Q4 2020 KBR Inc Earnings Call
Yeah.
[music].
Good day, and welcome to the KBR incorporate fourth quarter or two.
'twenty earnings Conference call.
Conference is being recorded.
A reminder, your lines will be on a listen only mode from an attrition of the call. There will be a question answer session immediately following prepared remarks, you will receive instructions at that time.
For opening remarks, and introductions I would now like to turn the call over to Alison Vasquez.
VP of Investor Relations. Please go ahead.
Okay.
Good morning, and thank you for attending Kbr's fourth quarter and fiscal 2020 earnings call. Joining us today are Stuart Brady, President and Chief Executive Officer, and Mark Sopp Executive.
Raj <unk>, President and Chief Financial Officer.
Stuart and Mark will provide a recap of the year on market update and will outline our 2021 guidance.
After these remarks, we will open the call for your questions.
Today's earnings presentation is available on the investors section of our website at KBR Dot com.
I'll remind the audience that this discussion may include forward looking statements, reflecting kbr's views about future events and their potential impact on performance as outlined on slide two.
These matters involve risks and uncertainties that could impact operations and financial results and cause the companys actual results to differ significantly.
I'd like to power forward looking statements.
These risks are discussed in our most recent form 10-K available on our website I will now turn the call over to Stuart.
Thank you Allison on thank you all for joining us today I will start on slide four.
And I'll start as always with the sustainability movement.
From a with the maturing of our ESG processes on our program in General we are now able to measure a carbon footprint across our global operations, including air travel.
This in turn allowed us to achieve carbon neutrality in 2019 on.
On set in motion a continual improvement program towards.
Achieving a net zero.
By <unk>.
Sustainability of KBR means more however, just behaving as a good responsible corporate citizen is critical as this is we also have IP technology on deep expertise that we cut with that we can and are deploying.
For our customers across the globe, helping them decarbonize move towards a hydrogen economy become more energy efficient et cetera, really enabling our customers to meet their own sustainability goals on commitments.
A recent announcement on the mood on plastics recycling technology is another.
Good example of a solution we license that enables a circular economy on <unk>.
Continuous KBR as a value on a journey.
Both to sustainability on for our stakeholders.
We believe <unk> technology is a buyback and I would encourage you to read our recent releases if you've not seen them.
This is one.
Since we are changing the name of this business area to sustainable technology solutions.
Our ESG goals have been and will continue to be part of our exec comp program.
I would also direct you to our website per our latest sustainability report was published in.
The reason 2020.
This takes us nicely onto slide five.
2020 was an incredible year.
We did not allow this dreadful virus to haul our strategic process.
Arguably we lend forward on move faster.
We completed.
<unk> inventory acquisition, moving us into Intel and military space at scale.
Our science and space business on defense and Intel businesses organically grew above market on the international business performed brilliantly and importantly, we increased our backlog on our long term contract base.
Our early move out of Commoditized energy and a focus on sustainable technology has proven to be excellent timing.
The excitement on increasing market activity across our technology portfolio is reflected in the high level of license work driving margins up on the growth in backlog.
Three sequential quarters of strong book to Bill.
As I've said already we have also added to our technology portfolio with the addition of mirror.
And with ammonia gathering real momentum is the hydrogen fuel transport a sustainable technology portfolio is very well positioned in high growth.
With this.
We also opportunistically, we've touched on shares in Q4, when we felt on value was significantly misunderstood.
As I said 2020 was a remarkable year on one the proof that our business model is both resilient on cash generative.
The numbers speak for themselves and of course, smart, who will give more detail the low the group results in a moment.
One of the several key takeaways today is that we grew in areas, we were really really targeting.
Good for KBR on is good for our stakeholders.
This is in higher end on technique.
Nicley differentiated businesses double digit growth in both science and space on defense and Intel.
Our book to Bill has gathered momentum through the year on closes at 1.2 for government solutions on $1 four per tag.
Mostly in the area of sustainable technology as it relates to tech.
We all know is a very very hot market.
So off the back of a strong 2020 positive bookings and favorable market fundamentals. We are pleased to announce formal guidance for 2021, which is underpinned by more than 70% seven zero percent of work.
With a contract to date.
It has greater than 20% EPS growth at the midpoint.
We will now give you some color on the market outlook across our business segments that will culminate on our pipeline data.
So on to slide six so we'll start with defense and Intel.
Work on strategically we are aligned opposite national security on defense modernize modernization priorities.
I will not read out all of the awards on the slides as you've seen these before but I will reiterate that there is continued strong support for investment in these critical areas.
With 23% growth in.
<unk> the introduction of Centauri on on overall book to Bill of one three which importantly also increased our average contract tenure. This all lines up well for continued growth not only in 2021, but beyond.
Some key wins are shown on the right hand side.
And the areas of rapid prototyping.
R&D operate operationalize, a national space capabilities, which should give you a good sense of the high end capability that now sits within KBR.
Our recent announcements of 10 cap reinforces this and shows the value the Centauri brings to.
KBR.
Onto slide seven.
Thanks from space.
Strong growth in 2020, all organic on mostly on contract growth across NASA on the human health performance areas.
This is a direct reflection of execution excellence on the volume.
Our people bring.
The market outlook for space in particular, starting to be a little clearer.
There is strong momentum behind closer cooperation between NASA space Force on the Intel community.
A recognition that these agencies are stronger together.
On the collaboration will drive faster progress.
More innovative solutions on better value.
Having a footprint at scale across these three important constituents military Intel on civil positions, KBR nicely, especially with deep domain knowledge in areas like space domain.
And this launch support et cetera, and of course, our position and R&D.
These dynamics further affirm our space superiority strategy.
On the civil side, the new administration looks to be supportive of Artemis, albeit with a longer schedule and although kbr's exposure is non.
