Jamie DuBray; Vice president of Investor Relation; KBR Inc

Stuart Bradie; Chief Executive Officer; KBR Inc

Mark Sopp; Executive Vice President and Chief Financial Officer; KBR Inc

Good morning, everyone, and welcome to KBR Third Quarter 2024 earnings conference call. My name is Emily, and I'll be coordinating your call today. ( Operator Instruction). I will now turn the call over to our host, Jamie DuBray, Vice President of Investor Relations. Please go ahead. Jamie.

Jamie DuBray

Thank you, Emily, and good morning, and welcome to KBR Third Quarter Fiscal 2024 earnings call. Joining me are Stuart Bradie, President and Chief Executive Officer, as well as Mark Sopp, Executive Vice President and Chief Financial Officer. Stuart and Mark will provide highlights from the quarter and then open the call for your questions.

Today's earnings presentation is available on the Investors section of our website at KBR.com. This discussion includes forward-looking statements reflecting KBR's views about future events and their potential impact on performance a s outlined on slide 2. These matters involve risks and uncertainties that could cause actual results to differ significantly from these forward-looking statements.

As discussed in our most recent Form 10K available on our website. This discussion also includes non-GAAP financial measures that the Company believes to be useful metric for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. I will now turn the call over to Stuart.

Stuart Bradie

Thank you, Jeremy, and welcome to our third quarter earnings presentation. And I would like to start on slide 4, if I may. We show this on every earnings presentation. So, no surprise that lays out of zero harm program on the pillars, both environmental and social that underpins our program. So, the progress we've made in each of these pillars is highlighted in our annual sustainability report, which takes remotely onto slide 5. So, this month, we issued our 2023 sustainability report. I mean, the team does an amazing job and showcasing all that were due across these pillars. We've shown only a few highlights on the slide here. No pickup on a few or health and safety performance was once again top Quintiles. They really demonstrating our commitment to really looking after our people, 37% of KBR group, 23 revenue, actually over $2.5 billion is directly linked to sustainability. And I think shows clear alignment with shareholder value, which we've talked about before, is a clear differentiator for KBR.

The results from our people surveys, which is run by an independent company undone anonymously, resulted in KBR being classified as a great place to work in multiple countries. So the survey showed as a couple of things, I think the first our focus on people is truly making a difference. Secondly, of course, we are not perfect, and we still have work to do. On this on the side of the slide, you will see a continued commitment to strong governance, and we continue to make progress in I&D, advancing our agenda on multiple fronts. Our maturity and commitment on delivery of sustainability has been externally scored by various agencies, and you've seen that before and MSCI. we believe is the most cited. And we're, of course, delighted to have achieved for the second consecutive year, the very highest ranking of triple-A. As I said, these are only a few hires lights and I would encourage you if you have time to have a look at the field document, which is on our website.

So on to Slide 6 on the group financial highlights for the quarter. This was another clean quarter and frankly, another set of terrific and consistent results. Group revenue was up double digit. That 10% year on year. Adjusted EBITDA increased 18%, one 8% over the same period. I think once again demonstrating the focus discipline to deliver on our strategy to winning the right work and then executing with excellence with prudent cost management. And this has resulted, as you would expect, and enhanced margins, which were up 70 bips. Cash was once again a standout with year-to-date conversion at 129%, an absolutely spectacular performance.

Now on to book to bill. Now, as you know, we've been providing a book to bill figure ex the plaque Emmons project for the last several quarters to convey our underlying business performance without the large LNG burn. And beginning this quarter, we will switch to only using this figure in our materials, especially in light of the new JV with technique, which I'll cover in a moment. On this basis, I'm really pleased to report that our book-to-bill at the group level was 1.2X in the quarter, and both SDSL. and GS. in particular, had a strong quarter, and this sets us up well to close out the year. But this together with our attractive pipeline and really gives the group a solid foundation heading into 25 and increased confidence to achieve our industry leading to long-term targets. And I think our people all across the world to continue to deliver every day doing what truly matters. And without them, these results would not be possible. So, as you're also aware, we closed on the LinQuest acquisition, and I'm pleased to report that the integration is well underway and expected alignment and values and culture are shining through. We've had numerous town hall meetings with LinQuest employees all over the country, and we could not be more pleased with the warm reception to KBR their deep domain expertise, really outstanding technical capability and their dedication to serve the mission of the customer, which is 100% aligned with how we operate doing things that master.

