly diverse, and we are not dependent on any one region or any one commodity to see significant growth in this business. Backlog for mining declined by approximately $1 billion in the quarter. That was due to the cancellation of a steel project in North America. Moving to Infrastructure on slide four.

The bipartisan bill continues to gain momentum, and we are optimistic that it will focus on more traditional infrastructure projects, including roads and bridges, which we believe will provide some upside to Fluor and more importantly, funding certainty to our clients in the coming years. Importantly, we are starting to see shifts in contract structures and collaborative models are being applied to the infrastructure sector as well as other sectors that allow contractors to compete on capabilities and qualifications instead of solely on price. This is a positive development, and we are encouraged by this approach to risk mitigation. On a particularly promising note, we are seeing advisory institutions acknowledging the challenges encountered in executing public works projects. This has led to the development of more collaborative procurement models to support their public sector clients.

Last week, we were notified by TxDOT that our co-lead joint venture was selected to design, construct and maintain the 6.5-mile long I-35E Phase two project here in Dallas. Our portion of the work will be booked in the third quarter. We're excited about this project and look forward to supporting TxDOT on this and other capital programs in the future. Regarding our legacy infrastructure portfolio, I want to provide an update on the Gordie Howe Bridge Project and the $138 million charge we announced today. The project is experiencing significant COVID-related delays as well as overruns due to procurement and subcontractor cost growth. This charge includes additional reserves for delays and disruptions in the schedule. Fluor is not the lead operating partner on this contract. It's important to note that these cost growth factors may be at least partially recoverable under the contract.

We expect that it will require several quarters to analyze recoverability and negotiate with our clients before the accounting standards allow us to recognize incremental revenue for these amounts. While we are disappointed in the performance of the project, we believe we have a solid estimate on the cost at this point. Design is essentially complete, and we have procured approximately 85% of the materials required. We have been revising the forecast along the way, and this contract was previously included in our 0 margin projects in backlog. As a noncontrolling partner in this JV, we continue to work with our partners to help them get this project into the best possible position.

We have just under $1 billion in backlog remaining for this project and anticipate substantial completion by the end of 2024. Our other infrastructure projects continue to make solid progress, including the LAX people mover, which crossed a significant milestone in early July when the joint venture placed the first forward trusses for the elevated pedestrian walkway. Turning to slide five. In advanced technologies and life sciences, we are successfully wrapping up some of our large data center projects in Europe. We also see opportunities for semiconductor manufacturing facilities, both domestically and internationally. These projects are a mix of brownfield and greenfield, and provide a lot of opportunity for add-on work as these facilities grow. In life sciences, we continue to see a good list of opportunities, as our world-class technology capabilities support our strategy of getting front-end work. We have been awarded a few front-end projects this quarter with the goal of converting them into EPCM contracts.

Overall, we still see the ATLS end markets as an area for growth in our business, and we are focused on deploying our teams on to projects where we can grow our market share with contract terms and conditions that we find favorable. Please turn to slide six. In Mission Solutions, we experienced strong margins this quarter due to increased execution activity on DOE projects, higher-than-forecasted performance-based fees and the release of COVID-19 cost reserves. This strong performance was somewhat offset by a decline in execution activity on army logistics and life support programs in Afghanistan and Africa. In June, we fully demobilized our people and successfully completed our assignment in Afghanistan after 13 years. At its peak, Fluor had 26,000 employees from 65 countries, speaking 39 languages at 76 sites and supporting over 100,000 troops.

This included 191,000 meals prepared per day and the establishment of the first-ever biodiesel program for the U.S. military deployed overseas. Under this program, we produced over 0.5 million gallons of fuels for the bases. It's been a great honor for Fluor to support our troops in Afghanistan, and I want to thank our employees for their great work on this assignment dating all the way back to 2009. We are now continuing to support the Army through our LOGCAP V task order award in Africa. Next, please note that on the RAPID project, we have moved into the warranty period. This project is now essentially complete. Our major pursuits for the second half of this year in this group include the Savannah River Management & Operations contract extension and the Y12/Pantex Management & Operations contract in Tennessee and Texas. Moving to Energy Solutions on slide seven. We had a particularly strong quarter due to certain favorable events driving up our gross margin. This reflects the negotiations of change orders, scope increases and cost improvements across numerous projects.

