Q1 2020 Earnings Call
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You are currently on old for today's conference call. At this time, we are assembling the audience and we plan to be underway. Shortly we appreciate your patience and she's remain on the line.
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Good day, and welcome to the Kb or Incorporated's fourth quarter two times within 20 earnings Conference call. This call is being recorded.
As a reminder, your lines will be another listen only mode for the duration of the cold there will be a question answer session immediately following prepared remarks, you overseas instructions at that time.
For opening remarks introductions I would like to turn the call over to the VP of Investor Relations.
Listen baskets. Please go ahead.
Thank you Molly good morning, and thank you for attending Kt yards first quarter 2020 earnings call.
Joining us today actually worked Brady, President and Chief Executive Officer, and Mark Sopp, Executive Vice President and Chief Financial Officer.
And Mark will provide an operational update and we'll discuss highlights from the quarter.
Outlook on our updated guidance.
For these remarks, we will open the call for questions.
Todays earnings presentation is available on the Investor section of our website KBR dotcom.
I would like to remind the audience that this discussion may include forward looking statements, reflecting KBR to use about future events and their potential impact on performance.
Outlined on slide two.
These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to differ significantly from our forward looking statement.
Hi, good or discussed in our most recent form 10-K available on our website.
Now I'll turn the call a bunch of sports.
Thank you Allison on money, thanks for joining us today.
I will start on slide four last earnings we introduced KBR sustainability plot for.
Since then we have rolled out of the program across KBR response has been incredibly positive and if anything over 19 has helped to advance our sustainability agenda.
Sure you have all seem to positive impact across the world on climate change on a small way. We believe we can continue to contribute post cobot 19, which takes his onto slide five.
If there is one the benefit of today's situation. It is that we have been a light to reimagine, how we deliver our work we have all proven that working remotely is truly achievable.
Customer intimacy interpersonal relationships can be managed on the greater flexibility can actually lead to greater productivity.
This is of course still that the there's still of course, a definite need for face to face a typical office interaction, but there's certainly a great opportunity for industries like a rolling to leap forward on to slide six.
The sustainability upside is obvious you know less commuting less energy consumption less waste, but we also believe greater flexibility facilitates piece of divesting. It enables a truly global workforce enhancing the ability to use high volume centers it improves job satisfaction.
And increases productivity with less absenteeism et cetera.
There are of course obvious cost advantages with the need for less space is less travel and of course reduced meeting costs. So why is compelling and this is a well proven Pos and some industries. So we've got some really good goodbye.
I know, we will not be alone and this endeavor, but I wanted you to know we were firmly on this past Monday covert 19 has really allowed us to accelerate our plans of re imagining how we deliver.
On to slide seven.
I want to stop with some key messages right upfront.
Huh.
The time I didn't think it was lucky that we had operations in China and a substantial workforce in South Korea as covert 19 broke but in hindsight it was.
We took the threat seriously and we took it out.
And we stood up our global crisis team and started to test business resilient resilience plans stress test. The right you infrastructure I've tried working days from home what kind of columns plans and focus Saudi on T. things like safety and of course liquidity.
We were not perfect, but as a whole weak conditions under cobot 19, very smoothly and we continue to deliver for customers.
The Q1 results do you see today on a forward guidance that we will present.
Really reinforce the transformation of KBR is delivering a resilient unpredictable business model.
Our historical and persistent focus on cost we talked about at all the time I know refinancing earlier in the year has really put us in a strong strong liquidity position, which actually has been recognized last week by the rating agencies and Mark will talk about that later.
Huh.
You may recall that last earnings presentation. Our guidance included a slowdown in technology bookings in Q1, and this proved to be prudent.
But it's also worth noting we are seeing activity again in China, which is promising.
We were also very transparent and our outlook on the energy market, we had already factored in soft LNG market and twentytwenty on greater downward pressure in Capex in general.
The situation has of course deteriorated further on quickly on a customers have acted very quickly.
But the point I want to get across the days that we would already primed and the teams moved from plan to auction quickly.
And this enabled us at a time Warner actual exposure to the energy market is or not is on an all time low to take cost out ahead of the curve.
We have proved to leave us to simplify the business retire bronze give up on necessarily space, including taking into consideration and can taking into consideration the flexible working outside.
That's allowed us to assess goodwill and implement cost reductions.
I do have seen this has resulted in a mostly non cash nonrecurring charge in Q1 more from Mark on this later, but as we look beyond the first quarter under the underlying operational performance of KBR. This reset we believe is very timely.
The significant majority of caveats portfolio is proving body resilient and these volatile times.
As a consequence, and I guess to put our money where I'm. Most days. We believe it is important that we continue to give guidance for twentytwenty. So we have done so.
To give our investors a greater level of confidence and misguide, we've taken a forward leaning on conservative approach as it relates to energy solutions.
Our objective today and to some extent covert 19 on the energy market disruption has helped us is to truly demonstrate the transformation of KBR.
But let's talk about quarter, one first onto slide eight.
I want to say very clearly the response on support from our customers in general, but especially a government customers and the U.S. and across the world has been excellent.
He moved quickly to ensure the safety of our people what extremely flexible and in shooting continuity of work on deployment uninsured payments floored on time on the cadence of ongoing basis, where possible was no interrupted.
That's really helped our people stay focused on the mission.
Our bookings the government solutions in Q1 West strong.
Our track record of winning Recompetes continue to touch wood.
It's worth, noting the and Twentytwenty under 2021 actually the level of Recompetes is unusually low.
And we've already been awarded a largest recompete put twentytwenty.
Government solutions book to Bill of 1.3 is especially pleasing because all of our business units within government solutions achieved a book to Bill one got old or above.
So a nice nice balance.
Our fastest growing business organically and KBR is actually a government solutions business in Australia.
Offense modernization program in Australia, especially with a number of new naval platforms is moving full steam ahead.
To enhance our position as a provider of high end technical training to their stories armed forces on Navy in particular, we completed the acquisition of the assets of S. I mean.
This is a modest but highly strategic acquisition and positions us really well as the demand for training ramps up as these new platforms continue to be built on come into operation.
Overall from a safety perspective, even in these challenging times a culture of zero harm has endured resulting in top quintile safety performance yet again.
And actually we received a couple of nice safety recognitions from key clients in the quarter.
Overall, our underlying results in Q1 were in line with our expectations and adjusted EPS and more importantly above expectation in cash.
I'll now hand over to Mark who will give you a bit more detailed mark.
Great Stuart I will pick it up on the quarter, one financial highlights slide 10.
You can see here the overall financial results as adjusted where appropriate.
Ongoing growth and balanced performance in topline earnings and cash flow over last year.
Stuart just said our core results were inline with our expectation.
Which we were really pleased to see given the obvious disruptions that we and everyone else had to deal with in the quarter.
