Q1 2021 KBR Inc Earnings Call
[music].
Good day and welcome to day KBR, Inc. First quarter 2021 earnings Conference call. This call is being recorded.
As a reminder, your line is will be in a listen only mode for deterioration of the call. There will be a question and answer session immediately following prepared remarks, you will receive instructions at this time.
For opening remarks, and introductions I would now like to turn the call over to MS. Alison Vasquez. Please go ahead ma'am.
Good morning, and thank you for attending Kbr's first quarter 2021 earnings call.
Joining us today are Stuart Brady, President and Chief Executive Officer, and Mark Sopp, Executive Vice President and Chief Financial Officer.
Stuart and Mark will provide highlights from the quarter and then open the call for your questions.
Today's earnings presentation is available on the investors section of our website at KBR Dot com.
This discussion includes forward looking statements, reflecting KBR views about future events and their potential impact on performance as outlined on slide two.
These matters involve risks and uncertainties that could cause our actual results to differ significantly from these 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.
Thanks, Alison on many thanks for joining us today.
I'll start on slide for now you should all be very familiar with the zero harm sustainability program by not on the pillows that sit within across the ESG spectrum.
At our recent Investor day, we highlighted that being a good corporate citizen was the floor on not the ceiling at KBR on I wanted to prove on outside a little bit more today.
The symbiotic relationship between shareholder value on KBR, helping our clients achieve their sustainability goals is an absolutely key differentiator for KBR and awards.
To build on not just a little on to slide five.
KBR has a suite of recycling technologies to enable secular processing on the broader circular economy on the Investor day, Doug introduced mood is revolutionary Hydro Prs technology that closes the loop on the circular plastics economy. This is very exciting and it's on right.
On this excitement I think it was compounded with the recent announcement. The dial is also investing on importantly committed to off take.
This obviously is a huge endorsement on the sustainability aspects and of course, a huge endorsement on the technology itself on as an important step forward.
For the KBR, we have many recycling technologies.
As outlined on this slide all our proprietary differentiated disruptive and market leading.
Spend the entire call on I don't plan to do that talking about these technologies, but today I'll highlight just one example to give you a flavor.
And that's on the sustainable fibers.
A global retailer from Scandinavia came to US a few years ago to help them solve a big problem.
To recover valuable chemicals on water from what would have been a waste stream at the end of their process to produce moderate progress.
Our sustainable technology team applied a proven evaporation on crystallized nation technology to essentially recover on purified critical ingredients on water such that there can be reintroduced right at the front of the process.
Closing the loop on this circular processing.
This solution has many benefits as I'm sure you can appreciate it reduces processing cost it saves finite elemental resources on water.
Eliminates a waste stream. So overall, it's great value for the client obviously for KBR on our shareholders and of course the planet.
So you've heard me say before advancing our clients' ESG objectives is core to KBR strategy. On this example is just one of the many that demonstrates that tenant.
So on to slide six on some key highlights from the quarter.
The key takeaway here is overall revenue EBITDA margin adjusted EPS on cash were all in line with full year guidance and I would say a little bit above our expectations for Q1.
You will recall that we stated that first half versus second half will be circa 40 60 split at the EPS level that has now shifted to a circa 45 55 split with a couple of things happening in Q1, but would expect it to happen in Q2 and Q3.
On this was especially the case in sustainable Tac on Mark will give you some more details on this later.
Margins were buying on at the group level with some discrete items. Some puts and takes that Mark will cover later within the segments, but to be clear full year margin guidance at the group and within the individual segments is not changing and I'll say that again for Q1 puts and takes to not change through your margin guidance.
Free cash conversion at over 100% was again strong and importantly, the team brought in over one 6 billion in backlog and options during the quarter and high end technical pulp market is increasing our total backlog with options to $19 3 billion.
More on some of these wins in a moment, but super exciting.
So Q1 was a relatively clean quarter at the group level and so today's presentation, you'll be glad to hear should be relatively short as the overall business continued its momentum from 2020 on.
'twenty one guidance remains unchanged.
So on to slide seven.