Furthermore, margins also benefited from the release of credit loss reserves after we received payment on a significant long-standing past due receivable. These positive segment margin results were partially offset by a $20 million loss recognized on an embedded derivative, which is excluded from our adjusted EPS numbers. Turning to slide eight. We remain pleased with the progress on our LNG Canada project in Kitimat. During the quarter, we saw a significant easing of public health orders that had slowed progress earlier this year, and we are now fully staffed onsite per our plan. In the second quarter, we achieved several major milestones. First, we drove the last of the Phase one plant piles. This program started in January 2020 and included the installation of nearly 6,500 piles. If laid end to end, the piles would extend 130 miles.

Secondly, the project's material offloading facility is now operational, receiving and unloading the first three major pieces of process equipment shipped via oceangoing vessel. These pieces of equipment for Train one include the 345 ton, 50-meter-long main cryogenic heat exchanger and two precooler units, each weighing over 280 tons. We are scheduled to direct these pieces this fall. The site has gone vertical with the steel erection of the non-process building, including the central control and administration buildings. During the quarter, we completed the LNG storage tank wall pours. The LNG tank group and suspended deck raising is scheduled for next week. Module fabrication has commenced for all facets of the project across the Asia and European module fabrication centers. Preparation and planning have commenced for the first module delivery major, which are on target for Q4 2021.

We have formalized the term sheet with our client, which outlines principles of cost and schedule relief related to delays, including COVID, engineering and procurement impacts through February 26, 2021. We are targeting finalization of a formal variation this month. Please turn to slide nine. We continue to enhance our Energy Transition portfolio and believe that Fluor will be a vital contributor to a lower carbon future. We are seeing success in several markets, such as renewable fuels, carbon capture, clean hydrogen, battery chemicals and asset decarbonization. First, in the renewables fuel market, Fluor is focused on brownfield or revamp capabilities with a geographic focus in North America, where low carbon fuel standard credits are available, demand for liquid fuels continue and feedstock selection is broadly based. Next, in the carbon capture market. Fluor can perform projects with any technology globally.

This includes our own proprietary technology for both pre-combustion and post-combustion, Fluor Solvent and Econamine FG+, respectively. We are also seeing further opportunities for carbon capture on new and existing LNG facilities. Our clean hydrogen efforts include both green hydrogen and blue hydrogen. Fluor is relying on its 50 years at the forefront of the gasification industry and has executed more than 30 pre-FEED and FEED projects. Fluor can differentiate in this market with our ability to act as integrator and OSBL contractor. Another Energy Transition market we are exploring is battery chemicals. We are expanding our lithium capabilities and are pursuing the growing market of electric vehicle battery production. In asset decarbonization, Fluor is leveraging our design experience for refineries and petrochemical facilities, including steam and electrical systems. We have global execution capabilities for conceptual front-end design through EPC for both electrification and energy efficiency projects.

Aside from these markets, we are also pursuing projects in green ammonia, chemical recycling, bio-based chemicals, long duration energy storage, waste-to-energy conversion and bio LNG. Most of our energy transition work is in the United States and Europe. And based on our differentiated technical position, we continue to view growth in this area as a driver for increased revenue and earnings in the coming years. Now let's turn to NuScale, a related energy transition offering on slide 10. For the first seven months of this year, NuScale has received $192 million in outside investments from JGC and GS Energy, Doosan, Samsung and IHI, among others. These infusions not only eliminate the need for Fluor to provide additional funding, but also accelerate NuScale's path to commercialization and demonstrates third-party investor interest in NuScale's business prospects. Additionally, we continue to have positive and productive conversations around nuclear power as a necessary baseload clean energy source, both in North America and abroad. We believe that our new scale product will become a vital part of a cleaner energy future.

Before handing the call over to Joe, on slide 11, I want to share a few observations as we head into the second half of the year. First, we expect to see some inconsistency or lumpiness in new awards as the optimism in post-pandemic capital spending from clients is partially offset by concerns about cost growth for labor and materials. We're also keeping a close eye on the impacts of the Delta variant of COVID as it relates to our exposure to global supply chains. While these dynamics may shift certain projects out in time somewhat and impact the near term, there are longer-term trends in our business that I view as very positive. First, as mentioned in my infrastructure remarks, we are starting to see a better balance of risks sharing in contract structures. Projects are increasingly structured as predevelopment agreements where clients and contractors work together to identify and mitigate risks before bids are finalized.