Revenue was up 15% year over year.
The mix of topline contribution has continued to evolve with energy solution or yeah.
Driving the growth this quarter.
Electing several.
Significant cost reimbursable, he TCV and last year.
The government solutions or G., yes, and technology solution Ts.
Turning to effectively flat year over year for different reasons, which I'll cover here in a bit.
EBITDA was up a healthy 6% year over year, the solid performances combos G.S. and tier.
Reflecting continued strong execution and mix.
Yes margins were a little light on mix, including quite a bit of has to work on the new cost Reimbursable Pcs.
Consolidated EBITDA margins were in line with our target.
Albeit the alluded some from last year on higher overall E.S. mix.
Earnings per share was up 8%, reflecting EBITDA growth and also benefiting from lower interest.
Cash flow is really good 65 million.
Reflecting good project execution, and teamwork and managing working capital you really working hard on that.
Given the dramatic impact of the Cobra situation only capital deployment made in the quarter. Besides the regular dividend.
Section of debt associated with the refinancing in early February.
Also cover more deployment here a bit.
Overall book to Bill would 0.8 ex with a strong performance by G.S. at 1.3 times.
Not unexpectedly lower for T.S. and he is due to strong Q4 bookings.
And the Q1 market conditions.
That's a really nice wins in G. I like the NASA Ames research and development Recompete.
The new now their systems engineering work.
The next Gen technology.
And see some two large I'd like to contract.
While bookings were a light and the other two segments.
In March we didn't really pleased that our technology team did an important catalyst sales from China.
Certainly and indication this market has begun to open back up as Stuart was referencing earlier.
Now onto slide 11, just one additional comments on the first quarter piano at all a move top to bottom here.
Yeah. That's your name was higher this quarter, primarily on timing items.
She can be higher bid and proposal and ERP implementation cost NRG up business and also some corporate spending items.
We expect that Phoenix, and normalize to 75 to 80 million per quarter for the rest of year.
Goodwill impairment and restructuring charges encompass the special charge related to the energy trunk.
Total pre tax charges. These two lines is about 180 million I.
Just a notch above 150 million after tax and non controlling interest.
It's a CMO points on this charge.
First of all that about 25 million of the total charges non cash that's minimal liquidity impact.
Well the definitions of our amended credit agreement none of this charge what would be either dog and therefore, the only therefore it will not have any effect.
Our bottling capacity or covenant compliance.
With that.
The impairment stemming from the reduction in our outlook are associated with goodwill excess real estate capacity and valuation of certain investments.
Energy focused joint ventures.
The restructuring element of the charge also stems from the reduced outlook and reflects cost to reduce overhead and the carry cost of excess real estate.
As Stuart said these actions were swifton deliberate in order to better position he asked for the future.
That's your interest expense the decrease was from the lower debt and lower rate.
Should continue to improve a little more and that in teaching and in later quarters as Q1, all reflected a partial benefit of the refinancing transaction that we get back in early February of this year.
Captures our distorted due to the restructuring and impairment charge, which includes some nondeductible items.
The tax rate. However on items included in our adjusted EPS was 26% right in line with our guidance this year.
Diluted EPS loss of 73 cents is driven by the special charge and energy again, mostly non cash.
Discharge impacted GAAP EPS by a dollar eight.
Excluding the charge and other add backs and deductions adjusted EPS came in at 39 cents inline with expectations implied in our original guidance.
GAAP operating cash flow was just over 40 million when adjusted cash flow 65 million after the spire burn.
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Now onto slide 12 for some remarks on the three segments.
As we've discussed here overall GE has had a really strong performance in the quarter and as you can see just in the bar charts. There the consistency of EBITDA level steep volumes for the stability of earnings.
As business.
You know like EBITDA for G.S. is right now about 400 million.
Maybe the size of the scale of this business now.
Year over year revenues were down slightly due to the episodic revenues from the Tyndall Air Force base contract, which contributed significantly to the first half of last year.
Excluding that affect revenues were up 5% year over year in Q1.
5%.
We'll see the single dynamic again next quarter.
Do you on EBITDA margins were 11%.
It's sitting from strong margins from the international portion, which represents about a quarter a G.S. total revenues.
We also benefited to a lesser extent from a favorable close out into yes.
Yes performance was also healthy and as planned for Q1.
Fueled by great bookings last year.
It is notable that 15 stayed on track with its project execution plan and attendant <unk>.
And if the cold in an environment, where client access was indeed quite difficult.
Revenues were slightly down but margins up from last year on improved mix more license content. This quarter, whereas Q1 last year had heavy volume lower margin equipment mix.
Let me ask poor performance with.
Also generally as expected with ramp up of higher volumes lower margin cost Reimbursable EGPC contracts taking effect.
Well some of those projects may face uncertainty relative to volume in the current environment.
Our reimbursable and are executing will be largely variable workforce.
Yeah, no lump sum contracts in house.
Otherwise impose additional risk in this type of market.
Our strategy being highly selective in which projects, we undertake and also being a survey and taking out overhead cost in the restructuring is all intended to keep that as profitable as we position for the future.
Now I'm going to shift over to liquidity and capital structure on slide 13.
We are pleased that capital structure and working capital improvement actions made recently and positions us well in the current environment.
They're generating positive free cash flow, reflecting our low capital intensity business model and sound capital.
Working capital practices.
With the credit Amendment and extension completed earlier this year before the market disruptions.
Our debt maturities are three five and seven years out all staggered nicely.
Our 500 million revolver has not been tapped nor it has been tuck in the last three years.
We just had about 25 million of letters of credit against it.
We don't foresee a need to use revolver given the cash flow we are expecting going forward.
He reduced debt by about 140 million when we did the and then.
And with the advent of cold it'd be cookie conservative posture.
And as I said earlier outside of the regular dividend, we did not support other funds and accordingly.
We will keep monitoring condition for awhile, but our general set of capital deployment priorities is unchanged.
Our cash flow visibility gives us plenty of comfort sticking to our new regular dividends of 10 cents per quarter, which was up 25% on the previous level.
With all of this new we're pleased to see the credit rating upgrade from Moody's last week.
Certainly not too many of those going around these days.
Elevating our senior secured debt could be a one of several notches from where we started a couple of years ago.
The rating agency pointed to our increased competitive scale in the government contracting sector.
Well as our bidding discipline demonstrated over the past two years as the key drivers for the upgrade.
Now I'll hand, it back is still work to cover the market outlook in more details regarding energy solutions Stuart.
Thanks, Mark on diet and onto slide 14.
I'm sure there'll be more detailed questions, but it's what's giving a quick overview of the markets. We serve so first stop federal on government.
I touched on this and there are government customers have been very very supportive and our ongoing programs continues on pace with plan.
We of course have challenges for example, we have some folks deployed overseas that no unable to travel off base or just talking home from leaves. So we need to look out look after them carefully.