On material Directionally This bay as well, especially given our position on the human space flight on.
In health and human performance.
We also expect to see a greater emphasis on agencies that support the climate change agenda of the Biogen administration agencies like NOLA on new STR.
Wes.
You can see from the recently announced Recompete win for <unk> on the right side.
<unk> is well positioned to take advantage of such opportunities.
Our operational focus on domain expertise gives us a very stable foundation and with low recompete.
<unk> 2021 on a very active pursuit pipeline the opportunity for continued momentum is clear.
It's also worth mentioning although still not at material levels, there is increasing engagement with commercial space and especially as they start to put humans into their missions, which we view firmly.
As a growing strategic opportunity.
Onto slide eight.
Readiness on Sustainment.
We have renamed our logistics business to better reflect what it actually does today.
We have repositioned this business towards O&M funding and this is a key message.
<unk> of today.
This business did have some headwinds coming into 2020.
In 2019, you'll recall, we had disaster relief revenue from Tyndall Tyndall Air Force base on as we've said decreasing <unk> funded revenue in the middle East.
And this was largely replace with increasing work on.
North Com, which is focused on supporting training and readiness on Sustainment.
In addition, we landed a few new sustaining programs overseas to 2020, expanding our existing footprint.
Power based operational support across the World again, Sustainment and O&M performed.
On the exceptionally well with increasing digitalization and automation to drive efficiency.
Unless we think it will continue into 2021 on beyond.
The work, we do on preposition stock also delivered exceptionally well both for the Marines on the army.
<unk> focused on readiness.
And again, leveraging highly digital smart solutions to plan schedule and maintain these critical assets.
We are moving quickly to adopt highly agile supply chain due to COVID-19 and other factors.
On global presence on digitalization, helping us deliver on again this will.
Continued to evolve.
Not only is the fact that the volatility risk around the business is now reduced to less than material levels.
Key message, but in addition quarter on quarter growth through 2020 has created significant momentum in this business.
Together with a book to Bill of one three for the year and recently announced sizable wins at year end, which we have highlighted on the right.
Readiness and Sustainment is very well positioned going into 2021 on beyond.
On to slide nine.
International.
This is more of a mixed bag a growth in Australia has been nothing short of sensational. It has mostly come via organic growth on a bit from one modest acquisition in the naval training in 2020.
Increasing spending and greater scale in Australia, <unk> entered 2021 with above a moment of.
Growth expectation, especially in higher end technical areas, where we have strong domain expertise areas like mission planning on.
<unk> reality training defence infrastructure on specialist lifecycle support as highlighted in the recent wins on the right.
Our UK business, which you are.
It is underpinned by sizeable base operational and maintenance contracts with long tenures.
These mitigate volatility in the UK.
Because we see the UK moving a little bit slower.
That said there will be increased funding and it is like cyber space on Intel Q2, the decoupling.
Well away from Europe.
Now onto slide 10.
Sustainable technology.
We have presented a few times recently on a sustainable technology portfolio the associated market on the immense opportunity.
We have described in greater detail what sits within.
Coupling the new sustainable technology solutions business.
We have given you a standalone outlook for this business in 'twenty, one of just over $1 billion with margins in the mid teens.
From this base, we also laid out the path to doubling EBITDA by 2025, I'll say that again.
EBIT dollars by 2025 and.
And back this up with three quarters of very strong book to Bill.
Strong margin performance on demonstrated cost reductions in 2020, as we exited legacy energy.
Our backlog supports the forward momentum on.
Governors on our technology portfolio aligns well with what a really hot market fundamentals.
Demand for ammonia from co firing coal fired power stations on does a hydrogen transport fuel being practical examples.
Further we have recently announced continued growth on our portfolio with the introduction.
This business on plastic recycling technology.
Climate change decarbonization of existing assets moving to a hydrogen economy circular economy solutions are all real are not going away.
KBR has significant IP and knowhow.
That really.
For <unk> going forward, and we see growth in revenue and in margins happening concurrently beyond 2021.
Onto slide 11.
In summary, our pipeline some key facts on the right before talking overall volume numbers.
It.
The fact that our recompete win rate is 95% again.
Driven by exceptional execution on the commitment of our people.
But it's also a fact that 2021 is a low recompete year for KBR, including Centauri.
Thus it is logical to assume that.
It is up from the near term pipeline opportunities are additive.
It is also a fact that in 2020 the backlog in government, including Centauri on <unk> technology grew 20% from 22% respectively.
Underpinning continued momentum on extending contract.
Most of well beyond 2021.
But it's also a fact that the volume of pursuits in the proposal on negotiation phase of our pipeline is over double our current annual revenue.
And it's also a factor a number of pursuits in the pipeline that are in excess of $1 billion each but.
10 years, so got a healthy mix of over 150 different pursuits, which are greater than $100 million.
<unk> nicely across our businesses.
So in short we are very well positioned not just for 2021, but beyond.
I will now hand over to Mark to cover the numbers in a bit more.
We've also touch on capital deployment and of course finish up with our 2021 guidance in detail Mark.
Great. Thank you Stuart.
I'll pick up on slide 13, which lays out our key financial performance metrics for 2020.
As I'm sure you gathered from Stuart remarks.
More deeper really pleased with our achievements.
This past year, reflecting the incredible efforts of our employees around the world.
Some reflection here since our transformation, we prioritize the whiskey business and in so doing producing stable predictable financial results, including strong cash flow.
<unk> margin.
We also set out to put legacy obligations kind us.
And again deploying cash flow to move KBR upmarket.
And also to have other value creation opportunities.
I think fiscal 2020, and these charts themselves demonstrate our commitment and on.
Very important to do all of these strengths.
Our shift to sustainable technologies early in 2020 yielded derisked exposure to traditional energy markets.
And as you heard places us firmly in the new economy.
