Q3 2019 Earnings Call
Good day, ladies and gentlemen.
On hold for today's KBR third quarter 2019 earnings conference call.
I just I'm, we're gathering today's audience.
The way shortly.
Thank you for your patience.
Good day and welcome to the KBR incorporated third quarter 2019 earnings Conference call.
This call is being recorded as a reminder, your lines will be in listen only mode.
There will be a question answer session immediately following prepared remarks.
Steve instructions at that time.
<unk> opening remarks and introductions.
During the call over to Mr. Evensen baskets. Please go ahead.
Good morning, Thank you for attending KBR third quarter 2019 earnings call.
Yesterday, we were Brady, President and Chief Executive Officer, Mark Sopp, Executive Vice President and Chief Financial Officer.
And Mark will discuss highlights from the quarter market outlook and our financial results.
After these remarks, we will open the call for questions.
Earnings presentation is available on the Investor section of our website at KBR Oh.
I would like to remind the audience [laughter] discussion may include forward looking statement.
New York views about future events and their potential impact on performance.
Right.
These matters involve risks and uncertainties that could impact operations and financial result in cause our actual results could differ significantly from our forward looking statement.
Risks are discussed in our most recent can carry available on our website.
Well now turn the call.
Thank you all this.
Good morning, Thank you for children.
I will start on slide four.
Excellent quarter across the company Hello.
Safety security.
Environment.
Cool quarter strongly by achieving zero harm.
Okay.
I think the subcontractors we manage.
Not so every day.
The third month, we have done so.
Right.
That's what I've standing achievement.
Well I committed Pasha 70 people.
I've often said good age.
He is quite simply business.
Which takes us nicely on to slide five.
In short.
Absolutely stellar quarter.
No.
The overall business grew 12% year on year. Each segment grew that's contributed to overall.
Execution was excellent.
Since we're in line.
Cash flow new business bookings were strong.
I don't get more granularity on the launch of any moment.
I'd also hopping to report that we handed over the excess LNG project in its entirety.
To be clear. This includes the power station Oh performance test successfully completed.
Trains are interesting ops or above nameplate capacity.
Our exporting LNG commercially.
The second husband Jihad small team for Punch list technical work to support the change.
The funding to complete the project.
Isn't that our previous estimates.
Of course English business.
Our focus now shifts to seeking recovery on the Counterparties.
You May also recall that we want to an important award a number of musical Cold Army 20 to 20, what's your possibly as far project, which you know well.
Okay Army 2020 wants to bring richer soldiers on the families actually been traveling back to the UK.
So doing building on modernizing Hungary structures across several gossip.
I'm pleased to report the program has gone really well I didn't cooperation with the UK I want to eat all critical assets were delivered over the summer on tragedy.
This is a clear demonstration of our focus.
Yeah.
Well just like six.
KBR, we've been talking about winning the right work or sometime.
Strategic on commercial discipline being key.
Combined with a focus on customers on execution under and of course by a strong he does a high performing culture.
We thought it was what showing recent bike loan from almost exactly this approach.
Really paying off.
Where we delivering problems.
I think the numbers speak for themselves and then apart somewhat understated.
They do not include the unexercised option you guys.
Longer term government solutions contracts, which as you're aware or more than likely exercise.
And maybe this year altered investor day.
We said the all segments would go and we expected energy solutions.
This business.
Uh huh.
Strong book to Bill in 2019, and excuse me a little below 3.6.
Feel positive about continued growth.
Why did you 20 and beyond.
Especially as these numbers exclude before LNG, which remains on track for Fiveg early twenties each month.
Also important to highlight we'll sustain dog trailing 12 month book to Bill.
Oh, one times.
Six straight quarters Delevering the backlog at each of our segments.
Good.
Let's take so nice they onto slide seven.
That's fine hopefully gives you a good field.
<unk> pipeline KBR has brought to us.
Multiple sizable opportunities in all segments.
KBR continuing to benefit from a near term LNG build cycle.
Your technology offerings.
Synergy and cost dropped an expansion in government solutions.
I tried to contract vehicles and government solutions business continue to afford opportunities for technical experts to provide upper end engineering on cyber expertise. So a large number of defense platforms.
Department of defense is looking to modernize that sustained aging effect.
The graph on the right shows the progress, we're making to watch securing our future.
Reaching a double digit she got targets through 20 joint.
The only 17 today as well as you're well aware, it's I'm sorry.
As such we believe sometime ago. It was a strategic imperative to position our segments, thus KBR and attractive less volatile markets.
11 differentiator that longer term opportunities.