Also had to what the supply chain hard for critical supplies et cetera, but these operational issues are being modest day today and in alignment with our customers.
The level of bid work has actually not dropped and our pipeline remains robust activity levels and our areas of strategic focus on a pre covert levels.
Much of what we do his mission critical and we've talked about a number of times and to give you. An example, even during long time, we supported NASA as Austin also deployed to the international space station successfully.
I would reiterate that we have a very little recompete risk and Twentytwenty and also in 2021 under our Lukas underpinned by multiple long duration programs as you're aware.
<unk> five transition planning continues but the legal process is not yet concluded with dyncorp protest still ongoing it's notable that fluid have withdrawn their appeal.
But interest the current circumstances, the and changing I'd people in moving people in this environment is likely not advisable, how many believes as things open up a and get back to more normal we expect the planning we're doing not to move into execution, but given where we are in the year and the impact is really going to come through in 22.
21, I know guidance boxes listen and our longer range targets always assumed conservative troop levels.
So overall, we're feeling pretty good about the government solutions outlook.
Now onto technology.
As you're aware China has been a critical market for our I guess I knew and developing technology portfolio disruptive technology.
So we signaled last earnings we expect we expected a covert impact and factored this into our initial guidance.
This is proven to up in prudent I have a good things low in Q1 as we expected today. However, we're seeing the China market activity, increasing we have our Beijing office back to work on able to visit customers once more social distancing and proper P.B. Moore and of course Honda as Mark said we've received for.
Starter for costs less from China in March.
Although the petrochemicals mark activity hogs, and the main paused, we're seeing activity and the faster lies on market, increasing which is offsetting much of that downside on their morning, a fertilizer deals typically a larger scale.
But a number of active opportunities in the middle East and in Russia.
Our strong bookings in late 2090, 19 have positioned us for a good start and twentytwenty as you've seen in the Q1 results, but we do expect a different performance later in the year with a slow bookings in the first quarter on this again has been factored into our revised guidance.
In addition to a more addition to ammonia you will recall that our technology portfolio as well positioned from an environmental on cost perspective, So all of our longtime outlook for technology remains unchanged and this business has proven to be really resilient in the past.
Now onto energy.
First it is worth saying again, the KBR has exposure to the energy market is at its lowest level.
It is also watch we are reiterating we have zero lump sum turnkey risk in our portfolio projects.
And we have transitioned a large component of our activity to be opex facing.
I think we're all aware they have been delays or cancellations of slow downs of projects on prospects.
Texas being cut across the board on our customers are reevaluating their own priorities.
Opex is also under review, but under less pressure on it because it's a bit harder we believed to turn off.
We're seeing increased engagement with our customers, especially with doors with whom we have longer term strategic relationships, which is encouraging and the middle East continues to be a positive with ongoing awards and activity continuing.
I consulting business is actually doing quite well and it's very busy particularly in the area of any energy transition on renewables.
But our energy solutions business has been impacted of course.
And as Mark outlined we've taken proactive measures to reduce costs ahead of the car.
We are confident we can flex as the market demands.
This is important because it not only allows us to manage costs, but it also allows us to scale died on dot.
What is clear is there is very limited limited market clarity on so flexibility on speed of change are important successfactors.
Onto slide 50.
Resetting the energy solutions business.
The first few bullets on this slide I believe we've already covered and hopefully we've given you some confidence that we have reset our cost base and simplified the business.
This will help us remain competitive and remain profitable.
But the uncertainty in the energy market get it's incumbent upon us to look across our energy activities and examine their attractiveness against a long time priorities.
Example, do they fit our risk criteria, we return hurdles can we be differentiated in this market is cost conversion continuing to be attractive.
What are the crew synergies, we can leverage going into the future, but technology on government solutions, well competitors become absolutely disciplined and this new world.
Well, our customer behaviors remain fair et cetera.
We're gonna have to look at <unk> dot across the next let a while we are confident we can flex as the market demands and remain profitable. However, we have taken the conservative and I believe prudent decision to zero wives further contribution from energy solutions for the remainder of Twentytwenty from our I've spoken guidance.
Yes.
This gives us some cushion to manage on Saturday.
It allows decisions that may cause some money short time, but it into the longer term interest to be made now and it gives time for markets to settle.
We will not make any need decisions.
But in short we have given ourselves the time to reset our priorities and we set our focus on the other upside of this approach is.
Is that it allows us to give guidance for Twentytwenty and I will hand over to Mark could you just that mark.
Okay Stewart I'll pick up on slide 16.
And a little bit more time and guidance here just because.
We are changing it a little bit modestly and really wants you to understand the basis of all the elements.
So heavy mix of government and technology business pretty says quite predictable revenue profit and cash flow stream I think a recent performance while demonstrates this.
If your business areas originally comprised over 90% of our forecasted segment contribution profit 2020 plan.
It's trading earlier remarks, as Stuart said about our exposure to energy being at an all time low.
Over 90% from government and tech and some of the contribution profit for 2020.
I didn't mention here today, our government customers has been particularly accommodating during the cobot situation.
There are however, some situations where a continuity is not possible.
For example, we were planning to provide considerable support for the December 2020 military exercises in Europe over the summer.
And do purely to logistical reasons caused by coded these exercises have been canceled for the year.
Situations like this are fairly modest and had been identified in the mood from or updated forecast.
For Logcap four and five we had assumed to transition will be protracted and that held our forecast flat.
The current QR code activity levels.
With all of with the G.S. forecast is down slightly from our original 2020 plan.
The technology you May recall, we cited some concerns on coded and our February earnings call in factor there reduction into our original 2020 that outlook.
Well customer engagement has been good and order activity in Asia picking up we believe there's additional risk of project deferrals, which we would view as a tightening item.
We have factored out on new forecast to reflect this although we are expecting an up tick in orders in the second half.
With that check we maintain very profitable cash generative business with excellent market positioning in a track record in performing well and challenging market conditions.
As Stuart said, our long term technology outlook is unchanged.
For energy, we believe our energy business should remain profitable. This year as result of the actions taken in the first quarter.
But the market conditions do remain unpredictable.
As a result or updated outlook analysis and no contribution of profit from this segment, which we believe is both conservative and prudent.
Well said these effects corporate costs have been lowered including pay reductions taken by our board Stewart and the management team across the KBR.
Overall assumption for this guidance update in the energy markets will remain strong for the rest of the year.
And there will be a slow return to the new normal workplace coming out of coated.
We are expecting to continue to work with many of our customers across all of KBR. As we are today with teleworking being used to a significant degree angle success.
This is a background we are updating guidance for adjusted EPS to a range of $1.50 to $1.80.
But they midpoint reduction of about 11%.
Our original guide.
Well over 90% of that midpoint in earnings is covered by backlog sitting here today.