Attractive and highly sought after offerings.
Areas like energy.
Our ability on fee decarbonization energy transition circular economy.
And gateway technologies to hydrogen energy solutions on the future.
This produced a synergistic business with high backlog strong track record attractive margins and also pretty strong.
If their cash flow.
Building on this we improved the capital structure during 2020, as well, which enables lower cost of capital and greater flexibility for deployments going forward plus more share liquidity and firepower.
And with those improvements we reset.
<unk> free patients early in 2020 and that produced strong predictable core results through the year and positioning the company for growth from 'twenty one.
For the year revenues EBITDA and adjusted earnings per share were up modestly over last year on <unk>.
Stable margins as expected.
Expect is a clear demonstration of our business model resilience strategic action strategic discipline and also cost management.
Cash flow was strong and up nicely from last year, and well above our targeted operating cash flow to net income conversion factor of one.
Our transformed business now has low capital intensity low.
<unk> and produces attractive and predictable cash flows just like we set out to do.
Just a couple of remarks on the next slide slide 14.
Q4 was as expected.
You will note adjusted.
<unk> grew 15% demonstrating good momentum looking ahead into 2021 and.
Margins were up to 9% consistent with the level, we set as to what expect for 'twenty, one when we announced the Centauri acquisition a few months ago.
For Q4 Centauri.
Just it reflected for the full quarter and did contribute to margin improvement.
Corporate G&A with seasonally low in the quarter.
Pretty much as we expected effectively offsetting the effect of the lower energy segment margin profile.
On adjusted cash flow, we were hot coming.
In the fourth quarter on improved working capital effectiveness, all year and that leveled off on the final quarter.
No change in fundamentals and that you'll see in guidance another strong year as expected for 2021.
And as Stuart said backlog has been trending really well.
And we finished 2000.
Internally with both government and technology up 20% year over year fantastic.
A fantastic results that give us greater confidence for the future.
On to slide 15 and segment highlights.
Spend a little bit more time here.
I want to point out, we're really seeing an important shift from our government.
On 'twenty business.
Stuart highlighted this but it's worth taking just a little bit deeper.
As we have invested more in upmarket areas, we produced strong organic growth across our science on space and defense and Intel areas as Stuart said moments ago.
Increased presence and growth.
Government important here as we see these areas being more emphasize from a national security perspective.
We expect fastest streams of growth in these markets looking forward and quite frankly, we're not alone in that view.
We also grew in operations and maintenance funded readiness and Sustainment activities.
On Stuart also outlined.
These areas of growth offset contraction in contingency funding logistics this past year, which was circa $300 million across Kindle and our middle East contingency work.
Dependency on Middle East contingency work has now decreased.
Is that significant as a result, which I'll quantify here in a moment relative to 'twenty one guidance.
Again. This decrease has now been offset by strong growth in science and space Defense and Intel O&M funded Sustainment work as well as the addition of Centauri, which is high and working on in of.
Six.
As a result of all of this will be low single digit mix of contingency work on our portfolio.
Place by upmarket high priority recurring work that can predictably deliver sustained earnings visibility for many years out.
Over to you.
Itself on the team did an extraordinary job navigating through Covid and delivered impressive profitability and perhaps most importantly.
Further progress introducing advanced technologies, which are enabling our customers to produce and products on a safer more environmentally responsible manner, a driving factor behind renaming.
Technology business sustainable technology.
That's evidenced on customer demand is the bookings production this past year and as Stuart said earlier, we generated backlog growth of over 20%.
Further evidence is the margins 29% per the year on strong licensing.
Gaming.
This business has continued to expand its proprietary technology impact in the process technology and market offering sustainable solutions that are in demand to meet growing commitment to carbon reduction and product flexibility.
All of this bodes well for a strong 21 and beyond.
And finishing up with entities no surprises here.
Revenues are tailing off as we downsize from 2021.
We were profitable as committed with lower margin on commoditize cost reimbursable contracts that are now no longer being pursued.
Now over to slide 16.
Net Inc, and I'll shift over to capital matters.
So it's really pleasing to see how the strength of the Companys cash flow production is becoming much more evidence.
We finished the year with a healthy net leverage level at two four ex.
After having just completed the largest acquisition from the companies.
<unk>.
Furthermore, we made about $50 million on buybacks in the fourth quarter.
Consistent with our strategy to balance capital allocation across growth and also return of cash to shareholders.
This is also having increased our regular dividend of <unk>, 25% earlier in 2020.
The outlook for balanced in material capital deployment allocation prolific going forward.
And our prioritization of those deployments is unchanged.
Finishing up on slide 17.
Our guidance for 2021 is comprised of revenues on the range of five.
History, eight to $6 2 billion.
With over 70% of that work secured in backlog today.
And adjusted EBITDA margin of 9%.
Adjusted earnings per share of $2 to $2 20.
Representing 20% growth over.
$5 1 million at the midpoint.
And adjusted operating cash flow of $280 to $320 million.
So here's some color on the components given the changes we've made in the portfolio.
On the government side, we are targeting healthy revenue growth associated with the full year of Centauri.
<unk>, new wins and momentum discussed earlier.
Italy on the science and space Defense, and Intel readiness, and Sustainment and international areas.
Importantly, our guide includes just roughly $200 million and expected 'twenty, one revenues from middle East contingency operations.
<unk> to about.
$450 million in 2020, and $600 million the year before in 2019.
So on a repeat that our revenue guide includes only $200 million on the middle East Logcap activity.
<unk> to $4 50.
This past year on 600, the year before that 2019.
There is potential upside here, but we think it's best to remain conservative for now.
Again on important takeaway is the magnitude of contingency work being replaced by more core recurring less volatile defense Intel is base work.
It has taken place.
And on the margin front from government, we're continuing to target EBITDA margin of 10%.