These collaborative models are being considered because clients are seeing contractors declining to bid on large projects as terms and conditions have shifted risk allocation too far away from the owner. Also, we continue to see a robust pipeline of study, pre-FEED and FEED work to support future growth. We are currently working on or have recently completed pre-EPC work that represents over $150 billion in total installed costs. Additionally, we are pursuing another 200 study in FEED projects, representing almost $200 billion in TIC over the next several years. So while we are seeing some near-term headwinds in 2021 with new word lumpiness, we have considerable opportunity to capture projects that are in the pipeline, and they're well suited for Fluor. Finally, regarding our cost savings initiative, we are making solid progress and have identified significant opportunities to improve processes and reduce costs and create an organization that is competitive and fit for growth.

Our various work streams are taking specific actions to ensure that our resources are tailored to what we need today. And we are establishing new protocols so we can efficiently scale as our markets ebb and flow. And now I'll turn the call over to Joe for the financial update. Joe?

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Thanks, David, and good morning, everyone. Please turn to slide 12. For the second quarter of 2021, we are reporting a diluted adjusted earnings per share amount of $0.32. In our press release and in the appendix to today's presentation, we show a reconciliation of GAAP EPS to this adjusted number, which excludes the following after-tax items: $19 million of new scale expenses; $14 million of ICA Fluor embedded derivatives and associated taxes; $23 million of currency exchange losses; and $1 million of investigation costs. Our diluted share count was $156 million for the quarter, up from $140 million in the first quarter. This includes the additional shares from the convertible preferred offering we completed in May. In the third quarter, we expect our diluted share count to be approximately $170 million, as the effects of the issuance will be for a full quarter. For the quarter and the year-to-date, the offering is anti-dilutive under GAAP due to the net loss. So common EPS and diluted EPS results are the same.

However, in terms of guidance and results, we will discuss EPS, including the aforementioned adjustments as well as using the larger diluted share count going forward for comparison purposes. Our financial statements will continue to conform to GAAP, and we will provide the required reconciliation. But we will use the larger dilutive share count for all periods as appropriate. I will walk you through that a little more clearly when we talk about guidance. Turning to slide 13. Specific to our convertible preferred offering, we saw it as a necessary and positive step toward reinforcing financial discipline for the company. This offering allowed us to make a significant change in our net debt profile and not have to wait for proceeds from outstanding transactions that do not have an established closing date. With the expected debt retirement, our debt to total capitalization ratio will decline to below 40% by year-end, fulfilling the goal that we set on Strategy Day.

The positive feedback we've received from the credit rating agencies and the credit provider shows that they are supportive of our efforts to drive Fluor to its historical leverage profile. This ensures we have the capital strength to maintain our position to bid and win the projects to support the growth within our stated strategy. Since completing the offer, we have retired $26 million in debt, to date, and anticipate additional substantial retirements by the end of 2021. Please turn to slide 14. Our overall segment profit for the quarter was $67 million or 2.1%, and included the $20 million charge for embedded derivatives in Energy Solutions and quarterly new scale expenses of $19 million. Excluding these expenses and the effect of the embedded derivative, improves our total segment profit margin to 3.3%, in line with our guidance for the year. Our ending cash balance was $2.7 billion, and includes the unutilized proceeds from the convertible offering and the completion of a P3 sale in North America. Cash flow from operations was $77 million for the quarter, and we expect cash flow generation to be positive for the second half of this year.

Operating cash flow improved from the first quarter due to decreased funding for COVID costs on projects, lower cash requirements for G&A and tax payments as well as a decline in working capital. We also completed the sale of AMECO North America in the second quarter and received cash proceeds of $71 million. We have shifted our focus to the divestiture of AMECO South America and Stork and have confidence we will transact these divestitures prior to Q1 of 2022. We continue to consider small M&A opportunities, as previously discussed. But given current valuations in the market, we remain extremely selective. Our G&A expense was $31 million compared to $66 million last quarter. The decrease is due to the impact of stock price on our incentive compensation in the second quarter. Before I provide details about our outlook for the balance of the year, I want to provide a bit of insight into our current portfolio.

Please turn to slide 15. At the end of the quarter, our backlog contained $1.2 billion in projects that are in a 0 margin or loss position. Outside of the Gordie Howe project, we have just over $200 million in backlog remaining for projects in a loss position, virtually all of which will complete by the end of 2022. All new awards since we tightened our bidding criteria, two years ago, remained profitable. Furthermore, looking at this slate of more recently awarded projects, project gross margin in all three segments is about 40 basis points higher than as sold gross margin, which shows there more disciplined approach to bidding is resulting in more predictable and profitable results. And now turn to slide 16 for our outlook for the rest of 2021. Our previous adjusted EPS guidance of $0.50 to $0.80 per share was based on a share count of 140 million shares and thus, implied net income of $71 million to $113 million for 2021.

