Q2 2021 KBR Inc Earnings Call
Because you talked about winning the right work and many many times and this has come through and the quarters total of $1.1 and.
And you'll see later the results, including option years, even better.
Bookings and heritage Technology was 190, <unk> clearly was.
Quarters of outperformance and in this area.
A number of legacy matters.
Including settlement discussions.
We're not there yet, but we felt it prudent to from up to reflect the position on key times within our numbers.
This is all non cash and I will say that on this again. This is all non cash unrelated and modules with declined only so to be clear the combined cycle power plant or <unk>. There is no change whatsoever.
And Mark will cover this and a bit more detail later.
Onto slide 7.
The outlook for on Ts business across the world remains favorable.
And of course reflected and our results, but also and our bookings and a few are highlighted on the right hand side of the slide.
Our pipeline, which will present on a moment.
It is also reflective.
Of the other strong market now.
And we know there's a lot of interest and are directed energy program and we can.
Say a lot, but I will highlight that the chute on slide 4 so a few weeks ago went very very well, but more to come on that front later.
There was of course moving.
For clarity on the 2022 budget and the priority areas at the Senate and house and Nashville, as these coalesced around a recommendation it was pleasing to confirm the key.
Strategic areas continue to be supported and we remain very well positioned opposite national security priorities as we discussed previously.
Sales and budgets were up as expected, but the NASA budget was a positive surprise, but the larger than expected increase that really.
Things are continued momentum and assigns and space business from there.
It had a very strong book to bill and the quarter also.
And more to come of course from the infrastructure plan and this makes us way through government and.
What this means for KBR, but from what we can see today. This will only continues.
Under per all international GFS grew double digit and the quarter just over 10%.
So the Australia continuing to outpace.
So in summary, we remain on track to performed well and 2021, but beyond 'twenty.
1 also and towards 2025 targets. So all good there.
On to slide 8.
The average for sustainable Tech continues to look and really really positive.
This of course has been reflected and our bookings and we have again highlighted a few recent wins on the right on site.
And the great obviously to see traction and the plastics recycling area and and the digital maintenance area, along with ongoing demand across our whole portfolio our whole portfolio.
Performing exceptionally well.
The drivers are well known and remain valid and won't read all of these.
From a activity has increased quite a bit and the last 2 to 3 months.
And of course, the climate change agenda, and the U S will be layered on top of this of the various stimulus plans get approved.
I've used the expression before of a perfect storm.
With all of our areas firing and this really.
And it continues to be the case, so again very very strong market dynamics for sustainable Tech.
Late into numbers and how can we be continue to be confident that the momentum will continue as we progress towards not only 2020. So.
So in Q2.
Secured 1.9 bill.
Billion of awards and options.
Bringing total secured backlog to deliver 2021 to over 90%, 91%. So 2021 looking really really good.
Remember, we do not include the options.
Bill So excluding options and book to Bill was 1.
1.1 for the quarter so greatest on low end result.
And when you include options. This performance is even more impressive and.
Fortunately.
And into the secured hopper beyond 2021, so really a great and guide to how we're traveling b on the currency.
From a delivery person.
Active on our client satisfaction perspective, leading to good award fees et cetera.
Really that also drive margins of course, but the key metric for me is the <unk>.
Recompete win rate, if you are truly truly delivering and adding volume.
The recompete win.
Hours on the right.
Slide.
Oh, it's like really really impressive.
And we've talked about scale of the pipeline and balance across the pipeline previously.
And really moving to lack of concentration risk and et cetera, and then we have a number of needle movers and a year with low Recompete. These are.
Oh.
Right Hot on facts and continue so in summary, a great quarter across all metrics with strong bookings and the right areas and are robust and attractive pipeline to ensure our momentum continues.
On that I'll hand over to Mark who will take us through the numbers in more detail cover capital deployment.
And of course give you updated guidance.
Mark.
Great. Thank you Stuart and once again and I will pick up on slide 11.
And the snapshot and of our core financial performance in Q2, 2021 shows terrific progress toward executing our strategy.
<unk> and also on delivering on our long term goals.
We produced strong top line growth, reflecting how we are.
Position KBR to tap quite attractive and markets.
Revenues exceeded $1.5 billion with double digit growth.
Year over year.
As Stuart said, new business awards and options on that.
On a 219 billion and that of course further signal strength of our offerings and also our end market momentum.