On the technology, we are expecting a little over $1 billion of revenues from the new sustainable technologies segment.
EBITDA margins consistent with the earlier announced targets.
Yeah.
I have a bit of a runoff on our legacy reimbursable projects in the first part of 'twenty one.
And expect to achieve our mid teen tech margins as we progress through the year.
From there and as indicated previously we expect margins will continue to expand over time.
This all lands us at an adjusted.
Earnings per share of $2 to $2 20 for 2021.
Phasing in at a circa 40 60 split between the first half from the second half of the year, and which I'll repeat represents 20% growth over 2020 at the midpoint.
Now imagine.
Some of you may be trying to reconcile the mid single digit top line growth with the 20% adjusted EPS growth. So let me try to add a little color on that point.
It's really essentially comes down to two things.
First we replaced from high volume low margin energy work with much higher margin.
At the higher end solutions work and Intel defense space and also from some Torrey.
Second we rightsize the go forward cost base too steep to reposition that business.
A lot of cost out in 2020.
So together these moves in 2020 have enabled a model.
<unk> bump from topline growth.
Revenues for 2021.
Critically with amplified boosting profitability.
The important takeaway is that the enhanced margins and profitability represent a real inflection point with the new KBR.
Finally, as indicated earlier our cash.
Cash flow expectations continue to be strong with ongoing op cash flow conversion at roughly one times net income.
We expect a little more capex than usual this year.
As we are making investments in real estate consolidation and ERP systems.
These are both.
Year to fuel economies of scale on cost reduction benefits later.
Capex is expected in the $35 million to $45 million range still well below 1% of revenue and still producing attractive free cash flow, which we expect to deploy in a balanced fashion as said earlier.
So thats my wrap for another good year for KBR, and an even better outlook for 'twenty, one and beyond back to Stuart.
Thanks, Mark and on to Slide 18, our almost final slide for today.
We want to leave you with a few key messages.
On the right on the key takeaways from today.
But I thought I might try to put these in my own words.
KBR has been on our strategic journey for quite a few years as youre well aware.
Strategically we wanted to move upmarket more technically differentiated exit commoditized businesses exited risky and volatile market.
It's an aligner business opposite exciting markets of the future on.
And simply deliver on what we said we were going to do not one quarter on quarter after quarter.
And you're probably thinking share every business wants to achieve this on <unk>.
When you talk about what they are going to do on.
Let me.
Just say this.
We begin 2021, having exited traditional on LNG.
Lump sum EPC construction risk Commoditized services.
We also enter 2021, having reduced our reliance on contingency funding and the middle east to non material levels as Mark explained.
Market on having retired a large number of our legacy risks over the last few years and retired many poorly performing projects from our portfolio.
So I think we can make a very strong argument that we have exited commoditized on volatile markets.
We begin 2000.
One was strong momentum in defense and intelligence incredible performance and science and space.
We share readiness and Sustainment business.
And increasingly up market international portfolio on a suite of sustainable technologies that uniquely compound our ESG store.
2000, and a very very hot market.
Our people do things that matter the care on a hugely uplifting to be part of a company that does that today.
So I think we can also make a strong argument that we have aligned our business attractive markets of the future.
We begin 2021 with revenue up a bit.
Margins moving up EBITDA moving up on EPS outpacing revenue growth by quite a factor as Marc explained.
And I really think this is a strong reflection of moving up market being technically differentiated.
So proprietary IP and domain expertise.
We have delivered every quarter not for one quarter, but for every quarter for four years.
One can argue one metric over another.
Ken on the argued is the true value is reflected in cash generation.
We have delivered what we said we would do consistently.
On amazing people our team of team is quite simply deliver.
We have over 70% of the work secured to meet our guidance and we are confident we will continue into 2021 on beyond to do what we said.
With Regal do.
We stopped 21 by no means the finished article but certainly at the beginning of a new and exciting journey.
Now on to our final slide.
We will be hosting an investor day on the 25th of March on this theme future forward.
Net and appropriately so.
Our team will present <unk> volume on ESG position, we will bring to life. Our people agenda, we will present on a bit more detailed strategic growth factors and fly KBR is well positioned on this.
These will run nicely into presenting our longer range targets through to.
On day 25.
This will of course per virtual event and we hope you can join us.
Thank you and I'll now hand over to the operator, who will open the call up for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star followed by one.
Thats Star one.
In the interest of time, please allow for one question one follow up.
Yeah.
We will now move on to our first question from Sean.
<unk>. Please go ahead your line is open.
Hi team congrats on finishing out the year strong.
I just wanted to start on the.
$200 million of OCR funded logistics disclosure for the 2021 outlook. It seems like you guys really want to drive that home.
Eastman.
So it's clear I mean really you guys are just pointing out that.
On.
Logistics work in the Middle East is now just.
A tiny percentage of revenue for government services and it also that you have a big cushion in there for the uncertainty around the transition.
And then where troop counts ultimately end up in the region is that the takeaway there.
Yes, I think so Sean I mean to give you a little bit more color as Mark said, we've got about $200 million.
And our guidance for 'twenty, one and.
That is obviously related on the obviously about half of it is related to what we're doing in Iraq as we exit that piece of the contract and then half of it relates to I guess ramping up in Afghanistan.
There is a high degree of uncertainty on on the timing of both of those events, but we've decided.
<unk> is a very very conservative view, we do think potentially there's upside if things move along quicker.
There's some evidence that that may happen, but it is by no means after day. So so I think thats exactly right, but the key takeaway is just I think the progressive.
Reduction in reliance in our revenue.
To take this from as Mark said 19 'twenty into 'twenty one.
On replacing the potentially volatile funding stream by steady steady predictable funding streams, particularly in O&M in that segment and hence the renaming two readiness attainment, but but yes, so less volatility more predictive.