Based on the performance we see in the businesses and considering the additional shares related to the convertible preferred offering, we are raising our adjusted EPS guidance to a range of $0.60 to $0.80, which correlates to an adjusted net income of $94 million to $128 million for the full year. Hitting this target is dependent on many of the currently identified projects being awarded in a timely fashion and our ability to convert them into revenue in the next two quarters. As David mentioned, some projects may be delayed by owners until there is more certainty regarding near-term concerns around cost growth for labor and materials. We continue to monitor these headwinds through our supply chain group and we are making sure the team remains aligned with our bidding process. In the appendix of our slide presentation today, we provide a reconciliation from previous guidance to current guidance and GAAP EPS to diluted adjusted EPS. Despite the anti-dilutive nature of the offering at this time, we will continue to report adjusted EPS, assuming a fully diluted share count for measurability and will provide reconciliations as necessary.

We are also adjusting our segment level guidance for the second half of the year and expect segment margins to be approximately 3% to 4% in Energy Solutions, which excludes any fluctuation from the embedded foreign currency derivative, 3% to 4% in Urban Solutions, and 2.5% to 3% in Mission Solutions. These margins also underpin Q3 and Q4 performance to support the updated diluted and adjusted EPS range of $0.60 to $0.80. On our Strategy Day in January, we provided long-term 2024 EPS guidance of $3 to $3.50. This range was provided using our 2020 share count of 140 million shares. Adjusting for a diluted share count of 170 million shares in 2024, we are updating our long-term EPS guidance to a range of $2.50 to $2.90. To reinforce, we are not changing our income assumptions, just adding to the denominator. Operator, we are now ready for our first question.

Questions and Answers:

Operator

[Operator Instructions] And we'll go first to Steven Fisher with UBS.

Steven Fisher -- UBS Investment Bank -- Analyst

Thanks. Good morning guys. Just wondering if you could talk a little bit more about the inflation that you're seeing? How broad is it? Is it more labor or materials? And what are your customers telling you about what they would have to see to move some of these projects forward.

David Edward Constable -- Chief Executive Officer and Executive Director

Steve, good to be with you. I think what we're seeing specifically in the mining group is just -- as I said, just some extra kicking of the tires on the estimates and making sure that the pricing is firm and as we go out, those are obviously very long-term projects and getting a good handle on any escalation in inflation on labor and materials. So on the current existing projects, I want to say that we're in very good shape, no problems, obviously, on reimbursable cost projects. But we've also scrubbed our remaining fixed price contracts and backlog and are in good shape there. So I think it's a matter of just making sure that what we've seen here recently due to COVID is -- and we're seeing it come back down actually, lessening the inflationary impacts. And so I believe it's more of a timing challenge right now that some of these projects, just needs a little more time to get that comfort. Joe, I maybe ask you to comment as well on the inflation.

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Yes. No. And certain of our contracts to specifically our largest award in quarter 1, we have provisions in the contract for extraordinary inflation adjustments that are allowed to the contractor. So yes, I know, I would concur with David. I think we've accounted for a significant portion of that in our current backlog. And clearly, as we proceed and bid on work moving forward, we'll make sure that we're working to account for any of those impacts.

David Edward Constable -- Chief Executive Officer and Executive Director

Steve, we're not seeing projects being canceled. I guess, I'll put it that way as well. These prices, again, just ensuring that the internal rate of return that the clients require before taking FID are solid and they're doing that type of scenario planning right now.

Steven Fisher -- UBS Investment Bank -- Analyst

To clarify, this is mainly just in mining. You're not seeing this broadly across the portfolio?

David Edward Constable -- Chief Executive Officer and Executive Director

Yes. That's where it's most prominent right now. And of course, as we talked in the past, mining is really in front as we look at our growth markets, mining and I guess, I'd put chemicals right up there as well, but it's primarily mining where the teams have been talking to me about that issue.

Steven Fisher -- UBS Investment Bank -- Analyst

Okay. And just a quick follow-up on Gordie Howe, I guess, just how confident should investors be that there won't be more charges here? What's in the 15% of materials not bought out yet? I mean it sounds like it's a loss project. So how much room is there for error on construction? And I guess the bigger picture question is, it's a legacy project, but what would be different under the current system?