Adjusted most 50% from last year 5 zero.
With EBITDA margins at 10% and also with both segments at or above targeted profit margin levels.
This translated quite directly to the bottom line with adjusted EPS up about 50%.
Over Q2 last year at 58 for the quarter.
Organic growth in GFS accretive acquisitions, and higher margins are driving this level of growth and.
Profitability.
We're also pleased to report solid cash flow and free cash flow conversion.
<unk> of about 100% year to date and 120% for Q2.
Nicely at or above our targets.
Year to date, adjusted operating cash flow of $165 million and free cash flow of about.
Version $50 million is above pace for the first half and as I'll cover shortly the basis for bumping up guidance for the year.
Continued strong bookings and the Centauri acquisition are driving the nice trends you see here and year over year backlog and option value of 20 billion.
And that represents over 3 X our current annual revenue run rate.
Which as we have said before demonstrates the strong.
Yeah.
And enables good confidence and our growth outlook and also our long term targets.
There is of course, the very large pipeline of new opportunities.
100, and all of that which Stuart presented just a moment ago.
On to slide 12, which shows the operating results by segment.
Government solutions posted top line growth of almost 30% with double digit underlying organic growth.
And as you see here all 4 business areas contributed meaningfully to the strong 13% total GFS organic growth.
With 3 of the 4 producing double digit organic growth.
Raising.
This demonstrates the strength and balance across our GFS landscape all around.
And on comp.
New contract wins and on contract growth across defense modernization space.
Human health and performance International and <unk> contribution to these levels of growth.
And particular highlight to be made here with Centauri.
Which posted Q2 revenues of <unk>.
With its own organic growth rate of 30% for Q2 and 16% on it.
Year to date basis.
That puts us on track to at least $700 million and revenue from <unk>. This year.
And more consistent with our plan.
And so by terrific businesses with terrific people.
Flipping those people with the resources they need to continue to excel and strategic end markets and.
And leverage the advantages and being part of a larger platform to grow the topline.
Line bottom line and cash flow.
And.
It's entirely checks all of these boxes and we couldnt be more pleased with this acquisition.
At the GFS group level adjusted EBITDA margins were 10% so right in the middle of the fairway relative to our targeted profitability.
Sustainable Tech continues to make terrific progress on its own and profit growth strategy.
While revenues continued to reflect the ramp down of areas, we decided to add.
The quality of revenues as Stuart said are improving with much healthier margins as we envisioned when we formed this business.
Adjusted EBITDA for Q2 was more than triple 2020 levels at $61 million.
And the team delivered EBITDA margin of 20%.
All elements of this business contributed positively.
We did have favorable net closeouts and.
And attend.
As receipts, which spiked margins by about 5 percentage points.
So net of this pump normalized STS EBITDA margins came in at circa 15% on that.
Higher than expected due to favorable mix.
We continue to believe margins will be and the mid teen range for the full.
And <unk>.
Finally.
The third segment corporate costs are coming and higher than last year as.
As we are in various stages of returning to work on advancing various initiatives that we paused last year and things like business travel are picking back up.
We expect corporate EBIT.
And SG&A to continue at this run rate in 2021, which is more aligned with the 2019 pre COVID-19 levels.
Now on to slide 13.
And Stuart mentioned and the settlement negotiations on the legacy <unk> project and I'll make some additional points here.
Coming into Q2, we had a carrying value of roughly $565 million associated with expected recoveries from this project.
This was divided into 2 elements.
Expected recoveries from the client and expected recovery from the sub contractors on the combined cycle.
EBITDA power plant.
This discussion and the charge that we took this quarter only relates to the first category.
Matters with the clients.
So literally in the past few days, we reached a point and the settlement discussions with the client, which led us to clean.
Cycle and relieved that the carrying value associated with the expected client recoveries should be reduced.
Those discussions however are not yet final and thus it is not appropriate to provide a lot of details here.
But what we can say is the following.
The reduction and the carrying value is.
Clearly on cash Stuart said that earlier and.
And because of that there is no impact to our liquidity borrowing capacity or financial covenants.
And third there is no impact to our long term targets as VIX. This matters, we're always excluded from these measures.
And ultimate.
Settlement, assuming 1 does occur would reduce cash legal costs free.
Up management time, and contain any liquidity risk, which would actually improve deployable capital.
And very important progress towards this settlement with the client has no impact on the ongoing.
