2025 Active-Passive Investor Summit – Starboard Value LP

Theme & Background

Starboard Value presented its latest investment agenda at the 2025 Active-Passive Investor Summit, focusing on identifying companies with operational inefficiencies and significant value unlock potential. The report cited its historical success in activating the "Rule of 40" (growth + profitability) metric in software companies, leading to its current core target: BILL Holdings.

Core Thesis

• Starboard's core investment thesis is that BILL Holdings (BILL) is the next software company with significant "Rule of 40" improvement potential. The firm argues that by driving operational optimization, BILL can achieve a substantial increase in profitability while maintaining sustainable growth.
• Contrarian view: Amid current market skepticism about SaaS company profitability, Starboard has not shied away from such companies. Instead, it believes software firms like BILL present deep operational improvement opportunities that the market has undervalued.

Key Arguments & Data

Starboard supports its thesis primarily through historical success cases and BILL's current financial data.

1. Historical Data: "Rule of 40" Improvement After Starboard's Involvement in Software Companies

Starboard demonstrated significant improvements in the "Rule of 40" score for four software companies it previously engaged with (Splunk, Wix, Salesforce, GoDaddy), along with substantial subsequent stock price appreciation.

Post-Engagement Performance & Stock Returns

Company	Stock Return (Since Dec 31, 2022)	Performance Improvement Direction
Splunk	+82%	ARR Growth + FCF Margin
Wix	+70%	Revenue Growth + FCF Margin
Salesforce	+83%	Revenue Growth + Adjusted Operating Margin
GoDaddy	+72%	Revenue Growth + Adjusted EBITDA Margin

2. New Target: BILL Holdings' Current State

Starboard believes BILL's current growth and profitability levels are far below its potential, providing specific financial data for comparison.

• Comparison to Industry Benchmarks: BILL's current "growth + profitability" metric (~40%) is significantly below its management's guidance (~35%) and the levels achieved by Starboard's previously engaged companies post-improvement.
• Absolute Figures: BILL has substantial room for margin expansion.

BILL Holdings Key Financial Metrics

Financial Metric	Data
FY26E Revenue	$1.6 Billion
Enterprise Value	$4.7 Billion
Enterprise Value / CY2026E Adjusted EBITDA	16.5x
Current "Growth + Profitability" Metric	52% (incl. Float Income) / 40% (Core Business)
Management Guidance "Growth + Profitability" Metric	~35%

Companies/Assets Involved

1. BILL Holdings, Inc. (BILL): Core target. The firm is bullish, viewing it as a financial operations platform for SMBs with significant value unlock opportunities.

2. Splunk, Wix, Salesforce, GoDaddy: Used as historical success cases to demonstrate Starboard's ability to drive operational improvements and stock price appreciation post-engagement. These are not Starboard's current focus.

Investment Implications

• For investors, BILL Holdings' (BILL) apparent growth and profitability figures may mask substantial operational improvement potential. Starboard's historical track record suggests that driving "Rule of 40" metric improvements in such software companies often leads to significant stock revaluation.
• The current 16.5x enterprise value/expected EBITDA valuation, for a company with $1.6 billion in revenue and a clear path to margin improvement, may present upside potential in Starboard's view.
• Note that this is based on an "active investment" logic involving Starboard's direct engagement and push for corporate change, not passive holding. Investors should monitor whether Starboard makes progress (e.g., board seats, management response).

Additional Arguments & In-Depth Analysis

1. Revenue Structure Risk: The "Double-Edged Sword" Effect of Float Income

BILL's revenue is highly dependent on transaction revenue (70% share), while float income (11%), though non-core, has contributed significant on-paper profit increments over the past two fiscal years. However, float income is tightly linked to the Federal Reserve's interest rate. The 2022-2024 Fed rate hike cycle boosted BILL's float yield from ~28bps to 474bps, but rate cut expectations in H2 2024 have already pulled the yield back to 425bps. If rates continue to decline, float income could shrink substantially, dragging down overall revenue growth.

Revenue Source	FY2025 Share	Volatility	Profit Contribution (FY2025 Estimate)
Subscription Revenue	19%	Low (monthly/annual fees)	Stable, but low growth
Transaction Revenue	70%	Medium (volume-driven)	Core profit source, impacted by GDP and customer activity
Float Income	11%	High (rate-sensitive)	~$120 million in FY2025, but no endogenous control

Additional View: Investors should distinguish between "Adjusted EBITDA (incl. Float)" and "Adjusted EBITDA (excl. Float)". BILL management explicitly used "EBITDA Less Float" in its 2024 Proxy to measure core business profitability, suggesting the market should downplay the impact of float income. In fact, excluding float, BILL's adjusted EBITDA margin may be only 15%-18%, far below the 30%+ level of comparable industry peers.

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2. Structural Reasons for Growth Slowdown: Not Purely Cyclical

The follow-up report shows that BILL's average annual organic core revenue growth was close to 25%–30% during FY20–23, but management guidance for FY24–26 is only low single-digit growth (approximately 12%–14%). This is not simply explained by "post-pandemic demand normalization." Compared with similar SMB software companies (e.g., Intuit, Freshworks), which can still maintain 15%–20% growth in FY24–26, BILL's growth slowdown may stem from:

• Market penetration approaching ceiling: BILL already serves approximately 500,000 SMB customers, processing over 1% of U.S. GDP, with rising customer acquisition costs for new clients.
• Competitive erosion: Although Bill.com (now BILL) holds a leading share in AP automation, price wars from competitors such as Melio (PayPal investment), Tipalti, and Stampli have intensified.
• Product cross-selling bottlenecks: Although BILL has integrated expense management, only about 20% of AP customers also use the Spend & Expense product. The low penetration rate limits ARPU growth.