The market outlook and GFS was dominated by the release of the President's proposed 2022 budgets.
The Dod's budget was aligned with what we presented at Investor Day. So no surprises there and KBR was very well positioned opposite national security and deal with these strategic priorities.
A few of the areas are highlighted on the slide artificial intelligence and machine learning cyber trusted microelectronics on directed entity on you can see on the right hand side when does that help prove the site, we're especially excited this quarter by the trusted microelectronics went to.
To conduct advanced R&D prototyping laboratory testing and supply chain verification on critical microchips on components.
This is a really important work done by top tier scientists and phds to ensure major military systems and platforms operate as intended and have not be compromised.
We also won new work with the U S space Force rapid capabilities office Brasil to support the development and acquisition of new space capabilities on the modernization of the military space infrastructure again. This is highly advanced work centered around technical R&D and <unk>.
Critical military space domain.
Shifting a little bit over to the civil side, the civil space site for NASA budget request was also released on shows a marked increase on continued support for the return to the moon on beyond on.
And of course increased funding across a range of offensive activities focused on as you would expect initially on COVID-19 climate change on.
The area of differentiation as you know for KBR on social Justice.
The proposed infrastructure plan was also released on was very R&D heavy.
Technology, driven on climate focused lining up well with KBR R&D capability on technology portfolio.
This quarter, we saw some great wins also on the international government business as you can see on the right hand side of the slide both in the U K and in Australia.
And there was also good news from a budget perspective in the U K and this follows on from Australia, increasing its defense budget last year.
As an aside Rob pockets from you might in a day.
And focused on his team in Australia are off to another good start posting top organic growth rates again at over 30% year on year this quarter.
And this is a nice example of a great team doing things that matter with with within a healthy budget environment.
One aspect not on the slide but worth mentioning because the announcement on troop withdrawal from Afghanistan.
As most of you are aware, we took a very conservative view in this area, which has proven to be prudent.
So in short no red flags coming from recent announcements no red flags from the budget priorities and very much aligned to what we presented in Investor day, So very much aligned with our expectations the market on our strategic positioning reaffirm our ongoing momentum.
Now onto slide eight unsustainable technology.
The market in key strategic themes shown on the slide continued to gather momentum it's a hot market. The recent announcements from the binding administration are fully aligned with these themes as we discussed at Investor day.
Our suite of technologies remains in high demand on I'm also pleased to announce a disruptive PVH technology capable. There was actually launched last year has secured its first commercial scale order. This is terrific. The details on this on the right hand side of the slide but to put it simply this technology.
<unk> takes low volume propane and converts it into high value propylene on.
In industrial and <unk>.
More sustainable and more cost effective manner than the competition.
It is worth noting that the book to Bill of Heritage Technology was one five in the quarter.
Led by important sales of exciting new disruptive technologies Kaypro K caught on K sought bookings of these technologies dominated the tech book to Bill that's clients new to meet growing demand for propylene on high value clean refining solutions with a disruptive differentiated on the.
Our view often superior technologies.
Now we've talked a lot about case on technology in the past and obviously I've just covered K pool, but I'd be remiss, if I did not touch on K caught on the K Cup win in the quarter.
Which was a substantial booking by the team now take on as KBR catalytic olefins technology that is the only on a repeat only technology of its kind in the market.
<unk> technology is unique in that it produces meaningfully higher volumes of propylene fastest competing technologies on as you know propylene is in very very high demand.
Additionally, K Cup is the only commercially proven continuous operating process on the market, which means that both capex and opex costs are substantially lower.
On the energy consumption and thus environmental impact are also greatly reduced.
So in other words, it's highly monetize a boat.
At a lower investment on operating costs.
Translating to a higher ROI for our clients on at the same time advancing that sustainability agenda altogether.
Compelling.
So staying on the right hand side of the slide.
You would expect the cadence of awards in our energy transition Advisory business also increased on is a great early indicators of activity in that market, but it's clearly a step change in the activity on the cadence of new opportunities and awards.
Actually been above our expectation.