Lastly, I'm pleased to report that we will be increasing our guidance for revenue, adjusted EBITDA and adjusted EPS this year to reflect the addition of Linquist and our ongoing organic, strong performance.

By on to slide 7, some key awards, let me start with SDS. and Saudi Arabia. So, there's been quite a bit of speculation on this, and we're now in a position to talk about our role on the liquid chemicals project for Ramco LTC. As we've discussed previously, there was an opportunity across multiple world scale projects for all of and crackers were initially tendered as pre front end design, front end design and PMC project management contracts, plus there was an overarching coordinating project management contract or CPMC. now KBR, one of the crackers and the overarching CPMC. And this was actually the market and on any single company could win. So the cracker project that KBR secured two computing Ramco priorities was actually suspended, and this has been made public. That said, the CPMC., we believe is the key role. This is a multiyear endeavor, employing critical resources covering not only touching all the olefins projects at all stages, but also developing and working the integrated schedule, supply chain management strategy, data and digital management, phosphor Ramco, really managing that data in a digitalized way and really sort of looking at a continuity of system safety systems and the data digitalization of those systems being the project light technical authority. And to be clear, we will have team is embedded in each of the pre-FEED FEED, PCPMC. contractors during the other large projects on Ramco's behalf. So, this will ramp up progressively through the rest of this year and in 2025 and as a matter of fact, will continue well beyond our long-term targets. To give you a feel revenue to the pre feed will be between 50$ to $100 million are now going through you feed it into execution. Revenue will be several times this magnitude. So quite significant.

In addition, again, with Ramco, we have also secured another of the offshore gas development front end designs. This is our third to date. They are really key enablers for the LTC. program itself. This is another substantial and important piece of work, again, setting us up well for 2025 and a significant contribution to our long-term targets. I would remind you that around core are replacing crude by gas with gas to generate power, and the crude will then go via the LTC program into various petrochemicals. This is both values add for the crude but reduces the car footprint of energy production in the Kingdom significantly.

So now let me turn to LNG again quite a bit of speculation on this market. So firstly, on Plaquemines, we expect first LNG before year end. This will be one of the industry benchmarks for speed to market. And further LNG will be produced as the individual's smaller trains are commissioned progressively through 2025 and into 2026.

In the quarter, we secured the Lake Charles project and joint venture with technique. So this is a partner with what was successfully many times. We have strong construction and fabrication capability, and the customer is Energy Transfer. To be clear, the contract, the contract terms are firm aligned with our stated risk profile, and KBR will be performing management and technical services similar to our rule on platinums and again, similar to Black Diamond's. This will be reported through equity and earnings. Energy Transfer is making solid progress in offtakes and has the balance sheet to move the project through to final investment decision. And they've actually placed long lead orders already. That said, there's a bit more wood to chop on this. And I think the election will have an impact on timing which we do not expect FID. until the second half of 2025. In addition, and also in the LNG market.

In this quarter, we secured the front-end design for an additional LNG. Train for a confidential LNG producer in the Middle East, which could lead to bigger statements as that project progresses. And also in LNG, we secured the project management contract PMC for on behalf of Abu Dhabi National Oil Company for the new LNG project in Abu Dhabi. To be clear, this is for the execution phase. So again, this is multi-year and valued at circa $130 million. And this follows on from a successful PMC of the front-end design that we completed earlier in the year.