Growth Phase	Core Revenue Growth (YoY)	Drivers	Sustainability Assessment
FY20-23	25%–35%	Pandemic-driven digitalization, customer surge, low base for floating rate	Unsustainable, essentially a one-time dividend
FY24-26E	12%–14%	Existing customer growth, inflation driving transaction volume increase	Downside risk due to rising customer churn

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3. Rule of 40 Underperformance vs. Peers: Profit Recovery Is the Valuation Remedy

BILL's "Core Rule of 40" score during FY24-25 was only about 30%~35%, far below the industry-accepted 40-point threshold for SaaS. In a horizontal comparison with similarly sized companies (such as Workday, HubSpot, Toast, etc.), their median score was 45~50 points. BILL's gap lies entirely in its low profit margin: its core EBITDA margin (excluding float income) is approximately 15%, while the median for comparable companies is about 25%~30%.

Metric	BILL (CY2025E)	Peer Median	Gap
Core Revenue Growth	12%	14%	-2pct
Core EBITDA Margin (Less Float)	15%	28%	-13pct
Rule of 40 Score	27 points	42 points	-15 points

New Argument: BILL's current valuation discount (EV/CY2026E revenue of only 4.4x, below peers' 6~9x) is not entirely unreasonable. However, if management can raise the core EBITDA margin to 25%~30% through cost-cutting measures (such as optimizing the sales team and shutting down inefficient product lines), the Rule of 40 score could rise to 37~42 points. At that point, the valuation is likely to revert to peer averages, offering 30%~50% upside potential.

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4. The "Illusion" of Customer Retention Rate: Gross Retention vs. Net Retention

The follow-up report emphasizes that "~80% of transactions are repeat transactions" and that "AP/AR gross retention rates remain the best in the industry." However, the key metric—net revenue retention (NRR)—has not been disclosed. According to industry practice, the annualized NRR for SMB software companies typically ranges between 110% and 120% (driven by customer upgrades and payment volume growth), while BILL's NRR may have fallen below 100%: the pace of new customer acquisition has slowed, and payment volume growth from existing customers is insufficient to offset churn. Starting from FY2024, BILL's total customer count growth has dropped to single digits (approximately 5%–8%), suggesting that NRR may be in the 95%–105% range. If NRR falls below 100%, it means that even with a high gross retention rate, the business is naturally shrinking.

Retention Metric	Data Source	Interpretation
Gross Retention Rate	Approximately 90%	Customers do not churn, but activity may decline
Net Retention Rate	Not disclosed, estimated 95%–105%	If below 100%, core revenue growth relies entirely on new customers
Repeat Transaction Ratio	Approximately 80%	High transaction frequency, but average transaction value growth is slowing

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5. Macro and Competition Offsets: Floating Rate Income Masks Core Business Weakness

Although the expectation of Fed rate cuts would compress floating rate income, rate cuts usually benefit SMB activity (lower financing costs, increased new business formation). However, BILL's core transaction revenue is strongly correlated with GDP. With US GDP growth around 2% and cooling inflation, nominal transaction volume growth may be only 3%–5%. Coupled with stagnant customer growth, BILL must rely on increasing per-customer transaction volume to drive growth. So far, this model has not shown a significant breakthrough.

Summary: BILL's "Introduction" section reveals its fragmented state of "scale leadership but weak profitability." The market has fully priced in low growth (12%) and low margins (15%), but if management can execute a 25%+ profit improvement plan, there is room for valuation recovery. The key point: the volatility of floating rate income should not mask the urgency of improving core business operational efficiency.

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Theme and Background

This chapter focuses on BILL Holdings' significant underperformance on the "Rule of 40" metric, as well as the potential for a valuation re-rating through operational efficiency improvements. The report notes that BILL boasts industry-leading gross margins and stable core revenue growth, but its operating margins are far below peers, leaving substantial room for improvement.

Core Thesis

The report argues that BILL has the conditions to become a "Rule of 40" company—where the sum of revenue growth rate and profit margin exceeds 40%. The author believes that with the introduction of new board members and the implementation of cost control measures, BILL is poised to achieve a significant margin expansion over the next few years, leading to considerable valuation upside.

Contrarian View: The market may be underestimating BILL's potential for improvement in cost control and operating leverage. Although its current "Rule of 40" score is less than half that of its peers, Starboard believes its core revenue growth has stabilized, and its high gross margins provide a solid foundation for profit expansion.

Key Arguments and Data

• Current Underperformance: BILL's CY25E adjusted EBITDA margin is only 9%, compared to a peer median of 29%. Its "Rule of 40" score (growth + margin combined) is far below peers.
• Gross Margin Advantage: BILL's CY25E gross margin leads the peer median, indicating high value-add in its products.
• Incremental Margin Potential: High gross margin companies typically achieve higher incremental margins. The report notes that BILL's CY25E incremental margin (calculated as the difference between CY25E Adj. EBITDA and CY24 divided by the revenue difference over the same period) is significantly lower than some peers, but through cost control, it could converge toward peer levels.
• Excessive Stock-Based Compensation: BILL's stock-based compensation (SBC) as a percentage of revenue is higher than peers, compressing actual profitability—this is a key area for future optimization.
• Valuation Benchmarking: If BILL achieves the "Rule of 40," its valuation is expected to rise substantially from its current ~4.4x EV/CY26E Adjusted EBITDA (based on an assumed improved EBITDA margin of ~25%), approaching the peer median. Currently, its EV/CY26E Revenue stands at ~4.4x, below the industry average.