Technology led to industrial solutions also had a fantastic start to the year on the pipeline for our digital solutions that Leverages, our IP on our domain expertise on helps our customers reduce cost enhance throughput increasing efficiency, while also advancing their own system.
The inability goals is resonating.
As Mark will show you in a moment sustainable technology has come out the gate strongly to one and we remain confident in delivering a 'twenty. One guide that there will be a business that do circa $1 billion in revenue likely a bit more on.
EBITDA margins in the mid teens for high end government business for the sustainable Tech day care.
So on to slide nine on the pipeline.
In Q1, we had some really nice wins in strategic areas as we've just touched on.
So really falling through on winning the right work.
Starts on the right you will be familiar with the stellar recompete win rate the balance portfolio of opportunities over $1 billion on multiple sizable opportunities over $100 million.
During both the overall scale of opportunity, but also minimal concentration risk.
The team has done a nice job across the customer set picking over $1 6 billion.
And awards and options in the quarter, a pleasing result, and a typically light bookings quarter.
The key message here.
In step with the recent budget announcement, we expect to see our pipeline remains robust and the momentum we have is expected to continue.
I'll remind you we have a low recompete year in 2021 on in 2022, and you can probably see why we're so bullish on the outlook.
Now when we announce guidance in late February we stated that we had already secured over 70%.
Seven zero percent of the work required to deliver the 'twenty one plan.
Q1, we had excellent execution, especially on sustainable technology on this combined with Q1 bookings has driven the level of secured rather than revenue closer to 80% 8%.
So in short.
The markets and budgets remain very favorable.
We continue to deliver while so on all non I'd, just like to a big shout out to our people who are doing an incredible job on these things that really matter.
We're winning work and the differentiated as we set out to do our ESG commitment on direct link to shareholder value is super exciting and compelling on Q1 was a great start to what is shaping up to be a great 2021 on beyond.
Now I'll hand over to Mark who will give you some more color on the segments Mark.
Awesome Stuart. Thank you I will pick up on slide 11.
So as you just heard Q1 performance was generally in line with our 'twenty one guidance expectations and also our long range targets that we presented to you last month and on Investor Day.
Revenues of $1 5 billion and $135 million on adjusted EBITDA are right in line with our fiscal 'twenty. One guide of 6 billion top line and 9% EBITDA margin.
Cash was once again very strong out of the gate with free cash flow conversion coming in at 109% for the quarter.
As Stuart also said was particularly encouraging is the quality of the work that's coming in and new orders.
We are winning high technology content defense research and development and modernization contracts in line with our up market strategy.
Trusted microelectronics.
Rapid research and development and prototyping and others that Stuart cited earlier and also in our release are really good examples.
These programs on our high priority high barrier to entry and in some cases, leverages <unk> to greater opportunities in the future.
The same is true in sustainable cash.
A stellar quarter in bookings for proprietary process technologies, including strong bookings across our new disrupted sustainability focused technologies like you've heard from Stuart.
April in case that and measured progress on energy transition advisory and smart operations and maintenance Awards.
As I will cover later, we did have some acceleration of profit in the first quarter.
Which will modestly relate our first half to second half earnings more toward the 45%, 55% mix versus our initial guide of 40 60.
But the bottom line here is we are on track on all measures and thus reaffirming our guidance for the year.
On to slide 12.
Firstly on as planned we have collapsed into two segments government solutions, GFS and sustainable technology solutions Sts.
Highlights on the <unk> side include 19% topline growth.
5% of which was organic.
We absorbed a headwind from reduced with middle east activity compared to last year.
With new growth areas predominantly in sustaining enduring programs.
We have underscored the reduced dependency on the middle East contingency work and the 15% growth in readiness and Sustainment.
Highlights for the enormous success of our team in driving growth from new more recurring sources that will carry forward.
15% net organic growth in light of the reduced for middle East activity is one of the top success stories this quarter.
Hats off to Ellis Studer enter team for delivering.
Not only excellent service in the middle East for all the transitions going on and through a global pandemic, but also at the same time amazing recapturing and realizing tremendous growth in baseline recurring programs elsewhere on the world.