Non lanes, we have against the power plant sub contractors and the carrying value associated with those expected recoveries remains unaffected.
As you May recall, when we completed and the delivery part of the project and 2019.
We established at any write ups or write downs associated with this.
This complex matter with the ring fence.
And adjusted out for purposes of adjusted EBITDA and adjusted EPS.
And accordingly excluded from our long term targets.
We also excluded the expected <unk> cash recoveries from all cash flow and liquidity targets and planning levels.
Levels.
So consequently, there is no impact of this charge and these developments to our long term targets.
And that includes a $3 billion of deployable capital that we continue to expect to produce over the next few years.
On to slide 14 with a.
Liquidity update.
We continue to Delever with growth and EBITDA over the course of Q2.
Net leverage now stands at 2 Dot 1 X.
Well within our targeted 3 zero or below.
Level.
We did do open market.
And repurchases of just under $30 million for the quarter.
Which is consistent with our goal of having a balanced capital deployment strategy.
We were also pleased to recently receive a credit rating upgrade by S&P to double B flat, continuing a favorable trend on that front.
<unk> share now, finishing up on slide 15, we are on.
Affirming our previous guidance for 2021 revenues and adjusted EBITDA margin and our tax rate.
We are updating our GAAP EPS guidance to -10 to plus 10.
Which reflects the non cash hit this charge.
And just covered.
This also reflects $7 million and non cash tax provisions for the increase in the UK statutory tax rate, which was announced in Q1 and response to Covid and was actually enacted in Q2.
While that increase does not take effect until 2020.
3 we revalue deferred tax liabilities for this higher rate this quarter as appropriate.
We have reflected both of these noncash items as adjustments to adjusted EPS.
For adjusted EPS, we are guiding to the upper end of the original range of $2 to 2.
<unk> and 'twenty.
And as Stuart said earlier, and that's based on strong operational performance across the business and the first half.
And of course, a strong continued outlook for the second half.
And as said earlier, given the strong cash flow performance and the first half.
$2 and continued healthy outlook there as well we are upping adjusted operating cash flow by $20 million to a new range of $300 million to $340 million per day full year.
This enhances potential value creation opportunities with greater expected deployable capital and we really like that.
So that ramp ups my remarks, so I'll turn it back to Stuart.
Thanks, Marc on great job as ever and now.
Now onto our final slide slide 16.
To summarize what we have presented today and.
Hi, and government solutions business with a technology take.
Executing on strategy and terms is positioning KBR and attractive markets today, but also into the future.
Our amazing people do things that matter and they.
We're delivering outstanding performance, but also winning work and the right.
Our pipeline fundamentals are excellent.
Okay.
We are confident about tomorrow and have raised guidance other consequence.
We continue to work to Derisk, the future and increased certainty.
In short we are doing what we said.
Sure.
I will now hand over to the operator, who will open the call up for questions.
Excellent. Thank you.
Ladies and gentlemen, if you would like to ask a question you can signal by pressing star 1 on your telephone keypad keep in mind. If you are using a speakerphone and make sure that meet function is released so that simple can reach of our equipment. We are asking that you limit yourself to 1 question and 1 follow up question.
Once again star 1 for questions.
We will begin with Toby Sommer with tourists securities.
Thank you.
Wanted to ask a question about sustainable Tech.
If you look at the business now.
How much is.
Your work is.
Sort of strictly defined as.
Sort of clean energy initiatives.
Of the future vs.
And Im just struggling I'm trying to trying to phrase this but sort of working for existing less clean infrastructure and the improvement of.
If it's possible to bifurcate and that way could you help me.
Well.
The majority of what we're doing until these and the and.
And we are cleaner and it is all that technology portfolio and appointment that way.
And to do around on.
Maintenance portfolio is really to help people decarbonize.
Organisers by by being more efficient.
And and the advisory capacity, it's all about the future and.
Obviously the economy.
Great and ammonia on whatever shape on.
And might take so.
The other thing we've got quite a breakdown, but I would say, it's the majority of what we do today is and the premium side of the equity.
Equation.
Excellent and how.
Sure.
We think about any.
And future.
Sure wind down of some of that business with when do you think we would approach that the period of time, if it's in the future when theirs.
Sort of a material drag from from anything related to the market or internal choices you Ines.
And last year.
I mean on.
And then the progressively Joaquin and I've done and I think we said there was a couple hundred million on carryover revenue a little more low margin work into this year, a little bit carries into next year.