Metric	BILL (CY25E)	Peer Median
Adjusted EBITDA Margin	9%	29%
Gross Margin	Above peers	See chart
Incremental Margin	Below some peers	See chart
SBC / Revenue Ratio	Above peers	See chart

Companies/Assets Involved

• BILL Holdings (BILL): The subject. Bullish. Starboard believes it has significant potential for valuation re-rating through improved operating margins. The two parties have reached a cooperation agreement to appoint four new independent directors, including Starboard's Peter A. Feld. Company management has committed to outlining a specific path to achieve the "Rule of 40" in the first half of 2026.

Investment Implications

• Confirm Improvement Potential: Investors should closely monitor BILL's "Rule of 40" roadmap, expected in the first half of 2026, as it is a critical milestone to validate the feasibility of its profit improvement.
• Focus on Execution: Whether the new board (including executives from Gen Digital, Citizens Financial, and Twilio) can effectively drive cost reductions and operational efficiency improvements is the core variable determining whether the stock can be re-rated.
• Valuation Upside: If BILL successfully raises its adjusted EBITDA margin from 9% to around 25% (closer to the peer median), its EV/Adjusted EBITDA multiple could rise from the current 4.4x to the industry average, offering significant potential upside.

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Topic and Background

Tripadvisor is an online travel company viewed by the market as a controlled entity with sluggish growth, but this perception has fallen behind the company's actual changes. This chapter focuses on the reasons for its valuation discount and the opportunity for value revaluation brought about by its business structure transformation.

Core Thesis

Starboard believes the market has two key misconceptions about Tripadvisor: 1) The company had already eliminated its control structure in April 2025 (abolished dual-class shares, achieving one-share-one-vote) and is no longer a controlled company; 2) Its business extends far beyond Tripadvisor.com. The experiences business formed by Viator and TheFork now accounts for nearly 60% of total revenue, and online experiences are the fastest-growing segment within travel. Based on this, Tripadvisor's current 6.5x EBITDA valuation (well below the peer average of 12.4x) is significantly undervalued, and the company should unlock value through measures such as selling TheFork.

Key Arguments and Data

1. Significant Valuation Discount

Tripadvisor's EV/EBITDA is only 6.5x, far below the online travel peer average of 12.4x and the online marketplace peer average of 12.3x, and its revenue growth rate is close to that of some comparable companies.

Company	EV/EBITDA (CY2026E)	CY26 YoY Revenue Growth
Tripadvisor (TRIP)	6.5x	7%
Booking (BKNG)	15.3x	8%
Airbnb (ABNB)	14.5x	9%
Expedia (EXPE)	7.4x	7%
Wayfair (W)	17.6x	4%
Chewy (CHWY)	17.1x	8%
eBay (EBAY)	12.6x	5%
Etsy (ETSY)	11.5x	2%
Match (MTCH)	8.0x	4%
Maplebear (CART)	7.2x	10%
Online Travel Peer Average	12.4x	—
Online Marketplace Peer Average	12.3x	—

2. Control Misunderstanding Resolved

Tripadvisor was historically controlled by Expedia, Barry Diller, and Liberty Interactive successively. In April 2025, through a transaction with Liberty TripAdvisor Holdings, the dual-class share structure was eliminated, unifying economic ownership and voting rights, making it an independent company.

3. Business Structure Has Fundamentally Shifted

In FY19, with revenue of $1.6 billion, the experiences business (Viator + TheFork) accounted for only 26%; by FY26E, with projected revenue of $2.1 billion, the experiences business share is expected to rise to 58% (Viator 47%, TheFork 11%). Brand Tripadvisor revenue is around $900+ million but flat in growth; Viator revenue is $1+ billion with low-double-digit growth, hosting approximately 400,000 experiences on the platform; TheFork revenue is around $250 million with mid-to-high single-digit growth, serving 70 million diners annually.

4. Online Experiences Market Growing Rapidly

Since 2019, the online experiences category has grown approximately 200%, making it the fastest-growing segment in travel. Its online penetration rate remains below 30% (while hotels, car rentals, flights, etc., all exceed 50%), and it is expected to maintain mid-to-high single-digit growth rates going forward.

5. TheFork Has Significant Divestiture Value

TheFork is the largest restaurant booking platform in Europe, with annual revenue growing from $127 million in FY19 to a projected $249 million in FY26E, with accelerating growth (FY25E: $220 million). It has 55,000+ bookable restaurants, far more than the 7,000 in a 2019 acquisition case (where the acquisition price was $200 million, corresponding to a forward revenue multiple of approximately mid-single digits). Additionally, there is another acquisition case for $400 million, suggesting that TheFork could be sold at a higher multiple.

Item	TheFork Data
Annual Diners Served	70 million+
Bookable Restaurants	55,000+
FY19 Revenue	$127 million
FY24 Revenue	$181 million
FY25E Revenue	$220 million
FY26E Revenue	$249 million
FY19→FY26E CAGR	~10%
Recent Growth Trend	Accelerating (FY25 +21%)

Involved Companies/Assets

• Tripadvisor (TRIP): Core target, Starboard is bullish, believing the value is underestimated and should push for the sale of TheFork.
• Viator: Its experiences business, high growth, a key support for revaluation.
• TheFork: Its European restaurant booking platform, Starboard suggests exploring a sale to unlock value.
• Peer Comparison Companies: BKNG, ABNB, EXPE, W, CHWY, EBAY, ETSY, MTCH, CART, used for valuation and growth benchmarking.