Our pickup business of 65% through 2022 is a clear demonstration of the success of this strategic shift.
But again this is also I'm just stick to it.
It does not account a smaller short duration projects that of course on billing today.
Not makes up about 50% typical.
Also on in keeping with a policy.
LNG is excluded until it is like.
I Trust that gives you more insight and confidence continue cool.
I've said many times before it is a great time.
Okay.
I will now onto our tomorrow it will take you through the financials.
Yes.
Thank you stored and I will pick up on slide nine.
Stuart as indicated we're pleased to report another successful quarter in revenues and earnings growth.
Well that really strong cash flow and bookings incorrect.
You get together delivered a foundation for growth and value from continued focus and discipline.
Executing our strategy.
Consistent with the expectations set back in our Big Investor Conference.
You have continued to grow our government in technology businesses and are now seeing or energy solutions business, yes, it should be significantly to overall.
We are experiencing good market conditions in our focal areas were then yes.
Where we are able to selectively bringing new business bits or risk profile.
Yes, good drivers for Q3 were all they cost reimbursable basis.
Our increase in operating income reflects solid execution across the board margins all three segments.
But on long term target.
The variance in margins year over year, primarily comes from our energy solutions business.
But margins benefited last year write ups strong execution and project close outs.
We continue this trend in 2019 Kinsley successfully completing a project and our nonstrategic business this quarter and according to close out benefit of about 7 billion.
Good morning, driven by new projects getting off the ground and as Stuart highlighted coming from all parts of our business.
We have new projects ramping up in government solutions, G.S., including a new projects for the Defense Health Agency.
Adding cyber and risk management services to protect the medical records.
War fighters and their families.
Driving our growth in space and mission solutions, which incidentally is only fastest growing part of its yes, right now or a couple of new contracts, including the walk and Chew Wayne's operations contracts with NASA.
That's a wallet like facility.
And our continued ramp up of our hotel contracts, where we now have about 500 white collar professionals, providing let's stick human.
Psychological performance services or lead or fighting force.
We also new projects ramping up and yes, including a greenfield methanol project in Louisiana.
Refinery expansion project in Texas.
In the mid stream expansion project in the Permian again, all Reimbursable and all building momentum as we look forward into 2020.
Continuing down the page non operating items and taxes were as expected.
Altogether attributing to adjusted EPS of 45 cents core.
You'll see that we had an excellent quarter in operating cash flow, we're really pleased to see that.
Now and just about 200 million through the first three quarters.
This reflects more focus on working capital management across the company.
Our portfolio and our discipline enabled the company that continue to operate negative working capital.
You'll see later, we're bumping up guidance based on the strong results we've seen so far.
Now onto slide 10, our results by segment.
They got performance is trending as planned.
All three segments are producing attractive organic growth.
Margins are at targeted rate.
And more effective working capital management across the board.
As Stuart mentioned all segments exceeded a book to bill ratio of one.
In Q3, demonstrating that we are executing well on the projects we have in house today and we're also seeing success in further building our book of business for future growth.
Book to Bill was an aggregate shoot dot onex for the company in Q3.
Truly excellent results.
And fueled by all business areas.
So they government solutions segment, we are seeing ongoing growth in line with our long term targets.
But the Kendall project completed in early Q3.
And all canceling logistics, a little slower in the summer months.
We've talked about the Jindal projects since Q4 of last year after the hurricane.
And here, we'd certainly like to tip, our hat to the incredible team over 3000 people.
On the KBR team for their dedication and commitment to a story and rebuilding Tyndall Air Force base.
And it is vital role and serving or national security answers.
Government solutions, EBITDA margins, or particularly strong good execution across our entire contract base.
[laughter] favorable settlement on a previous claims and the government.
As you can see that dog grew 17% over Q3 of last year.
Certainly a great result.
There's also accelerating or de leveraging.
And she has segment improved gets dsos or days sales outstanding five days in the quarter.
Which of course contributed to strong cash flow results I mentioned earlier.
The technology segment posted another good quarter with organic growth of 19% that's ahead or targeting case.
And 26% margins right on target.
Q3 bookings were particularly robust or ammonia technologies.
Certainly nice to see this rebound after a softer market we've talked about earlier this year.
And our energy solutions segment, we're now seeing topline growth in both our services and logistics offerings together up over 30% year over year all again.
That's 2017 service as part of this business, which is about two thirds of the segment as recorded impressive 14% compounded annual growth.
Primarily driven in the U.S. you pay in the Middle East.
Offering spanning project management engineering and design services de Bottlenecking studies consulting and industrial services.
We're leveraging our global relationships to partner with our clients as they diversify their portfolios and expand into new regions and territories.