It's truly remarkable.
Growth came from sustaining O&M funded areas such as the important work our team does to plan schedule and support training rotations at the National Training Center.
The rest of GFS pretty much netted out, although I will mention and as Stuart alluded to.
Australia government business continues to produce really strong growth up from about 30% organic year over year offsetting some of the effect of winding down aspire capital works in the U K.
We were pleased with a really nice New award that the team one in the UK. Stuart also mentioned that earlier and that will start contributing to earnings later this year.
I'll also point out the nice balance of top line contribution across all four business areas within Ges.
Which is consistent with our strategic intentions of having low concentration risk.
Access to multiple funding channels and access to faster streams of funding growth as national priorities change.
<unk> margins were a percentage point off of our long term guide and this was primarily driven by timing items and provisions that we took for a legal matter.
We do expect to achieve 10% EBITDA margins for the full year.
With strong contributions in the back half of the year.
Driving that home.
Now from STS we're off to a great start in Q1 and are on track to meet the full year guide of.
One 1 billion plus on revenue.
At mid teen margins.
As planned margins are vastly improved over last year, mostly from a fundamental improvement in business mix toward higher margin offerings and also the cost reductions we made last year in the overhead structure of that area.
Stuart mentioned profit was amplified in the first quarter by several percentage points on the favorable delivery on our sustainable technology project as.
As well as an R&D investment recovery.
These results for originally planned over several quarters this year, but due to good execution early closeout and also accelerated cash collection on those items, we recognized all of it in Q1.
Certainly a great results from the team.
Overall, while we will likely have some margin variability this year due to timing and mix.
Confident as I said earlier, our full year guide of revenue in the $1 billion, plus ZIP code and margins in the mid teens will be attained.
Now on to slide 13.
A brief update here there is new.
No real change to our capital structure and deployment strategy, which we fully covered in the Investor day, just a few weeks ago.
Net leverage edge down just one tick.
Driven from growth in EBITDA for two three.
Indication this day, we bumped up our dividend for the second year in a row now at 11 per quarter.
Up 10% from the 2020 dividend level.
And finishing up on slide 14 as stated we are reaffirming guidance on all measures for the full year 2021.
The guide reflects a repositioned revenue profile in both our government and sustainable Tech businesses.
On the government side. The guide reflects essentially an immaterial amount of middle East contingency operations contribution.
Replaced by up market advanced technology work in defense modernization military and civil space Cyber security and a surge in growth from sustaining readiness and sustainment programs.
On the Sps side, the guide reflects lower overall revenues, but much higher barrier work areas with stronger margin attributes, particularly fueled by our proprietary sustainable process technologies.
These technology R&D benefiting from much more commitment to greater energy efficiency and improved environmental outcomes across our entire contract base.
This is now complemented with an attractive front end advisory offering which is gaining traction and a recurring smart operations and maintenance offering which leverages for large installed base of industrial and government customers we have worldwide.
Altogether the changes have produced a higher margin strong cash flow business with well established and reliable solutions and attractive end markets.
With that I'll turn it back to Stuart.
Thanks, Mark great job on on tariff final slide slide 15.
Our people continue to deliver.
They really do on execution was again exemplary and we started 2021, well a super strong performance across the entire business.
Cash conversion really important was again terrific on our balance sheet on liquidity position Mark demonstrated on both healthy.
For circa 80%.
Eight zero percent of the work secured to deliver on 'twenty. One guide on with a strong Q1 now behind US we are very confident of delivering 2021 on the reaffirmed that guidance today.
Remember that guidance reflects a 20% plus increase in adjusted EPS from a very very resilient 20 agile.
As we reiterated at Investor day, we continually endeavor to do that simple thing.
Doing what we said we would do.
Well, thank you for listening and I'll now hand, it back to the operator, who will open the call up for questions.
Yeah.
So if you would like to ask a question. Please.
Sticking on repricing star one on your telephone keypad, if youre using a speakerphone. Please make sure on your new function is turned off for now youre sticking on to reach our equipment.