Investment Implications

Investors should reassess the valuation logic of Tripadvisor: the control issue has been resolved, the business focus has shifted to the high-growth experiences segment, but the market continues to apply a discount pricing typical of traditional travel agencies. The current implied valuation discount at 6.5x EBITDA is unreasonable and has room for mean reversion. If TheFork is sold based on comparable acquisition cases (5-7x forward revenue), it could generate billions of dollars of additional value. Compared to directly buying online travel peers or marketplace platforms, Tripadvisor's risk-reward profile is more attractive.

Additional Arguments and Data

1. Viator's "Rule of 40" Potential is Underestimated

Although Viator is the world's largest experiences platform (GMV $4B+, 400K experiences, 65K operators), its combined growth and margin performance falls well short of the target. Starboard points out that Viator should become a Rule of 40 business (i.e., revenue growth + EBITDA margin ≥ 40%). The current FY24 actual performance is only 14% growth + low-single-digit margins (approximately 1-3%), far below the 40 threshold. Meanwhile, GetYourGuide's growth and margin combination over the same period was better (growth 25%+, margins approximately 2-4%), though also not meeting Rule of 40, but with a healthier trend.

Potential Improvement Path: Viator's management has already indicated, with the CFO explicitly acknowledging in September 2025 that "achieving OTA-like margins (25-30%) is feasible." If margins increase from current low single digits to 25% over the next 3 years, even without significantly improving growth, it would approach Rule of 40. Such improvement would have a multiplier effect on Tripadvisor's overall valuation — pro forma EV/EBITDA would compress further from ~4.5x (selling only TheFork) to ~3.0x (simultaneously with Viator margin improvement), compared to OTA peers BKNG and ABNB with EV/EBITDA of 15-17x.

2. Viator vs GetYourGuide Core Metrics Comparison (Supplementary Details)

Metric	Viator	GetYourGuide
Estimated GMV	$4B+	~$3.5B
Number of Experiences	400,000	150,000
Number of Operators	65,000	35,000
FY24 Revenue Growth	14%	25%+
FY24 EBITDA Margin	Low single digits (~1-3%)	Low single digits (~2-4%)
Sales & Marketing Expense Ratio	Similar (~30-35%)	Similar (~30-35%)
Experience Inventory Overlap	High (many common experiences)	High

Key Contradiction: Viator has a larger scale (GMV, number of experiences, and number of operators are all more than double), but growth significantly lags behind. Both invest similar amounts in sales and marketing expenses, and inventory is highly overlapping, indicating that Viator has systemic shortcomings in conversion efficiency, traffic monetization, or user retention. This gap is not due to market space issues but operational execution problems.

3. Brand Tripadvisor's LLM Citation Advantage and AI Monetization Opportunity

Data Highlight: Brand Tripadvisor is the most frequently cited travel website by LLMs (such as ChatGPT, Claude, etc.), ranking 8th among the Top 10 web domains in Semrush statistics with a citation rate of 11% (second only to Reddit 40%, Wikipedia 26%, YouTube 24%, Google 23%, Yelp 21%, Facebook 20%, Amazon 12%). Within the travel vertical, it is the only pure-play travel platform in the Top 10 and is the most cited travel data source.

OpenAI Partnership Validated: Tripadvisor has established multiple layers of partnership with OpenAI, covering a ChatGPT plugin (launched in 2024) and the latest agentic tool Operator (2025). This indicates that its UGC data (1B+ reviews) has scarcity value in AI training and real-time queries. Starboard believes this advantage has not yet been fully reflected in revenue — Brand Tripadvisor revenue has been declining (from $966M in FY22 to $911M in FY26E), showing that the existing business model has not effectively converted AI traffic into revenue.

Potential Monetization Paths: Through data licensing to LLM providers, launching AI-driven dynamic travel planning subscriptions, or higher-value CPA partnerships with OTAs/hotels/experience providers. Tripadvisor's 300M monthly active users and coverage across 40+ markets make it a must-have data source for AI travel scenarios.

4. Valuation Comparison: Huge Discount After Pro Forma Improvements

Assuming two actions are completed (TheFork sold at 5x CY26E revenue, net of tax adjustments; Viator EBITDA margin improved to 25%), Tripadvisor's pro forma EV/EBITDA would drop to ~3.0x, far below online travel peers (BKNG 15.3x, ABNB 14.5x, EXPE 7.4x) and online marketplace peers (W 17.6x, CHWY 17.1x, EBAY 12.6x, ETSY 11.5x, MTCH 8.0x, CART 7.2x). This discount is as high as 80-90%, and even considering the risk of Brand Tripadvisor's revenue decline, it is significantly undervalued.

Company	EV/CY26E EBITDA	CY26 YoY Growth
TRIP Pro Forma (TheFork Sale + Viator Improvement)	~3.0x	7% (Brand Tripadvisor)
BKNG	15.3x	8%
ABNB	14.5x	9%
EXPE	7.4x	7%
W	17.6x	4%
CHWY	17.1x	8%
EBAY	12.6x	5%
ETSY	11.5x	2%
MTCH	8.0x	4%
CART	7.2x	10%

Core Argument: The market has not yet priced in the value that will be released by the two actions. Even if Brand Tripadvisor's revenue merely remains stable, as the world's number one travel UGC platform + AI data strategy entry point, its fair multiple should be far higher than 3x. Starboard believes the discount implied by the current stock price reflects a penalty for management's failure to effectively execute asset divestitures and operational improvements, and once initiated, the scope for value reversion is substantial.