Good example, a Mrs. Both.
Aramco and static.
Pick up they're investing activities in United States.
I'm, a large projects I growth is being driven by the ramp up new Reimbursable APC projects mentioned earlier.
Some big ticket LNG opportunities on the near term horizon.
Margin for E.S., where it has expected in the mid single digits.
That said our May investor confidence this is where we expect margins to be in the early stages of this upcycle.
In summary, really good progress by all three lines of business.
Typically with respect to the Dallas.
Gross margins on track excellent cash flow and healthy bookings from l. or future performance.
That covers the personnel on the segments, while new box and capital structure on slide 11.
As you'll see our de leveraging story has continued this quarter.
The ongoing growth in EBITDA levels and modest debt reduction we now have affected we reached or targeted gross leverage ratio chewed up seven bond.
As Stuart mentioned, we completed the delivery of exists this quarter.
And have been able to achieve continual de leveraging.
While we have you substantial free cash flow to meet that commitment.
But they just completely free cash flow will now be available or other deployment.
Priorities unchanged from what we communicated to you back they Investor Conference.
Also about a week ago, you might have seen that our credit ratings upgraded by S&P double b minus reflecting our ongoing growth in earnings cash generation and disciplined risk management.
And finally on to slide 12 building on the strong results through the first three quarters, we're bumping up our 2019 adjusted EPS guidance.
Dollarssixty four to $1.74.
And also increasing or operating cash flow guidance to 200 million to 225 million for the full year.
That's the financial summary back now to store.
Thank you Mark I'd onto slide that team to close today's presentation.
KBR is a true girls and while you're still.
Growth of 12% year on year with all three segments contributing absolutely terrific.
<unk> performance for almost three years not.
New KBR is delivering.
You rich game, but it takes us not complete.
John So within a cost forecast.
It's not all about claims arbitration and hopefully what was that negotiations.
Given the unpredictability of timing quantum on rulings et cetera, we will set our targets going forward, excluding makes us monitors.
A clear focus on cash is paying off and we reached a targeted leverage this opens the opposite sure on cost deployment opportunities as much presented data there.
Guidance has been raised on both yes on cash.
On a importantly, there's such a positive momentum and caveat today I'll focus on small.
So thank you and I will now hand, the call back to the opening it up a little open up for questions.
Thank you.
Ladies and gentlemen, if you wish to ask a question at this time. Please press star one when your telephone keypad.
Please ensure that immune function easy switched off to what are your signals to reach.
And if you find question has really been answered you mean remove your stuff from the Q by pressing star too.
Once again, it's star one if you wish to ask a question.
We will now take her first question Steven Fisher.
Please go ahead your line is open.
Thanks, and good morning.
Clearly lots of good things happening here I, just maybe starting off with excess can you just give us.
With your latest expectations are on the potential odd resolutions.
From a customer and other subcontractors.
Yeah, I mean the.
In the arbitration days on the power station is still still holding that was a recent drilling just to come so I'm not.
I'm not going ahead as planned in February 2020 States.
I think the expectation is still you know you never know steam with course as I said you know the timing on these really exists is ongoing but typically we would expect resolution of the next year.
The main arbitrations for the customer.
Huh.
Well progressive laid resolve themselves as we go forward, some and 2020, but not many more saying 21.
Okay.
No.
Thats, assuming the court process proceeds there was always the opportunity now to the facilities affiliate handed over I mean, they're operating above nameplate capacity you know word in different phase of relationships. So I think as a great opportunity notice disenchanted with the customers move into early 2020 in China.
Wage paying lloyds lots of money.
Okay that makes sense and then just a follow up on non cash flow the implied operating cash flow in Q4.
About 13 million versus the strong hundred 18 million and in Q3. So now that we are doesn't exist and that related drag on cash flow can you just talk about with some of the puts and takes.
Cash flow are going forward, both really in Q4 and.
Getting into guidance on 2020, just kind of particular, working capital tailwinds or headwinds and any upfront payments et cetera, and would capex need to start picking up as your revenues grow.
I mean, I'll, let mark follow on from this but one thing I, we'd like to point out is that.
KBR is a growing business and growing double digits and consumes working capital and the fact that cash conversion rates are where they are and what we've done year to date is an amazing achievement.
The hospitals to Mark and his team and all that people at KBR actually delivering on that cost focus and you know sustaining.
Strong working capital as you're growing businesses as you all know the challenge and KBR, something well, but on particular detail on the Mark.
Based on so.
Hey, Steve just to clarify it just really does not have an impact to operating cash flow.