Again press Star one to ask question.
We will now take our first question from Jason at Cowen <unk> Company.
Please go ahead.
Yeah, Hi. This is Chad this is Dan on for Gautam.
Good morning, and.
Okay. So so our question on.
Have you seen any exciting opportunities or threats.
Interest in the initial budget proposal that came through.
Speaking on in terms of like agencies.
Obviously, there's something I think.
Yeah, we tried to cover that often the presentations on bolt ons on Investor day that we so no real surprises no red flags.
Fact, quite the opposite I think we were very pleased with the levels of budget and I think the priorities didn't throw up anything that disrupted our strategic advancement and so that's why we're very bullish about our future and so I think in short no real surprises at all I think.
The outside of the Dod obviously the filing momentum.
And.
Last but particularly around sustainability as well and of course last night's presidential address as well, putting more and more money to work and the economy is just good news and I think we're very well positioned to take advantage of that across the spectrum of what we do which again is wireless mobility. So no red flags on me more encouragement I would say is.
As a short way to describe your question.
And then I'll just add into that.
To Stuart remarks.
Go back to the post election.
Moments in time, there certainly was some concern about whether or not the new administration would continue to support and NASA.
That had some nice increases during the Trump administration, and we're really pleased to see a further bump up a six 5% and the request for NASA across the board and ongoing support for human space flight missions to.
For the moving in.
Longer term beyond so that part was particularly strong in addition to distinguish remarks as well.
Great.
Very helpful. Thank you.
And then just.
Quickly.
It kind of seems like multiples on the government actually states really compressed.
KBR.
Cash at a nice from recently and.
I'm wondering.
Does that inform kind.
Kind of a balance between M&A versus repo.
And whether you guys have seen kind of on the M&A pipeline become more active as a result of that or more affordable.
Yes, I mean, obviously.
Share price goes up then if you're using that as currency things become more affordable, but I think there's good recognition in the marketplace that KBR has changed significantly over over time and I think we're getting recognition for what it is we actually do today, we don't think we are.
I think on targets that we're reaffirming and.
Obviously drive greater share price accumulation for the time, our EPS performance and hopefully that reflects on share price accumulation over time is as we laid out on investor day on terms of the.
On the way that we think about the business. We do think we have a.
Today on very high on government business, but we do have this new technology sustainable technology kicker that is arguably should be valued at higher multiples than government.
So I think this certainly.
Statements around that marketplaces, as youre well aware so.
And I think that came across hopefully strongly invested in has really supported the run up that we've had recently on in terms of the M&A market.
Certainly there is still obviously lots of activity there.
Consolidation will continue.
But we've been very clear about our priorities in terms of.
I will look and of course, our capital spectrum and I think mark laid those out so I don't think there's any change there at all and just to reiterate free.
We will fund organic organic growth and we've got really strong growth as you because you had 20% plus in EPS level.
Built into our guide.
That's the best use of cash we've got increasing dividend and then of course, if we can find accretive M&A that fits our strategic.
Future and accelerates us into new areas and we want to acquire just to bulk up for us.
Market share per per se on things that were already there. We think we can do that organically.
So it would be pretty tough.
For their cultural for end of it has to be accretive and so you have to get all these things right then and if that doesn't occur then obviously, we will do everything that we've got excess cash.
<unk> targets.
As we did.
End of last year.
Buying back our own stock no doubt about it.
Thanks, a lot price.
Thank you Dan.
Thank you.
Wonder if you would like to ask a question. Please press star one.
We will now take our next question from Michael at Vertical Research. Please go ahead.
Good morning, Allison gentlemen.
Okay.
Two questions first.
Maybe for Mark.
Certainly you're talking about with these new businesses and upmarket in margins could you maybe reflect on and say what the.
Overall backlog margin say in GFS and maybe what this new STS was six nine months ago, where it is today and is it going to continue to move at a steady pace. So as you execute those margins will flow timely for now for.
Meaning your targets over the next couple of years, it seems that youre getting to high end.
Bookings at a lot greater pace than what we've seen in recent quarters.