There is not and not much but it doesn't detract from the story and it doesn't detract from the targets the targets.
And our $1 billion circa plus.
Plus business with margins and the mid teens still holds for this year and that includes there was and we did say margins with increased progressively and obviously the work off of that allows the progression of margins.
Hap and really so so I think all of that debt low that lines up so I wouldn't even think about that I think it just reinforces that.
The story around margin increase as we move into next year.
Okay and then.
And I was also from a modeling perspective, hoping you could.
Help me understand this seasonality.
But fannie and Centauri, the 1 <unk> to Q sequential change in revenue.
Pronounced you talked about sort of your annual expectations, but is there some seasonality that you could help us understand from modeling or is this just normal pace of contract awards and on I guess a lot of things.
Yeah.
I don't think it's seasonal.
And in a sense I mean, obviously, we're very pleased with the performance in Q2, and I think you know.
You know that 30% growth and really saw the second behind on.
Our acquisition and sort of thesis if you like and the business model as to why we acquired Centauri and and I'll remind everyone that when we did acquire them we.
We did not factor and that's all going beyond I guess, the current phase and the directed energy program and so if that does progress that's all upside on that thesis so could prove to be a very.
Valuable acquisition.
And there's still a viable acquisition today never mind.
But but yeah I don't think that's true.
And on holiday I think the just the cadence of awards, but we did say that was a very high growth business and I think it's proving to be the case and we expect that momentum to continue into Q3 into Q4.
And probably well Toby probably follows the same cadence as the broader government.
1 is a little bit slower Q.
2 tens of a large picks up Q3 as the busy 1 and then Q4 it drops off again is that moving to.
And then your budget cycle, so and.
We will follow that.
Same sort of pattern and the rest of our government business.
Thank you Stuart.
We will now hear from Jamie.
And we think with credit Suisse.
Hi, Good morning, and I guess, just 2 questions 1 on them.
You know Mark I, honestly, with Centaur and gone well and our cash flow guidance being better and you're feeling good about your liquidity.
Just wondering how opportunistic you can be or when we can start looking at.
M&A again.
Be additive to the story and I guess, you know help you with your sort of longer term or the mid to higher end of your longer term on EPS targets and then I guess my second question based on the backlog that you have today and the wind prospects and we're thinking about 2022 and your longer term targets.
And currently expect.
And sort of steady growth to get to those numbers or you know.
And the growth trajectory to achieve your longer term targets sorry from more backend weighted thank you.
Okay, well, Hello, Jamie and looking forward here headline tomorrow and early.
And quite innovative as well Scott.
And again I think thanks for the questions.
And I will say that we're really pleased with the cash flow performance of the company and our overall liquidity position.
The as.
And as I said.
And the development and make this should conclude would actually free up more capital.
<unk>.
And as you probably are well aware there is quite a bit of prospective M&A activity and the government space today and there is always some on the <unk>.
Sustainable Tech side as well, so I would say.
Our positioning.
And.
De.
Inc.
As has occurred over the past several years does allow us to be very constructive seeing the progress on centauri the team's done a terrific job with the integration of.
Employees of Centauri are just fantastic and they're really part of the family now so it does allow us to be more constructive and we've got quite a bit on.
Risky and firepower.
As our cash flow continues to be steady and as our leverage ratio has come down. So so yes, I think we can we can be pretty bullish on the M&A outlook provided it meets all our criteria and we're very disciplined about that I think we've shown on a good track record. So I do expect as we've always said that there will be.
Our activity and our future.
And when that's not immediately present, and we certainly have firepower for buybacks too and we're demonstrating that so.
That's how I'd answer the first question and Stuart do you want to.
Cover 22, and long term targets.
Yeah, Thanks, Mark and I think.
Jamie we're obviously.
I'm going to start the year and I think we're probably outpacing many of our government payers in terms of growth and.
Mark says and his.
Third remarks, we're seeing double digit growth across the bulk of our sector.
And.
And as well to achieving not only 21, which we're well on the path.
To getting there.
And as I talked about but well, let's say 'twenty, 2 and beyond and with that.
On the progressing while we're very confident of our 'twenty 5 targets on.
And I think what we will start to see as we look into 'twenty..2 it's just continued progression I think I don't think it's going to be up and.
And up and down and I think it's going to be a very low.
Predictable growth.