The metric that we die so the funding of Victus heretofore, which will know stop.
I wasn't investing activity they operating activity just to clarify that so the.
Completion of that really doesn't have an impact.
Operating cash flow has reported it as expected.
We are bumping up guidance. So we're pleased with that so we're making good progress as Stuart mentioned, but we are also growing business, which does consume some capital. So we wanted to be cautious in the fourth quarter, Ed, but still showing improvement reflecting everyone's hard efforts around.
The company and.
Longer term I think our cash conversion expectations are consistent with what we said in our May Investor Conference, where do you much expect to convert net income other one to one basis over time anyone quarters.
Tough, sometimes we do better sometime.
Better but over the course of a full year with us that remains our expectation.
Thank you.
Our next question.
Sean Eastman from Keybanc capital markets.
Please go ahead your line is open.
Hi, Tim.
Congrats on a job well done this quarter. A first question for me is just given them better cash outlook here in 19.
Bumping up against that leverage target in the third quarter, just big and time to dig in on the capital allocation plans as we look into next year.
Just speak too.
Tied for acquisitions versus buybacks at this point and maybe relate that back to how the acquisition pipeline looking like in terms of where you guys are focused on on adding capacity.
[laughter] sounds likes the I mean, we talked about this many times and I think.
You know successful at our acquisitive pursuits, and integrating it was a way to us volumes over time.
But we've done not very considered invasive strategically and you know we as I've said before we've just a lot of drugs.
You know we continue to do so so you know, we're highly focused and to see any as intense potential acquisitive news.
We talked about.
Things like overseas government talks about technology, obviously and.
The main and main too that the button, but ultimately getting acquisitions is difficult.
We've been very clear that unless we can find something that's compelling okay. Good accretive on of course is a cultural fit.
FEIBA important to us.
Strong caution and culture, and we don't want to.
Ill put off kilter in anyway, so do they consider them, but you don't with no options and the acquisitive arena as I said.
The opportunity is now open for us to look at cash deployment opportunities and we've been very clear that buyback so very much opportunity as we go into 2020.
Okay, great and the.
The government margins actually came in quite a bit better than I was forecasting in the third quarter I'm. Just wondering if we can infer anything on the future here or whether there was some onetime type development sitting in the third quarter.
As I mentioned in the prepared remarks, Sean we did have a favorable settlement in that sector in the third quarter.
So that bumped it up but to some degree.
We've also seen really strong performance on aspire.
We mentioned that in her prepared remarks.
Livery of a lot of structures in the third quarter two.
Be ready for the Army's return.
Germany was very successful in that program really has done very well for us.
I think the way to think about government margins is.
The targets, we set the norm and so upper single digits.
As what we would expect longer term and occasionally we have some favorable adjustments like Q3, which which help us but.
The mix of international content continues to be very favorable.
To our margins and blended down by the domestic piece again together upper single digits is where you should be a focus going forward sustaining basis.
Thank you.
And now.
Question from Jamie Cook from Credit Suisse. Please go ahead I get more.
Hi, good morning, congratulations on a nice quarter I guess, a couple questions. One I'm store I would be interested in years sort of view.
On your broader portfolio, just some of that given some of that dynamics that have happened in the industry. You know people acquiring government assets it pretty nice valuations you technology business now being back on the sand whether that.
Makes you think you could unlock further shareholder value by looking at the portfolio and I guess my second question again back to the competitive dynamic.
Limited competition in this space in energy solutions, So just sort or your view on how the terms and conditions change whether we can move more.
As a cost plus environment just given there is not a lot you guys last any have pricing power and then sorry. My last question Mark you quantified to close out in government just do we know how much that contributed to the quarter into the guidance. Thanks.
Okay. So I think Jimmy on your first question you know we can tell you look at our portfolio in portfolio and but we're pretty happy with it as it stands today.
If you look at the growth vehicle going forward.
Particularly this quarter and as we set out and investor due to the in energy solution side.
But all the other businesses are contributing.
So I think it's a great Collins, we've gotten this culture. The allows us to just shut off operate in the commercial world onto the government World and and we're seeing a lot of synergies, particularly in the digital side and you would want to fix and things like not moved from from NASA on the government I mean out into the commercial space. So I think we probably helps to give the market a little bit.
More on our progress on mountain bikes and wind at Knott's compelling, but we set a benefit I on the Investor day, So we're pretty happy with the portfolio.
Balance we have in the business and Mark commented on that.
We continually Luke.
Oh, yes.
You know auction spring.
But they're pretty hot feel not today in terms of where we are on the energy market.
So it is a very interesting time.