Thanks, Mike Yeah, we're really pleased with the quality of work as we've repeated over and over again in some cases, that's rewarded in strong margins and in cases, such as NASA as I think everybody knows to a lesser degree given the nature of economics from that agency and with other space.
With us and we do so proudly and it's all good and so we.
We see.
Balance in the bookings.
Our guests up market, but across the different mix of agencies, both in the U S M and internationally.
As you know the international piece is favorable to margins parts of the domestic are favorable to margins like centauri in the trusted microelectronics and the rapid prototyping.
The continued great work, we do with NASA tends to go the other direction and I would tell you that net bookings. We recently had on the pipeline we have suggest.
A static sort of scenario in the margin, 10%, hopefully a little bit more territory.
And if that weighting changes we'll of course, let you know, but right now all signs indicate stability.
Set of circumstances on the margin front for government.
I appreciate that.
For us for Stuart.
So we've been we've been getting from clients on certainly pet since your Investor day.
On the opportunities and certainly the excitement on ammonia and.
And hydrogen certainly and the opportunity there given what you reported here in some of the refining and chemical processes that have been working well with these new technologies over the last day 12 months you'd be instituted on getting some traction maybe.
Maybe share his height is ammonia in that same realm, and you think thats. A 12 18 24 months story or are we going to see some of that could be much quicker I would think your clients are certainly asking you for a bunch of questions on on.
On how this could work through especially with your leadership in that space.
Yeah. Good question Mark.
Yeah on Mark's answer on on.
On margins I think what we're seeing of course on the.
On what was heritage tack, which is I think everyone knows is a very high margin component of STS.
The cadence of the things with another book to Bill of one five in this quarter versus.
For Q4, and Q3 and Q2 for all of well above one <unk>.
I think that's going to help drive margins.
Sure.
Upwards as we as we look at the mix in STS as we go forward. So I just wanted to put that out there because that's it is exciting and if we can keep that level of activity on that cadence going on then clearly that puts upward pressure on margins, which obviously is good for everyone in terms of the discussion on ammonia on hydrogen yes of course it's.
That's hugely.
Q3 Pos.
Positive on.
I think mark on.
And myself, we mentioned the cadence on the advisory business talking about energy transition.
New technologies, which includes Hudson of course was part of that solutions. So very much the tip of the spear. There are lots of awards and studies ongoing and we expect I mean, not all of them will prove out to be bigger opportunities, but lots will.
And I think that really puts a lot of.
Credibility on player the market is heading and in terms of ammonia demand, we expect that to be.
Continuing on increasing over time.
We've got a lot of activity and a lot of bids in the pipeline for that.
We'll start to see some of them come through in the second half of the year.
And on the cadence of that will continue and the reason for that is I think that I think people. It takes two to three years to build these large millennium facilities and I think we can see the hydrogen demand for ammonia being of course, the fuel that transportation fuel for hydrogen.
That demand growing in and people will try and get ahead of that and certainly the discussions with the big ammonia purchases are already stocked as an issue for you.
Being involved in any of their sort of investor day as a dialogue I mean, not for very very clear. So I think it all stacks up really favorably for KBR and I think the.
The drive for refining to be greener and.
Sweet of Green technologies, we can apply to to find ways to help them the product mix of options. We can gave on tens of driving volume for petrochemical producers around things using K Carter and obviously delivering more propylene.
Additional ethylene propylene mixes again highly attractive on and so I think youre seeing a little bit of a perfect storm across our portfolio on the pains not to just talk about a morning on hydrogen on this call because that took up it takes a lot of activity there and people will get rooftop adopt and rightfully.
So, but I wanted just to make sure that we've got the message across on this call that we've got a suite of technology that was 77 zero technologies that.
They are being deployed actively across that the green refining.
Petrochemical piece on of course in the syngas ammonia piece for hydrogen future. So so I think more to come on that Mike and I am sure as we get into Q2 Q for Q3 Q4 of this year, you'll start to you'll start to talk more about awards in that arena.
We're doing on Stuart Thank you so much.