The new midpoint is just under our 2019 adjusted EPS actual performance.
The energy segment contributed about 30 cents for EPS results.
This underscores the strength of our government technology businesses.
And the overall resiliency achieved for the KBR transformation over the past several years.
From a fading perspective, we expect consolidating consolidated results for Q <unk> TV generally in line with our Q1 current run rate.
With a pickup in activity in the back half of the year.
Robert in cash flow, we had strong results in Q1, which is typically a low quarter from a seasonal perspective.
We are seeing good payment flows in cash conversion across all segments, including energy.
We are updating the cash flow guidance reflects the lower expected profit level and also the nonrecurring cash costs associated with our overhead reductions.
Well get a guidance for adjusted operating cash flow was 175 million to 225 million.
We continue to expect Capex to remain in the 10 to 20 million range for the year.
Translating to ongoing strong free cash flow conversion.
I'll also point out that we expect to see cashflow benefits of about 50 million from the U.S. cares lack.
Which allows us to defer 2020 employer, social security taxes to 2021 and 2022.
This will increase our reported GAAP operating cash flow results for this year by that amount.
We have excluded from adjusted operating cash flow guidance, because we don't view these signs as deployable given it must be returned to the government.
Now back to Stuart to wrap it up.
Thanks, Mark good job.
So I'm sure a final slide of today's presentation on the slide is obviously named Brazilians.
Our transformation over the past few years has created a business model to as both resilient and we believe attractive.
We have been consistent on a strategic on commercial discipline.
Our focus on a longer time, lower risk and higher and book of business in attractive markets of the future as reshape our portfolio considerably.
This is how does become a far more stable business with an intrinsic cultural performance.
We have been true to our commitments on being focused on businesses with strong liquidity fundamentals and this has allowed us to obviously improve our credit rating on increased and maintain our dividend.
We have confidence in our guidance was doing the energy solutions contribution and it's worth emphasizing the our whole company 2019, adjusted EPS performance wasn't dollar 69, which is well within our revised guidance range of Twentytwenty would not energy solutions.
Which again demonstrates the extent of our transformation.
Thank you very much and I'll now hand, you back to Molly who will open the call up for questions. Thank you.
Thank you if he would like to ask a question Keith signaled by pressing star one on your telephone keypad.
Please make sure your mute function is turned off.
Again press Star one to ask a question.
But you limit yourselves to one question, what's one follow up.
We will now take our first question from Jerry Revich Goldman Sachs. Please go ahead. Your line is now open.
Yes, good morning, everyone and thank you all the wall.
Oh, I'm wondering you talked about.
Yeah.
Can you talk about it in government solutions as you pointed out in the release you had a good recent win rate I'd like to contracts.
Past couple of quarters.
Any update in terms of one can we expect task orders against those tenants right. So the state Department concept in particular jumps off but.
Can you talk about.
Right.
Those awards to drive meaningful orders for your business based on.
Quite cadence.
Your corporate customers.
Gary This is mark can you hear me up you have this testing sense weird.
Turning to keep yes, yes, yes, yes, okay.
Okay.
Thanks for the question if I heard it correctly.
First I'd say, we're pleased with our win rate on the GE aside it now 60% on a year to date basis across all categories with a great win rate on a recompete, but everything else fall balance out to north of 60%. So we've really held strong their kudos to our business development team on that front.
On the pipeline continues to be very sizeable and I think it's fair to say there has been some delays in making decisions out of the government.
Which has a pumped up the pipeline a little bit.
But we do expect them to get on pace and make the decisions and a place or awards as we get into Q2 in Q3, hopefully as things normalize more.
As you probably know the government does like too.
Container decisions within the government fiscal year to keep obligated funds and appropriations intact, and so I think there's a motivation to do that and spend the money that they can or they can get in and so we're pretty optimistic of as he decisions and pretty optimistic we'll win our fair share.
Okay.
In terms of.
Margin outlook in government services is there any potential impact.
Projects moving slower you mentioned awards, but also to there'd be an important milestone payments.
Over the course.
This year, because project delays or anything like along those lines.
Right.
Well I mean like I think Jay what we're seeing the opposite I mean, I think we're seeing the particularly the government customers onto to some extent the commercial customers really leaning forward and understanding that liquidity for that for people like ourselves is very important and they're actually paying is ahead of time. So I think a you know that up.
I mean, I was quite clear to called out in the prepared remarks, because I think that particularly the government customers have really really helped us transition through this and and a unfocused in on on key elements like liquidity. So no. We don't we don't expect that to be a factor at all and taught does is probably the opposite.
Okay. Thank you and lastly in energy solutions, you folks have done outstanding job rightsizing that business and putting up consistent margins.
The list will be put too much lower costs or.
What's your level of profits and like what do you can maintain the current level.
Margins given this to date dramatic decline in.
Earnings for the year end plus much here.
Yeah, I mean as I said earlier, we were you don't we were primes in terms of the actions we needed to take to take costs out and reset that cost base about business and we've done that in Q1.
We do think that business is going to be profitable through the year, but but to a lot to ensure that we we were prudent and conservative we as you know we watch these either with <unk> the profitable returns and not business for the rest of the year. So so that gives us a bit of cushion to to a under understand how is that market is going to move.
And where it's going to move to and under the same time. It gives us confidence to give the guidance that we've given and I.
I think.
I think that's the kind of an unusual approach to it to see <unk> contribution from a business, we expect to to make money, but I think the message is that a couple of key messages. There. The first was it really underlines the transformation of KBR just given.
S last year of $1.69 or where we are today.
And the strong performance of government and technology and the second thing is that.
There are those still uncertainty and not markets and again it goes as cushion to deal with the uncertainty in the key decision. So we'll be going through a a hard look at not business and making sure we focus and prioritize the right areas I'm confident that we will have the margin profile, we set out historically as we come out of that that review.
And.
Market settle down again, but as we said talking about margins and not business right now with us zeroing out the margin Oh, the return from not business for the rest of the years probably mute.
Thank you as a reminder, if he wants to ask a telephone question. Please press star one.
Please limit yourself to one question with one follow up.
Take our next question from Jamie Cook of Credit Suisse. Please go ahead.
Hi, good morning, and nice quarter, I guess, a couple of questions to our back cash assuming the you know that no contribution from the energy solutions gets missing your 2020 guidance I'm just trying to understand I mean, you still have backlog in that business had any your customers told you that you know there deferring I.
Spend on more on on M. side of your best Nets out just trying to understand if there's anything else there what your customers are saying. Besides you guys just being conservative and I guess my second question you know given the changes any energy solutions business and and the Capex environment. How do you feel about sort of you know your longer term you know EPS targets and then my last.
Question, just given some of the restructuring that you guys you're talking about I guess I would have assumed corporate kenai could come down more self persist at 75 to 80 million yourself. So if you could just comment on that thank you.