If I went back everyone just congratulating KBR on a nice quarter, it's obviously nice I live in the quarters.
The reason for the out is that we've been very disciplined depending on what we've taken on the other thing thus foreign troops and.
I'm going to comment on others, but sadly the the the way the market is shaping up and gives us great opportunity in terms of cooling working that fits our risk profile on reducing the number of players on LNG projects, particularly in the U.S. and so I think thats why when very upbeat about tomorrow I think that's why we are.
We're talking about half of a strong momentum and if it does seem to business continuing on so you don't feeling pretty good about tomorrow, I'm feeling pretty good about the competitive position and being feeling pretty good.
Against the.
Backdrop, we can actually win so this will file up again as mark alluded to earlier on that Muslims government numbers, yet real quick Jamie first thanks for your remarks the.
Favorable adjustment it was in the five to 10 million range, excluding that our margins, we're right, where you would expect them around 9%.
Thank you.
Next question from Gautam Khanna from Cowen and co.
Go ahead your line is.
Hey, guys. This is Dan on forgot them good morning.
So just one on a log cap, what's the expected timing on that protest resolution.
Yes. Good question as you know what.
Sort of moved out of the traditional sort of protest into the court arena that date has been set for the ruling in early December .
Certainly there's been.
No.
Absolute commitment to stick to that date by that by the army and the courts. So we're expecting that to two proceeds as us.
As one if you like in in December and why that we'd because if I look in December so.
So lets into Q1 is not quite clear yet, but certainly resolution is expected in December timeframe.
Got it thanks.
[laughter].
Thank you we would now take our next question from Michael Dudas from vertical research. Please go ahead. Your line is open.
Good morning Gentleman Allison.
[laughter].
Michael I was laughing that was probably to Allison bridges, you there will be one answer.
Thank you [laughter].
Thats great discrete here so first question.
You mentioned in his remarks on government services.
Risk profile, and it's getting better we're changing and would be opportunities for you. There maybe could you elaborate more on lake is risk with better margin were just better terms or is your customers and mass or do you will be or.
Who see or just asking to for you to do more and you can generate better net or gross and net of fees from that so it's just going on from that going into it swings.
Yeah, I think I don't think we really mentioned at risk in that context of GNS, Mike It was and maybe referred to the energy sizes Uh Huh.
But certainly in terms of the opportunity set we're seeing in front of us, particularly.
Yes, we're focused and government you're quite right we've got.
Continued bundling we've got some significant opportunities in the pipeline multiple.
Multiple those over 100 million.
We laid out for standard remarks so.
Yep space is exciting and that was the fastest growing part of our business in Q3, which.
She was a great policy as well because last quarter was it was engineered.
So we're seeing a we're seeing a lot of a good balance in the business and I think.
In between the business lines, the synergies playing out which is terrific.
And to two other ports or any thoughts on a continuing resolution issue any any near term visibility or most of that could be.
For you guys.
Oh yeah.
Oh excuse me on again right. So we're getting used to this and Uh huh.
For many years and so.
Good is that there's congressional consensus somewhat defense spending should be.
For the next couple of years, even through the election cycle.
They just got to put pen to paper on it and hopefully that will happen.
So were seeing normal normative CR activity as we start to government fiscal year here in October .
And.
Now, there's always risk of things like shutdowns, we've dealt with those in the past it really haven't had a measurable impact to the business and so a cell phone to be in admissions mission critical areas that we are that will allow that work to sustain into those areas. So.
Regularly working been here before it would not to navigate through it.
And again, the better news as the congressional consensus that happened in the spring in the summer that hopefully will pave way too.
The strong defense budget growth that we have articulated back in May and Simpson, Yeah, I think I think thats right and just I mean, we went through this of course as you know like last year and.
The the impacts of KBR as Mark said was minimal.
Yes, I think that strategic focus on vision mission critical activities played out.
Again.
If I mean, the expectation from everyone is a adopt will not happen, but as you know government is unpredictable, but I think they invited KBR, we'd be minimal just given in areas, where we are focused.
I appreciate that my question is and the technology front.
Some of the opportunities you Cesar better piece to inquiries or opportunities for for licensees or the still the strong areas that you guys are are focused on your business type of interest and thank you maybe reflect on is there still.
The concerns about.
Economic growth.
Oil prices there soon appetite to Oh go ahead with these types of investments and for future Capex on that front.
Okay.
Yeah, I wonder if we're not seeing any slowdown in a pipeline of opportunities and technology I think that the beauty of technology. We just had hardboard actually in India last week out looking.
And your technology centers, and really sort of examining that business in a bit more detail and we bought it couldn't doubled the portfolio technologies in a stable over the last.