Thank you if you find that your question has been answered you may remove yourself from the Cuba pressing star team on that.
Our next question from Tobey actually with Securities.
Please go ahead.
Thank you with respect to the pipeline and kind of.
Bid activity in tech.
Is that.
Is the top of the funnel kind of increasing as one might expect for some of these headlines in momentum and what do you.
Whats the outlook for contract size.
Given some of the developments that you've talked about so far on the call.
Yes.
Mark.
For the types of change in size per se.
The the size of awards from a technology perspective.
They haven't really changed too much over time, I think the important pieces, we come with that.
Very strong cash conversion day.
Dynamics on onto on attributes from you've got the.
Sort of a high margin profile.
Discussing the parcel no really big size changes there, but we are.
Opportunity set as I've, just said with really being in the sort of perfect storm at the moment is of course growing so the pipeline of opportunity is sizable and on.
And we're seeing that across across all the all the areas in Sps on.
So it's not just in one area on hopefully that came across from the presentation. Today. So we're feeling really positive about that business and Thats why were very confident in our statements about achieving.
1 billion plus on revenue in mid teen margins this year and on just Mark stated the longer term for longer term targets.
Also looking good on if you think about if you remember the detail on STS that has a growing margin profile as well as growing revenue. So.
For a double whammy as they say so.
That's all looking very positive on the pipeline of opportunity would support that.
Thank you.
My follow up question has to do with sort of.
The exposure you have to opt tempo.
Logcap.
How.
What is the outlook for that to rebound to levels of a couple of years ago understand we've got some news on for Afghanistan, but.
Suddenly degree op tempo maybe.
Tied to the pandemic and COVID-19 cases could you speak to that over a sort of more of a medium term. Thank you.
Yes for tricky question to answer Tobey I think we'd all be guessing.
Thank the important take away from what we're doing in on readiness and Sustainment segment for low cost sets of course is that we've had 15% organic growth.
With that so they werent happening mostly in the new asked on the internationally, but not really in the middle east or placebo arena. So I think that's really the key takeaway in that segment for this quarter.
And then once the once things become clear obviously, we will report back on I'm very upbeat about that segment on really GFS in general are not per.
Particularly happy with the fact that we took a very conservative and prudent approach to the arena as part of our sort of future guidance and our outlook.
And we've taken away any sort of volatility in our performance as a consequence, though I think we will report back when things become clear there are those potentially of course upside associated with that as things become clear, but maybe not necessarily so.
And we'd be guessing if we if we if we said anything Allison I would rather not guess I'd, rather tell you from the notified.
Thank you Stuart that's helpful.
Yes.
Thank you. So we will now take our next question from Andy from Citigroup. Please go ahead.
Hey, good morning, guys.
Hi, Andy.
Sorry. If this question has already been asked I joined the call little late but just on the defense side of the business International Defense you mentioned the decline in Q1 was primarily attributable to a project completed how do you see that end market trending over the rest of the year and going forward. It was strong for you.
Of last year, So do you see that sort of resuming that strength over time.
Yes, I think we do see that growing over time I think the budget.
They cover for budget on day, and the fact that the UK has got a 16% increase in it.
It's sort of a defense budget on Australia.
Moving up last year as Youre, probably aware so I think the budget environment supports our continued momentum there.
We announced some good wins.
Moving on we also talked about the fact, the Australia business continues to.
Quarter. So so I think there's value health.
Healthy momentum is good.
The budget environment, and we're very well positioned to take advantage of what's in front of us. So so I think that's why we're very upbeat on what we're doing internationally.
Thanks for that Stuart and I wanted to ask you about cyclical recovery and sustainable tech in the sense that you've got sizable pet can.
From a refining exposure have you seen sort of a balance in those end markets in places like China and such.
KBR historically strong and.
How do you think about the cyclical recovery in that business over the next 12 months.
Yeah, well I don't know if its cyclical recovery I think there are certainly the suddenly on up tempo across the technology portfolio on refining on the Petro Chem.
But I think there is a change that's happened, which really has proven to be advantageous for KBR and <unk> got the refining community knowing that they have to change and we're seeing a lot of activity as we said around green technology application on the refining segment.