Okay. Thanks, Jamie see questions in one.
You are true to form I do like it so oh that I've been to I think that the first question really on a on on really looking at the.
There have been I think more deferrals are or what I would say slow down so people to firing spend and spreading projects out over a longer cycle, that's kind of what we're seeing in that in the energy business, not particularly that projects ongoing in the Permian et cetera.
So not cancellations per se, we're seeing a lot less pressure in the opex side of our business I.
I mean not continues to there will be some pressure brought to bear there, but I think it's far more resilient and then capex and clearly you've got to support ongoing assets as did that continue to produce so so we're feeling really good about the I guess that the opex facing side by side of our business in terms of.
The broader market outlook.
I mean, a lot depends doesn't that they you know the you one could you could.
Clearly see the LNG is a is an attractive market in the future well you know the demand for gas, particularly in a climate change driven world is a transition fuel is it's probably obvious and is as places like China et cetera start to come back and then industrial I put goes up the demand for LNG will will increase again and gospel.
Fill that void one would expect I think so one of the things that we do need to watch and I'll be very clear on this is a it's both our competitor behavior on the customer behavior and.
As the market tightens I mean, nothing is only a couple of months ago, we're feeling very very good about the competitive environment and the conversations we're having with customers, but clearly that that cycle has changed somewhat.
And we're not in a situation, there's probably far more competitive and not competitors.
Well, you want do anything silly, but as they get hungry and hopefully our competitors. It for a balance risk is but the history would suggest that we try and passmore risk onto the contract to be so until we see that mark to market settled settle down even if there's an increased demand that doesn't mean, it's an attractive market into the future because of those behavioral trade. So we.
We have to be cognizant of that and I think I would probably reserve judgment on on those areas until we get a bit through this review and that the industry. They starts to open up and demand changes again.
In terms of our of our.
Corporate costs.
You're quite right you know at the moment. The you know, we're we're targeting by doing I, our energy solutions profit contribution were probably Korean Moreover, hedge and the corporate DNA that piece than is the proportionately we should be but you know we'll be watching not pursue over the next little while as part of.
This review as well and ensuring that whatever we do in the corporate side is a sensible opposite the scale of that business into the future.
Say that what Martin much remarks is that in Q1, it was a little bit high because of a particularly bidding costs in a in the government arena.
Not will normalize down to the numbers Mark presented in the presentation, but there's probably more room to move there and again it gives us a little bit more conservatism in a guide in this volatile time. So that is another lever we can't go so you're quite right.
Okay. Appreciate your insight thank you.
Thank you we will take our next question from Tobey Sommer Suntrust. Please go ahead. Your line is open.
Thank you as you think about the business.
Thanks.
We imagine when energy.
How can you come out in aggressive fashion in Austin fashion.
In utilize the.
Ample balance sheet and liquidity to further reshaped the business.
Oh.
First say I <unk> I love the fact, you're using our re imagining the way we deliver I think that says it's good that that's caught on already I think that's a that's good marketing people did a good jobs.
There so that that strong I mean, I think we think we think for US we in terms of you're looking at how we can come out and reshape our energy portfolio. I think you have to give us the the opportunity and I think weve in a way positioned ourselves to give us time to do that because of the way with zero died the contribution from from energy and I guess.
Items.
I do think there's you know we are at the forefront of discussions on things like Green ammonia, which is essentially using ammonia as of transportation fuel for hydrogen us because countries like Japan, and South Korea committed to a hydrogen economy.
By 2050, and you know a moving fast into that arena.
So I do think there's a there is a repositioning office energy transition as we move forward, we do think gases a transition fuel.
We do think that we can we can play a very strong technical rule and not transition.
But I think at more on not as the view progresses.
But certainly a but certainly I think we've got the key skill sets and we're seeing not coming through in a consulting business today, where we are engaged hourly with governments in particular as they look to transition their economies and into a new feature.
Is there going to be an opportunity for you to pour more capital to continue to amplify your government exposure is in the into new markets and new a mission alignments with customers.
Yeah of course, I mean, I think we need to be utilized the capital markets settle down a bit first before we did that but but certainly you know there is no limit to what we see as opportunities in terms of coffee capital deployment, an expansion within within the government given it was not there's not a week passes that we don't get to get some sort of similar.
Our early warning of.
Lets people trading out of assets and things like that so we just have to be very considered we have to be you know very true to what's made a successful today and not as it has to be strategic has to be accretive from day. One it has to be taking his into something we don't do today. So there's limited overlap so that the people piece of this is a it's exciting.
People on boarding about their jobs tomorrow, but about one plus one being greater than two but certainly those opportunities are there. We've we've been very clear on our vectors that we feel our exciting from a from space to human health performance to you know to the whole defense modernization aspects to our hopping within government. So so I do think.
We've got bid opportunities both in the U.S. and internationally to do just that but I do think that the capital markets up to settle down a bit before we think about God.
Thanks.
Our next question will come from Steven Fisher VBS. Please go ahead.
Great. Thanks, Good morning, I, just in terms of the U.S. government contracts.
Stuart you talked about.
Second and third quarter opportunity can you just kinda give us a sense of how many.
Needle moving opportunities you have there.
And what the competitive landscape is for these types of contracts and are they new areas for you just some color on the confidence you have around those.
Yeah, Yeah, I think we try to reiterate this a couple of times Steven around 2020, and 2021 that we've gotten very low recompetes.
And in fact, a as Mark explained we won NASA Ames. This this quarter, which is actually a largest recompete and twentytwenty. So all the needle moving opportunities that we're looking at a cross NASA in engineering and broadening idea queues and logistics et cetera are all additive they're all.
New business.
Because of our low recompete rate.
There are not be we've talked before about the number above 100 million.
And you know that that cadence, we didnt cover that so much in this presentation, but if you look back to.
The year end presentation, the numbers there within the government sector up pretty well the same.
So we've got multiple opportunities across and as I said before you know the the nice thing about our book to Bill in the quarter was the fact that was across all of our I guess a.
Business lines within government solutions, so very balanced so we're seeing lots of activity in our chosen sota focused fields that were feeling pretty good about the fact as new business opportunities in there for organic growth opportunities and I must feel pretty good about the competitive landscape remains as it was before Oh, that's not to say.
It's easy, but at but nothing has really changed significantly and not competitive landscape, where where as Mark said you know a proposed when there is a is above 60% at the moment.
Okay, and then just related to technology.
Engine side, I guess separating out the bookings impact you have and the outlook for the virus versus just economic growth.
It sounds like you believe the long term targets there arent chains.
Curious, how you think about the reliance on that business on China, the impact of slower economic growth in China, and global it really as economies needs and digest longer term impacted me, obviously chemicals is more of a cyclical type business. So just curious how are you.