Few years and I never really has played out very well.
Talk a little bit Investor day things like case either.
Alkylation technology is a disruptor in.
That's starting to get a lot of traction on the first commercial scale plant is up and running is performing well and from a safety perspective.
I think in terms of beyond the proprietary rights for the calculus.
As Mark said, you know that the ammonia market is coming back and certainly in the past last few weeks, where pricing is back up a little.
So I'm not seeing out as you know that's driven by GDP and some of the production and things like that so so we're seeing we're not seeing any slowdown and pipelines of opportunity. We've got some fantastic disruptive technologies that we feel we'll launch huge value to KBR globally, we're not at the mask so much in ammonia cycle anymore because.
The portfolio. So yes, I think the top business has if you look back over 10 years ago K goes at 15% Lincoln, we see that continuing and certainly that backlog that has today.
Suddenly.
Lead you to conclude that that will continue.
Thank you.
Next question comes from rain.
From D.A. Division.
Great I mean, please go ahead.
Great. Thank you Hey, you were just a follow up on technology that pick up in ammonia that you talked about being slower.
This year is there any good read through into the energy solutions business, where I think you've got some established capabilities there.
Well I mean, I think we do a lot in the revamp arena and things like that but we've been very clear from a lump sum turnkey perspective that.
We're not doing I'm wondering a lump sum going forward and so any pull through is we'll be focusing on the licensing bunch equipment, and dropless and and I read out we've been fairly clear focus and lump sum as LNG and to some extent ethylene if it happens but.
Certainly the key focus areas LNG ammonia typically a new build goes lumps WPC and so we'd be focused again supporting others, who wants to build on the provision of that technology and not quite frankly, if you look back historically.
You know KBR, that's where we make a money that's where the good issue shareholder values.
Okay, and then I guess, you're not energy solutions that I think we've all seen and you guys have talked about through the evolution of the competitive environment.
At a high high profile visible projects out there can you talk about what you're seeing in terms of maybe the smaller projects that make a big piece of the backlog still just from a competitive standpoint.
Yeah, I mean it varies.
From market to market, you know or.
You know, there's there's just sort of you know a license market if you like.
I need to have a what is called the Gs plus license if you like in Saudi Arabia for example to compete and as you know fourq pool for competitors there.
Equal work, where we are probably the main student.
John for you know because of a joint venture with a small car there.
So I think I think it really depends.
I think for the for the for the smaller front end designs usual suspects you know the there's a lot of emphasis on getting credible technical and commercial solutions.
All the customers so they're looking for a really sort of smart concept and pre feed thinking around that that's a lot of what we do in the early stages. So so it's the usual people you know the suggests that the techniques and the warranties and that foos et cetera, there so not really much change there or not.
Competitive environment.
I think thats in the larger projects that.
We're seeing the significant shifts.
Thank you.
Next question comes from Tobey Sommer Suntrust.
And your line is open.
Thank you could you elaborate on the opportunity.
It for Logcap five in the Freeport LNG train four awards.
Kind of not in your I'm not in your backlog.
I mean.
I think we laid out.
Toby in Investor Day, really the historical spend a little cop five on Afghanistan on that.
Obviously.
You'd have come onto what we're doing you asked and so I tried to put that together in a way that gave some indication.
The of the uptick there.
Okay. Thanks.
600 million to believe as it was clear there was quite quite reasonable uptake, but there's no guarantee of course that comes through.
So I think we'd have to go back and look at look at Dot plan low cap is officially awarded won't try and gave you a bit more but we start to get the for the task orders through but the best referencing cause the one that we presented in me.
In terms of free for LNG, we have signed to MPC contract.
The negotiations on financing seem to be well advanced so I don't think this too much risk there.
But it really comes down to Offtakes and I know the discussions with.
Hi, tier one off takers is going pretty well so we do expect to come through in Q.
Q1.
As a consequence of that wouldn't be putting into backlog than we have not disclosed.
The number on the APC contract and yet.
On.
And then.
In keeping with our really with our policy.
I'd.
But you know.
There's lots of benchmarks are there I think you can you know so again Zip code and.
We've said before the chain three of this was signed up by CV NIE It up and I'm, just gross volume of 2.1 billion.
You know that's.
Touch on the say the.
That's a number you can you can you can the cotton probably given the difficulties that cpnine them. We've done some fishing is probably too.
So that's that's all I can say there I don't really want to give specifics.
Until such time just fighting.
Toby mortgage to clarify on Logcap, if I could get everything stores that's correct.
Just more specifically.
If you assume that are.