Pattern as we as we continue to work and execute so I don't think were going to see did online.
And I know you sort of free.
<unk> stepped up our big steps down and then a catch up I think it's going to be a progressive climb and certainly on cash flow forecast that support that as well. So I think that all lines up nicely with.
The long range.
Stability and future earnings profile of the company that we've you know we've.
Basically presented on many occasions.
Okay. Thank you nice job.
Thanks, Jamie.
Moving on to Andy Kaplowitz with Citi.
Hey, good morning, guys.
Hi.
And so as you know your first half EPS represents more than half of your EPS guidance. This year at least the midpoint. So I know you've told us the EPS is tracking to the high end of the range, but what held you back from raising your EPS guidance at this point give me and you do tend to be modestly backend loaded historically I know you had a favorable.
As per the solution and sustainable tax and help margin. So maybe that skews seasonality of debt, but was there some pull forward demand and Q2 is there any other reason why you didn't raise the guidance.
No.
And we talked about the 45.55 split I think last quarter and I think if you.
And you sort of you.
And you back.
Is it good to you this quarter it kind of takes it to the high end of the range I think I think for us.
We'd like to be as you know on the <unk>.
Through the year, we've got a bit more to play out and we like to be reasonably conservative where we are.
And in essence, we're bumping up guidance by getting to the top and.
And of the range now rather than people assume the mid point bumping up cash.
So I think it's a good news quarter, and and almost stable realignment and Q3 and how we guide for the rest of the year, that's probably the best way to say it but and again, you got no favors and over promising and under delivering and as.
As you know.
To be prudent and.
And as we've done in the past and I think that served us well and that's the way we're going to behave.
Very understandable and then maybe digging into sustainable tack, a little bit more again I know you didn't change your guidance for the year, there, but can you give us a little more color into what you mean by that the level of activity.
<unk> increased significantly and the last 2 or 3 months and the other portions of the business that are actually exceeding your expectations. This year and maybe any portions of the business that are not below expectations.
I would say that there are no portions of the business below expectations at all on fiber to the complete opposite.
And it's firing on all cylinders I said, there is that sort of a perfect storm.
The level of activity and across our technology portfolio continues to really be unbelievably busy and.
And we've seen that the level of awards not just this quarter, the last quarter and et cetera. So it's been a.
Tremendous book to Bill.
Progression through the course of <unk>.
Yes.
Last several quarters, so really really strong performance, but we're starting to see quite a bit of caution on the digital maintenance side, where we've got a lot of awards coming through and the advisory business and those are small in nature, but the number of them is impressive and the.
And we do some will tend to pull through and to further work.
All of them out there to really well I think the and all that space that we've got a lot of pressure on you know the iOS sees themselves and.
Because oil price has gone up a bit and so they've got probably more confidence on the future as well. So so I think there's more confidence to spend there's obviously pressure on the on the climate agenda and Decarbonize.
<unk> and agenda, so but all in.
It all plays well and then you've got the refiners themselves having to look at different product mixes and look at things like more property and and things like that but where we play a significant role and being on being a key supplier of technology to do just that so it really is we're not seeing any slowdown there and in fact.
I think we're seeing a pickup and prospects and levels of engagement around around future projects and I guess and on tightening of that capital spend out that's that's been around during COVID-19. So so I think it all day as well as we look into the tail end of this year and into next year for sure.
Helpful color. Thanks Stuart.
Thanks.
We will now take a question from Steven Fisher with UBS.
Great. Thanks, Good morning, I just wanted to follow up on Andy's first question there.
The guidance expectations for this year.
And so as it relates to the EBITDA margin.
And then the guidance does imply a little bit lower margins and the second half of the year end and the first half can you just talk about what was driving that moderation I assume at some type of mixed on if theres, some unusual cost or anything thanks.
Yes.
And the segments I think we set our stall with TFS and.
The thing and sort of the 10% and low double digit and ZIP code and other stay where they are this.
This quarter, we were a bit below last quarter, but probably think Brooklyn, and the year and and.
And what we guided to so I think that's good.
And so no change there and <unk>.
Tens of sustainable <unk> of course, we came out the gate very strongly last quarter.
And on the strong again this quarter with so I think that and Thats really bumping up the margins and but but I think from you look at the whole year. We do think it's sustainable tech will be and the mid teens. So.