<unk> and longer contract tenures of that predictable nature and decided to this potential upside as you rightly pointed out.
Okay very helpful. And then just higher level from me just so.
Kind of a level setting I mean.
The dialog on moment.
Momentum.
In both the bid pipeline and in the backlog of late.
I mean, clearly overall overall budgets are alright sort of matching that momentum, Brian maybe just from a high level help us understand exactly how.
You guys are seeing this velocity.
Bid pipeline and the momentum momentum and the bookings trends.
That'd be great.
Alright.
I can cover that off a little bit on also on my closing remarks of trying to align the business up opposite markets that are well funded and attractive as we move into the future and we saw that with us.
<unk> acquisition of lining up opposite National security priorities.
And remember that we're very operationally.
Focused in terms of where we sit with our domain expertise.
Youre seeing that come through in strong resilience not just on the bid pipeline, but actually the performance in 2020.
On the momentum will continue to see going into 'twenty. One. So I think as I think I think you are right. There are theres going to be pressure overall on on budgets through time, but.
That's always the case and what you've got to do is you've got our lineup to the bits of the market that you feel are going to be exciting and going to be well funded until you've actually got deep.
Domain expertise technical Knowhow of your IP or your advantage really plays plays well and I think KBR is done on the team has done an amazing job of actually aligning to those markets and I think youre seeing in the pipeline that youre seeing in the bill on people with others talk about the pipeline, but as I keep saying the proof of the <unk> zone.
Are you actually delivering growth in your backlog through the time and I think this year on last year on whatever we got from them.
Demonstrated that we are positioned well we are opposite attractive markets.
Bill on the backlog growth through the year would prove that out.
Okay.
Hey, terrific I'll turn it over thanks.
Okay.
We will now move on to our next question from Jamie Cook of Credit Suisse. Please go ahead. Your line is open.
Hi, good morning.
Yes.
A couple of questions one can.
Can you remind us.
What's <unk>.
Contribute both on revenue and EBITDA for 2021, whether that guidance has changed or not.
And then I guess my other question is given.
On the work in the Middle East just becoming a smaller piece of the pie and can you just sort of update us as we move past 2021 on how to think about the sort of organic growth of the.
Government portfolio and margin profile or targets over the long term.
So any update there and then I guess, how to think about G&A now with Centurion sort of the cost actions you've taken.
Okay.
I'll start on Martin will finish so the guidance for Centauri, when we came out of the gate.
Total $700 million plus with margins in the low double digits to 10% ZIP code and that's absolutely where it sits today in the 'twenty one guidance.
And that's very good growth from last year as we're all aware so that.
That forecast in that analysis held up very very strongly in terms of the longer.
So term outlook for GE assets.
6% to 10% ZIP code I mean, we haven't changed that we'll be updating obviously the longer range targets in March when we when we hold on investor day, but but but.
Going forward as it sits today and I think that the backlog growth would indicate that that's achievable.
Longer in terms of the SG&A Mark would you like to comment on the longer term outlook for that just given some of the movements in seasonal movements in Q4.
Yes, Hey, Jamie first one thing to add to the Middle East question and government is if you were to.
<unk>.
Reduction.
From 'twenty to 'twenty, one and contingency logistics.
Which is the $250 million to get between the $4 50, and 200 numbers I provided.
Strip that out the organic growth in government solutions.
6% to 10% range for 'twenty one.
Stuart.
Thats encouraging and it is attributable to the group.
When takeaway that we've talked about here and so that would be on view going forward.
And we'll talk more about that in Investor day in March from shore.
Relative to G&A.
We had.
Some.
In 2020, due to COVID-19 more or less travel things like that.
<unk> bumped that up a little bit for 'twenty. One we do expect to return not exactly back to from a little bit more toward normal at some point and pick up activity there.
Plus we as I mentioned are making some investments in modern.
Savings on infrastructure.
On that thats, hitting hitting G&A, we factored that all in.
On the guidance.
But the corporate line ship there'll be about 100 million, which I would say, it's kind of a normative if you look back at $19 18, and Thats kind of where it was kind of expecting that range for 2021.
Horizon beyond that I think where we're going to do our best to contain or even reduce that number with the investments we're making in it.
Some of the legacy structure complications that we're trying to work out from legal entities to those sort of things. So that's that.
The trend so I would say back to normal.
From pretty much in 'twenty, one and then hopefully flatline that number or reduce it longer term.
Okay I appreciate it thank you.
When I move on to our next question from Jerry Revich of Goldman Sachs. Please go ahead. Your line is open.
Okay.
Good morning, everyone.
I'm wondering if you could talk.
I'm wondering if you could talk about your pipeline for hydrogen.
Decarbonization energy transition application.
Obviously nice to see the strong pipeline.
So I'm wondering if we might have.
On her conversation about your day compensation portfolio.
The cadence of.
Potential awards over the next couple of quarters.
Yeah. So Jeremy we did as you know recently, some investor events, where we brought down our.
Suite of IP.
Having some growth.
<unk>.
It's lined up across our whole portfolio of sustainable technology offerings and I'll just.
Hydrogen or ammonia, although ammonia is very very exciting. So I think thats. The first thing to say our gross technology on Nox and Sox, what we're doing in alkylation, what we're doing and looking at different solutions for the refinery.
And things like that as is the interest.
Energy energy consumption.
So I think.
Got on Amazing list of opportunities.
I think the best demonstration of that was the book to Bill.
Bill.
Quarter, the book to Bill on the quarter was well over $2 five and tech.
We talked.
The year book to Bill.
Being well over.
20% growth in backlog and things like that but the book to Bill has been well over one in Q2 Q3, but Q4 was outstanding with bookings well above two and the Tech segment. So I think thats, probably the best demonstration we have announced.
And on the number of those.