Incumbent positions go forward at the same pace like Eastern Europe .
And European command.
For example.
Then you add in what the.
Okay.
Previous contractors did in north calm in the previous contractor.
In Afghanistan, and it would imply about a 300 million dollar bump up in run rate. If you assume the off temp or exactly the same as 2018, which is a risky assumptions so.
Okay. Both go up and they go down and so we only have those data points really to be honest, that's why we provided them.
But these theater Afghanistan lease in 2018 was bigger than Iraq activities, and we have that to go buy we then cautious and our targets.
Our longer term targets.
More conservative than those numbers suggest.
Nonetheless, we did expect an uptick because their responsibility is bigger than our previous position.
Okay. Thank you that's helpful.
Yes.
If I could ask it on the kind of big government business given the to your budget agreement and even though we're in a CR.
Oh, what kind of visibility do you think you have for organic growth in that context, so how many quarters or years can you see out in kind of think that you're gonna grow organically.
Yeah, I think we was related to the grassroot presented in the.
And remarks, and the level of what we've secured which had a big chunk of courses and the multiple government arena.
No not supports a double digit organic growth going forward.
And you know we laid out in the government itself somewhere between.
6% to 10% in terms of girls.
Over the period, so, but I think we would probably where we're seeing that that's a sustainable number and certainly willing to work to actually deliver on them.
Thank you we will now take or next question from Michael Feniger from Bank of America. Please go ahead. Your line is open.
Yes, thanks for taking taking my questions I keep years disciplined strategy on LNG has certainly helped the company avoid.
Missteps observed by competitors.
Just wondering with the growth you're seeing in the energy solutions.
The service offering the backlog growth. It doesn't even include Freeport does it make you strategically think him out you know pulling even pulling back on some of the LNG opportunities based on the risk reward framework, there since you're seeing such momentum and not any yes.
Oh, I mean, I think we're being very considerate I think that's probably the best way to describe it we've got bill good if we're going to good portfolio opportunities.
All of which are either in a negotiated or the two horse race, there with customers that we feel will behave properly and that against competitors not that we feel it won't do anything silly.
And so I think from not pieces, we we feel pretty good about our opportunity set when we went them all probably no.
But if we win I mean, a long reach targets of between zero and one in terms of LNG.
And we've won one assuming if I'd happens on Freeport, So we feel pretty good about.
And we've got opportunities over and above that with a.
With a risk profile and the margin profile that you know I know that's my setting the stage concept, but we're not actually going into them thinking that we're going to make money.
And that we can deliver on for all this in terms of sheds and things like that so I do think it's a it's you know what's is an interesting competitive market today that that's enough favor and as I've said many times you know sometimes it's not good too in the first one or the second one but it's okay to win one later down the pipe.
But not as of.
Oh by the filled to Shaw for stuff the tolling.
Hopefully the approved so to correct.
Thanks, and I know, it's sensitive talking about specific customer, but just on Aramco can you just highlight and discuss really the opportunities there that you're seeing.
You know into 2020 and on multiyear basis.
Yeah, I mean, aramco have upset I I'm enormously the moving towards high fuel.
Acquired to quite a significant portion of Sabic. So there have been the chemicals arena also thinking about it as a context, so they're making a number of between the two of them strategic investments and in the U.S.
Steve.
Looking at a very large ethylene complex.
I think et cetera.
One as long as to what the continues to be on going with Sabic, an excellent on the Gulf Coast ventures, So so pretty good opportunities there.
We also do quite a bit of work in country four or more.
So supporting.
Developments in Saudi Arabia itself.
More and more.
We're seeing them looking for health as you start to Bronczek investments in places like China and other places so putting aside the theyve got a very large capital budget that they're looking to fly over the course of the next five years.
You know that probably doing a little bit of that.
Hi patients today is that moving towards IPO, let me be a sensible thing and I think we're seeing lots so.
All these projects go at the same pace from.
But I do think that the opportunity in the relationships and the you know the ended the Dave frankly doing a good job is the best business development you can do.
I think when you are delivery WRECO when the possibly four years is certainly helping us.
We'll be position.
When those opportunities.
Thank you. Our next question comes from Chad Dillard from Deutsche Bank. Please go ahead your line is.
Hi, good morning, guys.
Hi, Jeff.
So I was a pretty pleasantly surprised by three Q right, Yes revenues I just wanted to get a sense per whether this is that the baseline and from what you expect to grow and you mentioned some of the big projects ramping up the methanol we're firing facility in the midstream project.
Can you talk about when you expect to hit the peak run rate and how far we are away from that.
All of them.
Yeah charters.