On the petrochemical segment, we're seeing significant demand for propylene, that's driving a lot of our activity around what we're doing in PTH on kick off as we apply the solar technology, particularly kick out unique to KBR. So so I don't really think it's so much a cyclical recovery I think it's a I think it's really sort of re.
Redefining the product off takes to meet the guests the sustainable demand for the future on on the market demand demand for for things like propylene so sorry.
That's what we're seeing and we don't see that in any way slowing down on its a very hot market.
And.
We'll continue to be so because of the sustainability agenda, that's driving I guess the world at the moment so.
Bears out well for us for a long time running on when you layer in the syngas and hydrogen on ammonia opportunities on top of that.
Yes.
Each quarter I'm sure there'll be ups and downs on various elements, but all over all over that.
On the wholesale offering I think.
To see continued growth.
I appreciate it's Stuart.
As a reminder, if you would like to ask a question. Please press star one.
Okay.
Our next question from Sean <unk> Keybanc capital markets. Please go ahead.
Hi, guys. This is Alex on for Sean. This morning. Thanks, Thanks for taking my questions.
So to start off I just wanted to ask on the cadence of awards, because our Fuchs shuttle contractors have highlighted some slowing in awards in the near term.
Which makes sense considering the change in administration.
Is there a point at which we could see a catch up on dynamics there.
Yes.
Let us sort of an interest in quarter of awards I think it all up at $1 6 billion with options and we've had a very strong awards quarter with options, particularly in the NASA space for a number of you know.
On on program growth awards in terms of additional moneys being applied.
For us at an option years associated with that was just the way that NASA does it. So the overall number was terrific for <unk>.
Yeah on the quarter on really a good new story.
But typically Q1 is a slow bookings quarter on particularly after an election in the and the government realm and I'm sure that's coming through with a number of our peers and I think we would probably other than what I just mentioned, but we would probably say that's the same across other bits of our.
Our government business, but but.
I don't really think Theres, a theres a huge slow down and I think it is seasonal.
Typically you get lower awards in Q1 net ramps up in Q2. It goes even higher in Q3, and then drops back down in Q4 that spit typical cadence for for government for.
For sustainable Tac.
Again, usually Q1 is a slower slower bookings quarters as people come out of year end and until they do so the year on year budgets on and.
Two to sort of pick up pace as you are likely to move closer into Q2. So so I really I really think per our bookings. This quarter are highly favorable I think it is a good new story for KBR given the typical seasonality.
Yes that makes sense and then and then on inventory can you provide us an update on the integration whether theres a change in confidence behind the revenue synergy targets.
I mean, I think the integration is going really well as we as we talked about.
You'll focus with Sentara was to ensure that we deliver those synergies in.
At 10 cap previously in on.
<unk> book to Bill was one one in the quarter.
You know again sort of really sort of given the typical seasonal low bookings for government again, a terrific performance in on.
They are performing.
Margin expectation, so I think all up the integration is going well and the business is performing at or above expectation. So hats off to the team they're doing a terrific job and I think the cultural alignment is proving to be very very strong which is for me really important.
Thanks, everyone.
Yeah.
Thank you so that is all the questions. We have in the queue for next on I would like to turn the conference over to.
Stuart Brady for any additional or closing remarks.
Yeah.
Thanks, John.
Just for again for taking the time and for your interest in KBR as I said at the beginning of the presentation on our buying on it's it's a very clean quarter in terms of where we're paying our numbers on being a little bit ahead in Q1, and some metrics in terms of expectation on all the state's sustainable.
Tech is call it the blocks really really strongly so feeling good about the future of feeling good about where we sit on.
As I said, you know the saying.
Saying that we are on track sounds a little bit understated and interest given the on track me that 20% growth on EPS. So so all good for for 2021 as we sit here today, and obviously strong strong Q1 performance really helping with that so thank you for your interest again on that we'll talk to most people on this call.
And then calls for this one so yes stay.
Stay safe and we'll talk soon thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
Okay.
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