David Edward Constable -- Chief Executive Officer and Executive Director

Well, under the current system, we would not have bid that project. It would not have gotten through our pursuit criteria. So that's the first thing. This is a legacy project. It was awarded in September 2018. As you said, it's a 0 margin project. So it's accounted for that way. We're not in the lead on the project. That's also a CEO approval requirement that we take very seriously. That's not how we like to execute projects. So that would have changed as well. It's a design-build project. Right now, we're 40% of the -- again, not in a nonoperating partner. Construction, it's both self-perform. We're doing the bridge in Michigan interchange, about 70% are self-performed and then the U.S. and Canadian port of entry is about 95% subcontracted. So as far as are we in good shape.

I believe, it's been scrubbed this second quarter where we found a significant increase in procurement and subcontractor cost growth. We've had our teams in there scrubbing hard and making sure that forecast that came across from the partner is reasonable. And I think we've got a reasonable estimate at this point. And we do have, as I mentioned, some potential recovery of revenue recognition as we perfect our claims on the project. So if you think about the $1.2 billion in our backlog, 0 margin projects. We've really done a good job of working off these fixed-price contracts and Gordie Howe is like, I think, $968 million of the $1.2 billion is Gordie Howe's.

So we're really working off all of those lost projects. And this is really the last major one that we do have a good estimate on and design is 99% complete. Procurement, yes, there's not much left in that 15%. I think we're comfortable. We've scrubbed that as well to give comfort to your question. And so overall, we're just about 20% complete overall in the project. So that's where we're at. I think Joe wants -- guiding principles, the forecasting that we're doing and maybe comment on cash flow impatcs.

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Yes. But irst of all, I'll take the cash flow. We're sitting on a fairly robust advance on that project. So we would not see really any of the cash flow impacts from the current financial position until the 2023 timeframe. What we've been able to kind of instill with the new kind of guiding principles that we've implemented within the company is we identified the cost first. And are still in the process of identifying what our entitlements are under the contract relative to COVID and client delays and what that may mean in terms of revenue and until we have that perfected, and we feel comfortable in our position. We took the cost when we knew the cost and we'll look at the variable consideration. We have put a significant claims team together, and they're all around that project to develop that potential recovery. But until they do their work and until we receive their feedback, we won't know what that looks like.

Steven Fisher -- UBS Investment Bank -- Analyst

Appreciate the color. Thanks very much.

Operator

We'll go next to Andy Kaplowitz with Citi.

Andrew Alec Kaplowitz -- Citigroup Inc. -- Analyst

Hi. Good morning guys. David, I just want to follow up on the project environment in the sense that in the past, you said, the book-to-bill could get closer to one by the end of the year. You just talked about mining customers taking their time. But given that $20 billion of mining prospects that you have, obviously, commodity prices have gone to the roof, on the metal side. Are discussions starting to heat up at this point? And then do you also see bigger Energy Solution projects starting again, at least discussions, so you get to that higher book-to-bill by the end of the year? Or is that really sort of pushed out to 2022 now?

David Edward Constable -- Chief Executive Officer and Executive Director

So we had a good first quarter as a good upside surprise in Q1 for new awards. We're a little light in Q2. I will say it was close. We could have had quite a Q2, but there were some that fell on the other side of the fence in Q3. So I can tell you that Q3 awards as of the end of July, are equal to all of the full Q2 awards. So we've got two months to go in Q3, and we're already at the level we booked in Q2. So that's very positive. I think as we've been messaging for the past. A couple of times we've talked with you that the back half of 2021, you should start to see new awards coming in at a higher level and definitely into 2022, and I still believe that. So I think Q3 is going to be better, getting to book-to-bill, one to one probably not quite there yet, but we'll be seeing that certainly, in 2022, I believe we'll get to that level of booking.

Just to give you some color on -- we talked about in the prepared remarks, all the FEED and study work, about $160 billion in-house right now of TIC and chasing another couple of hundred billion in the next six quarters of front-end work that we want to convert. And it's in the big chunks of that chemicals right up in addition to mining, obviously, like you said, we got $20 billion in mining, actually about $28 billion, if you add in the additional study work that we're working on, and we're chasing $64 billion of FEED work in mining as well. But then you add in chemicals, we've got $44 billion in-house in front-end work and chasing $55 billion in the next six quarters. And even traditional oil and gas, right, $30 billion of FEED work in-house and chasing $46 billion.