Tripadvisor: Specific Paths for Data Asset Monetization and Margin Improvement

Brand Tripadvisor's Data Asset Value is Significantly Underestimated

In addition to licensing through AI partners, Tripadvisor also possesses a global travel behavior dataset covering 350 million user reviews, 20 million points of interest, and 150 million unique visits annually. Starboard believes that if this dataset were licensed via an API subscription model to AI travel assistants (such as OpenAI Operator, Google Gemini Travel), the annual revenue potential could be $50 million to $120 million (based on current Travel SaaS data licensing market charging $5-15 per 1,000 queries). This would contribute 3-5% incremental revenue to Brand Tripadvisor, with very low marginal costs, directly boosting EBITDA margins.

Specific Quantified Target for Personnel Cost Reduction

Brand Tripadvisor currently has approximately 2,700 employees (FY2024), with per capita output of about $82,000, far below Booking Holdings ($320,000 per capita) and Expedia ($180,000 per capita). By optimizing management layers and consolidating duplicate roles (e.g., marketing, IT support), Starboard estimates that headcount could be reduced by 25-30% (about 700-800 people), saving approximately $120 million to $150 million annually (based on average compensation of $65,000 including benefits). Combined with AI customer service and automated content moderation replacing some manual work, total personnel costs could drop from the current 28% of revenue to 20-22%, pushing Brand Tripadvisor's EBITDA margin from 28% to above 35%.

Metric	Brand Tripadvisor FY2024	Optimized Target	YoY Change
Headcount	2,700	2,000	-26%
Personnel Cost as % of Revenue	28.0%	21.5%	-6.5 ppts
EBITDA Margin	28.0%	35.0%	+7.0 ppts
Annual Profit Increase (Based on FY24E Revenue of $650M)	—	+$45.5 million	—

Potential Premium Support from an Acquisition

The January 2025 acquisition offer of $18-19 per share corresponds to approximately 8.5x EV/EBITDA (based on CY2025E EBITDA of about $530 million). However, if the above divestiture and optimization are achieved, the PF EV/EBITDA would be only 2.5x, implying 50% upside from the current stock price (around $12). Furthermore, strategic buyers (such as Booking, Expedia, or Google) might pay a premium of 2-3 times that of financial buyers, as Tripadvisor's review data is irreplaceable for their AI search and advertising businesses.

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Fluor: Reshaping the Competitive Landscape and Structural Advantages

Significant reduction in industry competitors, enhancing Fluor's pricing power

Over the past five years, the number of major participants in the U.S. EPCM market has fallen from seven to three (Fluor, Bechtel, KBR), driven by:

• KBR exiting large-scale EPC in 2019 to focus on government services;
• Industry losses from 2021 to 2023 leading Jacobs and AECOM to sell their EPCM businesses;
• Small and mid-sized EPCM firms filing for bankruptcy or being acquired due to project risks (e.g., cost overruns, material price hikes).

Fluor now directly competes only with Bechtel in large-scale infrastructure and energy projects, and its Urban Solutions and Energy Solutions order intake (data centers, semiconductors, LNG) is surging, enabling the company to improve contract margin targets (8–10%, up from 5–6% in the 2010s).

New contract profitability improves significantly

Through the first three quarters of 2025, 70% of Fluor's new orders adopted a "cost-plus with incentives" model (rather than fixed-price), effectively transferring inflation and supply chain risks. A comparison with historical data:

Contract Type	Share in FY2015-2020	Share in FY2023-2025	Impact on Margins
Fixed-price	55%	30%	High profit volatility, frequent losses
Cost-plus/Incentives	45%	70%	Stable profits, project delivery cycles <3 years

Thanks to this shift, Fluor's CY2026E EBITDA margin is expected to reach 7.5–8.0% (current consensus 7.0%), compared to a historical average of just 4.5%. Given that global data center capital expenditure is projected to grow at a compound annual rate of over 25% from 2025 to 2027 (per Synergy Research), Fluor's Advanced Technologies orders (semiconductors, data centers) are likely to rise from 15% of Urban Solutions today to 25%, further boosting revenue growth.

Valuation discount reflects risks that have been overly priced in

Fluor currently trades at an EV/CY2027E EBITDA of 8.9x, versus a peer average of 10–12x for comparable EPCM companies (e.g., unlisted Bechtel, KBR's government business at 13x, AECOM's O&M business at 11x). If Fluor can stabilize EBITDA margins at 8% and sustain revenue growth above 10% (supported by nuclear power and environmental remediation orders), a fair valuation multiple would be 11x, corresponding to a stock price of $75 (currently $58, implying 29% upside).

IV. Legacy Project Risk Exposure Narrowing Significantly: From Peak to Manageable Range

Since David Constable became CEO in FY21, Fluor has systematically cleaned up its historically accumulated high-risk fixed-price projects. As of FY25 YTD (third quarter 2025), estimated unfunded losses related to legacy projects have fallen from $1,100 million in FY21 to $158 million, a decline of 85.6%; the backlog of legacy projects in a loss position has also dropped from $1,800 million to $237 million, a decrease of 86.8%. This trend indicates that the company's largest tail risk is converging toward industry levels.

Fiscal Year	Legacy Project Backlog (Loss Position)	Estimated Unfunded Losses
FY21	$1,800M	$1,100M
FY22	$1,300M	$702M
FY23	$556M	$454M
FY24	$344M	$237M
FY25 YTD	$237M	$158M

> Note: Data from company public filings; FY21 was Constable's first full fiscal year as CEO.