And finally, we just announced the award of the Shell Manati gas project in Trinidad, and this is an enabler for LNG and not part of the world. As we said previously, LNG is a global business that truly affords KBR attractive opportunities aligned with our desired risk profile and leveraging our differentiated capability.

Now let me shift a little bit to emerging technology areas. We announced our acquisition of sustainable aviation fuel technology early in 2024. Since then, we have digitalized and modularized tech while ensuring we can deliver an end-to-end solution. This solution no trademarked as pure staff is the first ASTM certified soft technology. And we're particularly excited for what's to come as no data and the intersection of increased demand supported legislation across the world and progressive incentives. And the project we announced to the Vienna is the first and in an exciting pipeline of opportunities, obviously more to come through 2025. on circularity and in particular related to our investment in Mira and hydro PRT plastics recycling technology. I personally visited the site in the UK at Wilton and saw the progress firsthand recently. Commissioning well advanced, and overall progress was impacted by skilled labor shortages due predominantly to Brexit, the plant will be producing product before year end that LG Chemicals plant in Korea, on the timetable and the Mitsubishi plant in Japan is looking to be just brought in early 2025.

So, in the world of new technology, having the fastest scale plant is absolutely terrific. But three operating at scale plants is actually the watershed. And we believe this will catalyze new license and project partnership opportunities in 2025 and beyond. So again, very, very exciting. STS book-to-bill was one dot all in the quarter, but actually this does not include the large are not LNGPMC i referred to earlier. That was signed a few days after quarter close, and we booked in Q4 and our invest and what's in the hopper, we expect Q4 to be a strong booking quarter for STS.

So on to government solutions. in the U.S. as expected, Q3 was a strong bookings quarter due to Department of Defense our annual budget cycles. However, our international business also had a great quarter and together achieving 1.3x for the quarter and 1.1 on a trailing month, 12 months basis has some highlights. This quarter were nine awards in systems engineering business. We had that I might contract vehicles. We've talked to talked about many times, actually this year, but we have been awarded approximately $1.5 billion in task orders under that contract, $1.2 billion of which were actually in Q3, as you aware we have only backlog funded $1.21 this quarter is the ceiling value of those combined contracts, which we will expect to book and burn over time. So one significant contract worth highlighting contained within that $1.2 billion reflects the increased attention and focus on funding expected for the Pacific with a circa $200 million multiyear contract supporting the Naval Warfare Center Pacific program, which is actually a new, Digital customer for KBR, where we will play a significant role in introducing and testing new technology as we progress the digital transformation and zero Trust environment for that customer.

And in space, as you know, a key strategic vector for KBR. We continued momentum with a follow-on strategic award by the Naval Research Lab. As shown on this slide. The acquisition of Linquist was made to accelerate our growth in military space, interoperability and digital engineering. And in the months since we've closed, Linquist has secured over $60 million of new orders under a unique contract vehicle that KBR does not currently utilize. I know Linquist actually does not utilize I Maxell with KBR and Linquist now able to use each other's contract vehicles. The revenue synergy opportunities are exciting because the procurement cycles for these are very, very quick.

Now before I move on, I would be remiss if I did not give you a home safe update. The systems testing for the interstate moves were successful and moves have started. Now. This is very significant, a significant milestone as it clears the way for essentially full domestic moves by. We expect to see and increase in moves in Q4 as new lanes are turned on revenue for the full year 2024 will be below our expectation that to be clear, there's no impact of profit because as you're aware, we were conservative in our in our original guide for 2024 and as a matter of fact, our long-term targets also contain a conservative ramp as presented at Investor Day. So the lower volume in 24 has no impact at all to our targets. A solid relationship with TransCon continues to be collaborative, and we look forward to progressively ramping up on the program and enhancing the moving experience for our men and women in uniform and their families through 25 and beyond. I will now hand over to Mark, who will take you through the Q3 performance and a bit more detail, including the 2024 for guidance increase. Mark.