FLR Q2 2025: 15M Share Conversion to Unlock NuScale Tax Credits
- NuScale Monetization Potential: Management highlighted the conversion of 15,000,000 shares from Class B to Class A, which is expected to unlock tax credits and pave the way for a market-based monetization of their NuScale investment.
- Positive LNG Canada Outlook: The strong performance on LNG Canada Phase I and the ongoing discussions for Phase II—whereup to 80% of the design is replicated—underscore a proven execution model and a promising pathway to secure more lucrative, lump-sum contracts in the near future.
- Resilient Project Pipeline & Market Opportunity: Despite short-term trade policy uncertainties, management emphasized ongoing robust opportunities across mining, advanced manufacturing, data centers, and life sciences, which, along with a large positive backlog adjustment of $1,700,000,000 (all reimbursable), support a strong long‑term growth outlook.
- Uncertain Trade Policy Environment: Clients remain hesitant to commit to long-term investments amid ongoing trade policy and tariff uncertainties, which could delay project awards and revenue recognition.
- Infrastructure Execution Challenges: Persistent issues with infrastructure projects—including significant cost growth, deferred profit recognition due to large backlog adjustments (e.g., the $1.7 billion adjustments leading to a $13 million PGM deferral), and overall project delays—could pressure future margins.
- Cash Flow and Monetization Concerns: The complex mechanics around the NuScale share conversion and the reliance on future LNG Canada Phase II dividends and settlements introduce uncertainty regarding near-term cash flow and capital return execution.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EBITDA | FY 2025 | $575 million to $675 million | $475 million to $525 million | lowered |
Adjusted EPS | FY 2025 | $2.25 to $0.75 | $1.95 to $2.15 | raised |
Operating Cash Flow | FY 2025 | $450 million to $500 million | $200 million to $250 million | lowered |
Urban Solutions Segment Margin | FY 2025 | approximately 4% to 5% | approximately 2.5% to 3.5% | lowered |
New Awards Outlook | FY 2025 | no prior guidance | $13 billion to $15 billion | no prior guidance |
New Awards Book-to-burn Ratio | FY 2025 | above 1 | no current guidance | no current guidance |
Revenue Growth | FY 2025 | no prior guidance | 5% to 10% | no prior guidance |
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Market Outlook
Q: Are customer orders stabilizing amid tariff fears?
A: Management noted that uncertainty from trade policies is delaying long‐term investments, although discussions in mining, life sciences, and power remain active with a new awards outlook of $13–15B, suggesting a cautious but promising backdrop. -
NuScale Mechanics
Q: How will the 15M share conversion be executed?
A: They plan to convert 15,000,000 Class B shares into Class A shares, a move designed to unlock tax credits and allow market‐based monetization without significant cash leakage. -
Ownership & Backlog
Q: Will there be further NuScale dilution and what about backlog?
A: Management indicated that beyond the conversion, the remaining NuScale shares hold upside potential, and the $1,700M positive backlog adjustments—stemming from reimbursable work—simply defer profit recognition to future execution. -
EBITDA Growth
Q: Can the 10–15% EBITDA CAGR target still be met?
A: Despite a lower near‐term guidance driven by market hesitancy, management remains confident that strategic investments and favorable policy shifts will support a reacceleration toward the long‐term 10–15% EBITDA growth target. -
LNGC Cash Flow
Q: Does the LNGC change order affect current cash flows?
A: The change order has little impact on margins; instead, the adjusted cash flow will materialize once the joint venture collects the funds and issues the corresponding dividends. -
Infrastructure Execution
Q: How will project delays and rising costs be resolved?
A: Acknowledging delays and cost overruns on three key infrastructure projects, management is taking aggressive recovery actions and expects that eventual recoveries will exceed current forecasts, stabilizing project margins over time.
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