So good question I think we're just beginning so I would say the peak run rate on those projects is.
Well into late next year and even into the year after.
If you layer in sort of the uptick in things like before another LNG that will come through during the previous we really do think the.
You know the 20% to 30%.
Targets, we set our.
Our.
Certainly well achievable.
And probably that's the best way to say that happen, we're feeling pretty optimistic about the future of that business and and the growth the growth within the risk profile that we set out. So I think again, we you know we were getting some some of us quite a lot of repeat.
Awards, and an interest because of to work that we're doing the disciplined with employing you know execution. So I think I think good old there as well for for 2020 and going forward. So I think you'll see continued growth.
I think you'll see continued excitement in the sector for us.
And.
Hello May continue.
Got it and then Stuart I think you mentioned that you're seeing a smaller competitors are based on LNG side.
Just curious whether you're actually that's actually make it into just market dynamics are you seeing incremental opportunities or are you seeing better terms pricing.
And just probably maybe can talk a little bit about just what you're seeing in terms of LNG opportunities beyond Freeport hasn't gone to 20.
Yeah, I mean, I mean, certainly the.
Prime market for us in the next let a while that we've talked about is is the U.S. market. The Gulf coast that we feel very well so I think from a a knowledge base and an execution understanding arena, that's really good for us from a monish management of risk perspective.
We certainly see obviously some of our competitors either filling up or are struggling to some extent as a consequence, some thought the competitor sex and the appetite to do work in the Gulf Coast Lady that that we would do it as has reduced significantly.
I think that all comes down to lease to two conclusions that first of which is that the company's though less competing in that arena will not sign up to stupid terms and conditions.
So the transfer of risk and the balance of transfer risk will start to bounce or as a shoot and use a goal, but that's where we'll end up and so I think that's the first thing and then the second thing is that it's just the laws of economics and competitive world the fixed.
If competition juices than margins should be a little bit nicer.
On you know.
Thinking about as we as we go forward and Im sure competitor is also so again I think the market dynamics there are a very much.
As a family and helping us and.
Think about it and those those times however.
However.
Trinity set will manifest itself I'm sure, but again I'd like to return to reiterate that we will be we're not going to go over their skis recognizing profit in these big jobs, because they are risky and you end up getting to the construction phase so as Mark said.
Sticking by our single digit.
You know margins for the next where the Wilans those jobs jet to the end and then hopefully we can really some some contingency and then some sort of provision against potential liability and things back into process. So I think that is a growth story of a lot a lot of.
Yes upside if these LNG projects proceed.
We will be very prudent and how we manage our.
Hi, they come through the numbers.
Thank you.
Next question comes from Andrew.
Please go ahead your line is.
Hi, guys side. This is Andy we all financial capital its eyes. So congrats on a quarter or 11 quarters cellphone solid results I just have a one quick question about the Recompetes and the overall project when great Hockey's, Cuba give a little bit color on that in the quarter and how do you.
I think going to I 2020. Thanks.
I mean, I spent a recompete win rate is.
Approximately five it's.
Okay.
No I'm it pains not to say this but we've essentially Austin recompete win rate is 98%.
As it stands today and I think typically you would be seeing not 95, so I think but doing well.
I think were really really strong and not immunoassay focusing on that.
So you won't be that continuing but it comes down to deliver you again, you know when you go to be.
I think the performing well and you go to the of the relationship customer that sounds about right. So I think a team does very well not area.
Really the Recompetes and that takes a while our.
Quite the two got no biggies coming through till the end of the year. So I think the big ones that we had this year than Jacksonville, and with woke up five of behind as successfully so you know we.
You know, we're feeling pretty good about that.
And our overall win rate is above 50%.
Oh across all businesses with the government piece, which people often ask about is.
Well above that and when you expect them all in including new business and Recompetes. So we're really pleased with.
The performance of the business development teams across the whole company on the Recompetes, but also the new business has been quite strong and that's why you've seen.
I think above market growth for.
All sectors.
Okay, great. Thank you.
Thank you.
We have no further questions over the phone at this time I would like to hand, the call back over to Mr. student Brady for any additional the closing remarks.
But I was just as usual. Thank you Sir Thank you for your interest it's been a terrific time at KBR were not perfect. We've still got lots to do and lots of opportunity to get more efficient and move the company forward, but.
But the momentum we have today is very very exciting and.
I think it's we're set up for that to continue so thank you again for your interest obviously, we'll talk to many of you want to one over the course that makes little Bob.
And yeah Okay.
Glass Trust.
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Thank you.
Ladies and gentlemen, this will conclude today's conference. Thank you all for your participation you may now disconnect.