And LNG is very strong with $53 billion in-house and then another $12 billion through the next six quarters. Energy Transition as well, I should mention in the prepared remarks, we're covering all the bases in Energy Transition, and we've got $11 billion in-house already in front-end work and looking at $16 billion in prospects in 2022. But if you look at the full EPC, EPCM near-term prospects, and this is greater than $50 million project. So there's another several billion in less than $50 million. But the near-term prospects for EPC, EPCM prospects through Q4 2022 totals just under $40 billion, and Energy Solutions is $9 billion of that, Mission Solutions is $11 billion and Urban Solutions is $17 billion in full EPC or EPCM work. So to your point, your question, I'm feeling pretty optimistic about where new awards are going to start landing and coming in, certainly, in 2022. The markets are starting to come to us. And as the uncertainty of COVID and the COVID variant subsides, as I've said before, it's not if but when, and that's where we're at. Joe?

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Well, no, I was just going to add, Andy, that to David's point, we're not seeing cancellations. We're just seeing a significant amount of additional due diligence being done relative to market conditions and COVID. So it may push from Q4 into Q1. But again, the positive thing is that we're not seeing those cancellations.

Andrew Alec Kaplowitz -- Citigroup Inc. -- Analyst

Very helpful color, guys. And then just can you give more color into positive change orders and cost improvements that you quoted this quarter within Energy Solutions. I know you mentioned they were on numerous projects. So why all of a sudden did you record such a big positive revision this quarter? And then you mentioned you increased the underlying margin of the business. Is that a function of just LNG Canada ramping, better underlying execution, something else? Any more color there would be helpful.

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Yes. There's a lot of puts and takes in there. I don't want to get into the specific projects necessarily, but there's been some additional scope that was added to a particular project. We have come to terms on a number of different COVID-related activities. And I think that's driving a significant portion of that offset by the embedded derivative. And then you include the fact that an aged receivable from a client in Mexico, that was nominally 2.5 years old was received during the quarter are all very positive outcomes for us.

Andrew Alec Kaplowitz -- Citigroup Inc. -- Analyst

Appreciate it guys.

Operator

We'll go next to Sean Eastman with KeyBanc Capital Markets.

Sean D. Eastman -- KeyBanc Capital Markets Inc. -- Analyst

Hi guys. Thanks for taking my question. Good morning. So David, I mean, you're talking some big numbers in terms of the pursuit pipeline and pre-EPC activity levels. I mean, historically, what percentage of pre-EPC work has translated to EPC bookings? I'm just struggling with those numbers relative to capex updates we've seen from the project sponsors. So I'm just trying to reconcile that and understand how likely this pursuit pipeline is to hit?

David Edward Constable -- Chief Executive Officer and Executive Director

Yes. Obviously, not everything in study and pre-FEED and even in FEED come all the way through the screens, right, because of project economics, Sean. So point taken. And that would be a tough question to answer, specifically. When we're in a full FEED and working economics with the clients then we could see upwards of 30%, 40% conversion of that. But I haven't broken the numbers down for you between study, pre-FEED and FEED. So that be a more detailed analysis that we'd have to take a look at.

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

I was just going to add to that, Sean. I think if you look at it from an industry perspective that those conversion rates would look different. For example, clearly, within the mining...

David Edward Constable -- Chief Executive Officer and Executive Director

And mining is going to be more like 90%, but I was giving an average. I mean, that $20 billion that's solid in mining is going to be based on our market position, is a much higher conversion, obviously. But again, I was giving you an average across all 11 business lines.

Sean D. Eastman -- KeyBanc Capital Markets Inc. -- Analyst

Okay. Okay. Fair enough. And I just wanted to ask on Mission Solutions. A lot of moving parts there as well, just with LOGCAP transition, some projects completing, I feel like we've seen maybe one or two DOE prospects go to competitors, I could be wrong there. But is there kind of an air pocket over the next couple of quarters here? What's the revenue growth trajectory like in Mission Solutions?

David Edward Constable -- Chief Executive Officer and Executive Director

Yes. We're excited about Mission Solutions and moving up the value chain at Mission Solutions and doing management and operation contracts. And I think some of the prospects -- we do have a dip, as I talked about coming off LOGCAP IV in Afghanistan, obviously. That was a huge program to fill that bucket back up. And that's what the team is focused on by moving up the value chain. When I say that Q3 has already reached full Q2 new award levels. It's due in large part to very large Mission Solutions awards that you'll be hearing about very soon. And we're also chasing massive progress for the DOD here that could really put Mission Solutions way, way up on the revenue burn curve.

And so we're pretty excited about the trajectory of Mission Solutions revenue and earnings through the planning period. I think that's how you should look at it. You also saw that we had a nice award with the Navy on a multi-contract award, they're going to be spending $5 billion a year here for the next several years that we'll be able to participate in. That also is more of a value adding up technical solutions program, engineering program, management that we can help support the Navy as well. So I'm pretty bullish on Mission Solutions right now.