We're thinking about the ability at that.
Profitability and technology to ramp up.
In the face of just kind of slower economic growth and then if you can also just what's the timing of when you plan to reach a conclusion on the energy solutions.
Thank you.
Okay. So good question on technology and.
No you're quite right in the sense of we tried to cover this a bit on my prepared remarks. So clearly we are seeing more activity and I guess the food production side. The I guess the fertilizer ammonia side of the businesses is moving in quite to be quite busy again in terms of the levels of activities.
Early in Russia, and the Middle East.
And you know the scale of those as a little bit larger than your typical petrochemical type technology.
Are there so we feel that does a good momentum there and secondly, we know we've gone to great lines over the past couple of years to try and.
Explain and introduce a what I recall disruptive technologies at the forefront of environmental cleanup bar at the forefront of of helping with climate change or limiting environmental impact and ER and there's still pressure we believe on chemical.
On refiners.
Through the course of the proceeding.
Months in years to actually get in compliance with you a new regulations and things like that so we do we do see the our technologies are very well positioned to add to just sort of move along with that we do believe or the proven lower cost base.
Execution piece and so no only every environmentally and green and what were offering with a highly cost competitive and ER and but at the forefront of some of these new technology. So we we do think longer time, but without balance and with some you know we you know things will there will be normative movements in.
In certain parts of energy over time, we do see our outlook.
Very strong enough business, just because of the breadth of our energy technology portfolio.
Great Kudos for taking a cracker guidance.
[music].
Thank you.
We'll take our next question from Sean Eastman of Keybanc capital markets. Please go ahead.
Hi, Tim.
Nice work and thanks for taking my questions I just wanted to start on the yes business you guys talked about the Opex T is holding up better you know the middle East holding up better.
The consulting business holding out okay.
It's great to get a little more help on the revenue mix as it stands today with those elements and you know maybe just some more color on how to think about normalized margin profile. In those you know kind of sub segments that are holding up better.
Okay, I remember landmark kinds of those questions as they have to late to sort of break downs.
[music].
Yeah sure for Sean Thanks, Thanks for joining us this morning.
So Ah you saw in a pretty stellar rather than a growth in the us this quarter or about 80% driven by mostly the reimbursable U.P.C. So we're seeing some shift just in terms of topline.
Relative to you know recurring services.
First as projects and the projects picking up.
Now the pace of those projects could be altered by the market conditions and that's why we've been very cautious outlook and aggressive cost reduction.
As we clearly stated as projects ramp up and we enter into these cycles.
It was on being very low risk cost reimbursable margins.
Well, we'll come down some recent years, where we had and other life cycle.
Project write ups that were quite a helpful and getting you know indicative of good project execution.
But you don't necessarily see that in the early cycle. He got a hold your cards for awhile. So we're expecting a mid single digits other targets.
Overall business.
That shift.
And we'll actually south of that in Q1.
With the ramp up of the season, just a little bit of overhead costs that isn't quite matched with the market conditions. So.
I think that I'm kind of answering your second question first.
We are cautiously on margins this year for all the obvious reasons longer term, a we'll give guidance on any changes to the targeted margins for the us when we come through our review, but we would start at the midpoint and evaluate or mix there.
I will say that the opex side and the consulting piece margins are holding.
Along with the keep our overheads in check.
With consulting being quite attractive and that's why Stewart called that out in terms of our role at energy transition.
And.
Environment work, there has been or something that we're quite excited about.
In terms of overall mix, we said that you know.
Capex versus Capex was a little greater than 50 50 on the Opex side.
And we'll have to see how that unfold as clients make project decision to this year.
But I think that our dependency on opex given the conditions will if anything increase.
As a client keeps going up production facilities going and deferred capex. So try long winded answer, but I think that shorter term, we probably we'll see more on the opex side and we'll evaluate the project volume when they come through our decision making process here in the next couple of quarters.
<unk>.
Yeah, I think just to give just a pile on a little bit there you know, we I revenue distorts it because we've got a you know I guess lower margin higher revenue is Pete Reimbursable cpcs coming through and a lot of our profit as I see coming from the from Opex and I guess some of the brand JV in consulting so.
That's probably a but another way to think about it.
Okay. Helpful. Next one for me is there any update on the expense claim settlement timeline, just kind of wondering what we should look out for next there and you know whether there's been any change at all and expectations on what KBR is entitled to there.
So first up no change whatsoever on a entitlement I think our legal position as busy as it was a so no change there a tall in.
In terms of timing I guess, the good news on the on I guess the claims we have against the customer the first round of those.
Legal.
I guess hearings is going ahead of plan because they don't involve.
Particularly many witnesses and things like that and of course of a keen to progress, particularly as it can do virtually and that's exactly what's happening with hearings progressing in September and in late late this year I shared jumped.
So that's that skewed in terms of what's happening with claims for the power station element see CPP.
Those have moved to a October November from August.
And on into the beginning of next year. So there has been a delay and knows as you would expect because they're a bit more complex and there's more face to face witness witnesses required and the court. So so under these conditions they would prefer to do that on a face to face basis and in that rather than virtually so.
That's the that's the long and short of its a little bit of a delay say six months or so on a on the power station, but a the claims opposite the customer moving along the cadence we discussed historically, but with no change whatsoever in our view in terms of entitlement.
Got it and then just to wrap that up there am I correct in saying that the total claim those kinda house on the customer side on the Powerplus power station side.
Oh, Yeah, sorry, I've I mean, it claims that probably higher against the customer, but the I the way that we boot <unk> I guess, the if you look at our a conscious about 50 50 something like that.
Right got it.
Thanks for the time gentlemen, I appreciate it.
You're welcome and I, just want to saying just stood up to the broader audience. You know just remember that none of the guidance that we've given a either on MSR in cash factors in any input from excess whatsoever. You know, we're just unclean of timing as we said on quantum so it's factored out to two to where you know our underlying results and.
If it's positive or negative real world ticket I've been in overseas, but it'll be positive and but it will be a cash positive event. We in due course and again real called auto in due course, but but please.
Please keep in mind the positive cash results that we are forecasting got nothing to do with excess.
Thank you. Our next question will come from my continued Oh Psych Bursik of research. Please go ahead. Your line is now open.
Good morning steel market also.
All right.
Yes, just two quick ones for some one quick question.
As you look at your staffing levels and your plans and so the government services business, given the disruption of coated and.
Such although.
Also the.
Recruitment being delayed or in access of certain types of folks that.
For some of the projects if you're going have to ramp up in 2020 that method delayed a bit because we'll sit and vice versa, I assume probably under the types and sizes. Thus mobile internet just little sense of labor, how this might pay offs and try to get back with some sort of normalization.
Yeah, I mean, not that doesn't really impact has so much on the government side of the house, Mike, which is I know or in the tech side of the high sub more on the energy side.