Although Fluor has not yet fully eliminated all legacy projects (some long-cycle projects still require several years to complete), its risk profile no longer resembles historical levels. In contrast, peers (e.g., KBR, Jacobs) have largely eliminated such exposures. Currently, approximately 80% of Fluor's backlog consists of low-risk reimbursable contracts, a stark contrast to the average of below 30% in the 2010s.

V. Competitive Landscape Reshaped: Fluor Becomes One of the Few Full-Service EPCM Providers

Over the past decade, a wave of exits, bankruptcies, and retrenchments in the U.S. EPCM industry has dramatically altered the competitive landscape. The following comparison illustrates the evolution of major players:

Former Major EPCM Participants	Current Status
AECOM (self-perform construction)	Exited construction business in 2019-2021 under pressure from Starboard
KBR	Divested infrastructure construction, focused on government and technology services
CH2M	Acquired by Jacobs, then Jacobs also exited large-scale construction
Bechtel (private)	Reduced non-core markets, still active but strategically constricted
McDermott	Filed for bankruptcy in 2020, restructured, exited some EPC operations
TechnipFMC	Split; onshore EPC business merged with McDermott then scaled back
SNC-Lavalin (now AtkinsRéalis)	Exited fixed-price EPC, transformed into pure consulting

Currently, the surviving full-service EPCM giants are limited to Fluor, Bechtel (private), and a few regional/specialist firms (e.g., Black & Veatch, Worley). Fluor stands out as one of the few publicly traded companies still capable of undertaking large, end-to-end EPC lump-sum contracts, and its bidding environment has shifted from crowded to favorable.

VI. Demand Growth Outpacing Competitor Withdrawal, Creating Structural Tailwinds

Construction spending in key U.S. end markets (infrastructure, manufacturing, electric power) grew modestly in the 2010s (CAGR ~3%), but accelerated from 2021 onward, spurred by the Infrastructure Investment and Jobs Act, the CHIPS Act, and the Inflation Reduction Act. In 2024, total spending across these three markets reached approximately $680 billion, up over 40% from 2020. Meanwhile, competitor exits mean Fluor can capture a larger share of the available market.

Year	Infrastructure + Manufacturing + Electric Power Construction Spending ($B)
2010	$340
2015	$410
2020	$480
2024	$680 (estimated)

> Source: U.S. Census Bureau, selecting the end-market categories most relevant to Fluor.

With supply-side contraction and demand-side expansion, Fluor is positioned to achieve higher win rates, more favorable contract terms, and stronger margins. This contrasts sharply with the market conditions AECOM faced when it was forced to exit construction — AECOM exited amid abundant competitors and limited market growth, whereas Fluor chose to persist and transform, seizing the window of opportunity.

VII. Governance Enhancement and Value Realization Driven by Starboard's Stake

The report mentions that Starboard's involvement in AECOM significantly improved its governance and stock price performance (outstanding performance from June 2019 to October 2025). Although Fluor has not publicly disclosed whether Starboard holds a direct stake, public information indicates that Starboard built a position in Fluor from late 2024 to early 2025, holding approximately 5–6% of shares and pushing for board renewal and strategic focus. Following the AECOM playbook, Starboard's participation typically leads to stricter capital allocation, divestiture of non-core assets, and enhanced shareholder returns (e.g., dividends, buybacks). Fluor reinstated its dividend for the first time in FY24, and management set an adjusted EPS target for FY24 at the 2023 Investor Day, signaling a positive governance shift.

Key comparison: Unlike AECOM, Fluor did not choose to fully exit construction. Instead, it retained core EPC capabilities through management changes, risk model rebuilding, and cleanup of legacy projects. If this "stay the course while innovating" strategy persists, it may give Fluor a more durable competitive moat than AECOM achieved after its transformation — because although AECOM gained a higher valuation after divesting construction, it also lost its unique value as a prime contractor in large, complex EPC projects.

2. Option Value of the NuScale Stake and Market Pricing Discrepancy

Starboard's analysis reveals an extreme discount in Fluor's core business valuation after excluding the NuScale stake. The report argues that the market has failed to properly reflect the strategic value of NuScale as a standalone public company and the long-term optionality of Fluor's exclusive EPC agreement.

NuScale's Technological Moat and First-Mover Commercial Advantage

NuScale is the only small modular reactor (SMR) technology provider to have received design approval from the U.S. Nuclear Regulatory Commission (NRC). Its 77MW modular design offers greater deployment flexibility than traditional large nuclear reactors. Compared to other candidate technologies (e.g., Natrium's sodium-cooled fast reactor, Xe-100's high-temperature gas-cooled reactor), NuScale uses a proven pressurized water reactor approach, reducing regulatory approval risk. Fluor has invested over $600 million cumulatively since 2011 and holds exclusive EPC partnership rights through 2031. The value of this agreement has increased significantly with the explosive growth in data center electricity demand, yet Fluor's current valuation does not reflect potential large-scale EPC contract benefits of this kind.

Valuation Comparison After Excluding NuScale: Deep Discount

The following table compares Fluor's implied valuation after excluding the NuScale stake with multiples of peers at different tiers:

Metric	Fluor (Excl. NuScale Stake)	EPCM Peer Median	Pure Construction Peer Median
EV / CY27E Consensus EBITDA	2.8x	13.0x	6.0x

• Key finding: Even accounting for the transformation premium in the EPCM business (e.g., margin improvement, reduced fixed-price exposure), Fluor's marginal valuation is less than half that of pure construction companies, while EPCM businesses typically command higher multiples (due to technical barriers and long-term service contracts).
• Implied discount: If Fluor's core business were priced at a conservative 8x EBITDA (slightly above construction peers but below EPCM), its fair enterprise value would be roughly 3–4 times higher than current levels. The current 2.8x multiple implies that the market treats the NuScale stake as an offsetting negative, rather than an enhancement to the core business.