You've seen those announcements so probably best we don't spend all the time going into them today, but but thats probably the most tangible real number I can give you on this call to show the momentum around that sustainable technology portfolio and I think the other take away from that is that.
It's really just the margin performance on the fact that that business does run on negative working capital, which we can't reiterate enough just how attractive the business fundamentals at around that segment.
That's probably all I would say on that today market unless you want to say something more.
No. Thank you that's kind of it on.
On some.
Okay.
And obviously.
We had strong momentum in the quarter I'm wondering if we might be well they have a conversation around what the bookings outlook for that business as well.
But over the course of.
21 are there any meaningful awards that you folks are in the running.
For any color on whether that bookings momentum continues into 'twenty, one that you might be willing to share.
Yes, I mean generally these are red hot markets as you're well aware in terms of what's happening across the world opposite climate change and obviously the bite and administration is doing chill on to that fire so that it.
It's a very exciting time to have the portfolio in a way that we've had some technologies that have reinvented themselves somewhat like our ammonia technologies as people are using it using ammonia now to co fire coal fired power stations to reduce the carbon footprint immediately of coal fired power station. So it's a very very exciting.
<unk> market.
I would say that the activity levels are going up.
On the pipeline of opportunities is increasing not the other way round.
I really think it's a terrific time to be in the position we're in and as I said in my remarks, the timing of us.
Aligning that portfolio integrate it.
There is today.
Luckily enough is more type pretty well on our people our busiest anything actually.
Tons of looking at opportunities going forward. So my my view on this today is that the market the market and the opportunity set is growing up.
Even beyond what it has been in 2020 and I think as the world opens.
Open up a bit more I think you'll see more and more activity.
Okay.
And I'm wondering if you could comment on the Centauri.
And how has.
That business integration gone relative to your plan, obviously, not the easiest environment.
Integrated business.
Just talk about.
Hello.
Integration team has performed relative to plan.
Yes, it's going very well.
We've.
We've done the Ts have got together and assume that they all speak a common language I think culturally very well aligned.
People are all.
Working very well together.
Put a.
A lot of focus into synergy in terms of revenue.
On the recent 10 Cup win.
Which was a KBR bid with with Centauri, we brought in as I think initially as a subcontractor, but obviously that's changed now that really helped us.
And when not awarded.
That's just the non stock recently.
The Air Force.
500, or so million dollars over the next set of Basel on it too.
If it has to be intensive R&D phosphate and all the things that go with that in terms of prototyping and things, so really really going well in terms of that revenue synergy opportunity.
Inc.
In terms of the back office piece, we will be working through that.
And through the course of this year, but.
That business was not broken it was a well run business on a standalone basis. So when such cases, when it's not a carve out you've got a little bit more luxury of tying to get the back office right.
But the revenue.
New piece and the cultural pieces going really really well.
Thank you.
We will now move on to our next question from Gautam Khanna of Cowen. Please go ahead. Your line is open.
Got it on you may have yourself on mute your line is open.
On apologize for the interruption on caller. Your line is open. Please go ahead.
We can come back to go from a move on.
So on that.
Yes, we will move on to our next question from Steven Fisher of UBS. Please go ahead. Your line is open.
Thanks, Good morning, guys, a nice 2020.
So just looking at the leverage now currently below the target.
It's a range on it seems like there's potentially another maybe $2 million to $300 million of capital that you could deploy it still stay within your two and a half to three times targeted range and that's on top of that say $2 million to $300 million on free cash flow you should deliver this year. So.
How are you guys.
I was thinking.
About the potential to deploy that capital base.
Central.
I mean on again I'll start on margin can jump in I mean, we will give more color on this in March Steve. So I don't want to steal any more on Sunday I think.
What day.
Your number your assessment is absolutely correct of course that in terms of we've done well in caution on that language is not obviously just sitting below.
Our targeted range on.
And you're right in terms of free cash flow so.
We're in really good shape from a liquidity perspective, I think we've got.
Got deployment options, which is always a good thing.
<unk>.
<unk> around that to date have not changed we did buy back stock because you've seen in Q4.
And then secondly on auto and on equivalent that we will use our per.
So.
That's probably.
All I really want to say today, because I think we will be addressing this more from suddenly in next months.
When we when we get together for our Investor day, Mark any more that you wish to say now.
I'll just confirm Steve the numbers are exactly right. So there's firepower, there and levering up.
But responsibly.
So plus the free cash flow being attractive.
I did say earlier that we like a balanced capital deployment strategy and improvement over time, and so it would be reasonable to expect.
Similar going forward and while GAAP talk more about that in March.
Got it.
And then just on the quarter itself from government margins were a little lower than I might have expected.
Curious how they compare to what you were thinking.
So it was anything dragging because of the centuri close that might've been non recurring and since you did guide to the 10%.
For 2021, how much variability, we expect around that over the course of the year.
Oh, no I mean no.
Not much on a few bps variability I guess, Steve I mean, the bottom line in Q4, I think we come in at $9 $89 four something like that so.
Another one we would have rounded up rather than rounded down. So it was not a long way off expectation there were some seasonal impacts for people, taking trainer holidays and things as we run up towards the end of the end of the year.
But theres nothing sinister there at all on the overall margins for the year are well in line with expiration.
Expectations on our guidance for next year, which you know.
As I've said before we're going to quite simply do what we say, we're going to do and we've reset our margins at 10% or so next year and we expect to meet those.
Okay. Thanks very much.
Okay.
If I move on to our next question from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.
Hey, good morning, guys.
Hi, Andy on D C.
So you mentioned the book to Bill was above two times in Q4, so obviously a ton of momentum sustainable technologies, but are you thinking about your original guidance for when you.
We're doing your original guidance for 2021 in that segment.
You had a $1 billion on 100, I'm going to have revenue of $150 million of adjusted EBITDA.