Most of what we're doing in terms of the elongation of projects really relates to that impact and that's been factored into into the way that we're thinking about the future already. So you know we have stopped construction on the Methanex project right now it's in a very slow burn habit, we continue with engineering and procurement and.
I think when once we get line of sight to on.
On the plane things equipment will arrive et cetera, then you can actually reschedule your construction accordingly.
So I don't think for us as a major issue there in terms of disruption and tens of people access I think this new norm of of I'd tell you working is actually giving is probably more access to people and technical experts across the world than we've ever hot So I don't see any issue there from a a technical NPR specialists perspective.
It really all relates to the the set a restart of construction.
As you've seen we've taken a very conservative approach to the way, we're thinking about our energy business to deal with with with any uncertainty around that so I think were covered.
And I think more as the as Oh, not as the because the progress is in the new enormous you put it becomes more apparent.
And Oh look good but of course is they could you imagine business and maybe even this industry.
We anticipate some infrastructure changes at CVR given this would be recorded some good success on the work from home and and the system.
Fourth.
We've got a longer term could you know you guys, who must rely on more of that less.
Having no offices are spread out or haven't we're flexibility and where you can source from.
Yeah, that's exactly right like I think we tried to set a prepaid actually didn't do a particularly good job at the beginning but that's kind of hoping we're trying to save for stuff. We are thinking differently about how we could execute work we are thinking differently, how we support the back office.
And you know the success of Telly working as accelerated those thoughts.
We have a you know a dedicated team looking at how we would do just that.
We can you know culturally and create more flexibility in the workplace you know I think I've just been slow to adult dot and I think you know then they intend nail and intend to listen to some extent declined by as around I've broken down with the success of Hi. This is worked so far.
So there is a great opportunity for our industry tends to transform is a great opportunity to two really advanced sustainability goals around space and and less committing less energy usage, less and greater safety with less people and committing and things as well. So there's a lot of benefits to doing that but it does allow us to create whatever color.
For the global workforce through execution, you know the introduction of high value centers is is nothing new but our ability to use them animal food. Some way is clearly in front of isn't a that's kind of the things were looking on working on right now, but it will say, there's a cost some space it will save us costs on meetings.
I will save us costs on travel.
And I do think that you know I don't think were alone there.
This isn't groundbreaking just for KBR and they aware that we as an industry were probably slow to the party, but I do think that a it creates an amazing opportunity far as and.
You know.
Really could could bring a diner dash DNA and ER and get us to be more competitive than more global and our outlook and the other benefit there is with greater flexibility you can drive divested day in and change some of the dynamics of our industry around being you know mostly male dominated and if you drive far greater divestiture as a consequence of.
Increasing flexibility and globalizing the workforce. So I think there's a lot of positives here and certainly we're on not huh.
Well so thank you.
Hi, My next question will come from anti me from Citi. Please go ahead.
Hi, Thanks, Thanks for fitting city mean, guys. So congrats on a quarter and appreciate the color.
I think most of the questions have been asked so it's had one question in terms of potential and then Ace ER down the road.
I see though our library says you know progressing basket study, we and I think we've done the acquisition GFY two weeks ago. So how are you thinking about potential M&A going forward given the type of environment that working and is there anything that you are your your was a highlight in terms of your pipeline.
[music].
[laughter] [laughter].
In terms of the way we were thinking about M&A as.
No I think we have to be very cognizant of liquidity in this environment and we'll be very considerate about that Oh, we do have but as I alluded to earlier, we do have very clear strategic objectives and were always looking whether organically or acquisitively to foster in towards.
Those goals.
But again, a little they do it if it if it makes sense will only do if I've got a lot of confidence around cultural and strategic fit but also will only do in today's environment from a liquidity perspective as it makes perfect sense. So I do think Ah you know we've got to be a bit more considered I do think the capital markets today after settle down.
There's no doubt about that you know that.
Raising raising debt and things like that for even without improved credit rating would be expensive.
You know me being Scottish then you probably realize that's not a good thing.
But you know we are looking very carefully longer time you know this is a this is a moment in time, there will be more disruption I'm sure.
With disruption Big do you know there comes opportunity. So I think you know keeping I've tried to try not getting in front of our ourselves.
You know ticking on you know certainly projects and things like that has really positioned as well to take advantage of any opportunity into the future. So.
We'd M&A it'd be a good part of our future.
I hope so, but that's got to be under the right circumstances as I talked about before.
In terms of the pipeline, we were trying to avoid calling out specific pursuits.
But but I think that it really we've you know alluded to the fact that the pipeline is robust and and is very well balanced across what we do and and as a number of opportunity. There's no real concentration risk of that hi, there. So so I think we'll obviously for at least the as they come to market and.
We win them and and as Mark said I think the key point here is two things number one.
As the the cadence is pretty well moving alone, particularly in government around bidding our win rate is upwards of 60% and a recompete win rates are actually above 95%. So so we're doing very well, we've got a very strong bidding machine and there's no.
Not bereft of opportunity and as we said before with a recompete.
Rate being very low it's all organically additive as we as we as we went up a fair share. So I think that's.
That's probably a good place to start the.
Okay. Thanks.
Yes.
Thank you. Our next question will come from Michael Feniger of Bank of America. Please go ahead.
Hey, guys banks that thanks for squeezing me in just the first one for me and I appreciate you think giving that guidance.
In this environment with most your re competes in the bag is is the top end, assuming any a big contract wins in the back half and.
Just because of how the backlog flows through I'm. Just curious is do you expect Q2, where Q3 or or where do you expect to low point for for this year.
So you know I think mark was in his remarks and due to last question first if I may in terms of phasing.
We expect Q2 to be kind of on track with Q1, and then you know that the second half of the year to be.
Higher than the first half of the year is probably the right cadence.
In terms of Ah.
The other piece that.
We did say in the prepared remarks, I think mark covered it was never going in with the revised guidance with over 90% plus what we need to deliver that guidance secured.
And so you know and we've actually taking a very conservative position on energy solutions to sure there's absolutely confidence in achieving that guidance.
So if you actually take those into consideration you can see that if we went a little bit more than our fair share. If we do a little bit better than energy solutions thing clearly, we can do a little bit better than the midpoint of guidance and so it really got achieving the top end is all about winning the right work and then managing our way through the energy.
Energy solutions on the energy market disruption and in a positive way. So I do think that you know that as ever we tried to be very prudent and our guidance I think our history would suggest weve met or exceeded guidance.
You know for.
Significant number of quarters Weve up guidance, a number of times as well as we've gone through the year and I think we've tried to hold true to that transparency.
Even in these times and we tried to portray today the extent of the transformation of KBR away from lump sum volatility away from from roller coaster cycles.