And he does lead you to a little bit of lower margin performance and the area because of the project and those favorable project Closeouts and such but again very much within our original guide very much where they are not performance expectations. So again, nothing nothing out of the ordinary impact and inspiring performance from truth, so and and as.
As Mark said, we've got the corporate costs coming through more in line with 2019 and go out when you look at a good level, but all in if you look where we're heading.
That would be a circa $6 billion company with EBITDA at 9% on there around at the group level.
And look we're heading towards those those numbers.
Chad.
Sticking by that original statement.
Tracking very well towards it so I think that all the all lines up nicely.
Okay. That's helpful. And then just a follow up on the expense discussion. Thanks, Mark first on the training on that I just want to make sure we're clear about.
And of potential cash flow is here.
How should we interpret that.
And the risk that you will actually have to pay something out on.
On this.
Charge that you've taken.
Vs collecting perhaps and less than you thought you might collect.
Correct in general I guess, if we kind of keep it just to the customer side of things is this sort of an indication that we may have to pay out something.
Something like $150 million to $200 million before you ultimately collect the rest of it and still come out ahead on a on net basis with the subcontractors.
No.
And you should not think of it like this.
This deal with <unk> for me is a really really positive outcome.
As far as I'm concerned that the complexity of what we are doing the opposite the customer was.
And extremely complex with multiple lawsuits going 1 way and counter claims coming the other et cetera.
We also have the.
I guess the interest execution with our partners, who as many of you know working on separate with our partners to recent performance has not been as strong. So we've derisked that part of our future as well so I think coming to this conclusion opposite the customer is a no cash out deal. So.
So there's no cash out coming from us.
And just means that we are not collecting what we had assumed on our balance sheet. So no cash out. So it's a it's a zero sum game and not sense see.
In terms of what we're doing opposite CCP, that's a very different model basically and recovering monies that we have spent.
And to build and complete the power plant that they walked away from so weird.
And after them for recovery of cost and not sense that.
Quantify the absolute costs that we had 2 debt payments and that should expand to finish their obligations. So.
And our expectation there is that's a cash positive.
And if there isn't it.
And the timing of that hasn't changed the hearings and next April and.
We expect.
And the fair went into to receive that cash at the tail end of next year and.
'twenty 3 so that all lines up and but please do not think are right on this in any way a cash event and that's an absolutely noncash.
Chart.
Okay terrific. Thanks, very much appreciate it.
Thanks, Steve.
We'll now take a question from Michael Dudas with vertical research.
Yeah.
Good morning, gentlemen, and elsewhere.
And like Mike Mike Hello.
Hello.
So I know, it's like asking which is your favorite child, but it'll be your 4.
<unk> segments within government services, and which 1 do you see what are you. Most excited about and you know next couple of quarters on on orders or business cadence from that.
Spec and you know there's been a lot of visibility on space from.
Non commercial but also the private side.
Are you still see and a very solid fundamentals there and.
Is there much opportunity for KBR to continue to support not only on the commercial but also the on the private side.
Thanks.
Yeah, I mean, a little bit like.
A favorite child, So I don't think we've got 1.
And like I think we love them all equally on.
And that's a good and [laughter] and.
We're in a situation and I were really they're all firing you know the international business you got double digit growth for what we're doing.
And and not arena is terrific and Australia continues to other places I'd say so.
That's all good and and you know that.
Book to bill across the portfolio. It was terrific and we will keep you know really supports.
From the mental growth going forward. So I don't really really think we've got any slowdowns and case and cadence across any of them.
And they're all they're all delivering margins at or above expectations.
And so it really really strong performance with it all runs so that's why we love them, all equally and I would say that and in terms of space itself Youre quite right a lot of focus on military space today, and obviously, the NASA budget compounding on momentum and in that arena as well so so a lot.
And so good good momentum and our science and space business and other.
From a commercial space perspective, I think I've said this before it hits and increasing but still not material part of our portfolio, but as that starts to sort of really dominates the lowest of all that what you will do over the coming years.
Do think that we'll start to see.
A lot of and more coming.
Coming through.
Zero naphtha contracts, a direct lending from a lot of abdominal and increasingly amount of direct work with people like blue and others. So I think we'll start to see that grow over time, and we'll report that in due course, but its.
It's an exciting part of our future, but today its a non material part of on Christmas.
And more of a good way to put it so it's a good opportunity.
X and Stuart Thank you very much.
Yeah.