Thank you gave us that quarter or two ago could that end up being conservative and what's baked into your overall guide today.
[laughter] loaded question.
Question on day.
I mean, I think at that point, the fact that we have.
We are delivering that sort of performance next year is terrific.
Not that we have a history of meeting or exceeding expectations in that arena.
We'd hope the trend continues but I think it's too early to be.
<unk> St Juste.
Answering your question on the rhetorically loaded way would probably not the right answer, but I think we'll stick to on our guidance today.
We're very early on I would say it is a very hot market I would say, there's a ton of momentum in that segment on a I would say, we're very very excited about the opportunity set.
Set that we're seeing in front of us from a from a pipeline perspective, and the dialogue, we're having with customers across the world and so I do I do.
We will come back to you with more color in March but.
I'll just say as we get to Q1 earnings we'll see how the business is performing but I mean.
As a terrific time to be.
To be opposite thought that market with the IP that we have.
Can't blame me for trying there alright next question so.
You mentioned the contingency work is still ramping down in 'twenty, one, but it sounds like there's a bit more of an international drag from the UK funding constraints that you saw on Q4, we know you've given on overall guidance for.
Would you expect more of a backend loaded year for revenue and GFS and how dependent is organic revenue improvement on some alleviation of the UK funding constraints.
Yeah, I mean, I think the thing overall just to start with a big picture scenario, we do expect the second half to be a bit muted.
21 on staff and Marc gave that.
That color in his remarks.
I mean, there's good reason for us as things ramp up, particularly things like the middle East and things like that.
But in terms of the U K as you know the majority of a very large proportion of what we do in the UK is underpinned by aspire and <unk>.
Then the other long term <unk> contracts so.
That really protects us from any real volatility risks.
That's a big message there.
It's not like we see major major things going going the wrong way here.
In terms of the cadence we're seeing in places like Australia, that's up significantly.
The UK is growing at a slower pace for obvious reasons. So I think it's steady as she goes in the UK with a little bit of.
Pressure, if you like because we've come off aspire defence top of the capital piece of that was essentially finished.
Anyway so.
A big shift in our revenue.
The base there. So so I think it's kind of okay.
On.
As I said that is a steady stream in the U K and just not at the same sort of level of <unk>.
Increase that we're seeing in places like Australia, and net we're seeing on the national security priorities in the U S and things like that so.
Just on.
Revenue from measured approach I think is probably the weighted way to describe it.
Thanks, Stuart I appreciate it.
Mhm.
Now moving onto our next question from Michael told Us versus Covid Research. Please go ahead. Your line is open.
Good morning, Allison gentlemen.
On my Mic.
Hey, Mike.
Stuart first question.
How do you how would you prioritize your pipeline, which appears very robust from long term target.
$10 billion on near term opportunities.
How would you prioritize that relative.
Length of contracts with terms.
Just whatever market is growing the fastest you're involved in and you think there'd be more opportunities. There are you putting business development or or some investment in areas, we want to shore up or enhance some of the businesses that you have.
Yes, I think I think.
To start on almost two different questions in a way Mike I think.
Obviously as we look inside the businesses themselves on what's coming down the pipeline I think as you're well aware of the procurement pipeline in the government arenas.
Reasonably transparent as to whats coming down and you can position for the things where you feel that you've got the.
I think it's a success. So I think our teams did a very good job as you know our win rates are.
Really strong and I think we pick and choose a price if you like so I think.
That's probably the way to answer the first part of the question in terms of the the second in business development on investment I think we would continue to invest in it.
Best Chatfield as.
Things like our recent announcements.
<unk> that we talked about a little bit in terms of plastics recycling.
On the opportunity set there is.
On the market evolves in that arena. So I do think it is.
We are we are looking very strategically I think <unk> seen that.
So I think we've tried to align the business is up in a way that that does reflect.
Our outlook for group business of the future are good markets on the future.
And so in terms of where we are positioning.
So investment dollars I think they will align to the strategic growth vectors, we presented.
<unk> in the past and will do so again in March in terms of where we think there are new opportunities in places like cyber and things like that as we get to understand the centauri capability, combining that with the KBR capability to be just something that that we think is more niche in an exciting and lines up to it spending priorities into the future.
So you'll get a bit more color on that in March.
I appreciate that Stuart my follow up would be.
You mentioned in your response about the Neurotechnology and I think that seems to be pretty pretty exciting stuff can you maybe elaborate a little bit more on like how like from about and what some of the opportunities that you're seeing just.
From that announcement and what.
You're being planned over the next several quarters several years.
Yes, I mean, you're right it's on.
Very exciting market has been as you know theres a lot of capital flowing into.
That area.
A number of cases backing technology that is.
As yet to be to be proven I think the nice thing is <unk> got a number of our facilities.
Quite a world scale, yet, but the world scale ones being built and will turn in the U K, but the reason we like this technology is because.
Hugely environmentally friendly process to begin with.
So it basically it takes.
Some water in and the way it actually works is if there is no carbon emissions in a way that you sort of recycle energy and things, but basically they take water and the pressurized and use high temperature to breakdown plastics, but not just.
Single use plastics are the easiest plastics to breakdown.
They placed on most prospects than I think.
Anyone who knows much about this new is that most of the plastics that recycle only about 10 or so percent actually get used in the recycling process, but this technology addresses that issue.
Then honestly produces on now that can actually be taken by refiners to replace actually.
Just think feedstock on.
Raw feedstock, so it really drives and meet their sustainability agenda of using recycled feedstock and their processes. So so I think from from.
I guess from a mouse trap perspective, we feel that we've got the right IP and it comes with attributes that are quite unique in the marketplace from a very very excited about that.
And more and more to come on the opportunity set with that I mean, there's a number of opportunities that you would expect is this is this.