Having a very strong base of business 90 over 90% of which is in the back today to load to deliver the guidance. We've given so we're feeling pretty good about the guidance, we're feeling pretty good that we can manage energy solutions to be profitable, we've taken a very conservative position and I think oh, the work that we're winning government solution.
Funds to get extent will be additive because it will compete when rate and if not all hands on a timely basis is there an opportunity to do better of course, there is but I'll be giving guidance to doing that and and not and I'm not really sort of saying that we're going to blow out of the word of course, we are we you know it was given.
I guess in a conservative and sensible basis, I'm going to be prudent and if we do better we'll let you know.
Alright, then just.
On the government side are you hearing anything that the do you might have to adjust.
Could you tell requests for for 2021 and in the wake.
Coated and yeah, I understand a lot you know duty secured funding and the cares act and the measures to really focus on liquidity and financial health of suppliers have particularly in the met in the manufacturing side are you hearing anything out in terms of increased funding it support for the contract workforce or that may.
And that's in the services I T side. Thanks.
Oh, no I mean in terms of 2021, nothing not really were not.
Today, not not seeing anything that would would would might be might want to chip in but I don't think we're seeing anything there.
And in terms of Vik, the cares act and the I guess the financial support.
I think Mark said, we talk about 50 million of caution you know I guess support if you like I, but we've actually excluded that completely from a guidance on the reason being that we're gonna have to give it back eventually so it's not deployable cash. So I think we've been very very.
Transparent again, there and basically saying we will have a benefit in that over the next little while but but you know it's not something if we spend that money we've got to replace it with some [laughter]. So best we do and we don't include it in a guide so I think again, it's a it's a prudent transponder approach and you know that's what we're.
We set a stall out to be and hopefully we're delivering on that so but we don't see much disruption today in terms of going into 2021 and in fact the budgets are.
Had gone through I think there's still some tailwinds associated with the spend going into into next year.
Thank you.
Our next question will come from family of T.A. Davidson. Please go ahead.
Good morning, guys, if you're taking my questions and Mccall that for us today.
No worries.
You know just one quick follow up on on the Labor Stuart I think in the past you talked about pretty high.
In rates and engineering work in New York does it inside and then.
I guess you seem to energy slow down here I'm wondering if actually become a meaningful source like internal atas human capital to further advance I've been doing in other parts of the business if any opportunities there for you guys to reallocate that labor across the business.
Yeah, I think that's a good question and you know it's a dyssynergy the labor synergy between the businesses is something we've talked about in the past and that's certainly true today.
I mean, it you know as you can you can envisage a situation if if I look out five proceeds I you know in the next little while where you know there is an opportunity, particularly into you asked with north column being very new to our portfolio that we could bring people across some of the energy sector.
Into that environment, whether they'd be you know project management contracts management construction folks whatever they might be a oh you know a cross in terms of engineering I think that's.
There is some movement, but it's probably less so interest I think.
There's a lot of specialization in both comps both in the energy side on the and the government side what is interesting so.
Really talked about this is that we are we are seeing governments.
Across the world looking to companies like ours to take on engineering staff from from from Airlines and industries that have been impacted negatively by covered.
And underemployed them in a meaningful way into what we're doing for air forces and things like <unk> across the world and and which really gives us an upside opportunity, but the same time I think it's a you know really incumbent on on governments and ourselves to work together to try and maximize the the to the amount of opportunity we can give people.
And it was difficult situation. So we are seeing that happening as well as a dynamic which which at which I think is right.
Uplifting actually that the governments in an apartment, we can play within that.
Very often sooner.
Yes.
Right.
Oh My last question today come from could some kind of Cowen. Please go ahead, Sir your line is that they'll thing.
Good morning, guys.
Good morning.
Sorry, I joined the call late so if he answered this I apologize, but I just wanted to that.
Sure I understood in the revised guidance.
You see some of this technology in energy segment free cash flow expected to be positives.
This year.
Yeah, I was going to be negatives and if so how much.
Well, we've given the guide of a 170.
510 to 25 somewhere in that code.
Right.
Yeah, Yeah for the overall enterprise I mean, you know if you if you look into mass original Guy was 200 to 250, we've taken our energy solutions profit contribution.
Entirely.
If you want the mosque back then the free cash so really sort of lines up against that reduced profit level, there's puts and takes of course, but outside of the mouse works.
Okay, and then has an idea.
Little bit Gotham, but really the yes collections have been strong bundles are expected to be candid I said that in my remarks.
And so if their contribution is zero I don't think cash will be any worth of a result than that and probably is better.
Pure flow perspective in on the T.S. side.
We've converted very healthy and they're still very profitable in this reduced guidance and they will produce a attractive cash flow tended to those profits. So together yes.
Cash generative.
Then the case every time.
Okay and just.
You may have or address this as well mark.
The outlook, you know you'd given longer term guidance, obviously, it's dynamic but.
How do you think about energy plus tech free cash flow and 21 and 22 do you think it would stay positive.
Because I'm just trying to just aggregate to as some of the parts and it just seems.
Like people are pricing in the negatives or I want to make sure if I'm understanding the math correctly.
Well I think your understanding it correctly, we operate all businesses as a criteria to be cash generative annually a Jeff.
People are we achieve that result.
And so no change to T. I still think we were very clear on that very cash generative business and attractive on every fund.
And we will manage yes, so that it produces a profitable results as long as a cash flow result, other criteria for it.
Particularly if you're going because of you know beginning of a cycle I'm, which is clearly in a deferral mode today, given the disruption we've seen but in general across our longer term plan. We exited the completion of projects in 2017, 2018 and to some degree 19, and we enter into a new cap.
Little things, if you will and with that we expect to be cash generative through that phase, which we've seen in previous cycles on top of that the opex side by definition.
Should be cash generative throughout each of those projects.
Okay. Thank you very much guys I appreciate it.
Thank you got them.
That concludes today's question and answer session.
Now on the conference it's too early for final remarks.
Thank you Molly Thank you for taking the time today I hope we demonstrated that the true transformation of KBR in these difficult times, it's kinda reinforced that transformation.
I'm really falling apart from the I'd like to announce that we're going to have a a KBR government solutions government solutions in focus virtual event on June 16th and.
Austin and the team will be sending out more on that but not only will bring will bring in our key leadership across our businesses under underneath.
The run space and run their engineering business and logistics and and.
International pieces as well so you'll get to see the strength of the leadership, we can talk a little bit more about how we make money in those businesses in the the I guess the sub market outlooks and then hopefully get you a little bit more knowledgeable and excited about what we're doing and the government solutions segments. So so that's on June 16. So thank you again for two.
Taking the time.
Oh geez, the presentation was a little bit longer than normal, but I think given the circumstances. It was well worthwhile. So I'm sure we'll talk called against and thank you.
Today's conference call. Thank you all for your participation you may now disconnect.
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Okay.
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