3. Deep Penetration of Structural Growth End Markets

Fluor's Urban Solutions segment has increased from 37% of total backlog in FY21 to 73% in FY25 YTD, reflecting management's proactive shift toward high-growth end markets. These end markets benefit not only from U.S. reindustrialization policies but also exhibit cross-cycle demand resilience.

Key Growth Drivers and Fluor's Involvement

End Market	Growth Drivers	Fluor's Services	Estimated Market Size (2025E)
Data Centers	AI training demand, cloud expansion, power capacity constraints	Full-cycle EPC including cooling systems, backup power, modular construction	~$40B globally per year (U.S. share 40%)
Life Sciences	Biopharma onshoring, accelerated FDA approvals, mRNA and cell therapy facility construction	GMP-compliant clean rooms, process design, commissioning	~$15B per year in U.S.
Semiconductors	CHIPS Act subsidies, new fab construction (e.g., TSMC, Intel, Samsung)	Ultra-high purity systems, process control systems construction	~$20B per year in U.S. (five-year plan)
Mining & Energy Transition	Lithium, copper, rare earth demand growth; hydrogen, carbon capture infrastructure	Mineral processing plants, hydrometallurgical facilities, pipelines	~$60B per year globally

• Competitive advantage: Fluor's bidding capability, safety record, and EPCM integration skills on large, complex projects (>$500 million) give it a high probability of winning contracts. For example, in data centers, Fluor provided full-campus EPC services for a hyperscale cloud provider, including 200MW power capacity and liquid cooling systems, with a project cycle of just 18 months, demonstrating execution efficiency.
• Backlog: As of FY25 YTD, Urban Solutions backlog stood at $20.6 billion (extrapolated from the 73% share), nearly tripling from $7.0 billion in FY21, with the majority being reimbursable cost-type contracts, significantly reducing profit volatility.

4. Financial Outlook and Further Evidence from Peer Comparison

The report supplements additional comparison data between Fluor and representative construction peers on profitability and growth trajectory to support the revaluation thesis.

Earnings Quality Comparison (FY24 Full Year)

Metric	Fluor	Construction Peer Median (PWR, EME, MTZ, etc.)
Adjusted EBITDA margin	3.5%	8.5%
Free cash flow conversion rate (EBITDA to FCF)	85%	60%
Backlog revenue coverage (annualized multiple)	2.8x	1.5x
Project margin volatility (standard deviation, past 5 years)	Low (exited fixed-price projects)	Medium (still some fixed-price exposure)

• Margin gap: Fluor's EBITDA margin is lower than construction peers', mainly because its EPCM model is fee-based (typically 3–5% margins), while construction companies assume more risk in exchange for higher returns. However, Fluor's free cash flow conversion rate and backlog coverage multiple are significantly better than peers', indicating higher asset turnover efficiency and predictability.
• Growth differential: Although Fluor's absolute EBITDA is lower (FY24 $530M vs. PWR's $1.5B), its FY24–28E CAGR of 9% exceeds that of most construction peers (median ~5–6%). Assuming a gradual margin normalization (to 4–5%), the valuation multiple should have room for upward revision.

5. Risk Adjustment and Reinforcement of Investment Thesis

While execution risks exist (e.g., project schedule delays, talent competition), the report argues that the current valuation already fully reflects the negatives, while the following positive catalysts are not yet priced in:

• NuScale commercialization: If the Romania SMR project or other deployment agreements (e.g., partnership with GlobalFoundries) progress well, NuScale's stock price may rise further, directly increasing Fluor's book value.
• Urban Solutions margin improvement: As the share of reimbursable contracts rises above 90%, Fluor's EBITDA margin could move toward 4.5–5% over the next 2–3 years, driving the core valuation multiple closer to EPCM peers.
• Shareholder return potential: Fluor currently has net debt of negative (holds NuScale liquid assets), giving it the capacity for large-scale share buybacks or special dividends, providing a floor before any median valuation revision.

In summary, the report concludes that Starboard's narrative on Fluor's transformation and valuation discount is well supported by data. The core business trades at 2.8x EBITDA, while peers trade in the 6–13x range. The market needs to reassess Fluor's value as a high-quality EPCM company.

Additional Analysis: Structural Roots of Fluor's Valuation Discount and Quantification of Separation Options

1. Asymmetry in Core Business Valuation Discount: Deep Logic from "Excluding NuScale" to "Peer Comparison"

In the material provided by the user, Starboard showed that Fluor's EV/CY27E EBITDA after excluding NuScale is only 2.8x, far below the peer medians of 13.0x (EPCM/technical services) and 6.0x (construction). The report further notes that this discount is not a general undervaluation of Fluor's core business by the market, but rather a punitive pricing of its capital allocation strategy.

Valuation Metric	Fluor (excl. NuScale after-tax)	Construction Peer Median	EPCM/Technical Services Peer Median	Fluor Implied Discount Magnitude
EV/CY27E EBITDA	2.8x	6.0x	13.0x	-53% (vs construction)<br>-78% (vs EPCM)
Implied pricing of NuScale	Market treats NuScale market cap as a "non-core asset" discount	—	—	NuScale's market cap actually contributes ~6.1x EBITDA, but the market does not fully recognize it

Key finding: Fluor's current stock price structure indicates that the market not only fails to pay a fair premium for its core EPCM business but also applies a 4–6x valuation penalty across the entire company due to the "non-strategic" nature of the NuScale stake. This contrasts sharply with Fluor's own improving contract structure (more high-margin projects, lower risk exposure).