Sean Eastman with Keybanc capital markets, we'll have the next question.
Hi, Thanks for taking my question.
And so so it's great to hear.
Right.
And the GFS recompete win rates continue to be very strong.
Takeaways.
Are those numbers looking I'm just trying to think about are realistic and win rate around this big pursuit pipeline that you guys disclosed.
Yeah.
And as we know Shaun takeaways.
They're hard to do.
You know we were on a point that I think are.
Our win rate overall, including Recompete says up by between 40 and 50% and.
And numbers and dollars.
So quite a strong performance. So we've got a good shot at it.
<unk>.
But we do a lot of growth.
We've got very strong BD around things like IDI cues and white papers and using.
And our contract vehicles, like <unk> and others to to position for for either single source, our volume you know loans.
And so numbers of competitors, where they're not environment, so we'd be very well building.
Our book of business, there and I'll, just say you got things like Centauri, and the intelligence community, which has no debt.
It's competitive as well so it's not just and I mean, we've actually got these large opportunities.
Across all our portfolio and.
And so it's not that they're not just takeaways there are actually some of this new business.
And as some of that and I've got lower competitor and profiles and and somehow got takeaway and fundamentals. So so I think I think really where where I.
I think the answer to your question is really you know are we are we booking over and above 1 and our book to Bill and the answer is yes.
Does that support our growth story.
Cash and as the pipeline fundamentals still strong for the future of the business and I think the answer is yes, and are really performing well across our portfolio and do we have constant low concentration risk and I think the assets all of those questions. As you know we're in really good shape. So.
And it's difficult to tell 1 or the other in terms of whether you're going to win.
And it take away or not but what is true and are very low.
On Recompete.
Year and of course, a lot of what we're reporting now is over and above a recompete.
So it's all additive to the to the story and we will come back I think we've talked about this before but I think we will come back in Q3.
Alison might kill me for saying this but we're going to come back and 2.3 and I think we'll give an update to the the level of business, we talked about 55% to support our long range targets and of course, it would have a very strong bookings year and on both auctions and so when we layer and those options and I want to be good to report back to.
And our shareholders, just how recovering on and increasing not 50.
Joining a recompete, but we're actually building a book of business to secure and growth.
Alright, Thats really helpful.
Nice to do list items from there.
And secondly.
And we hear a lot about the GFS visibility right.
Yeah.
But on the SCS side I think a lot of people are trying to get comfortable around the very robust growth outlook.
Over the next couple of years on that business.
Considering.
116 times book to Bill there this quarter and this is several quarters in a row now and very strong book to bill on that business.
And how far does that.
And that you guys see out a little bit of color around.
<unk>.
And where were these recent bookings trends get you from a visibility standpoint, it would be great and.
And Sts.
Yes.
And it's a quicker cadence of contract awards and burn just given the scale and the size and the way that.
<unk> business model works I would say that.
And obviously, we're very confident on 'twenty, 1 numbers and <unk>.
And really confident and a 22 growth numbers and all that.
The work that we're winning now of course and doesn't always get executed and 21, but a lot of it and 'twenty 2 so.
Roger and reviewing the performance of those businesses and and get on.
And last week, leading up to and then as we start to get.
Quite a good feel for how that business is going to track and 'twenty, 2 and and I'm feeling really good about how that's moving into next year.
Okay.
Good for that type of business and really.
If we can get that level of visibility.
That's a good place to be.
Okay Fantastic very helpful. Thanks, very much.
Thanks, Sean.
And I'll hear from the line of Jerry Revich with Goldman Sachs.
And that table and I think they're worth.
And certainly outperforming most of our peers and tons of growth and that double digit arena and that's tough.
So we will progress.
And those targets and 2075 and Theyre very strong CAGR targets as you're aware, so feeling really good about the future.
Okay and can you, let us know what the related balances within the on consolidated affiliate line on the balance sheet.
That sounds like a question from Mark.
Yeah.
Yes, Chris yolk.
And this will all come out and the acute but it it's complex it's always been complex.
And.
The investment balance and I described the starting off at $5.65, and it's coming down by roughly.
100, so the net is as a result, and those 2 numbers and Thats a combination.
The expected recoveries from the CCP side on the house.
And again, some reserves, we have that need to stay there.
Operating pretty minor and so that's.
The remaining exposure.
On the balance sheet, if you will and we.
Has affirmed a couple of times on this call today that those expected recovery.