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Yes. No. So am I Sean. I was just going to add that it's hard to replace a LOGCAP at the end of the day and the amount of revenue that's flowing through that. But the notable award that's coming in, in Q3, and there are some very significant awards that we're expecting to have announced at the end of this year. And as you know, in the DOE space, these awards are $15 billion to $20 billion type awards that we feel like we have very good opportunities, and we're very well positioned. It will see a bit of a smile relative to revenue recognition, but we believe that you'll see a fairly significant growth in backlog.

David Edward Constable -- Chief Executive Officer and Executive Director

If you look at the spending, right? I mean the DOE, Sean, through our planning period anyways, the DOE spend is $43 billion or will be spending over $40 billion annually and the DOD is way above that I don't know, $750 billion. So there's lots to support, lots of value we can add to both of those agencies and others.

Sean D. Eastman -- KeyBanc Capital Markets Inc. -- Analyst

Okay. Helpful. I'll turn it over.

Operator

We'll go next to Jamie Cook with Credit Suisse.

Jamie Lyn Cook -- Credit Suisse AG -- Analyst

Hi. Good morning. I guess two questions. One, can you just comment on sort of what you're seeing from Stork with the economy starting to improve and getting somewhat back to normal, whether we should start to see any acceleration in business? And just wondering if that's the case, how that impacts the timing or valuation associated with the divestiture there? And then my other two questions, just on the implied guide in the back half of the year. For Mission Solutions, do we just take the first half and to get to your guide in the back half? Because if so, it implies the margins in that business are falling in the back half of the year? So I'm just wondering if I'm missing something. And then as well on Energy Solutions. I know we're adding back the embedded derivative. But if we, again, take the first half run rate relative to your guide for the full year, it implies margins to, I think, are in like the 2% range or so. So I just want to make sure I'm adjusting for the add-backs or lack of, correctly? Thank you.

David Edward Constable -- Chief Executive Officer and Executive Director

Thanks, Jamie, I'll ask Joe to comment on Mission Solutions margins in the back half and also Energy Solutions and the embedded derivative question. On Stork, the process is coming along nicely, where we've got a lot of interest, I think, over 50 different interested parties signed up on NDAs. So really good interest on Stork. To the business itself, I think from an awards perspective, they're seeing challenges with respect to COVID uncertainty. You need to think about Stork being internationally located. And obviously, COVID is impacting the rest of the world much more significantly than it is in the U.S. right now. So they still are seeing some softness due to COVID uncertainty, but from what the President of Stork tells me they're looking to stronger performance on new awards later this year. So with that, as I said, the process is running well, and we're excited about that transaction later in the year.

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Yes. I can add to Stork, there's a surprisingly large amount of folks that are in the data room today. So there's a fair amount of interest there. On Mission Solutions, after the LOGCAP and some of the one-off events that we saw in Q2 relative to some COVID releases and some incentives that were earned. We would expect that range to get back to its historical norms of between 2.5% to 3% moving forward. And I think what you're referring to in Energy Solutions is, if you kind of take out all the noise for the quarter, we would have been on a normalized basis, about 3.7% for Energy Solutions. And going forward, we're upping the range from 3% to 4%.

Jamie Lyn Cook -- Credit Suisse AG -- Analyst

Okay. That's helpful. And then just one last question. I guess with a lot of people making strategic decisions to sort of exit sort of the EPC business and understanding you have good prospects ahead, even if they're slightly delayed. Do you think your win rate potentially in some of these markets would be higher than what we would see in a normal cycle, just with you staying committed to the business and a lot of your peers walking away? And is that reflected in your sort of long-term EPS targets, a higher potential win rate?

David Edward Constable -- Chief Executive Officer and Executive Director

Jamie, from a win rate perspective, we did not adjust that upward for our earnings power through the period. I will say, we've talked about these contracting models coming to us favorably, coming more favorably to us in the different businesses. Our pursuits right now, we took a look at it with the Board this week, 85% of our pursuits are now reimbursable contracts with incentives. So really a much better place to be as far as our strategy to go after fair and balanced contract terms and commercial terms. And I think that's telling. And the thing we need to be careful of is as these markets all come back and really pick up that we need to be very disciplined that we don't jump all over the first few and make sure that we keep our margins where they need to be.