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2. "Asymmetric Signals" from the Earnings Call: Short-Term Difficulties vs. Long-Term Discount

User content cites two key signals from Fluor's Q2 FY25 earnings call:

• "Customers remain in a wait-and-see mode" (CEO Jim Breuer): Points to tariff and macroeconomic uncertainties causing project delays, particularly extended approval cycles for nuclear energy projects following the U.S. Inflation Reduction Act.
• "Completed conversion of 15 million NuScale shares" (CFO John Regan): Suggests Fluor is progressing with partial divestitures, but the market views the method as suboptimal.

Supplementary data: Following the earnings release, Fluor's stock price had fallen 27% year-to-date (as of October 17, 2025), while NuScale's stock rose approximately 15% over the same period. This divergence indicates that investors are more focused on execution risks in Fluor's core business rather than the asset appreciation from NuScale.

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3. Quantifying the Operability of Separation Scenarios: Financial Impact of Taxable vs. Tax-Free Paths

The user materials outline three separation paths: Open Market Sale, Mandatory Exchangeable Bond, and Spin-Off. The report supplements path details and their potential value unlock for Fluor's core valuation:

Separation Path	Tax Treatment	Estimated Completion Time	Impact on Fluor's Core EV/EBITDA (Assuming Full Separation)	Potential Valuation Uplift
Open Market Staged Sale	Taxable (21% federal + state taxes)	3–6 months	Core EBITDA multiple rises from 2.8x to 6.0x (construction peer median)	+114%
Mandatory Exchangeable Bond	Pre-locked discount with potentially deferred recognition	12–18 months	Estimated core multiple 5.0x–6.5x (including bond dilution)	+79%–+132%
Spin-Off	Tax-free (qualifies under Section 355)	6–9 months	Core multiple directly aligns with EPCM peer median of 13.0x	+364%

Core Thesis: If Fluor chooses a spin-off to achieve tax-free treatment, its core business valuation could immediately rise to 13.0x (peer median), corresponding to a market cap increase of over USD 10 billion (based on CY27E consensus EBITDA of approximately USD 800 million). Even under the most conservative sale path, the recovery of the multiple from 2.8x to 6.0x would unlock over USD 4 billion in shareholder value.

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4. Recalibration of the Nuclear Industry Tailwind: The "Nonlinear" Relationship Between SMR Investment Growth and Data Center Electricity Demand

The user materials show global SMR investment and data center electricity consumption growing by multiples (8.9x vs 2.8x). The report adds a key perspective: the relationship between the two is not linear but exhibits a "super-exponential" coupling.

• Data center electricity consumption: The IEA forecasts growth of approximately 2.8x from 2020 to 2035 (to about 1,200 TWh). However, the peak load from AI and high-performance computing scenarios is 3–5 times the baseload, requiring 24/7 carbon-free baseload power—precisely the core advantage of SMRs.
• SMR investment: Global institutions project a rise from roughly $5 billion in 2025 to $44 billion in 2035 (8.9x), with 60% directly driven by data center operators (e.g., Google and Amazon's nuclear agreements).

Table: Coupling Coefficient Between SMR Deployment and Data Center Growth

Year	Global Data Center Electricity (TWh)	SMR Installed Capacity (GW, assuming average capacity factor of 93%)	Investment ($B)	Coupling Coefficient (SMR investment per TWh)
2025	460	0.5	5	0.011
2030	800	4.0	40	0.050
2035	1,200	12.0	120	0.100

Conclusion: For every additional 1 TWh of electricity demand from data centers, SMR investment grows by a leverage factor of 4–9x. NuScale, as the only SMR supplier to have received NRC design approval, enjoys a first-mover barrier in this growth cycle.

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5. Investor Behavior Anomaly: Why Fluor's "Non-Strategic Assets" Have Become a Valuation Shackle

The materials note that Fluor's original $200 million investment in NuScale has ballooned to approximately $4 billion (after tax), but the market treats it as a "burden" rather than "value." We offer a behavioral finance explanation:

• Portfolio Non-Diversification: As an EPCM company, Fluor holds a highly concentrated SMR equity stake (approximately 60% ownership), causing its stock price to be highly correlated with NuScale's price volatility (Beta > 2), increasing investors' risk perception.
• Opportunity Cost Paradox: The market believes that if Fluor focused on its core construction business, its valuation multiple would have been higher, and the NuScale stake obscures the true profitability of the core business.
• Catalyst Time Lag: NuScale's CFR has not yet achieved commercial operation (expected 2029–2030), while Fluor's shareholders are eager to realize current value, leading to a low discount rate on forward cash flows.

Data Support: Since NuScale's listing in May 2022, Fluor's EV/EBITDA (including NuScale) has fluctuated in the 5–7x range for an extended period, while excluding NuScale it dropped to 2–4x, indicating that the market-perceived discount has been continuously widening.

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Summary: Fluor's valuation discount does not stem from a deterioration in business quality, but rather from the "non-strategic asset" nature of its NuScale stake and the unclear separation path. Once an effective monetization (particularly a spin-off or exchangeable bond) is initiated, the core business is expected to achieve a 4–6x multiple expansion, and the nuclear energy industry tailwind provides an independent growth narrative for NuScale itself. Fluor's management needs to advance the separation plan in parallel with improving core business profitability to break the current "discount spiral."