This technology gains more and more momentum.
Richard Attenborough has been build sooner Richard Attenborough has been talking about this technology as a potential solution for some of the issues facing.
Plus sales going into the ocean into the future and things like that so it's really really terrific and tons of exposure I think the opportunity set will be on a global nature, but it will be measured as well you know I don't think we will be taking on commitments and things that we can't meet so but I think so far on everything we've had on everything we've seen.
And the opportunities coming in the pipeline with new.
Very very very attractive.
Terrific Stuart appreciate look forward to have a meeting next month. Thank you.
Thanks.
Yeah.
We'll now move on to our next question from Brent Thielman. Please go ahead. Your line is open.
Great.
Good morning.
On the just the emphasis within the former logistics piece of government now readiness and Sustainment, particularly the O&M related work.
Can you talk a little more on just about the addressable market you're after the types of program. This business is going to look to pursue that it hadn't done before and I think you've talked about.
The value.
How do we think about the difference in margin to profitability versus the legacy logistics book.
Yeah, I mean, good question on on timely as well so you're right. We put a lot of emphasis into we're talking on a while about the change in the business.
Higher than what's logistics centers, not ready readiness and sustainment for quite a while.
We were at pains I think in the D S and focused day earlier in the year to explain that the margin and returns on this business, we're probably above what the street felt the wire because I think the street felt we still had quite a sizable exposure to that typical OCR.
This mixed funding stream, which typically comes in at lower margins than we had.
We've explained through time moving.
Reducing our reliance and not.
Arena on that.
Business itself is.
Has really expanded international footprint on the domestic footprint so on the international.
Zero.
We've obviously talked about your ability in the past in Bahrain and from what we do in other places, but these are long term base operational support contracts typically on a fixed fee basis and on.
So therefore, when you become more digital.
You cannot see prostate it's all about data on how big the cleanliness of data that you can actually.
National an eye on it to to get more efficient on if you become more efficient new drive margins up.
And we've got really really strong history of doing on over the past three or four years as that business has become more and more digitally enabled.
We recently just started the UA boss contract, which is in Turkey, Spain, that's about $1 billion over the next.
They were long years or so so again really good momentum going into next year in that book to bill well over one.
For the year I mean, it's terrific.
And on.
And I think.
From a domestic viewpoint from an O&M piece low cut five everyone thinks it's all.
Tenet is not there is a lot of it comes from ops and maintenance as well on the work that we're doing in and around the U S. Today is growing at a much higher clip than we expected.
<unk> talked about that a few quarters now and that momentum continues with the teams on performing exceptionally well on.
That continues to grow on.
Funded through O&M.
Funded with what we're doing.
One in terms of.
Supporting the training activities and getting troops ready and all that sort of thing absolutely in our wheelhouse on readiness on Sustainment.
<unk> continues to do quite a bit of awards supporting Oems as well in the U S around some of their facilities.
And on.
Some high end Walker on materials and things like that so all of that is continue with very strong momentum on and that's a very good balance and with and domestic with on the pre positioned stopped work that you are well aware of that we do for the Marines and the army, which is also growing pretty well in terms of performance perspective.
I think it's a combination I think the way that this business has repositioned his.
It needs to be admired really really strongly in the margin performance is in line with our broader GFS margin on it is not the low margin business do you expect.
I think the change in the revenue mix actually.
So not on.
On the digitalization, and we talked a little bit about that.
On the call as well in terms of the way, we've increased automation and things to help reduce cost and therefore drive margins up.
Okay. That's helpful and then.
On a sustainable technology segment.
Sort of a gradual transition happens across the globe.
So what how do you think about the asset that might not necessarily meet the criteria. That's sustainable on Jim Theres still a lot of value to those on.
That's something you look to monetize it.
This and the business yet.
We don't.
We've got very few of that in our portfolio. Today I think we were very timely in the work that we exited and really what we've got today on the technology solutions on a sustainable technology solutions portfolio is a suite of IP that lines up to the sustainability and climate change agenda.
Under across the World and we've got on advisory business and.
What we call technology led industrial solutions, which is high end sort of performance of assets to reduce.
To make them more energy efficient.
Make them far reduce the carbon footprint of how these assets perform so.
These are digitally enabled tools that allow us to do that particularly when it relates to our own technology.
So we've gotten I don't think we've got assets in.
Associated in KBR today that we have to our need to dispose off on.
Aligned to the sustainability agenda on where were pointing that business I mean.
Yes.
But we've just we've effectively exited what we wanted to exit and we've closed on those businesses.
We moved out of those those those projects in the main is a little tail coming in and.
As we come through Q1, but as Mark said, but that's it.
And I'll, just add we sat down and looked.
Same question relative to all of our offerings.
In the sustainable technology segment, all of it including what came over from the previous energy segment.
And while from offer with new focus on end product flexibility. They also offer safety <unk> energy efficiency.
Propositions and sort of look at energy transition consultant and you look at <unk>. When we look at almost everything that sustainable heritage does.
About 80%, 90% of every offering we have.
It has on energy efficiency component safety component every day transition component et cetera, and so thats that support.
<unk>, what Stuart said about <unk>.
We have a portfolio that is square.
On this megatrend of sustainability.
Very good thank you.
Thanks, Brett.
It appears we have no further questions I'd like to turn the conference.
From spot to store Friday, President and CEO for any closing or additional remarks.
Just thank you very much and really just thank you for taking the time to listen today. We're obviously very proud of 2020 and a big shout out to all our people who've really delivered for us in what was a unique and difficult year.
I think we're very well positioned moving into 'twenty one as we described on the call and we hopefully most if not all of you can attend on virtual Investor day on the 25th March. So thank you and know that we'll be talking to some or all in on.
Sort of one on ones or whatever in the next little while so thank you again for attending today.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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