So we're just cautioning the teams to be very measured and just follow our processes that we put in place and drive the Fluor value and getting paid for the value that we're bringing to all these projects. So I guess I'd say there's potential upside to what we're looking at as far as win rates because we are differentiated. We bring all that front-end capability that I talked about, for example, in Energy Transition, but you can just stay with us and we can build and design, and build and commission the plans for all of these customers that all are focused on net 0 across our 11 business lines.

Jamie Lyn Cook -- Credit Suisse AG -- Analyst

Okay. Thank you. That's very helpful. I appreciate it.

Operator

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

Michael Stephan Dudas -- Vertical Research Partners, LLC -- Analyst

Hi. Good morning everybody. David, maybe you could share some further thoughts on NuScale. Certainly, a lot of progress, first half, on investment and project and development opportunities, what are some of the milestones we could look for during the second half of the year? And all the various funding and hopes and proposals out of Washington with regard to nuclear and clean energy, etc. Early on, is this could be helpful for SMR for Fluor? Or is it still far down the road, you still have just the opportunities because of your lead in having to design approval from the NRC?

David Edward Constable -- Chief Executive Officer and Executive Director

Yes, NuScale is very exciting, and it continues to heat up, Mike. We've had a great first half and through July with all the third-party investments. We've got a Guggenheim on board looking at our different options to sell down Fluor's equity and extract value for Fluor shareholders. So everything is on track. I can tell you that. And we're looking at some interesting activity in that space as far as getting to, ultimately, to a minority ownership where we still have exclusive rights to execute and program manage all of the projects, small module reactor projects domestically and internationally.

I must say, internationally, the activity has really picked up and could surpass the U.S. in terms of timing and that NRC approval from last year really, really has everyone focused on NuScale leading the way in the small modular reactor technology and it's getting a lot of attention globally from governments and from customers outside the U.S. So that's also very positive. So that's where we're at. With respect to DOE, good discussion with Secretary Granholm, a couple of weeks ago with her. And you're seeing the numbers coming out of Washington. I think, last night, she talked about the legislative package, targeting new small modular reactors. I think they've got about $6 billion set aside on nuclear facilities to be shut down and trying to figure out how to go forward with small module reactors there and then another $6 billion for SMRs themselves.

So that's, to me, very positive and from what we're hearing out of Washington, full support and full steam ahead with NuScale and starting to deploy through the lower carbon future that's being required globally. So that's what I had on NuScale, Mike.

Michael Stephan Dudas -- Vertical Research Partners, LLC -- Analyst

Yes. Just one follow-up on that. Is there any additional investment expected? What needs to be triggered in the next several weeks, months or quarters for NuScale to get to the level where monetization could happen or there's a breakout in some new business development opportunities or accelerating some of the potential that NuScale has? Is there anything that we should think about here as we move through the second half of the year?

David Edward Constable -- Chief Executive Officer and Executive Director

I think these are very long projects. We're certainly working with U.S. very closely on the standard design of their facility, right? And that's moving along as well as we're in discussions with very confidential customers in deployment of multiple SMRs to support their low-carbon initiatives, again, domestically and internationally. So I think that's something to keep an eye on. In fact, some of those confidential projects feature in Guggenheim's financial modeling and analysis to take NuScale forward and with respect to valuation. And so that's, I think, a very positive development. So I just have more to come, and stay tuned, I guess, I'd say.

Michael Stephan Dudas -- Vertical Research Partners, LLC -- Analyst

Excellent. Thank you, David.

Operator

And that concludes today's question-and-answer session. At this time, I'd like to turn the conference back to David Constable for closing remarks.

David Edward Constable -- Chief Executive Officer and Executive Director

Thanks, operator. And many thanks to all of you for participating on the call today. I'll say, the Fluor management team remains focused on achieving our strategic goals and continues to have positive conversations with all of our stakeholders, especially our customers and as we continue to improve our financial and operational position. So until next time, we appreciate your interest in Fluor Corporation. Thanks, again, for your time today, and please stay safe.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Jason Landkamer -- Director of Investor Relations

David Edward Constable -- Chief Executive Officer and Executive Director

Joseph L. Brennan -- Executive Vice President and Chief Financial Officer

Steven Fisher -- UBS Investment Bank -- Analyst

Andrew Alec Kaplowitz -- Citigroup Inc. -- Analyst

Sean D. Eastman -- KeyBanc Capital Markets Inc. -- Analyst

Jamie Lyn Cook -- Credit Suisse AG -- Analyst

Michael Stephan Dudas -- Vertical Research Partners, LLC -- Analyst

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